I've tried to put a sock in it, but I'll keep it as brief as I can.
Falcon is well known for the Mako asset, it went nowhere. South Africa is to say the least is uninviting, but it has gone nowhere.
The Beetaloo showed potential, and still demonstrates profound potential, but was challenging. It was farmed to Hess who exhibited nothing but conventional exploration interests, they spent a lot of money looking in the wrong direction, the product was nothing. Zero. Falcon then demanded that Origin 'delineate' and explore across incredible scale on Kyalla and Velkerri targets. Objectively the result was nothing.
I began looking at this basin 14 years ago and the target was as obvious then as it is now. Yes, multiple crisis have plagued the play, but I'm lost on how Falcon has advanced the case. Truly lost.
There's a great tale of a virtual genius who traded a paper clip for a house through a number of transactions.
https://en.m.wikipedia.org/wiki/One_red_paperclip
You know where I'm going with this, Falcon has steadily and consistently traded shareholder value from the potential value as the planet's most valuable single shale position (see Sheffield engagement) into a vanishingly small filament of interest.
The recent pre-mature election (PME in short) to further farm down Falcon's interest for the foreseeable future which includes the likely potential build to 1 bcf/d is, for me, is the final chapter in Falcon holding the premise of investment.
Circus provides great entertainment, indeed there is a balance between performer, viewer and the promoter.
The only one here who benefits is the latter. Sold, done, out.
Insane, the board should be cleaned out. Just stupendous.
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.
Here's my quick calcs on the value and spacing units from a while back:
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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.
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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.
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.
If you get enough liquids in the well your facilities and compression projects get more complex and have higher and harder to manage costs. With dry gas flowing freely in a shale at $12+ there is no reason whatsoever to pursue liquids at the expense of dry gas production.
It's exceedingly consistent with the previous views, there's a measurement tool on the page and it is within a few meters each passover that we can see it. IE, nothing is happening rate wise and bodes well for the 90 day average.
No surprises.
Per acre valuation metrics are useful where:
-development is imminent
-development will capture the majority of the land base
-land acquisition is competitive (ie land sales/privately held rights
-a significant number of transactions guide the pricing
Its an interesting exercise, but the factors above combined with their dated nature affect the utility.
Developing plays are typically valued at rude 1P reserves metrics and more kindly 2P reserves levels. 2P is often cited in acquisition or divestiture. The 'tint' on the 2P value tends to be the number of legitimately developable wells relative to the 2P reserves. IE nearly fully developed lands will hold lesser 2P metrics vs very early stage developments.
Given the lack of capacity to produce in the basin at this time, Contingent Resource is the most appropriate metric. Contingent means, in this context, that the pipeline and facilities are still not available. Upon availability the volumes that are associated can be converted to a more highly valued proven reserves class.
The earliest stage measure is Prospective Reserves, this is the reasonable (2U) volume that will be recovered in the long term.
My point is that per acre pricing is really tough with this much land at this early stage, prospective/contingent resources over this much land can have a very wide spread between conventional structural plays and unconventional plays like shale.
We are entering a phase where a reasonably developable chunk of land with 17-27 TCF of 2C has been identified. The next six wells (mainly the next two) will allow the booking of said 2C and deliver this valuation.
In time a 2P or Free Cash Flow valuation metric will be appropriate l, but that is into the late 2020's and will probably still be inappropriate due to potential scale and LNG opportunity.
Generally I'd expect that you need to continue to participate to hold your spot in the block. Certainly there will be details, but 'backing in' and changing your mind generally comes with extremely heavy penalties to re-enter the block. IE participate and keep participating or forget it.
50m stage spacing is almost certainly over capitalized in a dry gas play. But, that's what you want ahead of a plant sanction.
With the establishment of considerable 2C, where is everyone's opinion at on raising cash via debt?
Lol, only an American would believe that there are no shale development projects outside of the US. The constant US technology rips me up...
First thing for me, the news is fantastic. Great flow rates, great gas prices and a virtually unrivalled LNG scale on the planet. You have the scale of the Marcellus with two zones - IE double the scale of the Marcellus. Stupendous and a true investment unicorn.
Second thing, the ASX is a sloth, nothing on TBN value. Dead as dead gets. Good riddance and welcome to the NYSE. Don't tell me it's already priced in. The market is drinking wine, walking the beach and watching footie over the weekend. Good riddance.
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.
Agreed re that there are reasons to take non-op. However the non-op partner is generally the punching bag who is forced to have excess money ready for anything that happens, they also generally get abused on transportation, processing and g&a allocation. Santos is expert any thos abuse, seemingly uninterested in any activity that doesn't prove something is uneconomic, and keeping supply down.
None of these things point to Santos investing on anything other than EP161 where they hold operators status.
Ad er reading the presentations, this is a 2C metric. Critically, 2C is contingent upon have production sanctioned. An announcement of commerciality and the sanction of pilot development would convert some portion of the 27 TCF from prospective to contingent. Further, some would go to proven but it would be relatively insignificant from a value standpoint.
Demonstrating better than baseline recoveries would boost the 27 TCF as mentioned.
I don't see anybody paying top dollar for non-op positions. Certainly a smaller set of buyers than the op position.
These are not projections, they are recent unrisked acquisition prices of a given reserve class. And, at that they are at low and defensible recoveries. Enhanced recoveries will drive value up proportionally, for example 20% would be a humble and defensible early estimate of recover. 50% is not uncommon...ie 2.5x value upon demonstrating that recovery is possible.
My thought is that the Amungee pad was the only place that Tamboran could go to fulfill Origin's farm-in commitments. There wasn't enough time to get new wells through the paralyzing licensing process.
The big boys have been watching for a long time.