Shares in Falcon Oil and Gas dropped 12 per cent on Monday when the frontier explorer confirmed that Hess was not exercising its option to drill up its acreage in the Beetaloo Basin of Northern Australia. For Hess followers, this was unlikely to be surprise as long-running boardroom battles and shareholder dissent have put the US oil company under pressure to retrench and restructure after a spending spree that many shareholders believe to have been ruinous over-extension.

Usually when Big Oil companies pull back from partnerships with smaller companies, it proves ruinous for the latter, undermining investor confidence in the project and removing a source of funding in an otherwise tight market. Yet, as Falcon CEO Philip Quigley made clear at oilbarrel.com's May 2013 conference, Hess' decision not to commit to the five well programme could actually prove a blessing. Hess had to commit to the wells by June 28 or forfeit their right to earn a 62.5 per cent interest in the permits. Instead Hess asked to defer the election date by another month after Falcon had already agreed to one extension, from August 2012 to June 2013. This latest request to defer was unanimously rejected by Falcon's Board.

This bold move by the AIM and TSX Venture company small cap means Falcon gets to retain 100 per cent interest in the four Beetaloo Basin permits while its now terminated relationship with Hess has delivered 3,490 km of new seismic at no cost. O'Quigley, the former FD of AIM-quoted Providence Resources, puts the value of Hess' financial and technical input at roughly US$80 million. Indeed, Hess paid Falcon US$20 million in cash and spent US$60 million on almost 3,500 km of seismic, a shoot that went massively over the US$40 million budget (Falcon was protected from the cost overruns because there was no cap on its carry). This work has identified a shale oil play in the northern part of the permits as well as shale gas and conventional plays throughout the acreage.

The decision comes as Hess was engaged with farm-out talks with what it called “one of the largest oil and gas companies in the world”. This suggests that Falcon is now sitting on 100 per cent of acreage that is hitting the radars of Big Oil as Australia's unconventional resource boom continues, with big players like Total, Chevron and Santos increasingly moving into the nation's little-drilled outbacks.

The four Beetaloo permits in question stretch for 28,000 sq km in a sparsely populated area of the Northern Territory, with the added bonus of having gas pipeline running through the property and up to Darwin where there's a US$34 billion two train LNG facility under construction. The Beetaloo Basin is a Proterozoic and Cambrian age tight oil and gas basin and whereas that was once a geological turn-off, the unconventional drilling revolution means it now ticks all the right boxes. In a CPR of January 2013 RPS Energy suggested there might be 162 TCF of gas and 21 billion barrels of oil on an unrisked recoverable prospective resource basis across Falcon's four permits.

These are just numbers, of course, until the drillbit gets turning. This is the frustration of the Hess decision – had Hess elected to stay onboard it would have greenlit a five-well campaign. That work is now going to have to wait until Falcon lands a new cash-rich partner.

Not that shareholders are missing out on drillbit action. Last month the drillbit starting turning on Falcon's Mako Trough acreage in Hungary. The first of three wells, Kutvolgy-1, is drilling to 3,000 metres to evaluate the gas potential of the Algyo Formation. It will complete later this month and will be logged and suspended before testing at a later date. Falcon is fully carried through this drilling programme, with its costs carried by Gazprom subsidiary Naftna Industrija Srbije.

This acreage was the starter asset when the company was founded in 2005 but the previous management burnt through a lot of shareholder money on an ill-conceived six-well drilling campaign to test a deep unconventional play. The current three well programme is half the depth of those wells, which drilled through the Algyo and some encountered gas shows even through none of them were drilled in an optimal location for this formation. The current drilling programme is targeting three separate prospects; there are ten of these on the company's acreage here, and the January 2013 CPR gave a 568 BCF prospective recoverable gas resource for eight of them, with a 10 per cent chance of success.

Falcon isn't ignoring the deep potential but plans to bring in a partner to spend US$25 million to re-enter and frac two existing wells to get a definitive answer on whether to stick or fold. “But we won't be spending our shareholders' money on it,” asserted Quigley in May.

Elsewhere Falcon has a technical cooperation permit for 7.5 million acres in the onshore Karoo Basin in South Africa, adjacent to the acreage held by Shell. The Karoo is reckoned to hold 485 TCF of technically recoverable shale gas in a country that is energy-starved and needs to double its power capacity by 2030. In December 2012 the company signed a five year exclusive co-operation agreement with Chevron, receiving a US$1 million contribution towards past costs. The company hopes to convert the TCP into an exploration permit by year-end, which would pave the way for a farm-out. O'Quigley makes clear that his idea of a farm-out involves as much cash as possible up front plus a three-to-five year uncapped exploration programme while retaining a material stake.

For a company with no production and no cash flow, this is big talk. But Falcon's trump card is a frontier acreage position that is about two-thirds the size of Ireland in basins that have the right attributes for an unconventional resource bonanza – and this is exactly what the Chevrons and Hesses of this world are looking for. The question is whether Falcon can leverage that trump card into returns for shareholders – and whether letting Hess walk was reckless or very astute. Shares in the company closed at 13.5 pence.