Falcon Oil & Gas (LSE:FOG) — Investor Q&A

0:00 Good afternoon, and welcome to the FALCON OIL and GAS Investor Q and A session. Throughout this recorded session, investors will be in listen only mode. We have received a number of pre submitted questions, and these have been grouped. So if you can wait until these have been covered to submit your questions, that'd be great to avoid any duplication. The questions can be submitted by the q and a tab situated in the right corner of your screen. The company may not be in a position to answer every question it received in the meeting itself. However, the company can review the questions for today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. We'll head into q and a session with the first question here, which reads as follows. There is a lot of information released by Tamboran and FALCON last week. Can you please talk us through the key highlights?

0:40 Yeah. Thanks, Alessandro. Yeah. It's in indeed, it's kind of funny because we sit around for month after month and there's kind of very little news, then all of a sudden, we get a gush of news like we did last week. So I guess there's, like, six key points I'd like to talk about. The first, obviously, is the good news that now the s s two h well has been opened up and put on production test. That's gonna be for initial 30. So we look forward to updating the market in around about mid June, and then we'll announce those flow rates. Really, I think the expectation on these flow rates will again, you know, demonstrate the commercial potential of the. So that was the first bit of good news. The second bit of news is in relation to the first ever sale of acres in the Beetleu, which was, to be honest, a surprise to us. We weren't aware of it. Delighted to see it because it involves a sale of a 100,000 acres at a $150 an acre.

1:31 And why this, we consider this to be really good news for FALCON. When you look at our net 1,000,000 acres at a $150 an acre, that puts a minimum value on FALCON's acreage of a 150,000,000. So when you look translate that down to our share price, 19 Canadian cent or 10p sterling, that's near a doubling of our current market value. That's not yet been appreciated by the market, but nonetheless, it is really, really good news. The third item, is in relation to the checkerboard. And, you know, we flagged this previously. We took we we we knew it was coming. It's now announced. What this now does is it confirms that Tamberin and Daily Waters, they've agreed a split of the acres previously owned equally between them at 38.75%. So should Tamboran now own and operate 77 and a half percent of 50% of the BLU, and then Daily Waters will own and operate 77 and a half percent of the other 50%.

2:25 And this, as I said earlier, this puts FALCON in a really unique position, because now we're the only company that'll have an interest in all parts of the checkerboard. The fourth item of news, again, relating to the checkerboard, is the fact that people will now have a new and additional operator in Daily Waters. So, again, more good news, another operator coming to the BLU. And to be honest, you know, FALCON, we're really looking forward to working with Daily Waters, we've had a an exceptionally good relation with them for the last two or three years since they first entered into the. And then, fifthly, not, you know, quite significant, is Tamron has successfully raised an additional $55,000,000 in the form of equity, and that's together with the 15,000,000 they got from the sale of a 100,000 acres. So that $70,000,000 they've just raised last week means that our operating partner is now, you know, fully funded to complete, the next phase of the pilot drilling, and then commence commercial production.

3:20 And then lastly, and probably most significantly, I think, and again relating to the checkerboard, is that Tamron has announced that they their intent to farm out an area of about 406,000 acres in the Beehulu. And why we think this is such a significant news item is because if they have if they're successful in bringing in another player, you know, maybe a major or a super major, maybe somebody who's gonna be an operator, maybe somebody who's got LNG offtake in and around Australia. This will, you know, no doubt put in another significant valuation marker on the and more like more likely will also attract significant interest from, you know, other industry players and indeed equity players. So, you know, last week, as I said, we had a a gush of great news, and, you know, I see some more questions which which I'll talk to in terms of addressing some of these items of news I've just spoken about.

4:16 Philip, you stated in the press release that the sale of the 100,000 US dollars acres by Tamboran to DW puts a minimum value of a 150,000,000 US dollars on FALCON. Why do you think why do you think it should be more? Yeah. Again, it comes to the location of these acres. So if you looked at Tamron's press release, about 21% of the acres that are required by Daily Waters are actually they're nowhere near the pilot. The way up northeast part of our joint acreage adjacent to a block called E P 161, which is operated by Santos. Now look, this could be really, really good acreage, but we today, we'll place a lesser value on these acres simply because they're so far away from any development right now. The other thing is that the remaining 79% acquired by Daily Waters, you know, it's located immediately north of the pilot area, but man much of those acres actually is further north and and even outside the core deeper part of the basin where no wells have been drilled to date. So when you look at those where where the acres are relative, if you're buying or selling acres in and around the pilot itself, we think that would attract a significantly higher value. But nonetheless, you know, a $150 an acre is a is significant uplift in value from where we are today.

5:28 So Tambran has engaged RBC to farm down the phase two development area. How much of this area does FALCON own, and will FALCON be participating in Tambran's farm down?

5:40 Yeah. Look. As as it as applies to, basically, almost all of the beetle of acreage other than a small area around the the pilot, FALCON owns 22 and a half percent of this area. When it comes to the question regarding participating in Tambern's farm out, daily waters have tag along rights, so they they can, you know, participate in the in the farm down that Tambern negotiates on the same terms as Tambern. We don't have such rights. That's not to say Tambern might not approach us and say, would we like to participate? But, you know, were we invited to to participate by by Tambern?

6:16 You know, it would really depend on what terms Tambern had secured from the farmony and maybe who the farmony is. But remember, farm now will probably involve, you know, a carried work program to be at a number of development wells or a commitment to spend a certain amount of CapEx. But you've gotta take into consideration, you know, our optionality of going nonconsent in any new area. So we could go nonconsent, for example, in the first DSU. And therefore, rather than farming down 25 or 50% of our acres, we could just go nonconsent in the first DSU of 6,400 acres. But any deal, you know, when we look at it, we're not just gonna be what's the best deal in terms of the dollars, and how it translate in terms of preserving acres. We have to look at the whole thing of what makes best sense for the Beetaloo, to the whole of the Beetaloo, what would make best sense for FALCON.

7:09 And maybe if we were invited by Tamron to participate in the front, then it would make much better sense for us to do that regardless of maybe giving up more acres than we might otherwise do by going down the route of nonconsent in the DSU. But bottom line is, you know, we've got plenty of options. And depending on an invite for to participate, our options are even greater. That's great. Thank you for that. Next question asks if you have any visibility as to when DW commence drilling on their checkerboard acreage.

7:38 Simple answer to that is no. Can't really speak on behalf of Daily Waters. Yes. They're about to become an operator now that they own 50% of of of 77 and a half percent of the. My guess is, you know, they're unlikely to start drilling before the pilot program is completed. There's a lot of work to be done over the next, you know, six to twelve months, eighteen months, drilling three wells, fracking four wells, you know, and daily water sales. Even though they're not operator of those, they've got serious financial commitments given the fact that FALCON is at zero, daily waters and timber are each at fifth at 50% of those. So I think, you know, will they drill this year? Definitely not. Will they drill next year?

8:17 Maybe. But I guess in person, we'd say probably wait until the end of the pilot, and then they'd be working on building up an operating team and perhaps drilling in 2027. But that's as I said, I can't speak on their behalf. That's just my guesstimate as when they will start drilling. Totally understood. Moving to the next question. Are we actively promoting the potential to monetize a checkerboard area through a farm out? No.

8:40 And I've said this before in terms of we're not looking to farm down, you know, a piece of our 22 and a half percent. So we're not actively looking at it. Tambern and and Daily Waters, they've got operatorship in their respective checkerboard pieces. Plus, in most cases, they've got 77 and a half percent. So these are, you know, the two companies that are best positioned to, you know, actively go out and promote a farm out. We, anywhere along the way, might be invited to participate in the farm out, but we're not gonna actively look to farm out ourselves. However, you know, what we do offer any farm any looking to come into the b to do is, if you like, an insurance policy, you know, that they could do something more strategic with FALCON. Even, you know, at the same time doing a farm in e a farm in with the likes of of Tamper and Daily Waters.

9:28 And what I mean by that is, you know, let's say a major company farms into this phase two development area. They're not gonna know for certain, is is this this a good area, a great area, an okay, an average area, even a bad area. So they might look to FALCON. Given that we're the only company that's in every piece of the checkerboard, they might wanna do something to FALCON that would get them exposure to 22 and a half percent of the entire. So like I said, we're not gonna actively promote a farm out, but our unique position being in every piece of the checkerboard makes us a really attractive proposition for anyone looking to farm in however they wanna do that.

10:03 Thank you, Philip. Another question here. Under the checkable agreement, does FALCON retain the ability to choose how much it wants to invest in any block?

10:11 Absolutely. So all our rights that we have on an existing JOA over the entire 4,600,000 acres, they are completely preserved and protected and applied across all pieces of the checkerboard. So FALCON will continue to own a 22 and a half percent working interest in every piece of the checkerboard with currently just one exception, and that relates to the creation of a 20,000 acre DSU last year when we elected to reduce our interest in that DSU to 5%. So absolutely, all our all our rights, as I said, they're they're they're fully preserved and protected. That's great. Can you explain how Empire's planned fracking of three of a three kilometer well might have a positive effect on the value of FALCON's acreage?

10:52 Tom, do you wanna take that one? Yeah. Certainly. I'll take that one. The question's referring to, an Empire well that was drilled, and they're, getting ready to complete it. It's it's on their Carpenteria acreage, which is, pardon me, adjacent to our acreage, but pretty far to the east. It's in a shallower part of the basin, and it's likely gonna have a different pressure regime than where our current Shenandoah South project is. But, all of Empire's Carpenteria wells have tested gas, so that's good news. It's really interesting to note that it's this is over a 100 kilometers away from our Shenandoah South area, and that really demonstrates the size of this play. And while these flow rates may not be exactly comparable to the to the Shenandoah South area, because of the lowered, or the shallower depths and and lower pressures, that those depths and pressures translate into lower costs for drilling and completion for, Empire, and that certainly could make that, Carpentaria area commercially viable.

12:02 And we wish Alex Underwood and his team much success over there at Carpinteria. It's great. Thanks very much, Tom. Sticking to a similar theme, Tamborin's exploration and appraisal wells today have been very expensive. What significant savings can we expect in the future?

12:21 Tom, again, you've you've had a lot of experience in in starting a new fields and how you've seen costs starting very high coming down. Maybe Yeah. Every shale play in the The US that I've been experienced exposed to has seen significant cost reductions and cycle times over over time. And the the beetlew will will be no different. The one thing that would that impacted cost from the exploration appraisal phase was just that the beetle oo is just so remote, and that's had a significant impact on the cost. The JV was on a steep learning curve, on the drilling and completion side, but those costs will come down just like they have in The US shale plays.

13:06 There's lots of opportunities to cut costs. We've already seen that with the introduction of the h and p fit for purpose drilling rig, which cut the cycle time on the drilling side down significantly. But the other things that the the that'll impact the cost are if we can identify local sand for fracking, that that will have a huge impact on on every frac cost for future wells. And then just as as activity ramps up and we get more service companies to locate into the basin, so there's more personnel, equipment, and tools at hand that will have an impact on costs and cycle times.

13:54 Perfect. Thank you very much, Tom. I have another question here. For the more technically interested shareholders, why was the SS four h well stimulation aborted? And what can be done so that it can resume as part of the stimulation of the new wells? Yeah. Thanks for that question, submitted earlier. When Tamron was the operator, was completing our wells, the the two h sidetrack one and the four h back in February. On the four h, after having completed only a few frac stages, it was they noted a or detected a pressure loss and then went about the the work of identifying a casing stress or stress in the connection of the five and a half inch casing.

14:40 And so the decision was made to stop the frac at that point in time and and come up with a plan to repair the well. An attempt was made earlier this year to repair the well. It was unsuccessful, And Tamron right now is, has a plan. He's working on a plan to get the the the four h casing repaired and ready to to frac when the three wells that they plan to drill in 2025 are ready to frac. So that may be at the end of twenty five or sometime in the '26. It's important to note that none of these wells will be selling gas, so there's no real urgency to get this well, completed right now. You get economies of scale, if they if they frac it with the other three wells, that they intend to drill and complete, and gas won't be sold out here until mid twenty twenty six.

15:40 Alright. Thanks very much, Tom. Another question here. With FALCON's ability to partner with DWB and or Tamboran and its new farm and e partner, Might there be improved ways for FALCON to raise more money?

15:52 Yeah. Look. At any activity like this is is will help anyone in their ability to raise money. You know, the implementation of the checkerboard, you know, gives us, as I said earlier, a unique position. Been the only company in the beetle with interest in all pieces, so that that makes us very attractive. And anyone looking to invest would certainly look to Falcon, not just Tamber and Daily Waters as a vehicle, which, you know, as I said, creates this unique position. So, yeah, anything at all that happened with this will help FALCON raise more money should we need to do in the future. So it's it's all it's all pretty good news for FALCON. That's great. We we have another question here, a kind of a broader question on the domestic gas market and ask, what is the current domestic gas market like in Australia, and what positive impact will this have on Beteloo gas?

16:40 Like it's been for the last few years and I think for the foreseeable future, Australia gas market is very tight and getting tighter. What that means is we're seeing today gas prices in Australia, domestic gas price in Australia at, like, $12 Aussie dollars in MCF. So that translates back to about $8 US. When you compare that to US Henry Hub, which I think is around about $3.25, that's, you know, that's a massive two and a half times increase. So yeah. So we're we've been we've been talking about high gas prices in Australia for a few years, and I don't think there's any end to those high gas prices. So that makes us that'll that'll have a huge positive impact on the beetle of going forward. It's it's one of the big attractions for the beetle of not just the scale of it, but also because of the market you're gonna play into. And maybe just following on from that, what is the what is LNG trading at in medium term contracts in markets around Australia?

17:29 Yeah. So the LNG, the benchmark pricing for LNG in this part of the world is known as the JKM, the Japan Korean marker. That's currently the last time it up. I think it's, like, 18 Aussie dollars or rather it's in US. US dollar 12. So, again, you know, massive pricing scenario to be playing into. So that $12 on the LNG, $8 domestic US, that makes, you know, the beetle ooze. It's achieving commerciality in the beetle ooze becomes an awful lot easier with those kind of gas prices. That's great. Thank you, Philip. Another question here. Does the board of FALCON believe that gas is ubiquitous throughout the 4,600,000 acres?

18:07 Yeah. I'll I'll I'll take that question. That belief is not unique to our board. Industry has drilled many wells across the last fifteen years across a wide portion of this basin, and all the wells that have been drilled in the Valkyrie Shale have produced some gas demonstrating that there's a working hydrocarbon system out here. So what remains to be determined is where the sweet spots, the core, the tier one, whatever you wanna call it, the most economically viable areas. This was common to all The US shale plays again. There there will be sweet spots identified. Doesn't mean that that the tier two areas, are will be uneconomic because as more infrastructure is built out, more rigs, more equipment come into the into the basin, more takeaway capacity, that that could allow the the tier two areas to become economically viable as well. And we know that that Australia needs the gas.

19:09 So it's the the beetle is gonna be a critically important basin for for Australia. Understood. Thank you. Another question here. Is FALCON still seeking a quote on one of The US markets and still considering a share consolidation?

19:25 Maybe some color on that would be great. Yeah. So we went out to our shareholders last October, looking for consent to do the share consolidation. So our position with regards to US quote and and the share consolidation hasn't changed since then. These are matters that the board has continued to progress and will do so over the coming months. I think yeah, the approval, I think, was the October 30. So we still have a number of months to complete that should the board still consider to be in the best interest of the company. The the consent we got from shareholders is valid for twelve months. So if we complete it by the end of October, that's all fine. If If it's a case that we decide to push it into the q one of twenty six for whatever reason, you know, we may have to go back to shareholders and just get that shareholder approval when you but the answer to the question is yes. Absolutely. We're still considering both consolidation and a US listing.

20:12 Thanks. And final pre submitted question we have here is might one get a better idea of future acreage values from the proposed timber and farm down deal?

20:20 Definitely. I mean, you know, the the deal that was done last week, I think, is brilliant. As I said as as I said earlier, it's the first acre deal traded in the beetle doo, and it put a pretty good price at a $150 an acre. We're currently trading at about $75.80 dollars an acre. So that's a that's a step up in value, you know, in terms terms of of a $150,000,000 is what would be the applied value to FALCON. In terms of, you know, farmer a Tambern farm down, you know, this would most likely be in the form of a carried work program, not a direct sale of acres. So they're not directly comparable, but they're pretty comparable. I think one of the key important components of any farm down there won't just be the dollars. You know, it could be actually who it is. So if you bring in a major or super major operating in and around, Australian LNG, that's gonna be massive massive boost for the bitter there.

21:11 But, you know, putting numbers on it, you know, the the the area that time we're looking to farm down is is 400,000 acres. Let's say they they do a deal to bring in somebody for 50%. So farming down 200,000 acres, and let's say, and this is pure guesswork that the family commits to, you know, a a work program of a 100,000,000 US dollars. Well, now all of a sudden, you've you've increased the acres from a $150 per acre to $500 per acre. And that changes the valuation of FALCON to 500,000,000 overnight. So, yeah, so it's it's any deal that Tamron does, would definitely give us a much better idea on on future acreage value certainly. So it'll be fantastic news, again, whoever it is and whatever the metrics of that deal look like when it does get announced, if they are successful in doing.

21:59 That's great, Philip. That does conclude the questions we currently have. You have kind of covered a lot of ground there. We have also received some live questions. I don't know if you just wanna have a scan through those. And if not, we'll go into some closing comments. Yeah. There's a couple of questions here. Let me just flick through them here. So at a prior meeting, you said you plan to meet with US investment banks. Did that ever occur? Absolutely. Myself and Tom actually have met with a couple of banks, one in particular that is very interested in in and very knowledgeable of FALCON and our partners, particularly Daily Waters. So, yes, we have.

22:40 Next question. I see. Have we a pressure from Tamron to FALCON to sell his stake to Tamron? No. There's there's no pressure from anyone to sell anything to anyone, so everyone has just his options. When does FALCON produce revenue instead of giving away more percentages of our rights? Well, we haven't given away much in the form of percentages of our rights. We've been at 22 and a half percent for a number of years. That's, gosh, I think it's 2020 when we farmed down from 30% down to 22 and a half. So we haven't gone any further than that, and we don't intend to. Giving up, you know, in terms of a DSU, reducing our interest from 22 and a half percent to five percent on 20,000 acres, that's such a negative impact on overall rights. It's it's kind of the smart move to do. So now we're not look. I mean, as I said, we're not looking to to to reduce our overall 22 and a half. We are, as I said, in the in the in the initial q and a, if there's opportunity and an invitation to participate in the farm down of a a single block like the one Tamborn, we'll certainly explore that. But we're not looking to overall farm down and be less than 22 and a half percent ever.

23:55 Let me just see. I'm just trying to get down here some I think some of these questions I'm looking at have already been answered. Where do I see FALCON share price at year end? Who knows? Where are we now? May there's gonna be so much happening between now and year end. Flow rates, you know, are not the be all and end all anymore because, yes, we we're all looking forward to the flow rates next month, but the farm out is much more significant. I think when the market realizes the deal that daily water data and acquired the acreage is a 150 is is far more significant. Tamron about to launch a six well drilling program sorry. A three well drilling program in July is significant and then going into commercial production next year. So it's anyone's guess where the share price would be, but we now have a lot of forward momentum in the from many different angles, as I've just mentioned. So, hopefully, that will will translate into a much better share price.

24:56 The geopolitical and economic climate, tariffs, trade deals impacting FALCON's future opportunity, as it pertains to China as a purchase of Australian energy, not really. You know, we're looking at playing the Australian domestic market, as I said, at 8 US dollars. Other players will come into the looking to supply into the kind of Japanese Korean LNG market. So now we're not gonna be affected by the geo geopolitical and economic climate, you know, for to tariffs and trade deals that are going on around the world.

25:32 And I think that's kind of that's all the questions, most of which have already previously answered. So that's That's great. Philip, Tom, I'd just like to thank you for answering the questions from investors. Of course, the company can review all the questions for today, and we will publish responses on the Investor Meet company platform as usual. But just before redirecting investors, provide you their feedback, Shneur is particularly important to you both. Philip, could I just ask you for a few closing comments? Yeah. I look. I'm I'm gonna repeat myself a little bit, I guess, but, you know, the key thing is we've got serious momentum now. There's gonna be a number of major catalysts coming down the track between now and this time next year. Flow rates of Shenandoah, confirmation of the three well program at no cost of FALCON, by the way, farm down process, which is formally launched by Tamberin. I think that could be the really exciting news.

26:21 And, you know, we we all look forward to a kind of a different FALCON by this time next by this sorry. By this time next year, but even by year end and hopefully see that in the share price. That's great, Philip. So I would just like to thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations? On behalf of the management team of FALCON OIL and GAS, we'd like to thank you for attending today's session, and good afternoon to you