Falcon Oil & Gas (LSE:FOG) — Beetaloo Update and Q&A session

0:01 Good afternoon, ladies and gentlemen, and welcome to the FALCON OIL and GAS LTD B2Lu update and Q and A session. Throughout this recorded meeting, investors will be in listen only mode. Questions are encouraged. Can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. Due to the significant attendance on today's call, the company may not be in a position to answer every question it receives during the meeting itself. However the company can review all questions submitted today and we'll publish those responses where it's appropriate to do so on the

0:32 Investor Meet company platform. If I could please ask investors to hold off submitting their questions until we have addressed those that have been pre submitted just to avoid any duplication. That would be most appreciated. And before we begin, I would just like to submit the following poll. I would now like to hand you over to CEO, Philip O'Quigley. Philip, good afternoon, sir. Before I get started, I'm I'm almost mildly amused and, you know, somewhat entertained by some of the well intentioned comments posted on the bulletin board, usually in the hours or or days after an investor meet like this. Comments, you know, interpreting my posture, a raised eyebrow, a misplaced smile. So let me make this really clear. This is my happy face. This is what it looks like when you've got fantastic news to share with everyone. So hopefully, you'll get used to this for perhaps the next thirty minutes or so.

1:21 And just moving on to what we announced today in our press release, truly the waiting is over. The results are in. And I hope you appreciate the results are truly stellar. And now we can claim just how comparable it is to the huge US Marcellus in terms of its gas flow characteristics. It took them ten years in the Marcellus to get to this level of well productivity. But this result announced today did not happen by chance. And there was a lot of learnings from past endeavors and mistakes and a lot of input from some key people over the last six months. And I hope to touch on most of that during the following Q and A. So enough of an introduction for me. Let me hand you back to Jake and he can start the Q and A. And again, thanks everyone for submitting so many great questions.

2:09 Hi, Philip. That's great. And perhaps if we dive straight into, as you say, we have had a number of questions submitted pre event and some great questions as well. The first question that we have here reads as follows: You've just reported an IP30 flow test of 3,200,000 cubic feet of gas per day, normalized over a thousand meters at 6,400,000. First of all, congratulations on what looks like a great result. How does this compare with your expectations?

2:35 Yeah, thank you. And yes, truly, the results announced today compare very, very favorably to our expectations. Our modeling, as I would have said previously, it shows Beetaloo is economic when you have an IP30 of about 3,000,000 cubic feet of gas a day as measured over 1,000 meters. So to come in at twice that, yeah, that's truly a fantastic result for everybody. Perfect. Thanks, Philip. Just turning to the next question. How does the IP 30 flow rates compare to, say, The US Marcellus?

3:07 Look. Yeah. Sure. Very well. As I mentioned in the introduction, you know, we've always been comparing ourselves to the Marcellus. And so the answer is very favorably. It took them years at the Marcellus to achieve rates like this. The last IP30 flow rates that we can find in terms of being reported the Marcellus, they come in at around 2020 is the last date we can see. They come in at 16,800,000. So when you extrapolate our results announced this morning, they translate to an IP 30 over 3,000 meters or 10,000 feet of around 19,500,000. So it's more than fair to say that we compare very favorably now with the Marcellus. That's great. Just looking at the next question that we have here, which relates to the results of the Imungi-two well. The question says the results of the IMANJI-two were disappointing to say the least.

3:59 What's changed here to get such great results?

4:02 Yeah, they were disappointing. We all lived through that, but we learned from it. Results were, you know, resulted in skin damage, which, you know, they inhibited the well flow from performing to its potential. But the team, you know, at Tambern and beyond, they learned from all of this. In addition to location of this well, it's in a deeper part of the basin. It's got higher pore pressure. Both of those are significant significant, contributing factors. But and that by no means implies that shallower reservoirs or lower pressure, let's say, Munji or anywhere else in the basin, you know, wouldn't work. Mean, they will work. Perfect. Thank you very much for that. What were the key operational changes, that were made when drilling or fracking this latest well?

4:49 Yeah. That's probably a real key question for this. In fact, you know, there were a number of changes, some of which were introduced by our our one of our major shareholders, Brian Sheffield, and obviously a partner JV partner in the Bitadoop and his team at Daily Waters. The first big one was around the frac design. Brian recruited a petroleum engineer, Ross Harvey. And Ross has, you know, many, many years of experience designing fracks in The US. And he designed, you know, fracked basically an optimized frack, ahead of us starting the fracking operations in The US, sorry, in the beach loop. So that was a significant number one. In addition, the team together with some help from Daily Waters implemented work practices and procedures to mitigate against the potential for any, you know, future skin damage. And again, Brian went out and recruited, Dennis Martin, I believe his name is, who's a completion supervisor.

5:41 Kind of Dennis's MO is attention to detail. And there's no that that kind of attention to detail, was another contributing factor that led to this success. But, you know, at the end of the day, hats off to, you know, Tamron, our operator, Farron, Ed, and the team. You know, they basically executed a brilliant drilling and fracking job. So it's a it's a great job. Well done to all. Perfect. Thanks for that, Philip. The next question that we have here says, it's a nice result, but it's only over 500 meters. How repeatable is it over, you know, longer horizontals?

6:16 Yeah. I I that's another great question because people do question that as to, you you've got 500, what does that say? Can you go to 3,000? Can you do that times six? And then can you go further? You know, the answer is it should be very repeatable. You know, we're going to have to tweak some of the operations, for example, sand handling around bigger fracs going forward. But the frac design, which now works with this shale, I mean, that in itself is totally repeatable. You know, one of the big changes when you look at operations, which was introduced by Tamborn last year, when they brought in H and P to do, you know, drilling with a 2,000 horsepower rig, you know, using that kind of horsepower in future wells is, again, very repeatable. Know, H and P, for example, you know, they run a very steep learning curve since arriving into the Beadaloo last year. And they demonstrated their ability to drill fast and very cost efficiently.

7:09 The 4,000 or so meter well at a Mungi 3H, that was drilled in eighteen days, which is like twenty days faster than it took us to drill the Mungi 2H. So that when you think about us going forward is again another repeatable part of the operation. And then finally, the other major change Tamburnt is looking at introducing, in fact, they've signed a strategic partnership with a leading North American energy services firm, Liberty Energy Inc. Liberty has significant and subsurface engineering expertise, and they plan to import a modern frac fleet into the Beetaloo Basin in 2024, you know, that support the whole Shenandoah South pilot program that I talked about in our press release. And this will come also with a dedicated operations crew, you know, US operations crew provided by Liberty. So you add all of that together, yes, we know we've got a lot of confidence that we can step up from 500 meters to 3,000 and then repeat that over Manuel's.

8:09 Thanks, Philip. That's great. The next question that we have asks, if we take the IP30 day flow rate of 3,200,000 over just 500 meters, is it fair to extrapolate this over 3,000 meter pilot development wells? Yeah, look, assuming the geology is similar, we do assume that we're staying in the same area. We'd expect production across 3,000 meters versus 500 to be pretty linear. We wouldn't see much of a difference by extending the length of a lateral out to 3,000. So yeah, I think it does translate quite well up to 19,500 MCF which in itself is a huge number.

8:47 Perfect. The next question that we have here asks, in earlier press releases you mentioned the importance of the area around Shenandoah being over pressured. How important is this to the results we have seen today? Yeah, you're absolutely correct. We did announce it last year, we carried out a defit, and that demonstrated a pore pressure of 0.54 psi, which is significantly higher than what we've seen in the Mungi area, for example. But this is no doubt that this increase in pore pressure is definitely a significant contributing factor to today's results. But it's not the only factor. As I mentioned previously, know, we did a complete redesign of the frac, which clearly worked. We learned from our mistakes when fracking Amundi two, which also worked.

9:33 We've H and P doing the drilling. And all of this is repeatable. You know, sure, you know, the high pore pressure, it's a real bonus. And we certainly plan on staying around the Shenandoah area for the pilot development and beyond. But again, I have to stress, you know, it's not all about depth and pore pressure in this BW. You know, we're still as excited as ever about the Mungi area. We love the results we got from, for example, the shallow Valkari 76 well drilled in 2021.

9:58 And then you just have to look at the success that Empire Energy is enjoying from their very much shallower play in the basin. So, you know, we're we're excited. We think it's it's it's you know, the results are good. The overpressure is a contributing thing, but it's not the only thing. Perfect. Thanks for that, Philip. And I know you just made reference to pore pressure. A follow-up question that we have here asks, do we know how big the area with this high pore pressure gradient is? Not really. It's a bit early. When you look at the depth map, you can kind of see a large area circa 1,000,000 acres of equivalent depth. But depth alone doesn't guarantee the same pore pressure gradient. But neither, as I said earlier, neither we completely reliant on such high pore pressure to produce excellent results.

10:44 Like I mentioned earlier, we believe that much of the beetle Basin will work at varying depths. It won't all look the same, but it does all look pretty good. And the good news is, in terms of our learnings going forward, we are planning on acquiring

10:57 300 square kilometers of three d seismic over this area later this year. And that might help us determine better the extent of this geo pressure area. Perfect. Thanks for that, Philip. Just turning on to the next question. Given the strong commercial indication of flow results announced today, can you give us an idea of how many full length three kilometer horizontals you are projecting to be drilled and fracked this year? Yeah, indeed I can. Now that we've got the commercial flow rate we've all been waiting for, the next phase is to commence pilot development program this year. This will involve a drilling of six three thousand meter or 10,000 foot wells in total. We plan on drilling and fracking two of them in 'twenty four, and the remaining four will be drilled and infract in 2025. And the good news is drilling will start in Q2 this year.

11:47 Perfect. That's great. The next question, while it may be too early, with the ninety day flow rate being a bit more accurate, can you give us an idea on what the EUR rate might be? Yeah, EUR. So for some estimated ultimate recovery of a gas resource per well, it is a bit early in terms of, you know, we've got so little data available. But, you know, if you look at what our operating partner, Tamburnt, you know, they're working on the basis of a 3,000 meter well delivering an EUR of around 17 BCF. And I think I saw from their presentations also last night, based on these increased IP rates, I think they're looking at increasing their estimate to up to 19 BCF EUR. Either way, these are fantastic numbers. But I think the question elusive, our confidence around an EUR number, they will increase as we get more data and certainly after the IP90 flow rates, which we will be announcing in around about sixty days time.

12:43 Perfect. The next question says the Tanbaran presentation last night refers to a secondary lower B shell that is indicated as being 180 feet thick. Is that what we use to call the seashell zone? And while it is too early to be looking at at stacked plays in the B2L, would this 180 feet of thickness and relatively strong gas shows indicate that stacked plays are a very real possibility for any future buyers that may be looking to buy FALCON's interest in the B2L? Yeah, it's correct in all regards. But yes, is too early to contemplate looking at stock plays in the B2Lu. You know, where our focus is going to be on the emerging member B shale, the one we produce this result from. That's where we're going to land our pilot in.

13:29 But rest assured, when the time comes for FALCON to think about being acquired by a third party, we'll be making the most of this stacked plate potential for sure.

13:38 Perfect. That's great. Thanks for that, Philip. The next question that we have here talks to the Amunji 3H and asks, given the Amunji 3H has been drilled and cased by H and P already, will you and the JV partners look to utilize Liberty again this fall to frack that 3H well and potentially book more reserves? No, our immediate focus is on the pilot development. And we're deploying all our resources, capital and everything else delivering on this pilot by the end of twenty five. We look at an opportune time to go back to the Mungi three when we're back in that area, but no final decision has been made on that regard at this time. So no, the focus will be on the pilot and not on the Mungi 3. Perfect. That's great. Perhaps just a follow on question, which asks, if the Liberty crew and equipment arrive early enough, will you and the JV partners look at utilizing Liberty to frac the

14:31 remaining 500 meters of the SSH1 for more gas into the Amedas pipeline? Yeah, the Amedas pipeline. No, that's not all neither that in the plan. No, the Shenandoah one well, it was an appraisal well. It was never designed as a production well to be tied into production. The six wells we've talked about that we're going to drill as part of the pilot development, they're going be drilled from a new pad, which sits about four kilometers, you know, roughly two and a half miles north of this Shenandoah well. And it's those six wells that will be tied into the gas gathering and then plan to sell that gas into the Northern Territory. We'll come back at some stage later and we'll be back down, you know, two and a half miles south back at the Shenandoah one and then perhaps then we might recomplete the extra 500 and turn that small 1,000 meter lateral introduction well, but not for the foreseeable.

15:21 Perfect. Thank you, Philip. The next question that we have here asks, can you provide an update, on the political and social environment regarding fracking in Australia and and what impact this has on your prospects?

15:33 Yeah, look, most shareholders familiar with the FALCON story would be familiar with the moratorium we had back in twenty seventeen-eighteen, and that delayed exploration of Grazer for, you know, up to two to three years. But since we adopted all of the recommendations that came out of the PEPRA inquiry, you know, the political stroke government environment regarding fracking is quite positive. Tamron, you know, invest a lot of resources and have a dedicated team that most of which came out of Origin Energy based in Darwin. And they they work with all stakeholders, including the pastors, native title owners, Northern Land Council, and obviously the government. And the work done by this team, and its ongoing work, it ensures the best outcome for all stakeholders. So we don't see the environment having any negative impact on our prospects at all in the B2B.

16:20 Perfect. Thank you for that. Just turning on to the next question. You mentioned some earlier press release, that beta lu gas is estimated to be very low in CO two. Can you please elaborate a bit, a bit more on this point? Yeah. Thank you for bringing up that question because it's it's often missed. You know, firstly, the Vetaloo joint venture, we are committed to making the Vetaloo carbon neutral. That is our our clear intention. And with this low co2, I think we reported 3.4%, you know, with a significant economic advantage over our neighbors in making that happen, due to the fact that it is so low, it'll cost so much less effect to get to that carbon neutral position. So we compare, you know, if you look at fields in the North, offshore, you're looking in the high teens, 18%, 17%, 16%. So with 3% to 4%, it's a significant advantage for us. As I said, it paves the way for us to get to that carbon neutral position.

17:17 Perfect. Thank you for that. We have a question here which asks, what percent does Brian Sheffield own of FALCON?

17:24 Yeah. Brian owns 9.2, 9.3% of the company. He also owns a 2% overriding royalty interest, over FALCON's 22 and a half percent interest in the Beetleu. Not a that's so that's not an equity. That's a direct overriding royalty. And he acquired that back in 2022 for about 6,000,000 US dollars. But, you know, in in in terms of the question about Brian and the shareholding, mean, it's much more, you know, than Brian shareholding that's important here. You know, he's hugely supportive of FALCON. He's hugely supportive of the BITALU. He's invested considerable capital, resources, expertise. And now, of course, he has a fifty fifty partnership with Tambern where he has a direct working interest of 2875% of our joint venture. So it's as I said, it's not just about his nine percent of the company, it's how it affects all of us. It's his interest across the entire of Peterloo, which makes it very interesting.

18:19 Perfect. Thank you, Philip. The next question asks, would you be so kind and clarify for all shareholders what your current thinking and timing may be for selling all or part of FALCON's 22.5% interest and whether you see that as possibly being more than one transaction given that the pilot program is focused on the deepest dark blue area of the B2L?

18:42 Yeah. When when when people ask that, think what they're talking about is selling, you know, direct interest in the beta lue as opposed to selling the top co. So, you know, we've no immediate plans to sell, you know, either any or all of our 22 and a half percent interest. Excuse me. I would have mentioned on earlier calls, you know, farming down, for example, or selling a piece for 22 and a half, it's it's hugely dilutive, first of all, and it's extremely tax inefficient. So, you know, we don't have any plans of dealing with our in going down from '22 and a half percent to anything south of that. And our our plan is going forward is to commit to the pilot program at at our 22 and a half percent. But maybe the other part of it in terms of selling, you know, all of FALCON, you know, the publicly listed entity, you know, that's something as a company we'll we'll always be able to explore in that one.

19:29 And that's not to say, of course, that the the for sale sign is going up just now. Like I said, our plan, we're gonna commit to the 22 and a half percent in the pilot. And then perhaps, we'll see what opportunities present themselves after or, in fact, indeed during the pilot phase. Perfect. Thanks for that, Philip. And perhaps just a couple of final questions that we have here. Do we know when the pilot production will commence and how this may affect FALCON?

19:58 Yep. If everything goes according to plan, we hope it will, and there's no reason to suggest it won't, we should be in production by first half of twenty twenty six. And we'll be selling, you know, through the Amadeus gas pipeline up into Northern Territory, something in the order of 40,000,000 scuffs of gas a day. How will this affect Falcon? I mean, in a few different ways. Firstly, we'll be in receipt of production cash flow, which is kind of always nice, that always helps. I think the real impact, of course, will be how the market, the industry, other interested third parties, how they will now view the BITLU now that's in production and cash flow. I So think that's the kind of the bigger impact it's going to have on FALCON. Perfect. Thanks for that, Philip. And perhaps the final pre submitted question that we have here, which asks, has FALCON had any interest from prospective buyers?

20:50 If so, at what price would FALCON consider selling? Oh, it's always always a good question, that one. And the answer is always, I suppose it depends. Look, we're not soliciting any interest from prospective buyers, not right now. As to what price we would or could or should consider selling. That's always going to be a moving target. And the price will always vary, obviously, depending on the level of success. But I think more importantly, on how long we wish to stay in the people You know, I'm sure based on these results today, and the forward program we've announced, you know, we could find somebody who could maybe take an interest in acquiring FALCON. But truly, value proposition will increase significantly as we progress through the pilot development, you know, and announce, for example, first flow rates of our first two, three kilometer wells by the end of this year. You know, similarly, we look at it as, know, the value proposition will increase further again, after the pilot is completed, you know, and when we're in positive cash flow.

21:48 So I guess the way to answer your question is the long, the longer we continue to have success, and the longer we stay in the beta loop, then the greater that price we should be expecting in terms of looking to sell it. But somewhere along this, what I call the time valuation curve, you know, an opportunity will present itself that that probably will make sense, for FALCON to exit. Perfect, Philip. Thank you very much for that. We have also received a number of questions, throughout, the presentation this afternoon.

22:17 And if I may now just hand back to you just to read out those questions and give your responses where it's appropriate to those, and then I'll pick up from you at the end, that would be great. Okay. So I am looking let me just pull them up here. I'm surprised the stock is not responding to great results. Can you comment on that, please? The short answer is no because I'll I'll never I'll always struggle to understand how the market works. I think if you look at FALCON, the last time I looked before joining this call, I think our shares are up 40 ish percent year to date. So people were expecting good news, and a 40% year to date is probably not so bad. People might have expected a lot more, but as I said, I'll always struggle to fully understand how the market reacts.

23:06 Question, will you let small investor participate if you do any equity raise? Probably in terms of small if we do an equity raise, it's it's generally done through a kind of a private placing. So the simple answer on that is no. If we're doing something else like a a rights or something, we would, but we're not we're not contemplating that. What about FALCON's capital reserves? Can we follow the bandwagon on it towards the next project points with any major capital increase? Look, we have what have we got? We got 5,000,000,000 US dollars cash left in the bank. We've got a bit of carry left. But if we wanna play and that that keeps us going for a while. We can we can get on with the initial phase of the the pilot. But if we wanna stay at our 22 and a half percent, you know, we're we're gonna have to look at how we fund that. And we're as I said in our press release, we we look at all options on how we possibly possibly fund fund that. That.

24:00 In terms of what the estimate for the total CapEx, I'm not, you know, we're not in a position to talk about what that might look like. In terms of the total CapEx, we'll update the market as the time is right to talk about what those costs, may look like. Next question. If all six wells will be drilled beginning q four produced a gas well that are currently double, what would the hopes for the stock price be? Again, who knows what the market will say. But as I said in my earlier answer to a question, the longer we ride the kind of the the valuation time curve, the higher that price gets, the further out we go with success into '20 end of twenty four, into '25, cash flow '26. Each step you go, you're going to have an incremental increase in that value. But I can't predict for anyone what that price might be.

24:52 What will it take, and what will you be doing different going forward than previous years for the market to get hot on FALCON to finally see a rise in price? Look. There's nothing is better for a market in terms of how it reacts to share price and producing results like this. So that's what we got to keep doing. We can do all the investor relations in the world we like, but without great news like this, that doesn't work. This kind of news together with a good investor relations program is what will transform this. This together with the likes of Brian Sheffield's involvement, H and P, Liberty Energy is drawing a lot of attention and focus from The United States. And that's all pretty good. When you get past the first 2,000, 3,000 kilometer wells, and they sorry, 3,000 meter wells, and they start producing IP rates, multiples of what we just announced, that's going to get detention, and that's what's going to build the share price.

25:56 Is FALCON's strategy now to be a producer of gas or to sell the asset before? Well, I think I've answered that question. We're not around here to turn FALCON OIL and GAS into an oil company. We are an oil company, but not to become a major oil producing company. We're going to build value and create an exit over the next, you know, is it eighteen months? Is it twelve months? Is it twenty four months? But yeah, so we're planning planning on staying that exit strategy. There's a few more questions here on funding. As I we're funded initially for the for the short term, but we look at various options, as I said out in the press release, Many options open too, so we'll explore all of those. What are the likelihoods of first gas being produced in 2026?

26:43 Very high. So, know, Tambern, you know, they've got all the key ingredients in place. So we have the rig in the Beetaloo, we have Liberty Energy with the strategic partnership signed up. We have a plan to drill the six wells, as I said, two this year, four next year. And if that all goes well, and should and on time, we will be producing gas in the first half of 'twenty six. So, yeah, likelihood is very high. Question, where do you see a fair share price? Multiples of where we are. I believe that you've run out of carry, what are your fund requirements? Again, similar questions to previous carry is almost gone. We've got close to 2,500,000 US net to us. So that's 16,600,000 Aussie gross left.

27:34 And yeah, we look at various options. You know, with these kind of results and the options we have available to us, and also with the options around our flexibility that I might have mentioned on a previous call in relation to

27:47 these participation level, whether we stay at 22.5% or we can go down to 20%, we can manage our way all the way through this pilot and beyond. So we've got plenty of financial flexibility. I just see if there's any more questions.

28:09 More questions on the on the share price. Again, look at I mean, I'm I'm no expert in how markets the psychology of the market, I'll I'll never fully understand. And I think in time, I think the real value will come through and it'll come from industry. It'll come from other things going on, not just the market's reaction to an event or a news item. And I think you'll see serious value appreciation over the next twelve to eighteen months for sure. And I think that's it, Jake. So Yeah. Philip, absolutely. And thank you very much indeed for being so generous of your time there, addressing all of those questions that came in from investors. And of course, if there are any further questions that do come through, we'll give these back to you immediately after the presentation has ended, just for you to review to then add any additional responses, of course, where it's appropriate to do so. We'll And publish all those responses out on the platform.

29:02 But Philip perhaps before really just looking to redirect those on the call to provide you with their feedback which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with that would be great. Yeah. Again, thanks, Jake, for doing that. And once again, thanks, everybody, for attending. Especially thanks for all those who submitted so many great questions. I hope you got a better appreciation of what these results really mean and what the future holds for your company. And sincere thanks to all you incredibly loyal shareholders of FALCON over so many years, and I've got to know so many of you. But in case you're in any doubt, let me make one point very clear. What we've achieved over the last few months and announced today, it really is just the beginning. It's a big turning point. It's the one we've been waiting on for a very long time.

29:48 So, we're now set for a complete new path forward. And we've got a lot of excitement to look forward to and a big drilling campaign and lots of news flow. And with that will come the share price appreciation that so many people are keen to see. So once again, thank you all for attending. Philip, that's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of FALCON OIL and GAS LTD, we would like to thank you for attending today's presentation.

30:33 That now concludes today's session, so good afternoon to you all. Thank you.