Falkland Oil and Gas, which is engaged in a roller coaster ride to find oil in the disputed South Atlantic islands, lost almost half of its value when it announced the abandonment of a well following disappointing results.
The statement wiped 49 per cent off its volatile stock on Tuesday, sending its shares to a historic low of 32 pence, giving it a market value of £103 million. The stock price hit a high of 267 pence in July 2010.
The company, which is partnered with the American firm Noble Energy and the Italian utility Edison on the project, said a reservoir at its Scotia exploration well appeared to be of poor quality, with low permeability.
The collapse in the shares, however, came despite an insistence from the firm that it remained upbeat on its campaign, with further tests set to determine whether there was a higher-quality reservoir elsewhere in the region.
"Today's much-anticipated well results will come as a disappointment for investors in FOGL [Falkland Oil], following their gas find at the Loligo prospect in September," said Sam Wahab, an analyst at Seymour Pierce. "The recent rally in the share price was in market expectation of an oil discovery, and on this basis we would expect FOGL's shares to fall."
Oil exploration by British companies in the area has been controversial and complicated from the start, sparking anger in Argentina, which claims sovereignty over the islands it knows as the Malvinas.
However, while many investors have shrugged off the geopolitical risk, bumping up the company valuations, some analysts have started to question the likely chance of commercial success of the finds, particularly given the high costs of extraction.
Gas, which has been found off the Falklands by Borders & Southern and Falkland Oil at its Loligo well to the south of the islands, is harder to extract and transport than oil.