Detailed regulations concerning 19 offshore areas, due to be published in Stanley this week, will give companies the right to exploit reserves for 47 years - and, after negotiation, perhaps longer. The big companies are playing down the area's potential but it is tantalising. In 1975, a team from Birmingham University identified potential oil-bearing sedimentary strata 3.5 km thick and a Foreign Office report has described the offshore areas as "comparable with many areas of the North Sea".
The licensing round - which later this month moves on to Houston, Texas, to attract North American explorers - comes in the wake of a political agreement on maritime boundaries signed by Britain and Argentina at the United Nations last week. Directly after the signing by Malcolm Rifkind, the Foreign Secretary, and his opposite number, Guido di Tella, there were calls in Buenos Aires for Argentina to tax companies operating in Falklands waters. Argentine nationalists have also condemned the agreement as a sellout to Britain by President Carlos Menem.
Despite the continuing, but much-diminished, political fragility stemming from Argentina's continuing claim to the islands, exploration prospects are enticing. Although much has been made of the remoteness of the area and its comparative lack of infrastructure, the conditions for drilling around the Falklands are infinitely more favourable than the Arctic environment of Northern Alaska, where BP is pumping out vast quantities of oil.
British Gas, which has a large operation in Buenos Aires, has had talks with YPF, the Argentine oil company, and others about joint activities in the Falklands. But although the industry has been speculating that British Gas will bid for a key role - one source suggested it might try to get the whole acreage in conjunction with the Argentinians - the company has tried to cool speculation.
Andrew Gurr, chief executive of the Falkland Islands, said just under 100 top oil companies had been invited to the presentations he is giving tomorrow, which will cover the areas on offer and the legal, taxation and environmental requirements on oil companies.
He expected licensees to form consortiums even among the bigger oil companies. "It's a frontier area" he said. Lasmo, the British oil company, confirmed that it was looking at the possibility, but would only proceed if it found partners.
There is only one oil exploration company in the Falklands, Monarch Exploration, which was set up by Gordon Thompson, an oil consultant in the UK, who raised seedcorn money in a share offering to which 150 Falkland islanders subscribed. Monarch has a registered office in Stanley but no staff there. Mr Thompson said: "We think a genuine Falkland Islands company will be very attractive to have as a partner." He hopes to link with an exploration company and raise funds to finance Monarch on the back of it.
Although the British Geological Survey has likened the area to the North Sea sedimentary basin, oil companies say before an expensive commitment to exploration is made they will need to be convinced there are also large rock structures capable of containing oil - which does not follow automatically. The area involved is 50 per cent bigger than the North Sea.
A decision to shift resources from an existing exploration area was a big one that had to be backed by stronger indications of possible oil- bearing rocks than have yet been made available. However, the presentation is expected to go into more detail.Reuse content