UPDATE: Falcon Oil & Gas successfully hits gas targets in Kutvolgy-1 well

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Falcon Oil & Gas (LON:FOG) (CVE:FO) revealed the drilling operation on the Kutvolgy-1 well has been successfully completed. The well was drilled to a depth of 3,305 metres and the targeted Algyo formation was encountered from 2,985 metres as expected.

It then encountered a sequence of sandstones, siltstones and shale over a total of 320 metres with gas shows throughout. Two cores have been taken and wire-line logging has been carried out.

The well has now been cased ahead of a testing program.

Kutvolgy-1 is the first in a three well program alongside Naftna Industrija Srbije (NIS), a unit of Gazprom, and the next well is currently scheduled for the fourth quarter.

"We are pleased to confirm that our well successfully reached its target Algyo formation and encountered hydrocarbons, and thanks to the close collaboration with NIS, drilling was completed without any operational difficulties,” said chief executive Philip O’Quigley.

“I am looking forward to the technical evaluation of the well results and then the testing program that will take place during the fourth quarter of 2013."

Alygo is described as a fairly shallow play, typically found between 2,300 and 3,500 metres, and it has previously been encountered with gas shows in other Falcon wells while Falcon has been drilling to deeper targets.

Before now it has never been examined in an optimal location, specifically targeting the play.

A recent independent assessment estimated that eight of ten identified prospects in the Alygo play could host about 568bln cubic feet of gas resources. These targets were given a 10% chance of geological success by the company’s consultant RPS.

Dublin-based broker Davy highlighted in a note that the project in Hungary is an important and nearer term part of the business, although ultimately Falcon’s other project could have a bigger impact.

Analyst Job Langbroek said: “While we think that the Australian and South African projects will be the long-term value drivers, the various components of the onshore Hungarian drilling program make up an important part of the group valuation at this stage of its development.

“Consequently, the successful completion of the drilling phase of the first of a three-well program is to be welcomed.”

The Algyo play is worth 3.7p to Falcon, according to the analyst.