Desire's shares slump nearly 50%

Falkland Islands-focused oil firm Desire Petroleum saw its shares slump by nearly 50% after it admitted a suspected oil find turned out to be water.

Investors piled into the Herefordshire-based firm on Thursday, sending shares up 30%, after it said its Rachel North well appeared to have struck oil in the North Falklands basin.

But in a statement released on Monday the AIM-listed company said the sand samples have revealed fluid in the well was just water.

Desire added a deeper target is still thought to be oil bearing but of a poorer quality, and it would proceed with collecting final data before plugging and abandoning the well.

Stephen Phipps, Desire chairman, said it was “extremely disappointing” the samples had “dashed all the earlier promise of this being Desire’s first oil discovery in the North Falkland Basin”.

Mr Phipps said despite the setback, the company believes the eastern flank of the North Falklands basin is still a prospective area for future discoveries.

Desire was pinning hopes on Rachel North being the second discovery in the region this year behind explorer Rockhopper’s Sea Lion discovery, which holds an estimated 242 million barrels in recoverable reserves.

Desire’s two unsuccessful wells in the region have cost it around £20 million each so far but it has £75 million for two more drilling efforts. It plans to move on to the Dawn/Jacinta prospect on the southern edge of the basin.

Shares closed 49% or 65.8p down at 66p.