FOG – Falcon Oil & Gas Ltd. – Proposed Placing

Falcon Oil & Gas Ltd (“Falcon” or the “Company”) (AIM: FOG, Euronext Growth: FAC, TSXV: FO.V), the international oil and gas company engaged in the exploration and development of unconventional oil and gas assets, is pleased to announce a proposed placing of new Common Shares of the Company (the “Placing Shares”)  at a price of 14p per Placing Share (the “Placing Price”) in order to raise gross proceeds of up to US$10 million (c.£7.76 million) (the “Placing”) by way of a conditional placing of the Placing Shares with institutional investors.

The net proceeds of the Placing will primarily be used to fund Falcon’s share of estimated capital expenditure in respect of the drilling and hydraulic fracture stimulation of four horizontal wells in the Beetaloo Sub-basin, Australia (further details of which are provided below).

The Placing is being conducted through a bookbuilding process (the “Bookbuild”) which is being managed by J&E Davy (“Davy”), RBC Capital Markets (“RBC”) and Cenkos Securities plc (“Cenkos” and together with Davy and RBC, the “Joint Bookrunners”) and will open immediately following the release of this Announcement and will be made available to eligible institutional investors. Davy is also acting as nominated adviser (for the purpose of the AIM Rules for Companies) and Euronext Growth advisor (for the purpose of the Euronext Growth Rules) to the Company in connection with the Placing.

Company Background

Falcon is an international oil and gas company focused on the exploration and appraisal of unconventional oil and gas assets. Its corporate strategy is to explore unconventional oil and gas basins; following successful exploration, continue with appraisal programs to determine commercialisation options; and subsequently monetise assets prior to production.

Falcon Australia owns 30% of three exploration permits in the Beetaloo Sub-basin, located in the Northern Territory of Australia (the “Beetaloo”) being EP76, EP98, EP117 (the “Beetaloo Exploration Permits”) which represent total gross acreage of 4.6 million, or 1.4 million acres net to Falcon Australia’s 30% participating interest. In 2014, Falcon Australia farmed-out 35% of its participating interest in the Beetaloo Exploration Permits to a subsidiary of Origin Energy Limited, and 35% of its interest in the Beetaloo Exploration Permits to Sasol Petroleum Australia Limited (“Sasol”), a subsidiary of Sasol Limited, pursuant to the terms of a farm out agreement (“Farm-out Agreement”), in a deal worth A$200 million (c.US$143 million). Following certain further transfers of interest, Origin Energy B2 Pty Ltd. (“Origin”) now holds a 70% participating interest in, and is the operator of, the Beetaloo Exploration Permits (the “Operator”) under a joint venture with Falcon Australia, which holds the remaining 30% participating interest (together, the “JV”).

To date, the JV has drilled four wells under the stage 1 work program set out in the Farm-out Agreement (“Stage 1”), which resulted in the discovery of 6.6 TCF of 2C gross contingent resource estimate (1.94 TCF net to Falcon). A 57 day extended well test resulted in cumulative production of 63 MMscf and variable gas rates ranged between 0.8-1.2 MMscf/d.

The JV has agreed to evaluate the potential of the liquids-rich gas fairways in both the Kyalla and the Velkerri shale plays as part of the stage 2 work program set out in the Farm-out Agreement (“Stage 2”). Exploration and appraisal activities targeted to commence in mid-2019 under Stage 2 include the drilling and hydraulic fracture stimulation of two horizontal wells:

  1. Kyalla shale and hybrid liquids rich gas play – one of the identified three source rock and two hybrid target intervals in the Kyalla formation, with estimated liquid yields in the range of 15-60 bbl/MMscf. The Kyalla formation prospective areas, which are confined to the Beetaloo Exploration Permits, are expected to have a cost advantage over the Velkerri formation prospective areas given they are shallower and are likely to contain liquids rich gas that could also improve expected economics.
  2. Velkerri shale liquids rich gas play – a liquids rich gas play fairway along the northern and south-eastern flanks of the Beetaloo Exploration Permits, at 1,200-2,000mTVD, with regional gas composition and maturity data indicating condensate to gas ratio at an estimated 5-40 bbl/MMscf. Indications are that porosity and permeability are higher in these areas and there is an increased potential for a stacked liquids rich target.

Exploration and appraisal activities targeted to commence in 2020 under the stage 3 work program under the Farm-out Agreement (“Stage 3”) include the drilling and hydraulic fracture stimulation of a further two horizontal wells targeting one or more of the three plays:

  1. Velkerri B shale gas play
  2. Kyalla shale and hybrid liquids rich gas plays
  3. Velkerri shale liquids rich gas play

Reasons for the Placing

The estimated gross capex for Stage 2 and Stage 3 is c.US$130 million. Under the terms of the Farm-out Agreement, Falcon Australia is carried for up to c.A$113 million (~US$80 million) for the costs of Stage 2 and Stage 3, equating to c.US$24 million net benefit to Falcon, with Falcon’s net cash contribution estimated at US$15 million, before contingency.

Falcon’s net cash contribution to the first c.US$100 million of gross capex for Stage 2 and Stage 3 is estimated at c.US$5.5 million, before contingency.  The Company will use the net proceeds of the Placing, together with its existing cash resources of c.US$6 million, principally to fund its net contribution to estimated capex under Stage 2 and Stage 3 and G&A expenses.

Details of the Placing

The Placing will be managed on the Company’s behalf by the Joint Bookrunners in accordance with the terms and conditions set out in Appendix to this Announcement. The Placing is not being underwritten by the Joint Bookrunners. The Company reserves the right to issue and sell a lesser number of Common Shares through the Placing and to settle certain of the Placing Shares by way of a direct subscription with the Company. The Placing will be conducted in accordance with the terms and conditions set out in the Appendix. The Bookbuild, to determine demand for participation in the Placing, will commence with immediate effect following the release of this Announcement and is expected to close no later than 6.30 p.m. UK time on 17 May 2019. However, the timing of the closing of the Bookbuild is at the absolute discretion of the Joint Bookrunners. The Joint Bookrunners and the Company reserve the right to close the Bookbuild earlier or later, without further notice.

The number of Placing Shares and allocations will be determined by the Company and Joint Bookrunners following the close of the Bookbuild.  The Placing Shares will, when issued, be credited as fully paid and will rank equally in all respects with the existing Common Shares, including the right to receive all dividends and other distributions declared, made or paid in respect of such Common Shares after the date of issue of the Placing Shares.

As detailed in the Appendix, the Placing is conditional upon, inter alia, Admission becoming effective and the Placing Agreement not being terminated prior to Admission.

It is expected that Admission will become effective and that dealings in the Placing Shares will commence on 22 May 2019.

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