MercoPress. South Atlantic News Agency

Falklands oil industry: UK complete support, but no financial backing for islands’ bonds

Exploring the viability of the oil industry in the Falkland Islands is building up since its Readiness program in 2014 and has been further boosted by recent agreements among companies interested in developing potential projects, but it recently also faced an unexpected technical hurdle from the UK Treasury Department. Nevertheless, London once again ratified support for the Falkland's right to explore and exploit its natural resources.

In effect the UK government Treasury rejected a request from the Falkland Islands government to guarantee FIG issued bonds arguing its commitment to COP 26 when it agreed to no longer offer financial or promotional support for hydrocarbons overseas. Funds are intended to implement laws and policies in support of the major Readiness program, which after years of debate reached a majority consensus to allow “progress with extractive industries, but in an environmentally conscious way”.

On the bright side of the UK Treasury decision was that “the British government made it really clear to the Falklands the complete support of our right to explore and exploit our natural resources”.

A report from the Falklands TV outlines the case put to the UK Treasury, with both benefits for the Falklands and UK government, and reactions to the denial of such a proposal.

Andy Keeling, Falklands' CEO said, “we thought it was a pretty good proposition for them because it was low risk and I think that the rejection of that business case was not around the project economics, it was not around the upside benefits for the UK economy and it was not around the journey to net zero carbon in the Falklands, it was kind of hinged on what I would consider a technicality, they deemed the investment or the banking of a bond issue for Sea Lion project to be international in nature, and our argument was that we are part of the British family, and we are not international at all”.

A UK spokesperson revealed that due to the COP 26 commitments the UK could no longer offer financial or promotional support for the hydrocarbons overseas, and this took effect from March 2021 and applies to British Overseas Territories. The statement went on to say that therefore it was not compatible with this policy for UK government to guarantee bonds issued by FIG for this purpose.

CEO Keeling added, “We were obviously very, very, disappointed but as we said earlier there are other irons in the fire that Navitas is exploring and we are still very, very, confident the Sea Lion will happen, according to the plan that Navitas has set to us”

However Andrea Clausen, Director of Natural Resources was more explicit.

Despite the denial to guarantee bonds, “the British government have made it really clear to us the complete support of our right to explore and exploit our natural resources, so this is not about preventing us from getting on with the project. It was really about their own policy, how they defined their own policies so I think it was very reassuring for us to have that stated very clearly back to us in their response”.

Navitas from Israel has teamed up with Rockhopper Exploration to expand the Sea Lion project, and a key development, in coming months, will be the environmental impact assessment.