Falcon is a global energy company with projects in Hungary, Australia & South Africa

Developing large acreage positions of unconventional and conventional oil and gas resources

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Message: Davy Research Reiterates “Outperform” Rating for Falcon Oil & Gas (FOG)

Just to expand on that slightly, this is what they said in their morning notes on Monday...

Hungarian testing programme begins

DAVY VIEW

While attention is rightly focussed on its Australian and South African assets, Falcon also has a gas project in Hungary to which the market has attributed little value. Consequently, a positive test result should lead to an improved market valuation for the group.

NIS-operated Kutvolgy-1 well testing programme has commenced

The Kutvolgy-1 well will test the Algyo play in the Mako Trough, onshore Hungary. The operation is likely to take up to three months and will test a number of horizons that demonstrated high gas saturation levels in the original exploration well. The well was targeted at a relatively shallow Algyo sequence of tight sandstones (2,300 to 3,500 metres). This distinguishes the play from the deeper past of the basin into which Falcon drilled a six well between 2005 and 2007.

Falcon has a net 50% interest in the project following a farm-out with NIS (56% held by Gazprom Group). The agreement stipulated that three exploration wells would be drilled by NIS by July 2014. The Kutvolgy-1 well was drilled and completed in mid-2013 and logged a sequence of 230 metres that returned gas shows. Up to eight zones will be tested using conventional methods initially and a fraccing programme may also be considered following the results of the conventional test.

Important but not the main value source in group

We value the Hungarian project in two parts: the shallow play at 3.7p per share and the deeper play at 1.2p per share. Our total group valuation is 17.4p per share and while this implies an important value contribution from the Hungarian business, we think the future value growth from the group is likely to come from the Australian and South African operations.

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