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Falcon Oil & Gas: market digesting latest gas find in Australia, more to come?


Falcon Oil & Gas (LSE:FOG) saw its shares surge last week on the back of results from its test well at Amungee NW-1H. The London listed firm is currently drilling for gas in what is called Exploration Permit 98, 60 km south of Daily Waters.

This was the first horizontal well to be drilled and the first well to be fracked with Falcon’s JV partner and operator. They had previously drilled the well to a depth of 3800m which included an 1100m horizontal section.

The news was enough to drive the shares up instantly, from around 5p to over 13p at time of writing. It was good news for shareholders who doubled their money in a morning.

The well was put back on production testing on 7 August of this year and Falcon reported flow rates during the first 48 hours of testing ranging between 2-4 MMscf/d, with rates averaging 1.23 MMscf/d over the first 23 days. MMscf, aka million standard cubic feet, is a common measure of gas volumes.

Estimates of petroleum in place carried out in 2017 for the company’s Velkerri B shale gas pool confirmed a gross contingent resource of of 6.6 TCF (trillion cubit feet), 1.46 TCF net to Falcon.

“With our unique and extensive position in the Beetaloo sub-basin, this is really exciting news for Falcon shareholders and this significant development provides line of sight to the commercialisation of the Beetaloo, for which we remain carried for further activity,” said Philip O’Quigley, Falcon’s CEO.

How significant is the find for Falcon?

By way of benchmark, gas flows of greater than 3 MMscf/d from a 1000m horizontal well are needed to demonstrate commercial viability. The current results exceed these parameters, and certainly lend credence to Falcon’s assessment of the Velkerri dry gas play. It is also significant because it puts Australia’s Beetaloo on a par with other shale gas basins in North America.

The company owns 22.5% of three exploration permits in the Beetaloo sub-basin. The permits equate to total gross acres of 4.6m, with net 1 million acres to Falcon Australia’s participating interest. In 2014 the company farmed out 70% of the Beetaloo exploration permits to Origin (part of Origin Energy), in a deal worth A$200m. A further 7.5% was farmed out last year to Origin, increasing the carry by A$150m.

Falcon is carried up to A$263.8m for the costs of Stage 2 and Stage 3 exploration, in accordance with the terms of its farm out deal. The joint venture has so far drilled four wells in its Stage 1 work program (which proved the presence, quality and continuity of the Velkerri shale dry gas play).

The company flagged up its intention to perform the production test at Amungee NW in July. The aim was to determine if all frack stages contributed to the initial EPT conducted in 2016.

Falcon Oil & Gas has a market cap of CAD 162m at time of writing. It has a 52 week high of 15p. The company’s biggest shareholder is Lamesa Holding, which has 16%, while Nicolas Mathys has a further 5.15%. As at March 2021 the company had US$10.5m in cash and just under 982m common shares in issue, with 44m share options outstanding.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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