Falklands Oil and Gas Ltd. is seeking Chilean partners because of Chile's geographical proximity with the British dependent territory.

Industry analysts said the Falklanders' quest for strategist partners in Chile was a logical outcome of reports that the islands' basins have vast hydrocarbon resources that need to be exploited at speed to make the most of the current trend in oil prices.

There was no immediate indication if Chile would respond positively to the Falklands' overtures or would pass on the offer so as not to upset neighbor Argentina, which fought a war with Britain over the Falkland Islands in 1982. Argentina still claims sovereignty over the islands.

About 162,000 square feet of the islands' basin region in the South Atlantic is ripe for exploration. Scientific surveys have established vast reserves that could transform the islands into a major oil-producing region.

The current trend in prices is also conducive to attracting investors into the exploration project. However, if the prices drop amid continuing doubts about a global economic recovery, potential investors will have less incentive to get interested in an expensive drilling program.

FOGL's first port of call in Chile was the state-run Empresa Nacional del Petroleo, which, according to industry experts, has the expertise and resources to enter into a large-scale oil exploration partnership abroad.

ENAP made no comment about talks with FOGL Chief Executive Officer Tim Bushell, who visited the Chilean oil company officials in October.

FOGL sources said the Falklanders believe ENAP is the natural partner for FOGL because of geography and logistics.

ENAP already has successful gas operations in the Magallanes region, Chile's extreme south, and after 2008 losses of about $958 million is desperate for a turnaround.

ENAP lost heavily on importing expensive crude oil for its refining operations, so having Falklands oil in closer proximity will be an attractive prospect, analysts said.

FOGL has also made overtures to other oil companies in Chile but apparently not yet in Brazil, which has extensive experience in undersea drilling and also has cash to spare for overseas projects.

Meanwhile, Desire Petroleum said it planned a share issue of about $34 million to make use of the full potential of its exploratory drilling season, scheduled to begin in February 2010 with the arrival of the rig Ocean Guardian from Scotland.

Desire recently raised 40.2 million pounds by placing 60 million new ordinary shares. The funds, together with Desire's other cash resources, are designed to enable Desire to drill at least four wells.

Desire said it would use any surplus funds to test any successful wells or drill more wells.

Two other oil companies operating in the Falklands, Arcadia Petroleum Ltd. and Rockhopper Exploration Plc, are expected to drill two wells on their own initiatives. Arcadia is operating within Desire blocks and Rockhopper is active outside of Desire blocks.

The combined exploratory ventures mean that eight of 10 designated wells are now accounted for.

The Falklands government has said it will monitor the drilling operations closely to guard against damage to the islands' ecology, a source of tourism revenue.

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