Shares in oil exploration company Desire Petroleum more than halved yesterday after it revealed the first well it drilled as part of a wider campaign had resulted in poor quality oil.

The Malvern-based firm, which was established by geologist Colin Phipps, a Labour MP for Dudley West, saw its share price fall from £1 overnight to 49.5p by 5pm yesterday after disappointing the markets with its update from its first well of a controversial drilling campaign.

It said its first well – the Liz exploration well – showed oil may be present in thin intervals but the reservoir quality is poor.

Desire’s exploration plans in the Falkland Islands, off the coast of South America, has sparked protests from Argentina, which claims the British territory.

The company said, in a statement: “The primary Liz target was encountered at around 2550 metres with indications of hydrocarbons while drilling.

“Subsequent logging operations have shown that oil may be present in thin intervals but that reservoir quality is poor.”

Shares in Falkland Oil and Gas and Borders & Southern Petroleum, two other oil explorers, also fell, by 13.6 per cent and 12.7 per cent respectively, on the back of the announcement.

The falling share prices come as a blow to the company, which had seen its share price rocket almost four-fold in the space of the last year until this morning, as its long-awaited plans to drill in the North Falkland Basin started to come to fruition.