Shares in Midland oil exploration firm Desire Petroleum have fallen despite news that it had began its controversial drilling operations in the North Falkland Basin.

The company, which was established by geologist Colin Phipps, a Labour MP for Dudley West from 1974 to 1979, saw its share price rise 10 per cent at one stage on Monday, before a late slump saw it close 4.25p down, at 112.75p.

The company’s platform Ocean Guardian has been towed 8,000 miles from Scotland to the south Atlantic isles for the exploration despite Argentina formally objecting to the move and tightening shipping regulations in the region.

Britain has said any drilling off the islands is in accordance with international law.

Desire said, in a statement: “The well is being drilled to an estimated target depth of circa 3,500 metres. Drilling operations are expected to take approximately 30 days and a further announcement will be made once drilling is completed.”

Desire Petroleum is operating around 60 miles north of the main archipelago, where it estimates there are 3.5 billion barrels of recoverable oil as well as nine trillion cubic feet of gas.

Argentina’s president Cristina Fernandez maintains The Falklands – coveted as Las Malvinas by Buenos Aires – are occupied by Britain illegally.

She also said the UK had failed to comply with United Nations resolutions requiring negotiations on their future.

But a spokesman for Desire Petroleum said the rig was sitting “firmly inside UK waters”.