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UPDATE - Falcon Oil shares soar after $200mln farm-out deal

Falcon Oil & Gas has agreed a farm-out deal for its Beetaloo unconventional acreage in Australia with a headline value of $200mln.
UPDATE - Falcon Oil shares soar after $200mln farm-out deal

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Falcon Oil & Gas (LON:FOG) shares surged by a quarter as it agreed a farm-out deal for its Beetaloo unconventional acreage in Australia with a headline value of $200mln.

Local operator Origin Energy and South African gas-to-liquids specialist Sasol are taking a 70% stake in the licences, which have a prospective resource potential of 162 trillion cubic feet of gas and 21bn barrels of oil.

In return Falcon will receive A$20mln in cash and will be carried on a comprehensive, five-year exploration programme. This includes:

o   Three vertical exploration wells

o   One fracked vertical exploration well

o   Five fracked horizontal wells

The first five wells are estimated to cost A$64mln and are expected to be completed in the first three years, while Falcon will carried on the next four up to a cost of A$101mln.

The partners will also pay an estimated US$14mln towards two five-year call options. The terms compare favourably with a previous, lapsed deal the group had with Hess.

The American giant said it would sink five wells, only one of which was a horizontal.

Chief executive Philip O’Quigley said: “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 marks the end of a very busy period for Falcon.

Last summer the group consolidated its interest in Falcon Australia, the local holding company, and increased its shareholding from 73% to 98%. Meanwhile in  November and December it completed two agreements that will result in the reduction of the 12% privately held overriding royalty interests on the permits to just 1%.

It means the partners will receive substantially all of the benefits from developing the assets.

On its two new partners, O’Quigley said: “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.”

Origin will be the operator of the project, which lies 600km south of Darwin and sits within a major gateway for the industrial and export markets for hydrocarbons.

Valued at A$16bn, Origin runs the upstream APLNG Project, a coal seam and unconventional joint-venture with ConoccoPhillips. It has drilled more than 800 wells.

Sasol, meanwhile, announced its arrival in unconventional hydrocarbons in 2011 when it paid $2bn for a 50% stake in Talisman Energy’s acreage in British Columbia.

Shares rose 24% to 10.7p.

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