Borders & Southern Completes Phase I Evaluation of Falkland Islands Acreage

South Falkland Basin
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Borders & Southern Petroleum has completed the first phase in the evaluation of its Falkland Islands acreage. While the technical work is ongoing, aimed at further risk reduction, the Company is now able to report on its initial findings of its non-exclusive 2D seismic data and independent technical studies comprising structural modelling (undertaken by Midland Valley Exploration), geochemistry (provided by Advanced Geochemical Systems Ltd) and seismic amplitude analysis (supplied by ECL).

In November 2004, the Company licensed nearly 20,000 sq km of acreage in the untested South Falkland Basin. Its objective was to define and assess the prospectivity of a fold belt located to the south of the Falkland Islands. The fold belt was specifically targeted due to the fact that a significant proportion of the world's hydrocarbons are found in such settings.

Prior to Borders & Southern's work, only four regional seismic lines had been acquired across the acreage. Based on an initial regional evaluation, the Company predicted that the fold belt would extend eastwards throughout its acreage and contain multiple structures suitable for trapping hydrocarbons.

The Company acquired 2,862 km of new 2D seismic in June 2005. This has now been interpreted and the results have demonstrated that the fold belt does exist, is best developed in the Company's acreage, and appears to be very prospective.

Mapping has defined numerous structural and stratigraphic leads. Three key plays are recognised: Tertiary / Upper Cretaceous folds, Upper Cretaceous tilted fault blocks, and Upper Cretaceous channel fills. At this stage, work has focused on the structural leads, as the folds provide a good focus for migrating hydrocarbons. Ten structural leads have been selected for detailed analysis, in order to best describe the scale and range of plays within the acreage.

The ten leads have mapped areas of closure ranging from 11 to 138 sq km, seven of which are over 50 sq km. These structures occur in water depths ranging from 1300 meters to 2040 meters. Many of the structures display structural closure over vertical sections exceeding 2 km, allowing for the possibility of stacked reservoirs.

As this is an untested basin, it is unrealistic to provide resource estimates at this stage as there is no close well control. However, the size of the structures would allow significant volumes of hydrocarbons to be trapped. For instance, if 30 meters of net pay was encountered across a 50 sq km structure, and average porosity and hydrocarbon saturations were assumed, then a resource of some 500 million barrels could be trapped.

An independent study commissioned by the Company in April 2006, undertaken by Scott Pickford, assessed the minimum economic field size for a deep water development in the South Falklands. The study revealed that recoverable reserves of approximately 100 mmbbl would be required for a commercial development (based on a $34 per barrel oil price and well flow rates of 7,000 bopd). The hydrocarbons would be developed using a moored Floating Production System with offshore loading to ocean going tankers. Such schemes are common in deep water developments.

In addition to defining the size of structures, the technical evaluation has also revealed positive indirect indications for hydrocarbons within the Company's acreage. These include BSR's* (which may represent gas hydrates), and amplitude anomalies within the cores of the folds and channel fills, some of which have strong AVO** anomalies.

Because this is an untested basin, the exploration risks remain relatively high in comparison to proven hydrocarbon basins around the world. However, as an example of frontier exploration acreage, the Directors believe the Company's blocks to be very attractive. This assessment is based on the positive evidence for a working source rock, realistic models for sand presence and the mapped definition of numerous structural and stratigraphic traps. If this assessment is correct, then Borders & Southern is well positioned to benefit from a potential project of significant scale.

In the coming months, the Company will assess the best way to continue to mitigate the technical risks along with reviewing the options for financing future exploration whilst retaining as much value as possible for shareholders. Partners are likely to be brought in at an appropriate stage. Future work might include the acquisition of 3D seismic prior to drilling a well. The exact timing of drilling will be subject to completion of further technical work, negotiations with potential partners and rig availability.

*BSR: Bottom Simulating Reflector - a high amplitude seismic reflection that approximately parallels the seabed and often represents the base of the gas hydrate stability zone

**AVO: Amplitude Versus Offset - a seismic technique used to detect the presence of hydrocarbons in a reservoir

Commenting on the announcement, Howard Obee, Borders & Southern's Chief Executive, said, "The prospectivity of our acreage - in which we have a 100% interest - has clearly increased as a result of this technical work. The priority now is to further reduce risk through additional studies before taking decisions on how best to generate value from the next phases of exploration."

Borders & Southern was formed as a public limited company in June 2004. At that time, the Company submitted an application for its first project, offshore exploration acreage (19,598 square kilometers) in the South Falkland Basin, southeast of the Falkland Islands. The Company was subsequently granted five production licenses by the Governor of the Falkland Islands with effect from 1 November 2004.

The Company raised 9.1 million via a placing at 20p per share and was admitted to AIM in May 2005. Borders & Southern is chaired by Harry Dobson and is run by a management team with proven experience of acquiring, evaluating and developing oil and gas exploration plays for major international companies.

Since Admission, the management team, led by Howard Obee, has focused on the exploration programme on its Falklands acreage but the Company intends, in the medium term, to capture and manage a geographically diversified portfolio of international oil and gas exploration projects. It intends to focus on gaining early entry into projects where it can demonstrate: basins with proven play elements, play fairways with high impact prospects and prospects that have follow up potential.

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