Falcon Oil & Gas On Par With North Sea ? BUY

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Following the excitiment of UK onshore plays in 2014 and the cold wind of change in the oil price, i have researched one of the best onshore low cost fully funded drilling plays in 2015 called (LSE:FOG) Falcon Oil & Gas.  The company is a small as yet unknown one in the market but thats about to change with game changing drilling commencing in the spring, with fund managers on my phone asking about this small gem.


Falcon Oil & Gas on its company website claim 162tcf and 21 billion oil recoverable gross in Australia with 390tcf gross recoverable ontop in South Africa onshore.  Thats mouth watering based exporation numbers making Falcon  potentially on par with the entire North Sea based in just one company is something to get excited about.

Combine this with the farm out skills to fully finance drilling by CEO O Quigley and highly regarded Chairman John Craven of ex Cove Energy makes me dig further as an exciting takeover target . I have calculated breakeven is sub $30 a barrel even on these massive unconventional wells given the size of the potential onshore fields. Remember in Australia M&A is common place unlike UK based oil companies with acreage going for $850 an acre undeveloped based on industry average, its now less than $25 an acre.

We must remember Origin and Sasol have fully carried the assest on the Beetaloo Basin Australia 1.4 million acrcs net circa $200m recently plus $18.5 million cash. Nice conversion shows at time of writing £140m cash on market cap of 56m.

I note Charles Stanley note claims 19.7p on inital target in Australia raising to 51p on sucessful drilling programme going into 76.3p as fair M&A takeover.

On the geo front Rio Tinto drilled 11 wells in 1988- 1992 before fraccable technology proving early data with Shenandoah 1 drilled 2011 proving the shale zones are fraccable, moveable hydrocarbons and highlighted the Velkerri play as the best potential. According to RPS report this zone has the potential recoverable 12.7 billion barrels of oil and 74.5tcf with 50% chance of success.  Remember 15% cos is the normal industry average on exploration wells.

Going through some detective work reports porosity in some wells was 12% 35% API recoverable on test. This time the JV partners have selected the central undeformed parts of the basin, with new tech equipment which will not breakdown as in previous campaigns. Hess paid $100m into seismics for this new data, no wonder Sasol and Origin took over the license as Falcons partners.

Exciting news from the AGM highlighted Tanumbirini 1 discovery by Santos just next door showing encoraging inital results with significant gas shows in organic content over 500m attributable match with the best US shale. For example Beetaloo Basin is massive comparing it to the largest Bakken unconvential resource basins.

Lastly the area is on route to Darwin, two LNG plants which contain one pipline including railroad for oil transport. So although drilling is in the middle of nowhere, infasturture is excellent and in place. Charles Stanly notes claim 75% chance of success including 50% on stablised gas flow rate.

Onto Karoo in South Africa covers 7.5 million acres onshore est 25% post farm out net. With applications being lifted in South Africa by March 2015 awarding  exploration license could really rerate Falcon. As the company has a heads of agreement with Chevron finalised farm out will be within this year going back to AGM timetable.

Charles Stanley again claims $40 an acre at present in South Africa without even new 3d would equate to 18.7p. On the geo front the basin has some drilled wells see SA 1/66 well already proved the hydrocarbon basin exists adjacent to Shell.

Finally Mako Tough Hungary is the third area looking into deep contingent discovered areas for gas onshore at nil cost to Falcon post farm out with Gazpromneft. A deeper zone farm out is in discussion however i have given this a zero valuation at this time.

So 2015 is the year for (LSE:FOG) Falcon Oil & Gas with two major catalyst events in two parts of the world. The Beetaloo and Karoo Basins are comparable to the size and quality of producing N. American shale plays at low breakeven $30 costs. Based on a very low oil price enviroment of $40 a barrel i give an inital target around spring  pre TD of 20p.

Its one of the most exciting oil exploration onshore plays based on geo and asset size i have seen in the last 25 years which makes the Horse Hill plays of 2014 look small fry.

You can listen to more information about (LSE:FOG) Falcon Oil & Gas by  listening into my thoughts with Justin Waite Thursday Jan 8th 2015 ADVFN Podcast show at http://www.chrisoil.blogspot.co.uk

If your interested in advfn they have excellent data  on exploration companies worldwise and level 2 well worth registering below.

Until the next time more ramblings from the castle can be seen @chrisoil









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