The latest Investing Matters Podcast episode with London Stock Exchange Group's Chris Mayo has just been released. Listen here.
Thanks for the supportive words WW -- as I truly believe (as you do) that this new deal puts Falcon back in full control of it's own destiny and in a much much stronger position going forward than we ever had with Origin. This takes the ROFR off the backs of Tambo and Sheffield -- as it would have impacted any of their farm downs in the future if they didn't get it removed in this new JOA with Falcon. Plus, we now have the option of managing when and where it is most prudent to raise funds in the future with proven commercial wells to back up any of those financings.
Oleo -- you have had many good comments in the past, but I think you have missed the most important parts of this deal and maybe should consider a simple switch of your Falcon shares over to Tamboran shares -- where you believe the control now resides. Just something to consider.
Smallfish -- don't worry about pipelines just yet -- as we need to prove commerciality first. Any gas flowing will have many options for pipelines in the future -- with both the NT and Fed. governments helping to get all gas moved.
I think this is the best outcome we could possibly have expected in such a short time frame, and in the longer run -- maybe the best deal that POQ has ever done.
We now have a much better deal than we had before Origin opted out -- with an increased carry to the tune of $30 million and most importantly the very valuable protection of being able to opt in; or opt out; or reduce our level of participation in 6400 acre proration units (of which Falcon has just over 718 proration units across our three permits).
I think this is a huge win for protecting Falcon from spending funds when either POQ or Tom Layman have doubts about the geology of some future wells being considered with very limited downside due to the small 6400 acre sizing out of the total 4.6 million acres.
We have the next two horizontals covered and they will finally be starting by the end of this month! Plus we have just over $3 million of Falcon's share covered on the next well that will most likely be drilled in the summer of 2023 -- which keeps our dilution to a minimum.
We also now have the absolutely wonderful option of "JUST sitting on the sidelines and losing out on four or even six of the next proration units -- while we let Tambo and Sheffield get the drilling costs way down and refining the fracking process for the highest flow rates.
For arguments sake -- let's say that Falcon loses out on six proration units (while we let Tambo and Sheffield get the costs down and flow rates improved) -- we would lose a massive 38,400 acres out of the 4.6 million acres in our three permits. That 38,400 acres is less than 1% of Falcon's entire three permits -- so my request would be wait and let Tambo and Sheffield have that first four or six proration units to see how they do -- LOL.
The other major benefit of this new JOA is we have no delay in getting the next two horizontals underway -- which might have been the case with any brand new JV, and we keep the overall momentum moving much quicker with Sheffield et al.
All in all -- this deal puts Falcon in a much stronger and better position financially and structurally going forward.
Darnit -- you should listen to the Investor Meets again without your mistaken bias against everything Falcon!!! The optionality on participating "or not" depending on Falcon's (and Tom Layman's) assessment of the data for each tiny 6400 acre section is a major step in the right direction for all of us that are still Falcon shareholders.
scinceday1 -- I think everyone here would be hoping for something to be started soon on the remaining two wells, but with the ROFR still having almost 2 weeks left for a final decision -- we may be looking at a later start?? I think it is fairly doubtful that Tambo/Sheffield will push hard to get the next two wells started before they know more about what POQ will do before October 19th.
When looking closely at what Origin has spent a few hundred million Aussie dollars on since 2014 -- (with seven wells completed and the B and C Shale zones confirmed for almost the entire 4 million acres) -- this is a truly world class opportunity!! Some deep pockets big gas or investment player can step in now -- (with the majority of the higher risk and hard work already completed over the past 8 years) -- and pick up something like 40 to 50 TCF of potential recoverable gas for much less money than Origin has spent to date. I am really looking forward to hearing what POQ can get done on this deal.
Longknife, Tamboran can't complete the deal with Origin without going ahead with next two wells, as Origin only becomes the full owner of their 77.5% with those next two wells included in the Tambo/Sheffield agreement. That is also why Tambo/Sheffield had to commit on spending up to $80 million to complete Origin's obligations under the modified JV agreement. Falcon does get to sit on the sidelines on the next two wells without contributing -- as Tambo will be just doing what Origin was obligated to do. After those two wells are complete -- then Falcon will have to contribute 22.5% for future drilling programs if Falcon doesn't exercise the ROFR.
This also raises the question of whether Falcon (as the owner of the three permits) can waive the obligations (from the Origin JV)on the next two wells in some of modified ROFR deal? This could see a scenario where Falcon can reduce some of the upfront costs for a new JV partner (who will most likely end up owning more than 60% of Falcon's three permits) -- and let the new JV partner just do one well to confirm commerciality ?? This would reduce the new partners immediate cash obligations to around $100 million in Aussie dollars, and potentially shift the focus towards allocating more funds towards the Pilot Production proposal???
scinceday1 -- POQ has until the 19th of October to formally let Origin know that he is going to exercise Falcon's ROFR . The only significance of October 17th was my suggestion that I didn't think we would hear anything by way of any real progress towards that ROFR until the 17th at the earliest -- since there would be a great deal of negotiations and legal work taking place "IF" any real changes are going to occur before the 30 day deadline expires??
Darnit -- that is most likely exactly why POQ put out the ROFR notice within one day of the new deal being announced. I am sure that POQ doesn't trust Riddle or Sheffield to act in Falcon's best interest on anything going forward. Our best shot is either an entirely new JV being structured as we wait, or alternatively Riddle and Sheffield come through with a slightly better position for Falcon with hard guarantees on future drilling that won't force Falcon further to the sidelines.
Northern --- if we hear any news before Monday the 17th of October -- it will most likely be along the lines that the Falcon BOD has reviewed every single option for exercising the ROFR, and has determined that the only viable option is to continue with the existing Tambo/Sheffield/Origin deal.
"If" Falcon can find the right third party to form a new JV, or if Falcon can negotiate a better deal with Tambo/Sheffield -- there will be so much legal paperwork and negotiations to complete (in an incredibly short time period) that I doubt we will have any significant news before October 17th.
Longknife wrote: "Where do we think that money will come from? Either through issuing more shares or through giving up more of our 22.5 pct. And if we need to come up w $50-$100M for new wells that comes out to 500M to 1B new shares at $.10 (a 25pct premium to where we are now)".
Longknife, if POQ does not replace the Tambo/Sheffieild deal with something a bit more beneficial to Falcon -- then I think we might be looking at something closer to a 1/4 million new shares in the New Year. That is of course providing that one of two next horizontals prove up commerciality -- and if we don't get commerciality clearly indicated -- then our next support level is probably around 5 cents CDN, and no pilot production plant will be built by any company for the foreseeable future!!
If commerciality is clearly indicated with at least 3 mm cu.ft. per day from one (hopefully both) of the next two one km long horizontals -- then I think we should see a modest lift in Falcon's share price to something a bit higher than the 20 cents CDN that Brian Sheffield paid last spring?? I think we could get to 30 cent CDN, but lets take 25 cents as the level that Falcon could do another offering once commerciality is proven when both Tamboran and Falcon are moving higher (due to the great news on commerciality and a pilot production plant moving forward).
A 10 well pilot production program, along with a smaller scale $50 million dollar processing plant, (including a fairly high $30 million for each of the 10 wells), -- could run close to the $350 million CDN range. This pilot production gas would be fed directly into the McArthur Mine pipeline which is right there alongside the Carpenteria HWY.
Falcon's 22.5% share of that hypothetical $350 million CDN would be $78 million -- so with the money currently in Falcon's bank account -- Falcon would need to raise another approximately $60 million. Falcon's share of that 10 well pilot production plant would require a dilution of approx. 250,000,000 shares at 25 cents each to raise just over $60 million CDN.
Oleo -- while we could see some dilution when it comes time for Falcon to participate in the Pilot Production program, I don't think we are going to see anything like another billion shares floated by POQ to exercise the ROFR.
When Bruner was kicked out 12 years ago -- it was primarily because he was proposing to float something like 300 million shares to a very minor Chinese investment group for pennies per share just to help keep his very expensive Denver office in champagne -- LOL. Both Burlingame and Viktor had reached their limit of dilution with Bruner and at that Vancouver AGM -- kicked him out with the help of a bunch of us minor shareholders.
I very much doubt if we will see anything like a billion shares being offered to complete the ROFR, but there could be a much lower level of shares floated to complete the ROFR if the JV partner is not an E&P player. More capital than our current $16 million in the bank could be needed to cover some of the next two horizontals if the partner is not a driller??
If POQ can't get an investment bank, a big E&P player like Santos, or big private investor to step in as our new JV partner (with ownership of 50 or 60% of Falcon's three permits) then I believe that POQ will just let the Tambo/Sheffield deal complete with Origin.
If POQ can find a big private investor or an investment bank to step in -- then Falcon could "relatively" easily take over as the operator (if the potential buyers are not E&P companies). It worth remembering that Origin is stepping out of the gas exploration business entirely -- so there could be an entire exploration team looking for new employment fairly soon!!!
Good post Wet -- as any speculation right now is just conjecture -- with only two weeks to go before some sort of update from POQ on possible changes or just the status quo.
The price pressure would seem to be centered around the current lack of clarity, and with a billion shares outstanding -- there are bound to be lots of nervous investors moving on to either cash or other investments with less risk. I am really hoping that by next spring I can finally get rid of my old adage -- but for now it seems to apply again -- sheesh.
Hey Marsh, glad to see you are still watching Falcon.
Since this proposed deal is making headlines across many of the Oil and Gas publications, the opportunity to grab a very large position in the Beetaloo (without spending any funds on the very expensive exploration phase to date) should keep POQ's phone ringing. I personally don't think that raising the first tranche of $60 million Aussie dollars is going to be the biggest hurdle that POQ faces, but rather it will be that high 5.5% royalty that Origin has quite smartly added to what looked like a giveaway deal. Fortunately -- both domestic and Asian LNG prices seem to be strong enough in the futures market to offset some of that very high royalty down the line.
Thanks schlemiel -- as this is a fairly well written overview on the Tambo/Sheffield proposed deal with Origin. The following two sentences is a complete about face for Joel Riddle -- as it now appears that Falcon does have the CORE after all.
"It is worth noting Tamboran will focus on the Amungee permit acquired from Origin, not any permits it previously held. That confirms our favorable view of the Falcon permits. A map showing permits in the Beetaloo Basin".
This sequent section on what Sheffield might or might not do to Falcon shareholders is illuminating -- as the article talks about the risk we might face, but also has a more reasoned outlook for how Sheffield might deal with Falcon's down the line??
"The important question is whether he (Sheffield) will exert his power as a major shareholder to intentionally depress the share price of either Falcon or Tamboran in an effort to accumulate more shares. I believe the primary focus of Sheffield at this time is likely to be uniting various parties and attracting more participants in the Beetaloo play, rather than squeezing out existing partners. Falcon - first mover in the Beetaloo play - holds a 22.5% interest in 4.6 million gross acres in permits EP76, EP98, and EP117 in core Beetaloo play (Fig. 1). Under the terms of the joint operating agreement, Falcon has a right of first refusal to notify Origin, with 30 days of any proposed change of control, its intention to acquire the 77.5% stake held by Origin. Falcon has not decided on if it will use its ROFR although I do not believe it will. Falcon is being carried up to A$263.8 million on gross costs for stage 2 and stage 3. Thanks to the carry, Falcon will subject shareholders to less equity dilution than Tamboran. I believe Tamboran (the operator), Falcon (non-operating partner), Origin (royalty holder through Tamboran) and Sheffield (equity investor in both Tamboran and Falcon and royalty holder via Falcon) can have a constructive relationship. Multi-party joint ventures are a common practice in the oil industry since its infancy".
An interesting comment on Falcon in the same article:
"Tamboran is going all out with Beetaloo, hoping the shale play to be its company maker. In contrast, Falcon is being carried in the foreseeable future, thus exposing shareholders to lower risk. I have a long-term hold position in Falcon, which I plan to continue to hold. Should the market offer Falcon shares at a bargain price, I may even add to it".
scinceday1 -- short answer was yes, but it appears that spudding will most likely be delayed by a month. If the Tambo deal goes ahead in just under three weeks -- then Tambo is obligated to move forward on those two wells. There is a rig booked and lots of ancillary equipment as well -- so we can expect the work to start by the end of October, and being right on the Carpenteria Hwy -- the wet season is not an issue for fracking and flow testing.
If POQ puts together a consortium to replace the Tambo deal -- I wouldn't be surprised if there was a further delay, but I wouldn't expect it to be more than a couple of weeks with the rig already contracted.
Sickdude -- there was mention in the proposed Tambo/Sheffield deal that they must complete the next two horizontals at approx. $80 million in Aussie dollars as part of the deal. This would seem to indicate that Origin's JV with Falcon had this $80 million amount left to spend under their 9 well and $265 Aussie dollar commitments under the 2014 JV (and the amended agreement in the spring of 2019 -- which dropped Falcon's holdings to 22.5%).
Longknife -- I am fairly sure that Tambo and Sheffield did not talk to Falcon in advance of this deal with Origin. If they had of talked with POQ -- then I really doubt there would have been any necessity for Falcon to formally announce that the ROFR would now be reviewed and could be enacted. I honestly think that POQ was expecting exactly what most everyone else was expecting -- which was a FARM DOWN on large portions of the Falcon permits (and not this ridiculous scared rabbit move to vacate the Beetaloo completely after 8 years an almost $200 million Aussie dollars). Origin has stated that they will take a write down of $60 to $90 million on this deal -- which is total BS -- as the write down could be as high as $200 million if Tambo screws up and no large quantities of commercial gas are ever produced.
Darnit --- one of the possible scenarios could be with our Calgary Director Gregory Smith in Calgary. Mr. Smith would have lots of contacts from his Alberta oil and gas days -- and there should be some players in Alberta that would be interested in following Brian Sheffield into the Beetaloo with a majority position.
There could also be some backroom dealing as well with our other two large shareholders -- Burlingame and Niclolas Mathys?
Very good point Guernica --- as there will be some great contacts from John Craven and his past successes, along with Joe Nally in Ireland that could very well fit -- especially if POQ is able to put together a funding group??
Great Point VM -- as Santos will have more data room info than anyone but Origin on what is there in the B and C shales, and Santos would be a much preferred candidate than Riddle and his litigious bent over the years for the N.T.
Glad to hear your thoughts Poods and that you might be adding more when you see the right spots. I think one of POQ's biggest hurdles right now in finding a new taker for the Origin deal will be the 5.5% royalty over Origin's 77% of the permits. The helpful offset to this is the current high domestic and LNG pricing for Aussie gas.