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UPDATE - Falcon Oil & Gas cleans up Beetaloo royalty as it advances farm-out process

Last updated: 10:18 01 Nov 2013 EDT, First published: 11:18 01 Nov 2013 EDT

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Falcon Oil & Gas (LON:FOG) has agreed a deal to remove the 4% royalty over its assets in the Beetaloo basin, in Australia.

This piece of corporate housekeeping comes as Falcon is pursuing a farm-out deal.

Initially it is paying US$999,000 upon signing the deal, then it will pay another US$999,000 to buy out a 3% overriding royalty interest (ORRI). The second payment will be made once a farm-out deal is completed.

The remaining 1% royalty can be bought, at Falcon’s option, for US$5mln over the next five years.

“We are delighted to have negotiated this reduction in the overriding royalty on our Australian assets,” chief executive Philip O’Quigley said in a statement.

“This transaction should help to further progress our farm-out negotiations, which are at an advanced stage.

“Together with the significant seismic programme completed last year, this transaction further increases the value of our assets in the Northern Territory."

In July the group took back full ownership of the four permits because US giant Hess had elected not to pull the trigger on a five-well programme, after being refused a month-long extension to its agreement with London and Dublin-listed explorer.

However, Falcon had what it described as "unsolicited interest" from other large companies looking to partner on what is shaping up to be a world-class conventional and unconventional oil and gas play.

Falcon has been carrying out a new farm-out process since then and in September O’Quigley revealed he was confident a deal would be ready “at the shorter end” of the three to six month timescale it takes to tie up these sort of agreements.

The shares rose 9.5% to 13p, still half way to broker Cantor Fitzgerald’s price target of 25p.

It said: “In our view, a reduction in the ORRI should help to further progress farm-out negotiations, which management confirms are at an advanced stage, by increasing overall project economics against a backdrop of considerable initial investment on behalf of Hess Corp.”

Cantor added that the company is likely to have the pick of major industry partners following Hess’s decision in July not to take part in a drill programme.


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