In a bit of sabre-rattling last week, Argentina started legal proceedings against three UK oil explorers operating in waters around the Falkland Islands — Falkland Oil and Gas (LSE: FOGL), Premier Oil (LSE: PMO) and Rockhopper Exploration (LSE: RKH).
Announcing the case in London, the country’s minister for the islands Daniel Filmus told the BBC that the three British companies, together with two others, are guilty of “performing illegal acts by entering Argentine territory“, saying that “Argentina will use the full force of the law – both national and international law – to prevent these countries from taking the riches which belong to 40 million Argentine citizens“.
Are they serious?
The only law that seems to apply is Argentina’s domestic law. And while we might have some sympathy for Mr Filmus in his somewhat challenging role, do shareholders in these companies need to worry? After the UN’s 1982 ruling on the Falkland Islands’ sovereignty, legal opinion seems to be very much against Argentina on this — and the markets appear to concur.
Falkland Oil and Gas shares are, in fact, down just 0.25p (less than 1%) since the news broke late on Friday, and about 15% up over 12 months, with the company well-funded for its 2015 exploration programme. It’s a risky investment and one that’s really only for experts, but sentiment seems to be upbeat right now — chairman Richard Liddell has spoken of “excellent progress in preparing for the [2015] drilling campaign which could transform the Company“.
Premier Oil shares haven’t had such a great year, with a fall of 44% to 172p, but they appear completely unaffected by any prospects of the company being hauled in front of a Buenos Aires court, and since mid-March the price has started to pick up. Premier is profitable too, and with a forecast doubling of EPS sending the forward P/E down to 19, it looks like a relatively safe exploration investment.
Keep calm and carry on
The third under threat, Rockhopper Exploration, also sounded good in its 2014 full-year results, with cash resources of $200m at its disposal and its North Falkland drilling campaign under way — and a successful result at its Zebedee prospect, in the words of chairman Pierre Jungels, “represents a fantastic start to the 2015 Falklands drilling campaign and provides early proof of the significant remaining potential in the North Falkland Basin“. Like the others, Rockhopper’s shares are unaffected by Argentina’s words, though they’re down 30% to 65p over 12 months, and definitely worth a closer look for oil investors.
The only real conclusion is that Argentina is just trying to gain a little political capital, just after the country marked the 33rd anniversary of the Falklands War. Investors should ignore it and carry on about their business.