Falcon Oil unit to farm out 7.5% of Beetaloo permits

2020-04-07 06:12 ET - News Release

Mr. Philip O'Quigley reports

FALCON OIL & GAS LTD. - BEETALOO FARM-OUT

Falcon Oil & Gas Ltd.'s 98-per-cent-owned subsidiary, Falcon Oil & Gas Australia Ltd., has executed an agreement that includes a restated farmout agreement and joint operating agreement with Origin Energy B2 Pty. Ltd., a subsidiary of Origin Energy Ltd., to farm down 7.5 per cent of Falcon Australia's 30-per-cent participating interest (PI) in the exploration permits in the Beetaloo subbasin, Northern Territory, Australia. Falcon and Origin are obligated to seek the Northern Territory government and TSXV stock exchange approvals, in respect of the Agreements.

Transaction details

• With the necessary approvals, the PI of the respective JV partners will be:
  • Falcon Australia 22.5%
  • Origin 77.5%
• In consideration of Falcon Australia transferring 7.5% of its PI, Origin will increase the gross cost cap of the work program by A$150.5 million.
• The previous farm-in arrangement included a Stage 2 gross cost cap of A$65.3 million and a Stage 3 gross cost cap of A$48 million, or A$113.3 million in total. Under the Agreements, the Stage 2 and Stage 3 gross cost caps will be combined and increased by A$150.5 million to A$263.8 million (the "Overall Cost Cap"),
• This Overall Cost Cap will be applied to the completion of the Stage 2 and Stage 3 work programmes.
• Amounts of the Overall Cost Cap not utilised during Stage 2 and Stage 3 will be applied to future work programmes.
• Expenditure above the Overall Cost Cap will be borne by the JV partners in proportion to their PI.
• Origin will assume 25% of the cost of Falcon Australia's remaining call option to reduce the overriding royalties with the TOG Group. The cost to Falcon Australia, should it wish to exercise the call option, will reduce from US$7.5 million to US$5.625 million, in line with its reduced PI.

Operational Update

Drilling operations on the Kyalla 117 N2-1H ST2 well ("Kyalla Well") were successfully completed in February 2020, reaching a total measured depth of 3,809 metres, including a 1,579-metre lateral section (from 90 degrees) in the Lower Kyalla Formation. Water impact monitoring bore drilling was completed in March and final preparatory work continues ahead of the next stage of operations. On 26 March, in response to the COVID-19 pandemic, Origin confirmed forward operations in the Beetaloo had been temporarily paused. As a result, Origin expects a delay to the Kyalla Well stimulation and extended production test of at least 3 months to now occur in H2 2020, and the drilling of the Velkerri Flank well in H1 2021.

Philip O'Quigley, CEO of Falcon commented: "Falcon Australia's farm down of 7.5% of its PI in the Permits for a further gross cost cap of A$150.5 million, provides Falcon with additional funding that can be applied to the completion of the Stage 2 and Stage 3 work programmes. It also demonstrates Origin's continued commitment to the Beetaloo Sub-basin. This farm down together with Falcon's unaudited cash reserves of US$11.5 million at 31 March 2020 leaves us well positioned to participate in the future upside potential of the Beetaloo. We look forward to updating the market as soon as operations recommence in the Beetaloo."

About Falcon Oil & Gas Ltd.

Falcon Oil & Gas Ltd is an international oil & gas company engaged in the exploration and development of unconventional oil and gas assets, with the current portfolio focused in Australia, South Africa and Hungary. Falcon Oil & Gas Ltd is incorporated in British Columbia, Canada and headquartered in Dublin, Ireland with a technical team based in Budapest, Hungary.

Take away:

1. Stronger commitment by Origin to complite stage 2 and 3 work programms.

2. Stronger finacial position for Falcon, no dilution.

3. Buy recommendation.