Later this year, the Falklands’ 3,000 islanders should learn whether it will become the richest nation on earth. A floating oil rig will drill up to a dozen test wells deep into the sea bed around the British overseas territory. The findings should settle a decade of speculation over whether the islands lie in a particularly lucrative oil field.

Over the past few years, cutting-edge technology has been used to probe the bed for the likely location of black gold. Now the last surveys are drawing to their close, the data is being analysed and interpreted and shortlists of promising possibilities are being drawn up. The oilmen are waiting on the rig to put their educated hunches to the test.

Tim Bushell, chief executive of Falkland Oil and Gas Limited (FOGL), says: “There could be billions of barrels of oil but we can’t definitively say until we drill some wells.”

The hunt for Falklands oil has been led by four firms that, between them, employ no more than two dozen geologists, legal and financial experts – FOGL has just five employees. Although based in small offices in London, Malvern and Salisbury, each company holds licences to exploit vast swathes of the south Atlantic sea bed.

When the search for Falklands oil was first taken up, a consortium of big companies, led by Shell, carried out survey work. In 1998, it drilled a cluster of six test wells. Traces of oil were found, but none of the deposits appeared to be commercially viable. Many, however, felt the matter had remained unresolved.

John Brooks, former head of exploration and licensing at the Department of Trade and Industry (now the Department for Business, Enterprise and Regulatory Reform), described Shell’s test wells as “a bit of a tease”, certainly insufficient to write the Falklands off. About six years later, the four smaller players – Desire Petroleum, Borders & Southern Petroleum, Rockhopper Exploration and FOGL – reassessed the geological data, acquired their licences and resumed the hunt.

The millions of pounds of investment raised by the firms – Rockhopper alone has attracted £17.9m – have been spent scouring rocks for hints of oil two miles beneath the sea bed in submarine basins to the north and south of the islands.

Rockhopper and FOGL have employed a new technique using electromagnetic rather than sound waves to explore the subterranean landscape. The technology is called controlled source electromagnetic (CSEM) surveying, and Rockhopper recently unveiled the first CSEM image of what could prove to be oil in the Falklands area. It shows a patch of high electrical resistance beneath the sea bed at a site called Ernest. This patch could be a pocket of hydrocarbon, surrounded by rock saturated with sea water. “We think that’s oil trapped in that structure,” says Sam Moody, managing director of Rockhopper, based in Salisbury.

None of the companies has the resources to do this work themselves. They buy in what they need, when they need it – reflecting a trend towards outsourcing exploration and production throughout the industry. Big companies are retaining fewer in-house technical specialists and increasingly relying on consultants, many of whom are former employees. Small companies do not have the full range of necessary expertise in the first place.

“FOGL is more like an informed investment bank than a traditional oil company,” says Bushell. Not only are specialists hired to carry out particular tasks for FOGL, but firms such as RPS, an energy and environmental consultancy, are brought in to manage each subcontracted step of the exploration process. RPS has three staff on a survey ship working in the area, including an observer to ensure that whales and dolphins are not affected. They are supervised, in the field and from the UK, by Jon Perry, a 36-year-old environmental manager.

“I am an environmentalist and I try to make concrete changes to how things are done, so that when operations go ahead, they do so in the best possible way,” he says.

Perry worked in the oil industry after getting a degree in geophysics at Durham University. He then took a masters degree in environmental impact assessment and has been a consultant ever since. His work with RPS takes him all over the world.

Oil exploration can be challenging work. “In the Falklands, rough weather disrupts survey work, while getting to the islands is not easy,” says Bill Patterson, marine projects manager with RPS. “The history with the Argentinians, who still claim the islands 25 years after the war with the UK, makes access from South America difficult.” But the oil companies are in high spirits.

Experts at the British Geological Survey (BGS) have estimated that the geological conditions in the North Falkland Basin alone could have created about 100 billion barrels’ worth of oil. Moody says: “We know there’s oil – I’ve seen it myself. The question is whether we find enough to make it commercial.”

Phil Richards, who works for the BGS and advises the Falklands Islands’ government, puts the chances of success at between one in five and one in 12. But with the price of oil at a record high and the Falkland Islands charging a corporate tax rate of 25% and royalties of just 9%, the potential rewards make it worth the risk.

Moody says a big discovery would boost the value of Rockhopper from about £40m today to more than £500m. The oilmen also calculate that their success might make Falkland Islanders the richest people on earth.

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