Some was found in the 1990s, but what has really got the oil industry excited is Sealion, a "discovery" which geologists think is about the size of decent North Sea oilfield. Other finds nearby in the North Basin, about 70 miles north of the islands, are also promising.
And then there is the South Basin, which has never been drilled. It is big, and the geological structures look good. A drilling ship is en route from Aberdeen to start a proper search. There was speculation about oil even at the time of the Falklands War, but the islands were too far away in an environment which was too difficult for any company to raise the investment to prospect seriously. Now the price of oil is high, the world's main oil fields are menaced by political insecurity - whether in the Gulf or Nigeria - and technology is better than ever at extracting black gold, even in the harshest environment.
The stage is being set for the transformation of the South Atlantic....
By Philip Sherwell, Port Stanley, Falkland Islands
As the presenter on the radio station in Port Stanley, he was instructed by Governor Rex Hunt to remain on air, broadcasting to a shocked population, for as long as possible.
He fulfilled the mission until the new military rulers marched into the station with a series of taped edicts to play to the islanders.
So Mr Watts and his fellow Falklanders were delighted last week when David Cameron responded to months of increased posturing and bullying by Buenos Aires with an uncompromising denunciation of Argentina’s motives.
Even as the deepening war of words seemed to raise the spectre of a fresh showdown in the South Atlantic, the mood was buoyed in the small capital of brightly-coloured homes.
“Everyone here was very heartened by this show of support from London and relieved that the Britain hasn’t forgotten the incredible sacrifices of 30 years ago,” he said. “The Argentine threats brought back very unwelcome memories of 1982 for us here, and so we felt very reassured by Mr Cameron’s comments.”
If Mr Watts is anxious to avoid history repeating itself, so too is Adrian Maroni, a haggard-looking Argentine who was among a crowd of Falklands veterans protesting over war pensions last week outside the Casa Rosada, the pink, neoclassical presidential palace in the steamy capital, Buenos Aires.
He lost 649 comrades during the invasion ordered by the country’s whisky-sipping dictator, General Leopoldo Galtieri, which is widely remembered in Argentina as a reckless gamble to garner patriotic support.
While it cemented the reputation of Margaret Thatcher, then facing a tough first term in office, it prompted General Galtieri’s removal from power just days after the British flag went up again in Port Stanley.
“It’s a repeat of what we saw with Galtieri and Thatcher,” said Mr Maroni, who, like many ex-veterans, accuses successive Argentine governments of doing little to care for them.
“A drunk general and a weak prime minister both needed domestic distractions in 1982.”
Yet despite Argentina now being a democracy rather than a junta, the question of who should own Las Malvinas, as the Argentines call them, remains an irresistible card for politicians to play.
Three decades on from the conflict, it is the turn of President Cristina Kirchner, the fiesty ex-lawyer who draws inspiration from Argentina’s other great female demagogue, the late Eva Peron, to make the 180-year-old dispute a priority again.
In combative interviews with The Sunday Telegraph in Buenos Aires last week, senior figures in her party blithely dismissed the aspirations of the island’s residents to remain British, describing them as colonial “imports” whose views should count for nothing.
“These people were imported to the islands and cannot be allowed to determine policy,” said Daniel Filmus, head of the Senate foreign affairs committee and a leading member of Mrs Kirchner’s ruling Victory Front alliance.
“When we reclaim the islands, we will respect their way of life, but under no circumstances should we be negotiating with them.”
Carlos Kunkel, a long-time ally of Mrs Kirchner and fellow Peronista in his youth, went even further. In rhetoric that would not look out of place in the Victorian era, he painted London as a flagging colonial power, desperate to keep what remained of its fraying empire.
“David Cameron is pursuing a policy of piracy and aggression because at home the economy is collapsing, there are riots in London, and Scotland and Wales want to escape the English empire,” he claimed.
“The islanders are a transplanted people who live in an occupied British enclave. You cannot talk about self-determination in those circumstances.”
Last week, Mr Kunkel’s accusations were fired back across the Atlantic by the Prime Minister, David Cameron, who retorted that it was Buenos Aires that was guilty of “colonial” ambitions. Aides pointed out that as a land settled mainly by Spanish settlers, Argentina was in no position to lecture on colonial injustices.
“The definition of colonialism is to look at some land and say ‘we want it’, whatever the inhabitants think,” said one senior British diplomat. “That’s Argentina’s policy on the Falklands. We know about colonialism, and it’s they who are the ones with colonial attitude.”
The trenchant British position was backed by Mike Summers, a member of the islands’ legislative assembly, whose grandchildren are eighth-generation Falklanders.
“The reality is that 90-plus per cent of the inhabitants of North and South America and the Caribbean are settlers or descendants from settlers, as are New Zealand and Australia,” he said. “The Falklands is no different to any of those.”
This was always going to be a high-profile year for the islands, a windswept South Atlantic archipelago that many Britons knew little of until the time came to defend them. April 2nd is the 30th anniversary of the invasion, which claimed 258 British lives.
And next month, the Duke of Cambridge arrives for a six-week tour of duty as a helicopter pilot with an RAF search and rescue team.
But the anniversary is also a chance for an upsurge in rhetoric from Mrs Kirchner’s government, which has denounced Prince William’s deployment as a deliberate provocation.
No matter however far-fetched the prospect of success, she remains determined to pursue Argentinian ownership – not least because it was also a goal of her husband and predecessor as head of state, Nestor Kirchner, who died of a heart attack in 2010.
Nor are such ambitions purely the preserve of jingoistic Argentine politicians. Across the political spectrum, there is consensus that the “Malvinas” are Argentine — a principle drummed into children from their first year at school.
In cities across the country, memorials and murals depict the islands’ rugged contours coloured in the blue and white bands of the Argentinian flag.
That claim is based on a contentious interpretation of the islands’ history during the colonial era, when Spanish, British, French and Argentine trading posts frequently switched hands or were simply abandoned according to shifts in mercantile and nautical dominance. Perhaps the only thing that is not in dispute is that they have been in British hands since 1833.
These days, however, more than just national pride is at stake. In recent years, prospectors have begun tapping into what are believed to substantial oil fields in Falklands’ waters, and while exploration is still in its early stages, it is already thought that they could contain 8.3 billion barrels, almost two-thirds of what remains in the North Sea. And the more the oil starts to flow, the angrier Buenos Aires is likely to get.
True, nobody sees war as a realistic prospect again – not least because today, the archipelago is one of the most heavily defended pieces of turf in the world. As well as four Eurofighter Typhoons, three Royal Navy ships and 150 troops, there is a vast runway ready to receive any amount of back-up forces in an emergency – plans that Mr Cameron has now made a point of asking to be updated.
The islanders themselves also have a 100-strong volunteer force, equipped with quadbikes and Land Rovers fitted with heavy machine guns that can roam across the Falklands’ wet, boggy terrain.
But while Mrs Kirchner insists that Argentina will only pursue peaceful means to push its claim, she is wielding the diplomatic cudgels on every front. Just before Christmas, she persuaded neighbouring Chile, Brazil, Uruguay and Paraguay – all part of the Mercosur trading bloc – to ban Falkland-flagged vessels from their ports (the fact that Paraguay is landlocked did not preventing it signing the order).
It is thought she may now also try to sever the islands’ only commercial air link, a weekly flight from Chile that passes across the tip of southern Argentina.
Buenos Aires has also crowed over the position of the US government, which has shifted from explicit support for the British position to one of studied neutrality. In a stance that has irked Downing Street – given British support for the US ventures in Iraq and Afghanistan – the Obama administration has called on both sides to hold a dialogue, saying it takes no position on sovereignty.
Mrs Kirchner is expected to take up the cause again when she returns to work this week after recuperating from throat surgery for what turned out to be a falsely diagnosed thyroid cancer.
In practical terms, however, her threats so far pose limited menace. Oil, if discovered, can also simply be shipped out via tanker across the Atlantic.
The plane from Chile, meanwhile, could easily fly around the small corner of Argentinian airspace it traverses, and besides, the islands can still get much of their food and supplies from container ships and the 20-hour RAF flight that comes in from Brize Norton thrice fortnightly.
And as William Hague, the Foreign Secretary, pointed out during a visit to Brazil last week, any Falkland vessels can simply run up the red ensign of British merchant ships to avoid the ban.
In the increasingly febrile atmosphere, Mr Filmus denounced even that observation. “It’s a bad attitude for the British Foreign Secretary to encourage vessels from the Malvinas to fool the countries of Mercosur,” he said. But asked how Argentina would respond, he would only say that Mercosur members should meet to discuss how “not to be fooled”.
All the same, a blockade can still make life awkward for the islanders, said Stuart Wallace, the director of Fortuna, Port Stanley’s biggest fishing company. “We used to put ships regularly into Montevideo in Uruguay and we have a long-standing relationship there,” he said. “We’ll have to review whether we continue that.”
Just as troubling is Argentina’s ongoing “squid wars” offensive. The Falklands’ much sought-after Illex squid begin life off the River Plate, on the Argentina-Uruguay border, and swim southwards into Falkland waters as they grow.
But this year, Argentina opened the squid-catching season early, ignoring conservation issues, in a deliberate attempt to sabotage the Falklands’ market. “It’s too early to say if it’s had an impact, but it’s certainly another area of concern,” said Mr Wallace. “It’s a reckless move that could threaten stocks.”
In all likelihood, this may be level at which Mrs Kirchner’s hostilities continue – in petty skirmishing over molluscs, rather than soldiers battling it out on Goose Green. Yet while the conflict may remain as frozen as the icebergs further south of the islands, there is no shortage of Argentinians determined that the British resolve will eventually melt.
“This is a deep part of our psyche and our identity,” said Abel Rausch, who served as a 19-year-old Argentine conscript during the fighting, and who now frequents a veterans’ club in Lujan, a gaucho town on the edge of Argentina’s pampas-ranching heartland.
He, too, remains a strong critic of General Galtieri’s attempt to talk the islands by force – but on the question of who should own the islands, he is just as sure of his case as Mr Watts is. “The Malvinas always have been and always will be Argentine territory....”
The Falkland Islands stand to benefit from an enormous $180bn tax windfall from oil and gas exploration, according to a major new report....
Potential tax riches for Falklands Islands oilfields are likely to reach just shy of $180bn....
A study to be handed to the UK Government this week will lay bare the potential riches on offer from drilling in waters within the 200-mile exclusion zone set up during the 1980s Falklands War to mark the boundaries of British territory.
A group of UK-listed companies is involved in exploring four major prospects this year, with the largest, Loligo, potentially holding more than 4.7bn barrels of oil. By comparison Catcher, the biggest discovery in the North Sea of the past 11 years, is believed to hold only 300m barrels.
The report by oil and gas analysts at Edison Investment Research predicts that if all four prospects were drilled, the potential tax riches are likely to reach just shy of $180bn.
At present, the Falklands’ main industry is fishing, which generates just $23m a year. Beyond that, the territory receives only $16m in tax receipts a year from other business sectors.
The most developed prospect, Sea Lion, already appraised by Salisbury-based Rockhopper Exploration, is forecast to produce 448m barrels over the next 20 years.
Ian McLelland, co-author of the report, said the opportunity offered by the seas around the islands is colossal: “With current tax and fishing incomes in the region of $40m , the islands look set to be transformed by the oil industry.”
But he cautioned that the recent political posturing by Argentina could prove a major barrier to securing the vital investment needed to get the prospects to where they are actually producing oil.
“The proverbial spanner in the works that remains is the ongoing political dispute between Britain and Argentina regarding sovereignty of the Falklands,” he said.