Drilling for oil to start in Falkland Islands

The inhabitants of the Falkland Islands are preparing for a South Atlantic oil rush which they hope will make them among the richest people in the world.

After 10 years of frustrating delays since oil fields containing up to 60 billion barrels of "black gold" were discovered off the islands, oil companies are planning to start drilling within the next 12 months.

The move follows the conclusion of lengthy, but successful, tests by geologists and significant cash injections by two major oil companies which plan to bring rigs to the islands by as early as autumn.

The companies with licences to drill in the area met in Edinburgh on Friday to brief officials from the Falklands' government on their progress, and preparations are under way in the South Atlantic to ensure that the islands can cope with sudden wealth.

The successful extraction of oil could bring billions of pounds to the 3,000 islanders, in a cash bonanza similar to that enjoyed by Gulf states after the development of oil fields there.

However, the effect would be magnified because of the tiny population of the archipelago - which was the subject of the 1982 war between Britain and Argentina - and its already high standard of living. The islands' GDP is £75 million, giving them one of the highest per capita rates in the world.

The capital, Stanley, is gearing up to become the Falklands' answer to the Klondike, with a redevelopment of its dockyard area and construction of 350 houses in the pipeline.

Meanwhile, the Falklands' authorities are overhauling their immigration policy to make it easier for the expected new arrivals to enter the islands.

Officials are already drawing up a "wish list" of projects on which to spend their windfall, with Stanley's two schools and hospital expected to be among the first to benefit. There are also plans for a road-building project, and improved air links to the rest of the world and between remote settlements.

But while the politicians are considering a "patrimony" fund, to set money aside for future generations, many islanders are clamouring for new facilities to be built straight away.

Jenny Cockwell, the editor of the islands' newspaper, Penguin News, said: "I can't see big skyscrapers springing up, but people would like to see things like a cinema and a bowling alley in Stanley."

The Falklands' government will receive 26 per cent of the profits from companies ­drilling for oil, as well as nine per cent royalties on every barrel sold.

Many islanders will also be cashing in personally after investing in the companies searching for oil.

Mike Summers, a councillor and spokesman for the legislature, said: "We're talking about amounts of money that we have not been familiar with previously. But we're islanders. We tend to be pretty phlegmatic."

The Treasury has been eyeing up the expected revenues, but the Falklands' government insists it will not be able to "cut in" on any deal. The Falklanders do, however, want to contribute towards the cost of defending the islands.

Meanwhile the Argentine government, which still claims the "Malvinas", as it calls the islands, and their oil fields as its own, is also looking jealously at the situation.

A spokesman said: "We reaffirm our backing for the legitimate rights of the Argentine Republic in the sovereignty dispute with Great Britain regarding the issue of the Malvinas."

Buenos Aires has accused London and the Falklands of reneging on an agreement in 1995 to co-operate over exploring offshore reserves, and of resisting its attempts to open talks on the issue.

"The intransigence of Great Britain has not permitted that open and frank dialogue," the spokesman added.

The search for Falklands oil began in 1998, when a consortium of big companies drilled a cluster of six wells. Five showed the presence of oil, and one even brought it spurting to the surface.

It was estimated that the area might hold 60 billion barrels of oil - equivalent to the North Sea's estimated original reserves - all within the Falklands' "economic zone", which stretches 200 miles from its coastline.

Despite this potential, the companies concluded that the discovery was not commercially viable at that time, as the price of oil - at one point, just $10 a barrel - was too low to cover the high extraction costs.

However, five small-scale exploration companies continued to operate in the area, carrying out probes of the seabed to try to gather more information about the location and quantity of oil.

They do not have the resources to drill for oil themselves, but their results have been promising enough to attract, once again, the attention of the larger companies. And with oil prices last week hitting a record $106 a barrel, drilling around the Falklands is now a far more attractive proposition.

Last month Desire Petroleum, one of the smaller operations, announced that it had linked up with a major, so far unidentified, company. It is planning to bring a floating rig to the Falklands to start drilling by the autumn.

This deal follows a similar agreement between Falkland Oil & Gas and BHP Billiton in October, which will enable drilling in a different area.

Dr Phil Richards, from the British Geological Survey, which has been advising

the Falklands' government, sounded a note of caution, however. "There's no way of knowing how much oil is down there until drilling starts," he said. "It may be a total success or a total failure, or it could be somewhere in between."