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Falcon Oil and Gas shares flying as it unveils potential 'colossal' gas discovery

Malcolm Graham Wood described as a 'colossal' potential discovery

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Falcon Oil & Gas and its Beetaloo Basin assets were under the spotlight today

Oil analyst Malcolm Graham Wood said Falcon Oil & Gas (LON:FOG, CVE:FO) is sitting on a potentially very substantial and profitable amount of gas in the Beetaloo Basin.

His comments came after the firm unveiled the findings of a technical report on what could be potentially recovered from its shale licences in the Northern Territory.

Unveiled for three licences EP76, EP98 and EP117 was a gross best estimate of gas in place of 496 trillion cubic feet (TCF) - a word class  figure.  If that is converted to an oil equivalent figure, that comes in at 82bn barrels of the black gold.

"Onshore that is a very, very substantial, profitable amount of gas  whatever happens, and they've got the A and C shales to go after and all sorts of other things as well," said Wood.

He described it as "colossal" potential discovery.

The estimate is for the Velkerri B shale horizon but that's just one potential play on the firm's huge  16,000 sq km acreage, in which it holds a 29.43% working interest.

It was that geological formation, which was put on extended test following the drilling of the Amungee well last year.

Within the Middle Velkerri there’s also the A- and a C-shales – and the Kyalla, which also shows huge potential.

Wood also noted the estimated recovery rate of that gas in place at 16% was a "pretty good" but said recovery rates are less significant when one considers the sheer size of the reservoir.

The fly in the ointment is that there continues to be a moratorium, or temporary prohibition, on drilling in the Northern Territory and an inquiry is currently taking place into hydraulic fracking.

The plan is to publish what’s called an issues paper by the end of the month followed by an interim read-out mid-year and a final report by the end of 2017.

Wood said this is good in the sense that investors should know more about what is in the mind of the local government by then.

"My guess is that the size of it, not even thinking about the tax that the local government could levy on it, would make it worthwhile and they'll give it the amber light with  the green light if it's safe enough."

Another analyst, Job Langbroek at Irish broker Davy, suggested there was a very rational economic argument for the use of domestic gas in Australia in the light of perceived shortfall coming.

"While Australia exports a lot of gas - a lot of LNG - there is a perceived shortage domestically coming, especially if they want to grow their own indigenous industries and use gas," he said.

Shares in Falcon added over 38% in London to stand at 7.25p  a pop on the day.

Quick facts: Falcon Oil & Gas Ltd

Price: 11.7 GBX

AIM:FOG
Market: AIM
Market Cap: £114.88 m
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Falcon Oil & Gas Ltd excited to be back drilling in the Beetaloo Basin

Falcon Oil & Gas Ltd’s (LON:FOG) (CVE:FO) CEO Philip O'Quigley says it's exciting times for the business as exploration re-commences at Beetaloo. In October, the Kyalla 117 N2-1 was spudded - It is the first well in the ‘Stage 2’ drill programme. The well is located some 32 kilometres...

on 10/10/19

3 min read