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Investors give Falcon Oil & Gas more credit for world class shale project in Australia

Successful wells have so far proved up some 6.6 TCF of contingent resources – which amounts to 1.94 TCF net to Falcon.
drilling operations
Drilling is on pause, because of a moratorium on fracking

Exciting is building for investors in Falcon Oil & Gas Ltd (LON:FOG, CVE:FO) with the shares jumping some 50% this week.

The market is seemingly giving the explorer more credit for its potentially huge shale project in Australia’s Northern Territory, with the shares rising to 25.6p from 18p in recent days. 

In February, it was declared that the group’s acreage (some 16,000-square kms) contained a ‘best’ estimate of 496 trillion cubic feet (TCF) of gas. That world class resource equates to a massive 82bn barrels of oil potential.

Successful wells have so far proved up some 6.6 TCF of contingent resources – which amounts to 1.94 TCF net to Falcon.

WATCH: Zak Mir bullish on Falon Oil & Gas ...

The new resource figures immediately sent the shares sharply higher, though the group’s valuation is still tempered by uncertainty, because the drilling programme in Australia was put on hold due to a temporary moratorium on shale gas, whilst the authorities conduct a new evaluation of the emerging industry and its practices.

The moratorium on hydraulic fracturing – the necessary process to complete shale gas wells – was introduced by the NT Government on 14 September 2016 and subsequently an independent panel has been established to conduct an independent inquiry and report back to the government.

The panel is looking at all the issues such as the potential impact on the environment but also the potential economic impact.

New Australian proposal bodes well for Falcon

Proposals to lift a separate but similar ban on coal seam gas operations in Australia prompted the surge in Falcon’s shares this week.

Indeed, according to stockbroker WH Ireland, the proposal bodes well for Falcon’s planned development of Australian shale resources.

Australia’s deputy prime minister Barnaby Joyce is supporting proposals that would see the ban on goal seam gas drilling lifted, so long as landowners are given more of the royalties from subsequent gas production.

“In our opinion, this is a significant policy shift as the country seeks to avoid a looming gas shortage,” WH Ireland analyst Brendan Long said in a note.

“It is important to appreciate that the deputy PM is also agricultural minister and we therefore believe his thinking reflects that of Australia’s rural landowning community – the people who count.

“The general idea is to ensure that landholders benefit directly from gas production, which is an incentive that has proven very effective in the USA.”

Long added: “We believe this could pave the way for comparatively positive developments for shale gas developer in Australia, such as Falcon Oil & Gas.”

Zak Mir charts another 50% upside

Technical analyst Zak Mir reckons the Falcon Oil & Gas Ltd (LON:FOG) share price has room to add another 50% over the coming weeks.

“The shares now are very overbought with the RSI [Relative Strength Index] at 89 out of 100 so a cooling off would be expected back towards the low 20s,” explains Mir in the latest segment of the Proactive Investors Bulletin Board.

“At least while we hold above the 20p zone, the best case scenario target here over the next three to six months is as high as 45p.”

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