Falcon Oil Gas (LON:FOG, CVE:FO) chief executive Philip O’Quigley has eschewed setting targets for the hydrocarbons in place following the company’s first well in Australia’s Beetaloo Basin.

That said, he is clearly excited by the results, describing them as ‘an excellent start’.

Speaking to Proactive Investors, O’Quigley said: “Look, this is not a discovery or a find. More appraisal drilling will be needed before we talk about recoverable oil and gas.”

This first well was to look at the geological characteristics of Beetaloo and establish whether the Basin is viable for future unconventional drilling.

In this regard the results were, in the words of Dublin broker, Davey ‘very satisfactory’.

Kalala S-1 intercepted more than 500 metres of gross pay with a net pay (the potentially economic portion) of 150 metres.

Shale reservoirs are often mingled with other zones in a hydbrid fashion.

Signifcantly, however, Origin energy, the operator, also identified a number of “good quality” sand and, or silty reservoirs that suggest there could be a column of 80 metres of just shale rock which would make a very suitable candidate for horizontal drilling.

This first exploratory well (as opposed to an exploration well) has, in Davey’s words, established several important geological parameters.

And they bode well for the ultimate success of the campaign to establish the unconventional potential of the Basin.

It was targeting the highly prospective Middle Velkerri source rock sequence. Origin and South Africa’s Sasol each own 35% of the Beetaloo property, with Falcon holding the remaining stake.

The latter is fully carried on an ambitious work programme that includes five wells this year and next worth around A$64mln.Another four horizontally fracked wells could be sunk in 2017 and 2018 at a cost of more than A$100mln.

Davey said: “This is a good early start and, within the boundary of what it is possible to conclude at this stage, supports the contention that the Beetaloo Basin has a suite of geological characteristics that make it a very viable candidate for future commercial unconventional operations.

“It should the kick-start the process of increasing the in-situ value per acre of the permit.

Falcon also has assets in South Africa. At the moment Davey says it values Falcon at 13.8pence a share with the Beetaloo making up 5.4p per share of this.

Cantor Fitzgerald, which reiterated its ‘buy’ advice this morning, reckons the stock is worth 21p.

Australia accounts for 16p of that target, its South Africa asset 4p, while 1p covers ‘financial items’.

“Given today’s initial results, we see the Kalala S-1 well as representing an encouraging start to Falcon's carried drilling and testing programme,” said Cantor’s oil and gas analyst Sam Wahab.

“This well is the first step in unlocking the resource potential of the company’s vast Beetaloo acreage.”

The shares were 7.27p in London this afternoon.

Stewart Dalby