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Smallfish and Longknife -- I am fairly sure that Sheffield does not have any kind of a ROFR (right of first refusal) on Falcon selling their interest to a third party -- as POQ has never brought that up in any discussions nor investor presentations. I would agree that Sheffield most likely has a ROFR with Tamboran -- as he has more invested in his partnership with Tamboran -- plus bought out the other 38% of Origin's interest almost two years ago, so ROFR would surely be in place with Tamboran.
There is almost zero chance that POQ -- nor the BOD -- would even entertain an offer for Falcon that was 2 or 3 times where it is now, but any offer that was five or six times what Falcon is currently trading at would have to be taken to the Board of Directors for their input. If you talk with Cavendish's analyst, James McCormack or the analyst at Tennyson -- they will tell you clearly that Falcon should be trading two or three times higher NOW on this stellar flow rate, but certainly not a chance that Falcon would entertain this low of an offer.
Keep in mind smallfish's caveat about a vertically integrated producer from Japan, Korea, or China having a greater tolerance for risk and a motive to be a non-op going forward. Inpex has spent over $35 billion dollars developing the Browse basin and their two LNG plants in Darwin. Inpex wants to build a third LNG train in Darwin, but needs access to 5 TCF of gas before they can commit to have that third train built by 2030. I don't know the exact figure, but there is good reason to believe that the Core dark blue area in Falcon's permits, which covers one million acres, may have around 5 TCF of recoverable gas to Falcon's side of the equation. After spending $35 billion for their two existing LNG trains in Darwin -- it may not be a very big gamble on Inprex's part (or one of the other asian integrated players) to spend another couple billion to access Falcon's share of that gas without any interest in being an operator at all. Inpex would have to buy out Falcon's interest for something like 800 to 900 million and then have another $billion to cover their share of forwarding operating costs as the one million acres gets developed, but that is a significant discount to what it cost Inpex to develop the Browse underwater gas basin -- with it's 12 TCF of recoverable gas in place.
I tend to agree with you, he has an advantaged position with access to all the technical data across all operators. Combined with a tolerance for early stage activity he is in a very good position.
It will be difficult for a laggard to value this heavily without production history, almost impossible really. The caveat I would put on this is that a vertically integrated producer from Japan, Korea or China would have both the tolerance for risk due to greater reward and motive to be a non-op going forward.
That's the only challenge Sheffield faces but he probably has ROFR's on everything anyway. I'm in agreement with your take.
Newt and Smallfish,
I still think the most likely scenario is Sheffield and his friends taking FOG private at a multiple of 2 or 3- not 10. Some will argue it is worth more but most shareholders will be happy to take the 2-3 bagger and be done w this stock. I don't see any white knights coming in to save the day either and there is ZERO retail interest. Maybe it will get bid up some if an offer is made but again, I don't think it's going that high. JMHO
Very informative post smallfish9.
Given the successful flows from the SSH1, it is also good advice on Falcon participating in the next two horizontals -- even if it requires something like a ten percent dilution of Falcon's stock to make sure Falcon is going to reap the benefits of that 6400 acre block. I am fairly sure that POQ intends to participate -- as something like a 15 bcf EUR on the next two 3 km horizontals will only add strongly to the valuation metrics that will help any sale going forward.
I am also fairly sure from previous investor presentations -- (going back to when Tamboran and Origin were structuring their deal) -- that the real benefit of the opt-in or opt-out clause was described as a safety valve if any of the Tamboran planned future 6400 acre blocks were in a very questionable zone. A good example of where Falcon would maybe want to opt-out would be if Tamboran was planning on going back into the Lower Kyalla -- which we already know is going to be a very difficult zone to crack. In this scenario -- opting out might be the wisest choice until that Lower Kyalla zone proves up. However, the SSH1 area has already proved that it is a winner -- and doesn't have the risk profile that would require POQ to even think about using the opt-out clause in this situation IMHO.
Here's my quick calcs on the value and spacing units from a while back:
________________________________
Indeed, 6400 acres/185 acres is 35 spacing units (@ 2,500 by 300m). At 15 bcf EUR (a humble starting point of 6 bcf/1000m) you would be relinquishing about half a TCF of 1P at development. Using $4/mmcf you end up forgoing 22.5% of the value or about $470 million.
And it would probably come with a back-in penalty and further abuse in terms of being unable to access a facility.
Better off to just get abused.
___________________________________________
I would add that this is on a single shale, with facilities paid for and the development of the C shale understood there would be approximately double the value and well count considered above, albeit at a significant delay to the initial shale being developed.
You could say that 3,000m wells will be executed but that only cuts it to 29 wells to develop 6,400 acres - the point is you don't want to be there.
There is some thinking that non-participation the 6,400 acre block would somehow benefit Falcon. While it would certainly reduce the short term need to raise capital, the whole point here is to leverage money to make more money. Disposing of some portion of a half-billion dollars in developed value (and more in long run) is not constructive to Falcon's valuation. I understand the idea that 'you're just going to flip it and move on' but I consider that unlikely without well defended valuation. Non-participation signals to the market that you can't or won't be bothered with raising the money. I'm curious whether that's even a defensible fiduciary posture for a CEO? You'd have to assume risk and scenarios that are not likely. If you're optimisic it signals you're going to ride out your ownership stake and see what you're going to get, a more critical evaluator would say that you're just going to dead-beat it for the long haul and continue farming down and relinquishing value/influence. Insert comment about a more engaged CEO here...
I've not lived one of these clauses out in the court of time, to me they feel like relatively poorly conceived offshore sourced clauses where you have an exploration block to consider. IE, you don't believe the block has the potential to succeed so you just back away and don't participate. If you get it wrong and the first well is a rager, you pay your penalty and can back-in and participate going forward.
Shale wells aren't designed to be independent of each other, additional wells are not added to accelerate the production of a given pool. Rather, they are drilled on spacings and fracked in a manner that drives the optimum economic KPI for a given operator (free cash flow, reserves, ROI, NPV). My point is that you cannot be part of some of the wells and not the others and have a defensible position. In my view, the certain endpoint is a dispute where you're arguing that you deserve to hand-pick individual wells for participation.
With the sp not moving more but I cannot see anything happening with Falcon management any time soon. The only thing that I think will improve the sp here will be further development by Tamboran/Falcon, Empire etc, further good results and eventually the decision by Falcon to sell their shares a multiples of the current sp.
So, to me it's a waiting game for between 18-24months by which time I think a decision will be made by Falcon to sell their share. All imho.
Atb,
Northern
805slo -- here is a step out link from the one you posted -- showing the Tambo EMP is still under assessment -- which is understandable as it was only submitted at the beginning of December and is a massive 300 plus pages long.
The good news on this Pilot Program 9 well EMP is that the 30 day timetable for written submissions contesting that lengthy EMP by the anti-frackers -- expired at the end of December, and in the interim we have had the stellar flow rates confirming commerciality -- which should help get the EMP approved in the next 30 to 60 days.
https://depws.nt.gov.au/onshore-gas/environment-management-plan/emps-under-assessment
Here is the link I found. Hopefully something will pop up soon the EMP approval.
https://depws.nt.gov.au/onshore-gas/environment-management-plan/emp-decisions
Cam, I get your frustration. Why do you think POQ is not out there raising money as we speak? He said as much at the Q and A. The next two wells are not going to take much funding beyond what FOG has already. I think FOG will raise money in two rounds. But it does not really matter to me. The more successes we have the more FOG will be sold for. I think the next press release we see will be about the equity raise and then we will get our 90 day flow rate and independent analysis of the 20 year EUR. Who knows if any of that will have a positive impact on the share price. But the market cannot ignore the next two production wells if they achieve the rates TBN has predicted.
Anyone know if the EMP has been approved? Not seen anything about that yet.
And don’t forget, he earned approx $7.2 million during his highly effective FOG leadership. And he basically never purchases Falcon in the open market.
I marvel at the posters who refer to “master strokes” by the slick Irishman. Master strokes?!?!
I don't know how the rest of the board feels but it's clear to me that POQ seems to be lacking here in many ways. One the result from the SSH 1 was fantastic. That being said is POQ currently out marketing. Nope. Is he currently trying to raise money. Nope. Years ago (maybe 2019) he had an article written in the Irish or London Times....talking about how he felt that Falcon may hold the "HOLY GRAIL of SHALE etc. Then he talked about how investors were looking for a big gain on their shares as Falcon does not pay a dividend. So now when the evidence is clearly there that we may be on to a huge opportunity with the SSH 1 result what is he doing,,,,,absolutely nothing that I can see. I must say that he and Anne remind me of two toddlers in diapers that get into a jar of peanut butter.....and rather than eat it....they have it all over themselves. I am told that POQ likes to cook in his spare time....man o man he must be cooking up a storm....and it's not Irish Stew,,,,it's a rather bad smelling tasting sandwich for the shareholders. Why the BOD does not through this clown out the door is beyond me, You can teach monkeys to perform better than this. .A little tip for JUNIOR BIRDMAN.....Falcons are supposed to fly...not be held captive in a cage, TIME FOR CHANGE!!
Wet, my understanding was once they go in on block FOG can elect to put up whatever they want (up to 22.5%) of the costs for the next well. They could elect nothing for the second well and still fund the third. FOG was pretty clear in their press release they will raise money to go in on the next two well at the full 22.5%. I believe that is a smart move because if successful they will be money generating wells.
I am still at a loss as to why our recent numbers did not move the stock price up. But…perhaps the market wants to see TBN execute these next two. After all, A2 was a complete mess and then they went and drilled A3 which apparently will just sit there for now.
In any event, we should learn shortly how FOG will elect to fund the next two.
805slo: I agree that if they opt out of the first well in a 6400-acre participation block they are out of that block unless they pay a penalty on that first well to get back in. Where I am unclear is what happens if they participate in the first well but not the second well - then what happens on any future well in that block i.e. - Participate in the SS2H but skip the SS3H - Can they (or newco) come back in for the SS4H, SS5H etc. without a penalty. I thought they could come back in - smallfish9 thinks not. If not, they (or newco) might be locked out of the remaining 15-20 wells on that block, which as smallfish9 points, out could be a substantial issue if Tamboran as operator wanted to focus on that block for 2-3 more years. In reality, Tamboran would likely want all the partner's capital they can garner up to develop the Beetaloo - it's going to be a tough road for them to develop even as it stands.
During the QA from Jan 2023 POQ stated the following:
If they opt out they are just out of one unit or 6400 acres in size. They can buy back in but likely at three times the costs of the well. 10-20 wells max in a unit or 6400 acres. 718 units in total. The best part of the deal is it keeps FOG from being forced out of the prize by excessive capital outlays by its partners.
Smallfish9: With respect to you, that's not the way I understood the negotiated 'sole risk clause". As I understand it, Falcon needs to participate in the first well of a 6400-acre participation block. After participating in the first well in a block I am thinking that having taken the risk, they have the right to participate or not participate in any future wells in that participation block. If they don't participate in a follow-up well, I didn't think that locked them out of any future wells in that block - there might be a non-participation penalty for a skipped well? - that's where I not certain. I'm not betting any money on that last statement and will certainly defer to you until I find out otherwise. Either way, Falcon cannot be forced to participate in drilling a well if they are lacking the funds and the stock price is not advantageous to doing a raise. Falcon can let Tamboran prove up this acreage on that participation block which will in turn proves up a large amount of additional surrounding acreage which is the goal for Falcon's eventual sell - giving up production rights on a few wells or even at worse a part of a 6400 acre block would not greatly impact the final price Falcon would receive for its 1+ million acres IMO. 6400 acres sound like a lot of land but in the deep core 1 million acres there are about 150 participation blocks and then there remains all the additional shallower Velkerri B acreage which would be approximately 600 additional blocks.
FYI for those that aren't aware, Sheffield has the same sole-risk-clause with Tamboran.
I think we can all agree that Falcon will never experience drilling on another participation block as they will never get past this planned 6 well pilot program - Falcon will be on the sale block with the hammer dropped long before IMO.
It woul dbe helpful to see the actual farmin agreement amendment. The press release for the LOI said the penalty applied to the spacing unit for 1 well: "the introduction of limited proration units on sole risk operations to a maximum of 6,400 acres per well, providing Falcon Australia with participation optionality on the drilling of future wells;"
I think there is little chance FOG does not seek funding for the remaining wells in the pilot project. If successful, it will generate cash flow. If successful it will only create additional value to any future sale. I still think we are sold if we nail these next two production wells. I suspect the next equity raise will be aimed at the next two wells only for now. And if need be FOG will seek another equity raise to participate in the next four. But I think the latter is unlikely if the flow rates of the first two wells are production rates. Fingers crossed.
Generally, once you're out, you're out. There are back-in penalties sometimes that would allow you to participate at a later date for 2-3x of the original cost. You would also be out the entirety of the 6,400 acre block, or as I previously calculated ~30 wells. And you could be sure TBN would place every producer in there...you'd also have some disadvantages in accessing any production infrastructure any time soon. 30 wells is going to be more than are needed to fill the 500 mmcf/d intial dev line. So...2029 or later would be next opportunity to participate.
Thanks WW for your explanation of the sole risk clause, that was a masterstroke by POQ, we can sit & do nothing while Tamboran heads towards production, which we hope will benefit our SP, with no costs to Falcon, apart from POQs salary.
Origin789 - I think the sole risk clause is something people tend to forget about. Falcon could just sit on their thumbs and let Tamboran/Sheffield drill the next two wells. They would lose their rights in the 6400-acre participation blocks but when it comes to selling the whole 1 million acres I don't think believe that would greatly impact the sales price since these two wells will further prove up the surrounding acreage.
Saying that, I suspect that Falcon will participate in at least the first well - especially since it has the 3.75 million carry available. Being that the second well will be drilled on the same pad, the only thing Falcon gives up is the future production of that one well - This needs to be verified by POQ. If the stock price is still lagging when it comes time for the next raise, then the 'sole risk clause' might be a better option than a sizable stock dilution. Philip indicated to me that of all the agreements he has negotiated, the sole risk clause is the most important and beneficial for Falcon. It ensures Falcon's ability to see this project through without being forced to raise funds at unsuitable times to drill wells.
If Tamboran have fulfilled the obligations for the carry, could POQ decide to let the two 3 km horizontals go ahead before raising funds to participate further, as our price is likely to move upwards after two successful 3km legs have been completed by Tamboran.
Just "One" more small but important clip from the Tamboran report out today -- (and then I will stop posting -- for this week anyway) -- so that other LTH posters can get a chance to get a word in edgewise -- LOL!!!
This paragraph below in reference to the amazing flow rates announced two weeks ago -- is where I think Brian Sheffield will be focusing his conversations with big shale gas players in Texas -- as he works towards finding partners to develop the first one million acres in the Beetaloo. While there has been some issues with Tamboran (like the Amungee H2 fiasco and the exorbitant G&A overhead expenses) -- it is worth noting that Falcon might not have reached this proof of commercial gas flows with the SSH1 well -- if Origin was still our lead operator. I am fairly sure it was the engineering expertise brought to the Beetaloo by the ex-Pioneer team and their new completion engineer -- (along with all the expertise from Faron Thibodeaux's team) that finally got us that long anticipated proof of commerciality in the Beetaloo.
"The result, we believe, has de-risked more than
1 million acres of high-quality shale at depths
below 2,700 metres (8,202 feet) and validates
the Company’s view that deeper shale areas
in the Beetaloo Basin are likely to be the most
prolific and optimal areas for the location of the
proposed pilot development.".
"This normalized rate is the highest rate
delivered in the Beetaloo Basin to date and
exceeded the Company’s pre-drill modelling
expectations"
A bit of weekend reading for any that are interested -- while we wait, and wait and wait a little more!!
This update has a paragraph (copied below) that shows that Tamboran has completed all the obligations that Tamboran inherited from Origin regarding the 9 wells and total dollar commitments. Falcon still has another 3.75 million dollar credit remaining that will most likely be used with one of the two full length 3 km horizontals to be drilled later this year.
"During the SS-1H well drilling activities,
Tamboran gave notice to Falcon Oil and Gas
Australia Limited (Falcon) that all farm-in
commitments have been fully satisfied, having
reached the associated cost carry commitment
in accordance with the 2014 Falcon farm-in
agreement".
https://hotcopper.com.au/threads/ann-half-yearly-report-and-accounts.7905312/?post_id=72912624
.
Longknife -- I am almost positive that Falcon will be sold for at least twice your 30 cents US number, but the biggest question still remains the same -- WHEN??
Brian Sheffield will most likely be the driving force to see Falcon taken out by one of his Texan associates -- like EQT or possibly Chesapeake amongst others. Having Falcon hanging around beyond the Pilot Production program makes no sense for someone like Sheffield -- as he will want to have one of the major US shale gas companies as a long term deep pocket investor, with a buyout of Falcon the most logical long term solution.
Just the Dark Blue Core area of the Falcon permits in the Beetaloo will require anywhere from 1000 to 2000 3 km horizontals to drain that low CO2 shale gas over the next 15 to 20 years. That will be a very lucrative purchase of Falcon 22.5% interest for any big shale gas player (for most likely something just under a $billion). However, that Falcon purchaser will need to have another couple of $billion to invest in their 22% share for all of the very expensive infrastructure, pipelines, dozens of new well pads, and a huge gas processing plant for the next five years -- before the really significant profits from $12 Aussie gas start to offset the forward costs, (at which point the potential buyer will will be on a roll towards $billions in profits over the following 10 to 15 years).
Sorry, but don't see 30 cents as a realistic scenario at all or something anyone should target reasonably. The prospect is simply too big and valuable for that. It's actually more likely with these takeover games that we either get a big fully representative number, or the company gets choked for funds and ground out of play. This is why patience is needed .... Still, even after years and years.
I actually think we are closer to this than many believe. It may take more years, but equally we could approach end game at any time. Personally I would be happy for them to farm down, do a placement etc, as the extra value further wells and flows bring outweigh dilution or a reduced stake.