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Falcon Oil soars as report by Australian partner points to huge gas potential of its Northern Territory licences

Wednesday, February 15, 2017 3:54
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Falcon Oil & Gas (LON:FOG, CVE:FO) Wednesday provided a pointer as to what lies beneath the surface of its acreage in Northern Territory’s Beetaloo Basin.

Citing figures produced by Origin Energy, its partner in and operator of 16,000-square kilometres of licences, the gross best estimate of gas in place is put at a world-class 496 trillion cubic feet (TCF).

Converting that to oil equivalent, it stacks up to 82bn barrels of the black sticky stuff.

Now, a few points to make here:

1.    That figure is an approximation of what resides within the B-shale of the Middle Velkerri formation. That’s the formation put on extended test following the drilling of the Amungee well last year. Within the Middle Velkerri there’s also the A- and a C-shales – and the Kyalla, which, while untested, shows huge potential.

2.    The report by Origin (which owns 35% of the Beetaloo acreage) sets a very conservative recovery rate of just 16%. Yet even using that figure you get a technically recoverable resource of 85TCF, or 25TCF net to Falcon, which owns around 30%.

3.    The concentration is 31bn cubic feet per square-kilometre. Experts say the Velkerri-B geology is very similar to the commercially prolific Marcellus and Barnett shales of the US.

Okay, now forgive the pun, but drilling down Falcon has highlighted a passage from the Origin report that provides a higher confidence contingent resource estimate (our graphic shows how the classifications work).

This is focused on 1,968-square kilometres around the Amungee well, which is around 12% of the total acreage.

From a gas in place number of 61TCF, the gross contingent resource is 6.6TCF, or 1.94TCF net to Falcon.

“In any world that is still an uber discovery and is from a small piece of our acreage,” Falcon’s chief executive Philip O’Quigley told Proactive Investors.

“This is fantastic news and probably the biggest news for the company ever.”

Now before the bunting is rolled out and O’Quigley and the Falcon team are carried shoulder-high through the City of London, there is the small matter of a drilling moratorium in Northern Territory to consider.

An inquiry is currently taking place into hydraulic fracking.

The plan is to publish what’s called an issues paper by the end of the month followed by an interim read-out mid-year and a final report by the end of 2017.

However, the scale of the Origin discovery is likely to crystalise the thinking of the lawmakers of Northern Territory.

Falcon brought in Origin and South Africa’s Sasol, which has 25%, as part of a shrewd deal that will see Falcon carried through US$200mln of drilling on the Beetaloo.

“In our opinion,” said broker WH Ireland, “the scale of the resource is much greater than we had anticipated even if we knew the licence position was massive (16,145 km2).”

The broker noted that the resource assessment is focused on a single shale horizon, and that the size of the resource is sure to pique the interest of the big players.

“We believe scale attracts capital; the resource is clearly strategically significant for energy importing countries – it would move the dial even for big LNG [liquefied natural gas] importers.

“Most importantly in our opinion is that the resource is concentrated with high recovery rates (2C of 11%), implying a recovery of 3.35 bcf (0.559 boe) per km2. The technically recoverable estimates imply a recovery factor of 16% and a recoverable resource of 0.877 mmboe/km2,” the broker said.

“We believe that having 2C estimates would have been an excellent result at end of the two-phase drilling programme, to be there around the half-way mark suggests the asset quality is increasingly obvious. We believe the technical parameters of the resource have been pinned down to a reasonable extent allowing for analogies to be made with the Marcellus and Barnett Shales in the USA.

“We believe the domestic gas shortage crisis is Australia creates an interesting backdrop for the scientific enquiry,” it concluded.

Shares in Falcon were among the best performers in London on Wednesday morning, up 42% at 7.45p.


— adds broker comment and updates share price —

Story by ProactiveInvestors


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