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Falcon Oil & Gas’s “fantastic” deal has eliminated funding risks - Cenkos

Origin is committing to keep spending on Beetaloo and, via farm-out, Falcon's funding is covered.

Falcon Oil & Gas Ltd - Falcon Oil & Gas’s “fantastic” deal has eliminated funding risks - Cenkos

Falcon Oil & Gas Plc (LON:FOG) has executed a “fantastic” deal for shareholders and is now set to “sail through the seas of uncertainty”, according to stockbroker Cenkos, which rates Falcon as a ‘buy’.

This morning, Falcon unveiled a new farm-out transaction with existing partner Origin Energy with the AIM-quoted firm trading 7.5% of project equity in return for A$150mln of future spending commitments.

“In these times of great uncertainty, when many in the sector will disappear, we believe Falcon has secured a fantastic deal for shareholders, substantially funding the company through the Stage 2 and Stage 3 work programmes,” said James McCormack, analyst at ‘house’ broker Cenkos.

READ: Falcon Oil & Gas agrees extra A$150mln farm-out at Beetaloo shale project

“In doing so, Falcon has eliminated any potential dilution risk or equity risk, which should see the company through to the potential monetisation of its interest.”

Moreover, the analyst added: “The farm-out demonstrates Origin’s continued commitment to the substantial potential of the Beetaloo basin, with Origin increasing their capex exposure at a time when many of its peers are dramatically cutting capex.”

Previously, Origin was committed to spend up to A$65.3mln gross in Stage 2 of the joint venture, and up to A$48mln in Stage 3 – now, the aggregate gross cost cap rises to A$263.8mln – anything above that will be borne proportionally by the partners.

Falcon retains a 22.5% interest in the Beetaloo project following the latest farm-out, with Origin owning the other 77.5%.

In a statement, Falcon chief executive Philip O’Quigley noted that the deal shows Origin remains committed to the project.

“This farm down together with Falcon’s unaudited cash reserves of US$11.5 million at 31 March 2020 leaves us well-positioned to participate in the future upside potential of the Beetaloo.

“We look forward to updating the market as soon as operations recommence in the Beetaloo,” he added.

In March, Origin paused operations at the project due to the impacts of the coronavirus.

Quick facts: Falcon Oil & Gas Ltd

Price: 7.625 GBX

AIM:FOG
Market: AIM
Market Cap: £74.87 m
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