The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

LicenseSecure ratings update: Premier Oil, Falklands

A decision tool for senior executives and investors, Critical Resource’s LicenseSecure™ model assesses the likely level of political and stakeholder risk (or the health of the ‘socio-political license to operate’) for resource projects. This ratings update provides a rapid, overview of a new or updated asset in the LicenseSecure ratings database, with a focus on projects in the news.

Please note that the ratings below are provisional, based in part on open source analysis and are not from client projects. (Full LicenseSecure analyses are in-depth, involve extensive intelligence gathering and are confidential.)

Key development

  • In April 2015 the Argentinian government announced it was launching legal proceedings against UK-based Premier Oil, alongside four other oil companies (Falkland Oil and Gas, Rockhopper Exploration, Edison International and Noble Energy). This comes after Premier Oil’s announcement of additional oil and gas discoveries during exploratory drilling in the Sea Lion project, north of the Falkland Islands.
  • Sovereignty over the Falklands is disputed between Argentina and the United Kingdom. Argentina says it has a right to the islands because it inherited them from the Spanish crown in the 1800s. The UK bases its claim on its long-term administration and on the principle of self-determination for the islanders. In 1982 tensions escalated into a 10 week war. In 2013, 99.8% of Falklands voters voted to remain a British Overseas Territory on a 92% turnout. All activities related to hydrocarbons on the continental shelf of the Falkland Islands are regulated by legislation of the Falkland Islands Government, in accordance with the UN Convention on the Law of the Sea.

Evaluation

  • Thus far, Argentina’s recent announcement has had little impact on Premier Oil’s share price. Argentina’s government has filed criminal charges on the basis of Argentinian domestic law, and there is scepticism that, even if Argentinian courts ruled in favour of the government, the ruling could be enforced.
  • Premier has not yet provided an official response to Argentina’s legal proceedings. The company has long been involved in politically complex parts of the world (e.g. Burma and Pakistan), and weathered associated challenges – perhaps reflecting the adage that higher political risk (if managed well) often goes hand in hand with strong commercial and financial opportunities.
  • The Falklands’ status as a disputed territory has nonetheless contributed to our ‘B’ rating of Premier’s asset – i.e. within the ‘vigilance’ grade. Despite question marks over the legal enforceability of Argentina’s move, and Premier’s experience elsewhere, the company may face additional challenges moving forward. Court cases can prove time consuming and costly. And, as Premier scales up its operations, Argentina’s sabre-rattling is likely to intensify. The Argentine government may resort to new legal manoeuvres, building coalitions with other Latin American countries, enlisting support within the UN, etc. – all of which could have reputational and operational consequences for Premier.
  • While the prospect of another war remains remote, an outbreak of hostilities would naturally pose further problems for Premier – see our article for examples of common pitfalls and best practice approaches for extractive companies to adopt in conflict prone environments.

Recent LicenseSecure ratings

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