A disputed drilling programme in the Falkland Islands has suffered a setback due to a delay in drilling one licence and Falkland Oil’s partner BHP Billiton pulling out of another.

The UK oil and Gas explorer said it was increasingly unlikely that it would be able to start drilling at its northern licence off the coast of the islands in 2010 due to difficulty in obtaining a rig.

The Falklands Government had agreed to a year’s extension of the licence terms.

At the same time, mining giant BHP decided not to proceed with the next phase of the southern licences, due to begin in December, reports Reuters.

“Falkland Oil & Gas believes, based on the drilling results from the Toroa well analysed to date, that these licences are still prospective,” the company said.

BHP said it would go ahead with the second phase of drilling, taking back its 51% interest in the licence.

Shares in Falkland Oil & Gas were down 18% at 127.75 pence by 07.15 GMT.