Excerpt from Falcon's MD & A prepared yesterday.

Beetaloo Basin, Northern Territory, Australia

Falcon Australia is the registered owner of four exploration permits (“the Permits”), comprising 7,000,000 acres in the Beetaloo Basin, Northern Territory, Australia. Under a revised work program approved by the Northern Territory of Australia Government, Department of Resources in June 2010, the Company‟s required minimum work program obligations, in order to continue to hold the underlying Permits in the Beetaloo Basin, is to expend $6,400,000 and $8,700,000 during the years ending December 31, 2011 and 2012, respectively.

Hess Participation Agreement

On April 28, 2011, Falcon Australia entered into an Evaluation and Participation Agreement (the “E&P Agreement”) with Hess Australia (Beetaloo) Pty Ltd. (“Hess”). By the terms of the E&P Agreement, Hess will pay $17.5 million to Falcon Australia as a participation fee for the exclusive right to conduct operations for the exploration, drilling, development and production of hydrocarbons from three of the four Permits, excluding an area comprising 100,000 acres surrounding the Shenandoah-1 well (the “Area of Interest”). In addition, Hess will pay Falcon $2.5 million as consideration for warrants to acquire 10,000,000 common shares in the capital of Falcon at an exercise price of CDN$0.19 per share.

Hess shall acquire seismic data, at its sole cost of at least $40.0 million, over the Area of Interest within 18 months of the execution of the E&P Agreement. After acquiring the seismic data, Hess shall have the right to acquire a 62.5% working interest in the Area of Interest. If Hess acquires the working interest, they commit to drill and evaluate five exploration wells at their sole cost, one of which must be a horizontal well. All costs to plug and abandon the five exploration wells will also be borne solely by Hess. The drilling and evaluation of the five exploration wells must meet the minimum work requirements of the work program. Costs to drill future wells after the five exploration wells will be borne 62.5% by Hess and 37.5% by Falcon Australia.

In accordance with the work program Falcon Australia will, by December 31, 2011, test and complete the Shenandoah-1 well at their sole cost. After testing and completion of the Shenandoah-1 well, Falcon Australia will provide to Hess copies of the data obtained from such activities, and Hess will pay Falcon Australia $2.0 million for the data. The Company will pay a “success fee” to two advisors in the aggregate amount of 5% for services provided in conjunction with the E&P Agreement with Hess. The success fee is based on the cash or cash-equivalent value of any net amount received directly or indirectly by the Company, including the participation fee, cost of seismic data commitment and cost of drilling commitment.

Closing of the transaction is pending completion of certain conditions precedent as detailed in the E&P Agreement. The Company and Hess have been diligently working towards satisfaction of these items, certain of which have been completed. The transaction as a whole is subject to receipt of all governmental and regulatory consents, including the TSX Venture Exchange (the „TSXV”).