Falcon Oil & Gas Ltd.: Transformational Farm-Out of Beetaloo Unconventional Acreage, Northern Teritory, Australia

Source Press Release
Company Falcon Oil & Gas Ltd.Origin Energy LimitedVector Exploration IncSasol Limited 
Tags Asset Deals, Deals, Upstream Activities
Date May 02, 2014

Falcon Oil & Gas Ltd. (TSX VENTURE:FO)(AIM:FOG)(ESM:FAC) ("Falcon" or the "Company") is delighted to announce that its 98% subsidiary, Falcon Oil & Gas Australia Ltd ("Falcon Australia"), has executed Definitive Agreements including a Farm-Out Agreement and Joint Operating Agreements (collectively "the Agreements") with Origin Energy Resources Limited, a subsidiary of  Origin Energy Limited ("Origin") and Sasol Petroleum Australia Limited, a subsidiary of  Sasol Limited ("Sasol"), collectively referred to herein as "the Farminees", to each farm into 35% of Falcon's Exploration Permits in the Beetaloo Basin, Australia ("the Permits"). The Agreements are subject to conditions inter alia Government, statutory authority consents and relevant Stock Exchange approvals.

Transaction details

  • Farminees to carry Falcon in a nine well exploration and appraisal program over five years, detailed as follows:
    • 3 vertical exploration/stratigraphic wells and core studies
    • 1 hydraulic fracture stimulated vertical exploration well and core study
    • 1 hydraulic fracture stimulated horizontal exploration well, commercial study and 3C resource assessment
    • 4 hydraulic fracture stimulated horizontal exploration/appraisal wells, micro-seismic and 90 day production tests
  • Drilling to commence as soon as possible following completion of the Agreements - targeting 2014 subject to the normal regulatory requirements and rig availability.
  • Drilling/testing specifically planned to take the project towards commerciality.
  • Farminees to pay Falcon A$20 million cash on completion of the Agreements.
  • Origin and Sasol to each earn 35% interest in the Permits.
  • Falcon to retain a 30% interest in the Permits.
  • Origin to be the Operator.
  • Farminees will pay for the full cost of completing the first five wells estimated at A$64 million, and will fund any cost overruns. This work is expected to be completed within the first three years.
  • Farminees to pay the full cost of the following two horizontally fracture stimulated wells, 90 day production tests and micro seismic with a capped expenditure of A$53 million, any cost overrun funded by each Party in proportion to their working interest. This work programme is expected to be undertaken in year 4.
  • Farminees to pay the full cost of the final two horizontally fracture stimulated wells and 90 day production tests capped at A$48 million, any cost overrun funded by each Party in proportion to their working interest. This work programme is expected to be undertaken in year 5.
  • As part of the agreements to reduce the overriding royalties from what was originally 12% to 1%, Farminees will pay their pro-rata share (US$14 million) of the two five year call options entered into by Falcon as part of agreements announced on 1 November 2013 with CR Innovations AG and 17 December 2013 with the TOG Group, should Farminees and Falcon decide to exercise the call options.
  • Farminees may reduce or surrender their interests back to Falcon only after:
    • the drilling of the first five wells or
    • the drilling and testing of the next two horizontally fracture stimulated wells.

Renewal and Relinquishment:

Three (EP-76, EP-98 and EP-117) of Falcon Australia's four Beetaloo Permits were due for renewal at 31 December 2013. As part of the renewal process, Falcon agreed to relinquish approximately 26% of the three Permits which was not considered to be core to the unconventional play in the Beetaloo Basin by Falcon, Origin and Sasol. The renewal of the three Permits was completed on 30 April 2014. Falcon Australia's fourth permit, EP-99, which was due for renewal at 31 December 2014 was surrendered as it too was not considered to be core to the unconventional play.

Philip O'Quigley, CEO of Falcon commented:

"We are delighted that we have brought two great fit for purpose partners, Origin and Sasol to work alongside us in the evaluation of our highly prospective acreage in the Beetaloo Basin as we move the project towards commercial reality.

The Farm-Out announced today marks a significant milestone in the history of Falcon as it provides for a five year, nine well, technically comprehensive exploration work program in the Beetaloo. Together with A$20 million cash up front, the deal is worth up to approximately A$200 million to Falcon.

This Farm-Out marks the end of a very busy period for Falcon. In July 2013 we consolidated our interest in Falcon Australia and increased our shareholding from 73% to 98%. In November and December 2013 we completed two agreements that will result in the reduction of the 12% privately held Overriding Royalty Interests on the Permits to just 1%.

Origin brings with it an enormous wealth of expertise as an Unconventional Operator in Australia. Sasol, through its interest in the Montney unconventional shale play in North America brings with it enormous expertise of operating unconventional shale plays and is a world leader in gas to liquids. In addition, Origin and Sasol offer many potential options for the monetisation of any natural gas discovered on the Permits".

John Craven, Chairman of Falcon said:"

This is a monumental deal for Falcon. Apart from the value of the carried, no cost drilling programme to Falcon, the real value is that with Origin/Sasol we now have the financial and technical fire-power to unlock the real hydrocarbon potential of the Beetaloo Basin. I am particularly pleased that the initial focus of evaluation will be on the Middle Velkerri formation which according to RPS* has prospective potentially recoverable oil and gas resources of over 12.7 billion BBLS of oil and 74.5 TCF of natural gas in the Beetaloo.

I see this is as a win win for all stakeholders, particularly the people of Northern Territory where any success will have a major impact.

I would like to thank shareholders for their patience. It is because of our belief in the potential of the Beetaloo Basin that management has in recent months focussed on maximising shareholders' upside to the Beetaloo play by increasing Falcon's stake in our Australian affiliate and significantly reducing legacy royalties, both of which were necessary to allow a successful farm out process to occur.

Finally I would like to thank and congratulate all those who have worked on this project for their hard work and diligence in making this happen".

Source: EvaluateEnergy® ©2020 EvaluateEnergy Ltd