By Adam Currie — Exclusive to Oil Investing News
An already fragile crude market was dealt another dramatic blow recently with news that Britain had accused Argentina of illegal attempts to intimidate Falkland islanders relating to oil exploration, in hopes of sparking talks centred on sovereignty.
Britain has responded by stating that it will defend the Falkland territory, adding that it will only negotiate sovereignty or oil rights in the unlikely event that the 3,000 islanders request that it do so.The move came after Buenos Aires announced that it would take legal action against any companies involved in oil exploration off the disputed South Atlantic territory.
Timing of the dispute reads like a Hollywood script, with tensions between Britain and Argentina rising as the 30th anniversary of Argentina's invasion of the Falklands approaches. The move resulted in the deployment of a British task force after a ten-week conflict killed 650 Argentinian and 255 British troops.The Falkland Islands have been controlled by Britain since 1833, but are claimed by Argentina. In 1982, following Argentina's invasion of the islands, the two-month Falklands War resulted in the withdrawal of Argentinian forces. Royalties like no other The self-governing British Overseas Territory passes its own laws, sets its own taxes, and will collect any oil royalties for its own treasury. Interestingly, citizens of the island will surpass Arab oil barons in per capita wealth if they receive even a fraction of the $10.5 billion in taxes and royalties some industry analysts predict will flow from the, until now, untapped oil field. Analysts estimate that reserves could bring in up to $167 billion in taxes and royalties in a best-case scenario.
The dispute between the Britain and Argentina has escalated in recent months following oil findings by British exploration firms. Attention to the Falkland Islands's potential reserves was highlighted in 2010 when explorer Rockhopper Exploration (LSE:RKH) discovered the Sea Lion field north of the islands. The company discovered 350 million barrels of recoverable oil at the location, and plans to start pumping oil by 2016. It has been seeking a partner to invest in the $2 billion project.Borders & Southern Petroleum (LSE: BOR) and Falkland Oil and Gas (LSE: FOGL) are also set to drill wells south of the islands later this year. Crude analysts described the exploration as “high-risk, high-reward,” in that it costs companies $1.3 million a day to explore and drill with less than a 25 percent chance of success. However, it is believed that a big strike could prompt a rush to join what might be one of the world's last remaining new sources of fossil fuels in an era of peak oil prices.