Is ORG too big for local investors to watch in details about the first horrizontal fracturing in Australia while Falcon's Canadian investors are like the Owl's eyesFalcon Oil & Gas Ltd.: Commencement of Drilling Operations in the Beetaloo Basin, Australia
MarketWire
5/29/2015 SHARE TWEET
EMAIL DUBLIN, IRELAND--(Marketwired - May 29, 2015) -Falcon Oil & Gas Ltd. (TSX VENTURE:FO)(AIM:FOG)(ESM:FAC) ("Falcon" or the "Group") is delighted to announce that drilling operations have commenced on its initial three well fully funded drilling campaign in the Beetaloo Basin, in the Northern territory of Australia.
Highlights:
Kalala S-1 is the first of Falcon's fully carried, 2015 three well drilling and evaluation programme in the Beetaloo Basin, Northern Territory, Australia, operated by Origin. It is anticipated that the mobilisation of the rig to "Kalala S-1" well site will happen shortly with the spudding of this first exploration well on target for the end of June.
It is expected that Kalala S-1 will be drilled to a total depth of approximately 2,800 meters and that drilling will take approximately 35 to 50 days. Kalala S-1 is located within exploration permit 98, with access from the existing Carpentaria Highway.
Falcon is fully carried for all 2015 drilling and evaluation costs, retaining its 30% interest in the Beetaloo Basin with co-venture partners Origin and Sasol.
The principal objectives of the 2015 three well drilling programme are to:
Formation evaluation and reservoir characterisation will be carried out from these initial three wells through petrophysical interpretation, core analysis, geomechanical studies and stimulation design.
Philip O'Quigley, CEO of Falcon commented:
"We are delighted to announce the commencement of drilling operations and the expected spudding of the first of our three well fully funded drilling campaign by the end of June 2015, in this highly attractive basin. We look forward to exploring the potential of the Beetaloo Basin in Australia with our partners and updating the market with further details in due course".
Background
On 2 May 2014, Falcon announced it had entered into a Farm-Out Agreement and Joint Operating Agreement with Origin and Sasol (collectively referred to herein as the "Farminees") with each farming into 35% of the Falcon's exploration permits in the Beetaloo Basin, Australia through its 98% subsidiary, Falcon Oil & Gas Australia Ltd. ("Falcon Australia"). The Farminees will carry the Group in a nine well exploration and appraisal programme from 2015 to 2018.
This announcement has been reviewed by Dr. Gábor Bada, Falcon Oil & Gas Ltd's Head of Technical Operations. Dr. Bada obtained his geology degree at the Eötvös L. University in Budapest, Hungary and his PhD at the Vrije Aniversiteit Amsterdam, the Netherlands. He is a member of AAPG and EAGE.
About Falcon Oil & Gas Ltd.
Falcon Oil & Gas Ltd is an international oil & gas company engaged in the acquisition, exploration and development of conventional and 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.
Origin Energy (ASX:ORG) is the leading Australian integrated energy company focused on gas and oil exploration and production, power generation and energy retailing. A member of the S&P/ASX 20 Index, the Company has approximately 6,900 employees and is a leading producer of gas in eastern Australia. Origin is Australia's largest energy retailer servicing 4.3 million electricity, natural gas and LPG customer accounts and has one of the country's largest and most flexible generation portfolios with approximately 6,010 MW of capacity, through either owned generation or contracted rights. Origin's strategic positioning and portfolio of assets provide flexibility, stability and significant opportunities for growth across the energy industry. Through Australia Pacific LNG, its incorporated joint venture with ConocoPhillips and Sinopec, Origin is developing one of Australia's largest CSG to LNG projects based on Australia's largest 2P CSG reserves base.
In New Zealand, Origin is the major shareholder in Contact Energy, a leading integrated energy company, operating geothermal, thermal and hydro generation facilities totalling 2,359 MW and servicing approximately 562,000 electricity, gas and LPG customers across both the North and South islands. Origin also operates several oil and gas projects in New Zealand and is one of the largest holders of petroleum exploration acreage in the country.
Origin has a strong focus on ensuring the sustainability of its operations, is the largest green energy retailer in Australia and has significant investments in renewable energy technologies. For more information go to www.originenergy.com.au
About Sasol
Sasol is an international integrated energy and chemicals company that leverages the talent and expertise of our more than 33,000 people working in 37 countries. Sasol develop and commercialise technologies, and build and operate world-scale facilities to produce a range of high-value product streams, including liquid fuels, chemicals and low-carbon electricity.
Sasol, through its subsidiary Sasol Canada, owns a 50% working interest in two natural gas fields in British Columbia. Sasol entered Canada in early 2011 through a $2 billion acquisition for a 50% working interest in Talisman Energy's natural gas assets in one of the most prolific shale plays in North America: the Montney shale basin located in northeast British Columbia. Progress Energy acquired the remaining Talisman interest in 2014. The Sasol/Progress partnership holds 108,000 total net acres of land in the Montney basin.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Certain information in this press release may constitute forward-looking information. This information is based on current expectations that are subject to significant risks and uncertainties that are difficult to predict. Such information may include, but is not limited to comments made with respect to the type, number and objectives of the wells to be drilled in the Beetaloo basin Australia, the prospectivity of the Middle Velkerri shale play and the prospect of the exploration programme being brought to commerciality and comments made with respect to the mobilisation and spudding of the 2015 programme. Actual results might differ materially from results suggested in any forward-looking statements. Falcon assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those reflected in the forward looking-statements unless and until required by securities laws applicable to Falcon. Additional information identifying risks and uncertainties is contained in Falcon's filings with the Canadian securities regulators, which filings are available at www.sedar.com.
Falcon Oil & Gas Ltd.
+353 1 417 1900
Falcon Oil & Gas Ltd.
Philip O'Quigley
CEO
+353 87 814 7042
Falcon Oil & Gas Ltd.
Michael Gallagher
CFO
+353 1 417 0814
Falcon Oil & Gas Ltd.
John Craven
Non-Executive Chairman
+353 1 417 1900
≡ MENU This Play is Big. This Play is Timely. This Play is FREE
by KEITH SCHAEFERon MAY 8, 2015
One of the largest undeveloped shale plays in the world will get its First Big Test next month–June—the Beetaloo Basin in northern Australia.
It’s timely, it’s big, and for shareholders of Falcon Oil and Gas(FO-TSXv), it’s free. CEO Philip O’Quigley (yes he lives in Ireland) has done a novel-worthy job of aligning everybody’s interests—royalty owners, shareholders, joint-venture partners—into a $200 million drill program that starts in less than 90 days. And none of that money is being spent by Falcon.
In Part 1 I introduced you to Australia’s Beetaloo Basin which is a potential international horizontal play that contains a best estimate of 21.3 billion barrels of oil and 162 trillion feet of natural gas.
Falcon has a big piece of that massive prize.
Falcon is a registered holder of three Exploration Permits (EP76, EP98, EP117) that cover 4.6 million gross acres. The land is located 600 kilometers south of Darwin Australia and is under explored.
Last May, Falcon announced a farm-out deal with not one, but two major oil and gas players. The deal was stunningly attractive relative to other farm-outs I have seen done by junior companies of a size similar to Falcon.
The terms of the deal tell us a great deal about how the industry views the potential of the Beetaloo shale. The quality of the partners that Falcon was able to attract tells us even more.
The farm-out involves Australia’s Origin Energy Limited and South Africa’s Sasol carryingFalcon in a nine well drilling program. The total dollar value of the deal is an impressive $200 million with Falcon retaining a 30% ownership in the play and Origin and Sasolacquiring 35% each.
These companies are two fantastic partners for Falcon.
Sasol is a $30 billion plus company out of South Africa that brings not only horizontal drilling expertise but is a major LNG and gas to liquids player as well.
Origin Energy may not be as familiar to North American investors, but it is also a large company ($15 billion plus) and more importantly an Australian operator. They don’t just know the local culture, they ARE the local culture for oil and gas.
Origin already operates a 3 million acre coal seam gas project in Queensland Australia with 14 trillion cubic feet of reserves which have required a $20 billion investment.
They know how to deal with the service companies and the governing bodies of the energy industry. Origin’s Australian connection can surely lead to better deals with service providers and fewer mistakes operationally.
Falcon got $20 million in cash up front in their JV with Origin and Sasol, and a $180 million commitment for a three phase work program.
What that means is that Falcon isn’t going to have to spend a dime over the course of this nine well program.
The first phase of the program involves 4 vertical wells (one of which will be fracked) and 1 horizontal (also to be fracked) and will cost roughly $64 million in Aussie dollars. And not only is Falcon carried on this phase, there is no cap on the estimated Phase 1 $64 millioncapex program.
Like with any farm-out, after that first phase Sasol and Origin have the option to walk away if they don’t like what they see.
If they choose to continue Phase 2 (with Falcon still being carried), it will involve a full 90 day production test on two fully fracked horizontal wells. Phase 3 will consist of another two horizontal wells being drilled, fracked and production tested for 90 days.
As I covered in Part 1, the Beetaloo offers multiple stacked pay formations. This $200 million program is going to focus on just one of those formations called the Middle Velkerri. It is the biggest, thickest formation in the Beetaloo and has the most oil and gas resource in place.
For some perspective on the leverage Falcon’s 30% interest gives the company to this play we can compare the Beetaloo to the world’s two biggest horizontal plays (the Bakken and Eagle Ford).
Falcon’s 30% interest gives the company exposure to 1.38 million net acres of the Beetaloo. 1.38 million acres in the Bakken would give the company 17% of the entire Bakken play, in the Eagle Ford it would be 23%.
Non-producing acreage in the Bakken and Eagle Ford can be worth up to $20,000 per acre. We have no idea if the Beetaloo is going to be commercially viable, but if it is and Falcon’s acreage is worth even a small percentage of what raw land goes for in the Bakken and Eagle Ford……
Hess And Seismic Mapping
I’ve sat down with O’Quigley several times and heard the story of how he was able to put this deal together. Politics, grace and common business sense means the details can never be printed, but it involves flying around the globe multiple times, and being firm in your convictions.
O’Quigley was lucky because he never had to bluff. The quality and size of the land base, and the ongoing LNG development just north of the Beetaloo were really all the carrots he needed.
O’Quigley started with the company a few years ago, when Hess (HES-NYSE) was their partner in the Beetaloo. In 2011 and 2012 Hess spent $80 million shooting the largest 2D seismic program in the history of Australia (3,490 km) on Falcon’s Beetaloo lands.
As part of this agreement Hess had the option (after shooting the seismic) to acquire a 65% interest in Falcon’s acreage. But at the last minute, Hess asked for an extension on the deal so that it could bring in another partner.
O’Quigley and Falcon said no–a bold statement for a junior with an unproven property.Hess walked away. So Falcon got $80 million worth of seismic for free.
There was a lot of second guessing of Falcon’s management between the time they declined the Hess request and the signing of the Sasol/Origin farm-out….but they been vindicated.
Falcon’s remarkable deal with Sasol and Origin didn’t do anything for the company’s stock last year.
The reason was that drilling was a full 12 months away—which is now. In Part 1 of the Beetaloo, I explained that for six months of the year the acreage can’t be accessed. November through April in this part of the world is wet, wet, wet.
So the three stage farm-out will take three years—but the first drilling starts in June this year. After Phase 1, time needs to be taken to process the information gathered and make plans for Phase 2—the next year, after the next dry season comes around.
This $200 million program can’t all happen immediately, and that is why the market really didn’t care.
I’m not the most patient guy either, but the interest that the Big Boys have shown in this acreage has gotten my attention. The stock has 912 million shares out trading at 10 cents, for a $91 million market cap, and $12 million cash. Almost $80 million has been spent on the asset and they’re being carried for up to $180 million in new drilling.
And that drilling is starting now. Often the first discovery creates the greatest lift in value. If this drilling program is successful in outlining a huge onshore resource for Australian LNG,Falcon may not be around to see Phase 2.
Keith Schaefer
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