Our latest Investing Matters Podcast episode with QuotedData's Edward Marten has just been released. Listen here.
Well, I managed to pick up a few more shares sub-US 0.10 - not a bad risk reward IMO, even if LongKnife is correct and I only double or triple today's investment over the next couple of years :^) Going into the end of the day here in the US, this latest move by Falcon seems to be pretty much of a non-event with a little over a million shares traded and the share price being down only .009 cents - well within the norm for Falcon.
I believe the Tamboran shareholders are in for a rough ride over the next few years. Carrying 47.5% of the next six wells is going to be burden - especially when one considers a pipeline to sell production will not be available for another 4 years or so. I would much rather be in Falcon's boat with little to no dilution than is Tamboran's who will be taking on many more shares in an attempt to stay afloat. With the delay of APA building out a pipeline, I support Falcon's decision to cut back on the WI rather than a further dilution of our stock which would then reduce what Falcon might receive for the balance of its 4.5 million acres.
Also, what some fail to consider is that there is still risk in stepping out with these two new 3 Km wells - we have seen faulting in other parts of the Beetaloo and there is always that potential with these longer wells- for the JV's sake, hopefully that will not come into play but with Falcon's limited funding, I would rather see them take a conservative stance on the short-term horizon and stay focused on the eventual sale. Falcon doesn't need another 1H or 2H fiasco which their new reduced WI helps avoid. Tamboran ran seismic for the SS1H well but that was on a limited area which I suspect doesn't cover the blocks for the next two long horizontals. If this is the case, that would be a little bit of a roll of the dice in this new undeveloped acreage - something Falcon doesn't need at this point.
As many already know, I am one that tends to always support our CEO and Falcon's board. They have/consider the inside facts which we are not privy. To date I have found their decisions to be sound and beneficial to the stockholders. Until proven otherwise, I will continue to put my faith in these guys - I believe we are in good hands. GLA
Contrary to what some of our finer posters might say, Philip is not known for doing stupid things. Let's see what Falcon's NR allows tomorrow. I'm betting there is a logical reason to go non-consent on 17.5% but retain a 5% interest. Maybe we will learn more about the sole-risk-clause tomorrow - could be another chess-move.
Longknife: When Falcon sells, it will receive a 'fair value' for its 1 million acres of the Beetaloo - I can't put a pin in that 'fair value', but the market will help establish that price. There will be multiple buyers interested in Falcon's acreage - let's let these bidders establish a value and see how their bids aligns with the BOD's. My point is that the valuation of Falcon's acreage will be based on a fair assessment by the market rather than a simple multiple of the current stock price.
As far as timing, I refer you to Philip's estimate of a deal being done with 18 - 24 months. That being the case, in Falcon time, that's just around the corner!
If that fair value is US $.25 - .35, so be it, I am hearing a minimum of US $.60 - and some people I put credence in go up to US $1.00 - we shall what the market thinks as pricing will be out of our hands.
Willowgrove and LongKnife: Falcon's board has always been in tight agreement with our CEO that the objective of our non-operating company is to sell its interest in the Beetaloo for what the ACREAGE IS WORTH - not based on nor having anything to do with the current stock price of Falcon. As we know, Philip is not one to prop up or hype Falcon's stock price - IMO, he could give a #hit what today's stock price might be - he has always told me, as he has many others, that you won't realize the true value of Falcon until the hammer drops. Falcon's currently depressed stock price doesn't even come close to reflecting the fair value of a 500-meter SS1H well - much less when the pilot program kicks off with its first two 3K wells to better prove commerciality. The board members are not idiots - they realize the potential value of Falcon's 22.5% of the Beetaloo - the 'largest undeveloped shale basin in the world' They are not looking to give it away for 2X-3X valuation of what, IMO, is a purposely depressed stock price - for what reason I do not know.
I agree with Newt - I suspect we will see between 6X and 10X today's stock price - that range has a lot to do with the timing of any offer received. If the next two wells come in at 18-20 mmcf/d, eyebrows will be raised across the industry, and then Falcon will begin entertaining offers which hopefully meet the board's expectations - if we make it till those two wells are completed with 90–120-day flow rates, then I will be happy that I didn't sell out for 2X - 3X of today's price as you gentlemen suggest.
GLA
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.
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.
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.
Maybe while we are speculating, we might include Sheffield's Formentera Partners. It has been rumored that this partnership which was recently oversubscribed to for US $828 million could be used as a base vehicle for another operating company in the Beetaloo. Early speculation at this point, but with Sheffield as laser focused on the Beetaloo as he is, Formentera could spin off an operating company. Likely not much to this, but a lot of money there if the partners chose to invest in the 'largest undeveloped shale oil basin in the world'.
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Formentera Partners is an energy-focused, private equity strategy founded by Bryan Sheffield and Blake London in 2020. Partners, Paul Treadwell and Stephanie Reed, joined the firm in 2021 and 2022, respectively, and together, the partners have worked closely with one another for more than a decade.
Based in Austin, Texas, Formentera responsibly acquires and optimizes producing oil and gas assets in onshore United States basins and strategically develops the assets under management. The Formentera team leverages substantial experience in operations, engineering and finance to drive continued success and utilizes strict diligence criteria, hedging, streamlined structure and new age technology to produce visible and predictable income returns.
Formentera Partners Fund II Closes Oversubscribed with $828.5 Million in Capital Commitments
Tsoprano: I got filled on my own 'stink' bid and have now thrown down another - let's see if someone wants to contribute to my cause. This is an interesting shakeout - for what purpose I really don't know. I would hope the board or POQ would put something out concerning the stock's weakness, but I know better :^) I'll just continue to play along.
Robroy: There also was a disappointing open on the US market this morning. Someone dumped a million shares of FOLGF, driving it down from US $.13 to US $.11.9 in about 35 minutes. The stock is now trying to work its way up a bit but what was that guy thinking?
Sinceday1: The recent Tamboran report highlights that these wells will be drilled in the 2nd qtr 2024. That same report shows that there are 60 stages planned that cover the 3km wells. These are in Philip's words - "All Singing, All Dancing Wells"
Here is the link to the Tamboran Repost if it posts: https://www.investi.com.au/api/announcements/tbn/6b35775d-f93.pdf
Smallfish9: With the short-term time frame planned before Falcon exists this project - especially after the needs exist to actually acquire debt to drill a well(s), I don't know if any lender would be willing to go to the trouble? That's just my thoughts off the top of my head.
Never really got any input on the idea that Falcon might only have commit to 1 1/2 wells prior to any sell. The company will be required to participate in the SS-2H to obtain rights to that 6400 acre participation block. The SS-3H well will be drilled after Falcon is qualified to receive the additional Tamboran carry of 3.25 million towards its portion of the SS-3H well which I believe covers about half its cost? Concerning the SS-3H well being drilled on the same pad (participation block), would there be any real reason for Falcon to participate in that well since it has already earned rights that acreage? As I see it, all Falcon would lose is their share of the production of that SS 3-H well. Likewise, on the SS-4H and the SS-5H well. The future produced gas of these three wells would only minimally impact Falcon's sale price of its 22.5% of 4.6 million acres. There may not be any need for much dilution, sale of assets or debt as you mentioned.
This scenario may not be correct as I'm not clear on how the sole-rights clause works and how the participation acreage blocks are laid out. Maybe someone who has better knowledge can address this.
Longknife: I have no direct connection to the future :^) I was just being conservative with the 4X figure. I would hope 6X - 7X would be a better figure but then again those are just my guesses.
Shalamar9 - I believe they will do an IP-30; IP-90 and even an IP-120 on both wells. I do recall seeing they were going to be going directly into the pipeline with these IP flow test(?) Never seen that done but I have read they do that in WY in the US in areas that are more sensitive to open flaring. I assume they use a skid mounted mobile processing unit - I have seen those units but have never seen a flare test utilizing one - that's a good question for Philip.
805slo: That was what I was told from a very knowledgeable source. I also questioned that, but I assume Liberty is not going to move equipment in place until they can frack both wells. It could be an issue with pad size and needing to move the rig off location before fracking trucks can be moved onto pad? Not a big deal as I mentioned - With Liberty's new equipment/personnel, it will only take them about 2 weeks to frack each well. Then we have the next 4 wells - will they be done the same way - I'm guessing so. Thats not uncommon in the Permian Basin as you will see 4-6 wells drilled before they ever move in fracking equipment.
805slo: I agree with what you posted but want to add one minor point and a few other comments. The two 3K wells to be drilled this year will both be drilled/cased back-to-back before they are fracked back-to-back. We therefore won't see the IP flow rate of the first well before the second is drilled/cased. With Liberty being capable of fracking 5-6 stages a day, it won't take too long (~ two weeks) to actually frack (60 stages) of the SS-2H well and then proceed to the SS-3H well. Even at fracking/clean-up, from what I understand, these wells after completion will all be shut-in until all 6 wells are drilled/fracked and the gas processing plant is in place along with the pipeline connection.
As far as the selling, I believe it was all the distressed shares along with the hot money looking for a quick profit. I suspect that we will soon see the end of the selling pressure and then the stock should begin to rebound. I'm not familiar with the London and Canadian market but as 805slo indicated, not many shares were even sold on the US market today - I believe only about $65K - just not any buyers yet.
I feel more optimistic, relaxed than ever about Falcon - that 6.4mmcf/d flow rate was as mentioned a 'stellar' rate. Falcon has sufficient funds to drill the next two wells before it has to go for another raise - I suspect by that point with a couple of 3K 18-20mmcf/d wells under their belt the stock price will be in much better shape if Falcon is still around by then - if not, I'm confident that Falcon will be sold before all 4 wells are drilled next year - Falcon has a sell by 1/1/26 date.
Also don't forget the sole clause rights of Falcon - after the first of the 4 wells in 2025, I believe Falcon could opt out and only loose the production of the following three wells having already earned the 6400 acre participation block surrounding the first well - that production on two=three wells is not going to affect the purchase price of Falcon's 22.5% of 4.6 million acres. - Someone check me on that!
If I had the available funds, I would be buying right here - with this current price I can see at least a 4X return by the time we sell. Falcon owns 22.5% of "The Largest Undeveloped' Shale field in the world. This last week we got a peek under the blanket at what this gigantic field holds. Would anyone care to guess how many 3K wells can be drilled on the current 1-million-acre deeper horizon? Likely about 2000 wells in the Velkerri B alone! And then as Philip said, the Amungee field with its 5mmcf/d normalized rate is no slacker. Some company/conglomerate is going to want Falcon's 22.5% of this its potential concession.
We have some pretty sharp guys with their recent thoughts on this news. Thanks to smallfish9, newtofo and 805slo among others!
This is indeed fantastic news - great flows, great prices per mcf and 1 million acres of what appears to be very predictable geology. I agree that Tamboran will be much better received in the US market than the ASX - much more capital chasing shale gas. Tamboran couldn't be moving at a better time!
Falcon is facing a huge overhang of distressed stockholders who have been in this stock for too long trying to make a quick buck - now they can put this stock behind them. That's fine in my book as Falcon needs to get out from underneath these shares before it can seek a new higher level. We long term investors will be well rewarded by staying the course over the next couple of years. After these great results, I am expecting US $.45 - .60+ after the next two horizontals are drilled.
As 805slo pointed out, Falcon and Tamboran are two different animals. While both companies depend on the success of the SS1H and future wells, Falcon will be evaluated as an acquisition candidate whereas Tamboran will be evaluated as an operating company. I think short term the market is going to give the higher assessment to Falcon as a pure buy-out candidate with its much lower ORRI burden.
I am looking forward to an exciting and eventful next 1-2 years. Hold your shares tight throughout the next couple of weeks of churn - we that hold tight will get the last laugh! This is the world's largest shale play outside of the US and all eyes will be on it.
Sorry - message was cut short with the important statement that the US is now playing a different shale game - the larger the exposure to shale the better - it's a sweet spot for Tamboran's stock issue.
.........“He’s one of the last original wildcatters, funding things out of your own back pocket and taking risk. We’re playing a different game now.”
Autrey turned down $10 billion dollars for Endeavor about a year ago - many thought this was crazy move at his age. Guess he proved the oil community wrong with Diamondback paying him $26 Billion - Endeavor was a privately owned company mostly owned by Stephens - now that's a nice payday!
The US market appetite for Shale will only benefit Tamboran as a new shale operator being associated with the largest shale play outside of the US that has Sheffield's endorsement. The frensy might help attract a larger player to the Beetaloo.
"Consolidate Or Get Eaten": Wall Street Finally Embracing Shale After $250 Billion In Oil Deals Last Year
It's no sooner than we've been documenting the collapse of ESG and 'clean green investing' on Wall Street, than the world of finance seems ready to give a big warm embrace to shale drillers.
It's almost as if money managers wind up chasing wherever the best returns are. Imagine that...
Bloomberg wrote last week that shale is now in an 'arms race' with Diamondback Energy Inc.’s takeover of Endeavor Energy Resources LP announce last week capping $250 billion in oil and gas deals last year.
Diamondback, self-proclaimed as "the must-own" stock in America's wealthiest oil region, saw its stock soar 11% within hours, defying the usual downturn faced by acquiring companies. This surge signaled strong investor endorsement - something the street hasn't seen in oil for years.
Mark Viviano, a managing partner at Kimmeridge Energy Management Co. told Bloomberg: “It has become a big-company game. Now you have an arms race for operational scale and investor relevancy.”
The report noted that as the shale industry evolves during a period where energy constitutes only 3.8% of the S&P 500 Index, despite the U.S. leading in global oil production with 45% more crude than Saudi Arabia, the sector has seen significant consolidation.
The number of publicly traded shale companies has decreased by 40% in six years to about 50, Warwick Investment Group LLC notes.
Kate Richard, chief executive officer at Warwick, said: “It’s kind of like Pac-Man right now: consolidate or get eaten. We’re probably going back to the ‘70s, where there were seven to 10 major players in the US.”
Diamondback CFO Kaes Van’t Hof added: “It put us in a new weight class, which is a good thing in this business. The perception is that bigger means more durability.”
Following the deal's revelation, Diamondback now trades at 9.9 times earnings, surpassing EOG, which opted out of the current acquisition frenzy. This leap will elevate Diamondback from 275th to approximately 150th in the S&P 500 by market value, capturing the attention of major investors eager for greater involvement in the Permian Basin, the abundant oil field across Texas and New Mexico.
Deloitte's Teresa Thomas commented: “Big buyers are likely to spearhead a fresh wave of efficiency gains driven by technological advancements in both production and cost management.”
Endeavor founder Autry Stephens is now set to become America's richest oil magnate after the deal closes. Sam Sledge, CEO of Midland concluded: “He’s one of the last original wildcatters, funding things out of your own back pocket and taking risk. We’re p
805slo: Like you, I am expecting better than Falcon's conservative 3mmcd/d/1000 meters. Keep in mind that the day before the Amungee 1H results were announced, Falcon's stock was trading about US $.05 - .07/share - shortly after the discovery was announced the stock ran up to your US $.32/share. - Wish I had sold that week but greed along with not fully understanding what was in front of Falcon enticed me hold my shares a little too tight :^) I am hoping if this announcement is good, Falcon MAY get up to US $.25. With the beginning of the pilot program, we might see US $.45 - US $.50 by year-end. IMO, this stock will be a nice hold unless it gets really ahead of itself - I suspect with all the stock's 'overhead', getting ahead of itself will be a challenge. I do feel like we are finally turning the corner - for me it's been expected 2–3-year investment turn into a 10+ year grind.
GLA
Newtofo: You bring up a good question on fracking the remaining 500 meters of the SS1H well. If TAM is going to be fracking additional wells on the same pad, would it be economical to go back and complete the last 500 meters of the SS1H well since frack trucks/equipment will be on location. Then there is the question of what operational hurdles might need be crossed to go back in and frack that final 500 meters - TAM reserved that last 500 meters in case the first 500 meters wasn't successful so I assume that could be done?