Falcon Oil & Gas (LON:FOG) (CVE:FO) (ESM:FOG) has agreed to acquire a minority stake of its Australian subsidiary for C$22.6mln, giving it full ownership of the business.
The nuts and bolts of the deal are as follows: Falcon will pay C$3mln in cash and issue almost 98mln new shares to Sweetpea Petroleum, a subsidiary of PetroHunter Energy, for the 24.22% stake in Falcon Oil & Gas Australia (FOGA).
FOGA holds four exploration permits covering seven million acres of the highly prospective Beetaloo Basin in Northern Territory.
The potential resource is 162 trillion cubic feet of gas and over 21bn barrels of oil, according to RPS Energy, which compiled the group’s competent person’s report.
It has a joint-venture with Hess that covers 6.2mln acres. The American giant has already paid US$20mln upfront, shot 3,500 kilometres of seismic data at an estimated cost of US$60mln and still doesn’t have its name on the licence.
Hess has until June 30 to elect to drill five wells at an estimated further cost of US$75mln, at which point it will take a 62.5% stake.
The fact that PetroHunter, which will own 10.7% of Falcon after the deal, has elected to take shares suggests a degree of confidence that Hess will exercise its option to drill.
Hess is one of three blue-chip agreements: Falcon is teamed up with Chevron in South Africa and Gazprom in Hungary and has a programme that, if fully executed, adds up to a possible 18 wells, or US$400mln-worth of investment.
The group has management of real pedigree. Chief executive (CEO) Philip O'Quigley is former finance director of Providence Resources, the poster-child for Ireland’s emerging oil and gas industry, while his chairman is John Craven, the guiding light behind Cove Energy.
Cove, you will remember, was sold to Thailand’s PTT Exploration & Production for £1.22bn. The Falcon model owes much more to Cove than Providence in the sense that Falcon wants to be a large minority shareholder in any discovery, but certainly doesn’t want to be the operator.
The assets come with a history dating back to 2005.
Craven, who came on board in 2011, has given the strategy some coherence. The CEO, meanwhile, has put Falcon’s costs on a more realistic footing and is charged with delivering value from its unconventional oil and gas assets by leveraging off major and even super major oil companies.
All three properties are potential game-changers, though the one nearest to crystallising value is Falcon Oil & Gas Australia.
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