Prospects for oil in the deep waters around the British Overseas territories have seesawed between strong optimism and despair as companies funded by mostly British shareholders continue drilling operations that began last year.

The prospecting for oil, at one point said to consist of deposits as large as those in the North Sea and even Saudi Arabia, has fed into Argentina's renewed claims of sovereignty over the islands it calls Malvinas.

Argentina's military regime invaded the Falklands in 1982 but was repulsed by Britain. The resulting 74-day conflict led to the deaths of more than 1,000 military personnel and some civilians and a public surrender by Argentina. But the war did not extinguish Argentine aspirations for the islands coming under its rule.

Argentina has been reacting with fury to news of successful oil finds in the Falklands' waters, of which there have been a few.

Rockhopper Exploration said its first well, "Ernest," drilled in the southern part of the North Falkland Basin, was found to be dry. The news sent its shares plummeting before continued investor interest helped the prices back Wednesday.

The company said its drilling reached a depth of 7,347 feet but found a "dry hole." The well was drilled about 75 miles from a previous discovery called the Sea Lion and targeted a previously undrilled part of the basin, Rockhopper said.

The company has announced plans for detailed studies of all data and information gathered from the well after samples are studied in the United Kingdom. Ernest was spudded July 23 and was declared a dry hole Aug. 17, Rockhopper said.

There was no immediate confirmation of the costs involved in the operation. Rockhopper Managing Director Sam Moody said, "The result of Ernest is disappointing, but the well was always designed to investigate an entirely different geological play type from Sea Lion, to which our focus now turns."

Once operations are complete at Ernest, the company will test the Sea Lion discovery, Moody said.

The latest industry estimates for the Sea Lion well range between 170 million barrels recoverable to 242 million barrels recoverable. Analysts said the Sea Lion was the reason that Rockhopper remained upbeat about Falklands hydrocarbons prospects.

Company data showed Rockhopper losses from the operation approaching $7.6 million.

Pierre Jungels, Rockhopper Exploration's executive chairman, said the company was fully funded to complete the work on the Ernest prospect and carry out a flow test on the Sea Lion prospect. He said he hoped the additional work "will help move the discovery forward towards being declared as commercial." He said Rockhopper expects to take on two other wells in PL003 and PL004, an area operated by Desire Petroleum.

The Falklands oil operations put into more than usual focus the Royal Navy's scheduled operations in the South Atlantic.

Royal Navy destroyer HMS Gloucester will set sail this week for the Falkland Islands from Portsmouth, England, and remain on duty in the region for the next seven months. HMS Gloucester will spend the majority of the deployment patrolling the South Atlantic region, British officials said.

The Type 42 destroyer will take over from Devonport-based HMS Portland and will visit South American countries including Brazil and Chile.

Gloucester's commanding officer, Cmdr. David George, told Royal Navy News, "Gloucester will be providing British citizens in the South Atlantic with the reassurance of knowing that the Royal Navy is looking out for their interests.

"But while we are down there, we are also policing the seas and ensuring that they are safe for all to use and pass through," he said.

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