FOGL buys Desire to tap into north Falklands oil

LONDON, Oct (KOSDAQ: 039200.KQ - news) 3 (Reuters) - Falkland Oil & Gas is to buy a smaller Falklands-based firm to create a company with licences to hunt for oil both to the north and south of the remote British territory in the South Atlantic.

FOGL said on Thursday it had agreed to buy Desire Petroleum (Other OTC: DSPMF - news) , offering 0.6 FOGL "consideration" shares for each Desire share, in a deal valuing Desire at 61 million pounds ($99 million).

Desire had since earlier this year been seeking investment to be able to finance further exploration to the north of the islands, nearby to the Sea Lion oil field - the only one to be discovered so far in the islands.

FOGL, whose licences are in the south of the islands where oil is yet to be found, will through its acquisition of Desire now have a minority stake in the Sea Lion project.

The new group said it would have funds for its share of a drilling programme to include five wells across the Falklands.

The British companies hunting for oil in the waters around the largely unexplored islands are eager for further drilling to help find more fields three years after oil was struck at Sea Lion (Other OTC: LIOPF - news) .

Argentina, defeated by Britain in a military conflict over the islands' sovereignty in 1982, has attempted to make life difficult for the British oil explorers but its hostility has not deterred the companies and oil could start pumping by 2018.

FOGL also said it had signed a new partnership deal with Premier Oil (LSE: PMO.L - news) and Rockhopper for two of Desire's exploration licences, exchanging a share in two areas for funding for drilling.

Shares in Desire soared 30 percent to 16 pence, nearing the 17.76 pence level at which FOGL's offer values them. FOGL shares were down 7 percent, giving the company a market capitalisation of around 85 million pounds.

"This combination is a compelling opportunity to consolidate the portfolios of FOGL and Desire, diversifying the risk profile for both companies' shareholders and enabling the combined group to move forward with an active, long-term programme for growth in the Falkland Islands," FOGL Chief executive Tim Bushell said.

He will be chief executive of the new group in which FOGL shareholders will own 60 percent.