cantor has increased its target price, see below.

Falcon Oil & Gas –

FOG.L, TP: 23p, CP:15.25p, Mkt Cap:£125m

Falcon Oil & Gas has announced that Hess (N/C) has chosen to not elect to commit to drilling the five wells required to earn their interest in the Beetaloo permits (Australia) by the agreed deadline. A late request by the company to defer the election date for a second time was unanimously rejected by Falcon’s Board, and as such Hess forfeits its right to earn 62.5% in three of the Beetaloo permits. Falcon will therefore retain the full 100% working interest in the acreage, with unsolicited interest already received from major oil & gas companies. To date, Hess has invested c.$80m across the permits, primarily on 3,490km of seismic data - significantly de-risking the assets, which will all now be forfeited. In addition, Falcon has identified a shale oil play in the northern part of the permits which compliments the shale gas and conventional plays throughout the acreage.

In our view, given the significant investment in the acreage to date, notwithstanding interest from other majors, Hess’ decision not to elect is a positive for Falcon. One reason Hess requested a one month extension to the deadline was to allow them sufficient time to conclude a farm-out deal with a third party, which is described as one of the largest oil and gas companies in the world. On this basis, we believe the prospectively of the acreage could attract a better deal for Falcon to what was initially tabled by Hess. In terms of our model, we increase Falcon’s effective interest in the 2D seismic data to 73%, and assume a similar farm-out in the near term of its Australian acreage. We therefore retain our BUY recommendation and increase our target price to 23p/share (from 22p).

Sam Wahab

Oil & Gas Analyst