http://www.proactiveinvestors.co.uk/companies/news/71384/falcon-oil-gass-australian-shale-assets-worth-more-than-double-current-share-price-charles-stanley-71384.html

Falcon Oil & Gas significantly undervalued, Charles Stanley says

By Jamie Ashcroft August 18 2014, 11:18am

Falcon Oil & Gas (LON:FOG) could be set to double in value according to Charles Stanley, which began its coverage of the AIM-quoted shale junior with a ‘buy’ recommendation.

The stockbroker sets a price target of 19.7p – some 120% above the current price of 8.8p – though this is based solely upon Falcon's interests in Australia, which is just one of its three shale assets.

Analyst Brendan Long says Australia is one of the most attractive countries globally for the development of shale resources as he points to the country’s favourable features such as its geology, tax regime, political environment, oil services sector and low population density.

In Australia, Falcon has a significant position (4.6mln acres) in the Beetaloo shale basin in the sparsely populated Northern Territory.

This expanse in the potentially prolific shale is currently estimated to host prospective resource potential of 162 trillion cubic feet of gas and 21bn barrels of oil.

Most of the exploration will be covered by a A$200mln farm-out deal, struck in May, with local operator Origin Energy and South African gas-to-liquids specialist Sasol.

The new partners have committed to a five year programme which will include three vertical exploration wells, one fracked vertical well and five fracked horizontal wells.

“Unlike most of its peers, we expect Falcon’s major forthcoming capital expenditures to be fully carried by major oil companies,” Long said in a note.

The first five wells are slated for the first three years of the arrangement, at an estimated cost of A$64mln.

And while Charles Stanley’s target already sees the Australian venture as a significant catalyst for the share, Charlie Long reckons successful drilling will push the price beyond his punchy price target.

“We believe the first four wells in Australia, expected in 2015 and 2016, can reasonably be expected to increase our valuation and target price by 2.5 times in a success case,” Long added.

“The subsequent drilling of five planned horizontal fracked wells would propel value beyond that in a success case.”

Aside from the project in Australia Long describes Falcon’s assets in South Africa and Hungary as ‘free options’ pending possible political and commercial progress in the respective territories.