Falklands' new dawn: islanders plan future around 18bn barrels of oil

Drills ready but prospective barons face environmental – and Argentinian – obstacles

Early evening chatter in the Victory bar in Port Stanley used to touch on squid hauls and cruise liner schedules. Now, as the locals sip on imported pints of British beer, a far more lucrative proposition is grabbing their attention: oil.

According to the latest seismic surveys, the Falkland islands are sitting on an estimated 18bn barrels. Prospecting companies operating on the islands say they plan to start drilling later this year. With an already affluent population of about 3,000, Falklanders are anticipating a windfall that could make them one of the richest populations on the planet.

“Even if they [the oilfields] produce [only] a billion barrels of oil, the impacts in terms of revenues per head for the Falkland Islands is going to be gigantic,” says Sam Moody, managing director of Rockhopper Exploration, one of the three companies with exploration rights to the Falklands.

But the Falklanders aren’t quite the oil barons of South America yet. Several obstacles lie in their way. The first is whether the estimates prove to be true – and that will mean getting hold of a rig for preliminary drilling. During the oil price boom, rigs were prohibitively expensive, costing as much as $600,000 per day. But with oil prices coming back down, rigs are becoming more available, and concession holders are confident one can be procured.

Then there is the question of economics. Earlier attempts to prospect in the mid-1990s were abandoned when oil prices crashed below $10 a barrel.

These days, prospectors are sanguine about the latest drop in oil prices. Ben Brewerton, a spokesman for Falkland Oil and Gas, says that drilling would still be viable at prices as low as $20 per barrel, given the size of the expected finds.

The risk of spills and other environmental fallouts represents another possible threat to the oil industry’s progress. As well as being a haven for penguins and seals, the Falklands boasts the world’s largest breeding population of the black-browed albatross.

Phyl Rendell, director of minerals and agriculture for the Falklands, says the islands’ authorities are requiring the highest environmental requirements for oil operators.

More worrying is the political risk. Three hundred miles away to the west sits Argentina, which sparked a 10-week war with the UK after invading the Falklands in 1982. Argentina continues to claim sovereignty over the islands and their natural resources. “It doesn’t matter what we do in the Falklands islands, whether its developing our natural resources or strengthening our democracy, they complain about it,” grumbles Mike Summers, a member of the Falklands’ legislative assembly.

In Argentina, tension is brewing. The foreign ministry has already withdrawn from a joint agreement with the UK to coordinate oil exploration in the South Atlantic. It has also banned any oil company or contractor firm operating in Argentina from participating in projects in the Falklands.

Falklanders have experienced rapid economic change before. After the 1982 war, a 200-nautical mile zone was established around the islands to encourage commercial fishing. Within a few years, government revenue jumped from about £5m a year to £30m. Today, the figure is closer to £45m. “We’re not unused to the idea of change,” Summers notes in reference to the fishing boom. “Although with oil we’re talking about a different level of magnitude.”

Residents are already speculating on how the anticipated windfall should be spent. Under agreements signed with the oil prospectors, the Falklands will receive a 21% corporate tax and 9% royalties on all oil and gas produced.

Government officials are studying the experience of other small, oil-rich communities such as the Shetland islands, which benefited from the North Sea oil boom and set up a charitable fund with their oil bonanza to finance leisure centres and other community projects.

The Falklands could certainly use something similar. They have no theatre, only a handful of restaurants and precious little nightlife. A more comprehensive road network and a bigger port also appear high on wish-lists. A cinema would be a welcome addition too: at present the only widescreen is on the islands’ military base, 35 miles down a gravel road.

“You can list the amount of amenities we haven’t got until the cows come home,” says Adam Cockwell, a 34-year-old ferry operator.

For now though, no one is promising anything. As Rendell says: “We’ve been careful not to plan for something we might never get.”