BUDAPEST, Hungary, Feb. 12 /CNW/ -- Falcon Oil & Gas Ltd. (TSXV: FO), in
response to the recent fluctuation in the price of Falcon Oil & Gas Ltd.'s
("Falcon" or the "Company") common shares and the increase in trading volume,
announced that while there have been no new material developments, it has
decided to provide the following interim summary and operational update
regarding its drilling program in Hungary.
As a result of the preliminary information which Falcon has gathered over
the last several weeks of testing, Falcon continues to be highly optimistic
about its Mako Trough project, and the commercial viability of this 54.9 tcf
Contingent Resource (estimated recoverable portion)(1)(2). (The 54.9 tcf
figure is based on a P50 probability, as described in the Scotia Report, dated
September 15, 2006, previously filed on Sedar at www.sedar.com.) These
interim results are summarized in the technical review below. Falcon
emphasizes that these results have so far confirmed all of the expectations
and estimates previously announced publicly, and that it has achieved its
original objectives first defined in 2005:* Conduct a continuous drilling program on the Tisza and Mako Licenses;
* Identify the primary target zones for hydrocarbon development;
* Confirm and define the over-pressured gas cell of the Mako Trough;
* Shorten the lead time to first production from the Mako Trough.
Falcon further points out the following:1. The Delineation Wells: The Pusztaszer-1, Szekketas-1, and
Magyarcsanad-1 wells (the "Delineation Wells") are currently being tested and
evaluated. As described in detail in the Operational Update below, we have
encountered significant hydrocarbons in the Delineation Wells. The primary
purpose of the Delineation Wells was for these wells to serve as a benchmark
in identifying the boundaries of the Basin Centered Gas Accumulation ("BCGA")
and to aid the Company in understanding the mechanics of the BCGA system
within the Mako Trough.
2. Established Existence of BCGA: The original purpose of the
Delineation Wells and the overall work program to date -- to prove the
existence of the BCGA -- has been completely accomplished with the Hungarian
government's formal written acknowledgement and acceptance of the existence
and large extent of the BCGA, as issued by the government and announced by the
Company on December 21, 2006. This was the most important milestone in the
process of securing a long-term production license. Falcon is extremely
pleased with the status of its ongoing efforts toward obtaining a long-term
production license covering all or most of the BCGA underlying the Company's
licenses. When issued, the production license will be valid for 35 years, with
the possibility of extending it for an additional 17.5 years.
The Hungarian Geological Survey's "Expert Opinion" (issued on December
21, 2006), states that Falcon's report "demonstrates a continuous BCGA cell"
and that it "recommends approval of the estimate of unconventional gas ..." as
calculated in the Scotia Report -- that is, 54.9 tcf, including 42.2 tcf in
the Szolnok formation (based on a P50 probability). The Geological Survey
further states in its Expert Opinion that "the [Scotia Report] ... data can be
legitimately used toward a mining plot [long-term production license]
designation."
3. Deep Wells: Completion work has commenced on the Mako-6 deep well
but no zones have been perforated as of this date. Falcon has drilled the
Mako-7 in the center of the BCGA and that well is preparing to log through
casing. When the Mako-7 is completed, the 801 rig will be moved 18 kilometres
to the northwest where the Mako-8 well will continue with Falcon's deep test
strategy.
4. Szolnok Development Plan: The Szolnok formation is currently
estimated to contain approximately 77% of the total 54.9 tcf assigned in the
Scotia Report (based on a P50 probability). Now that the Company has received
the Hungarian government's unequivocal recognition of the BCGA, the Company is
proceeding under an aggressive and comprehensive BCGA evaluation plan
initially targeting the Szolnok segment of the shallower BCGA gas system. The
Szolnok is the horizon in the Mako Trough most analogous to the well-
established BCGA projects in the U.S., such as the Pinedale Anticline in
Wyoming. The Szolnok program will include multiple wells to be drilled to the
base of the Szolnok formation and completed in the Szolnok (and above, if
warranted). With wells averaging 10,000 to 14,760 feet (3,000 to 4,500
meters) in depth in the center of the Basin, the Company expects this
development plan to include drilling and completion costs averaging
approximately $10 million per well for the initial wells and $7 million for
the full cycle development wells. This is the same trend of cost reduction due
to operational improvement and economy of scale demonstrated in the
established North American BCGA developments.
The Szolnok plan has already been initiated with the drilling of the new
Mako-4, which is currently at 3,300 feet (1,012 meters), as the first
dedicated "shallow" well clearly inside the hydrocarbon-generating area of the
Mako Trough BCGA. This location is within the axis of the Mako Trough,
approximately five kilometers southeast of the Mako-6 and 13 kilometers
northwest of the Magyarcsanad-1 well, both of which had significant gas in the
Szolnok as interpreted from electric and mud logs. Following the Mako-4,
Falcon is currently planning to drill three additional Szolnok tests. These
wells will be drilled to the northwest of the Mako-4. The Foldeak-1 well will
be located less than one kilometer east of the Mako-6. The Szikancs-1 will be
drilled six kilometers northwest of Mako-6 and less than one kilometer east of
the Mako-7. Szikancs North-1 is projected to be drilled approximately four
kilometers northwest of the Mako-7.
Falcon intends to drill, case and complete these four wells with multiple
fracture stimulation treatments over as large an interval of the gross pay
section as possible, followed by flow-testing and tying into the existing
Falcon pipeline. These locations, in the vicinity of Falcon's existing
pipeline facilities, will allow for efficient use of the Company's and third
party infrastructure and related facilities (gathering and pipelines,
processing facilities, etc.). The wells will be drilled with the Crosco 403
rig, which will continue to focus exclusively on drilling wells in the Szolnok
evaluation plan. The development plan for 2008 will include significantly
expanding these development operations with multiple rigs.
5. Incidental H2S: As referenced in the Operational Update below
regarding the Szekketas-1, the Company encountered traces of hydrogen sulfide
(H2S) in the Triassic formation that appeared to be present in or migrating
from the Endrod or Triassic formations. Falcon believes that these traces do
not indicate a broader presence of H2S in other zones, nor do they represent a
significant problem. This opinion is based on the facts that the Company did
not encounter H2S in the Magyarcsanad-1 well, and that this is likely to be
limited to the Triassic formation, which is not present throughout the Basin.
Encountering H2S caused a delay in Falcon's ongoing testing of the S-1, while
Falcon awaited delivery of H2S monitoring and safety equipment. The Company
determined that all safety precautions must be implemented immediately, and
has done so, without regard to delays. Testing has resumed and the Company is
carefully monitoring the situation.
6. Financial Strength to Continue Existing Program: Falcon has no debt
and over $110 million in cash in its account, which Falcon presently believes
is more than sufficient for the exploration phase of its operations, including
the testing program and the Szolnok program, as described above.
In summary, Falcon is extremely pleased with its progress to date and
remains prepared to overcome any challenges it may face as it continues
operations in Hungary.OPERATIONAL UPDATEExecutive Summary Pusztaszer #1: A total of three fracs were performed
in the Pusztaszer #1, of which two were in the Basement Gneiss Breccia at
3825-3865 and 3745-3815 meters. Although no gas was recovered in the first
two fracs, the third frac recovered significant gas. The third frac was a
test of a limited sandstone interval in the Szolnok formation at 3368-3378
meters. This resulted in a positive test with gas recovered at the perimeter
of the BCGA gas cell in the over-pressured Szolnok formation. The well is
currently shut-in for pressure build-up, and the Company has not completed
testing. Additional Szolnok and Algyo zones of interest remain to be
evaluated.
Executive Summary Szekkutas #1: The Szekkutas #1 was drilled as a gas
cell Delineation Well on the eastern margin of the BCGA. Two zones within the
Basement Triassic consisted of naturally fractured Dolomite. These intervals
3505-3495 meters and 3437-3447 meters, proved to contain minor gas.
A thin, naturally fractured, marl-rich Endrod section of the BCGA was
then fracture treated though perforations at 3386-3391 meters. During flow
back and clean up after frac, traces of hydrogen sulfide (H2S) were detected.
The production test was immediately halted until appropriate monitoring and
safety equipment could be mobilized to location. A revised testing program
was developed to minimize the impact of H2S on personnel and equipment. It is
believed that the H2S encountered on this test is derived from Triassic
Dolomites through natural fractures that continue up into the Endrod.
Commingling the gas flow stream with other formations in this well and gas
from other wells will easily enable pipeline specifications to be met.
Completion Operations have now resumed and flow testing will follow.
Upon conclusion of the Endrod test, a further 550 meters (1804 feet) of
the shallower gas bearing Szolnok formation will be tested and evaluated.
ApexPE (well known as BCGA fracture treatment specialists) has been contracted
and will manage and direct the overall fracture treatment strategy.
Executive Summary Mako #6: The Mako 6 was drilled to a depth of 5692
meters, where 5 1/2" casing was set. Due to extreme bottom hole pressures
(17,100 psi), temperatures (238 degrees C), APA (well known high pressure/high
temperature experts) was contracted for the completion design strategy. APA
concluded that specialized equipment is required and the Company is in the
process of assembling this equipment.
The precautionary measures, completion equipment, materials, and applied
safety factors now implemented meet or exceed the Company's key service
providers' Health, Safety and Environment company policies. This will now
allow the contractors to provide the services required to safely and
successfully test the well.
Falcon's current schedule has operations commencing on or about the end
of February and fracture treating the lower most Synrift section during March.
ApexPE will be actively involved in the design, management, and execution of
the stimulation operations.
Executive Summary Magyarcsanad #1: While drilling this well, Falcon
encountered a gas influx which equated to a 4000 psi shut-in well pressure.
The high pressure gas influx originated in the Endrod formation at 4,057
meters. Upon cementing the 5-1/2" casing the Company encountered another
high-pressure gas influx through a channel in the cement allowing the
migration of gas to surface. The gas is currently being vented and flared in
a controlled manner with the liquid hydrocarbons being gathered and stored.
Upon measurement and testing, Falcon determined that the gas is of good
quality and the condensate is sweet.
Rigless operations are scheduled to commence within the next three weeks
that will include a circumferential survey of the cement quality. Falcon is
currently finalizing a workover and completion program for the well that will
include the termination of the migrating gas and condensate flow as well as
the testing of the Endrod and Szolnok formations.
This well provides an important delineation accepted by the Hungarian
Authorities to the southern most part of the Mako Trough BCGA cell.
Executive Summary Mako #7: The Mako-7 reached a TD on December 21, 2006.
This well was drilled to a Hungarian record depth of 6,085 meters MD. Cement
clean out and completion operations are presently underway. When operations
are complete, the 801 rig will be mobilized to the Mako-8 location for a
5,700-meter well to test synrift facies or Basement, whichever occurs first.
Executive Summary Mako #4: Rig 403 initiated drilling on January 30,
2007. This well represents a dedicated shallow Szolnok test. The projected
total depth is 4,200 meters. As of this report Falcon has drilled and set the
13-3/8" casing at a depth of 1,012 meters. Drilling operations are continuing
as programmed.About Falcon Oil & Gas Ltd.Falcon Oil & Gas Ltd. is a British Columbia corporation which is in the
business of oil and gas exploration and production. It has operations in
Hungary through its wholly-owned subsidiary TXM Oil and Gas Exploration, LLC,
and in Romania through its wholly-owned subsidiary JVX Energy Corporation.
Further information about Falcon is available at www.falconoilandgas.com.Notes Regarding Contingent Resource Estimate:(1) The resource estimate has been conducted using the definitions
specified by the Canadian Oil and Gas Evaluation Handbook. The Mako Trough
Resource falls under the "Discovered Resources" classification. The values
refer to the probabilistically estimated recoverable fraction of "Contingent
Resources" within that classification. Contingent resources are those
quantities of oil and gas estimated on a given date to be potentially
recoverable from known accumulations but are not currently economic. The
economic nature of this resource has not yet been assessed due to the early
stage of data gathering for the Mako Trough resource. The recoverable portion
of this "Contingent Resource" is contingent upon the demonstration of
productive capability of the various zones of interest through well testing
and longer term production testing which has not occurred as of the effective
date of the report.
(2) Estimates are as at August 15, 2006, the effective date of the Scotia
Report.
Contacts:Falcon Oil & Gas Ltd.
Marc A. Bruner, President, Chairman & CEO
Michael K. Lam, Corporate Development North America
(416) 303-8810
Alexander Hubbard-Ford, Corporate Development Europe
+44 (0) 79 8448 1541
Canada - Brisco Capital Partners Corp.
Graeme Dick
(403) 313-9663
United Kingdom - 4C-Burvale
Carina Corbett John Carrick-Smith
+44 (0) 20 7907 4761/0Falcon's discovered resources are not reserves. Only those quantities of
oil and gas that are anticipated to be economically recoverable from
discovered resources are classified as reserves. Until such time as Falcon's
discovered resources are proven to be reserves, there is a risk that Falcon
may not achieve ongoing operations from which it may generate significant
revenue.
In the interests of providing Company shareholders and potential
investors with information regarding the Company, including the Company's
assessment of its and its subsidiaries' future plans and operations, certain
statements included in this press release may constitute forward-looking
information or forward-looking statements (collectively, "forward-looking
statements"). All statements contained herein that are not clearly historical
in nature are forward-looking, and the words "anticipate", "believe",
"expect", "estimate" and similar expressions are generally intended to
identify forward-looking statements. Similarly, forward-looking statements in
this press release include, but are not limited to anticipated developments of
the Company's drilling project in Hungary and the timing thereof, the
Company's drilling project in Romania and the timing thereof, capital
investment levels and the allocation thereof, pipeline capacity, government
royalty rates, reserve and resources estimates, the level of expenditures for
compliance with environmental regulations, site restoration costs including
abandonment and reclamation costs, exploration plans, acquisition and
disposition plans including farmout plans, net cash flows, geographic
expansion and plans for seismic surveys. In addition, please note that
statements relating to "reserves" or "resources" are deemed to be
forward-looking statements, as they involve the implied assessment, based on
certain estimates and assumptions, that the reserves and resources described
can be profitably produced in the future. Such statements represent the
Company's internal projections, estimates or beliefs concerning, among other
things, an outlook on the estimated amounts and timing of capital
expenditures, anticipated future debt levels and incentive fees or revenues or
other expectations, beliefs, plans, objectives, assumptions, intentions or
statements about future events or performance. These statements are only
predictions. Actual events or results may differ materially. Although the
Company believes that the expectations reflected in the forward-looking
statements are reasonable, it cannot guarantee future results, levels of
activity, performance or achievement since such expectations are inherently
subject to significant business, economic, competitive, political and social
uncertainties and contingencies. Many factors could cause the Company's
actual results to differ materially from those expressed or implied in any
forward-looking statements made by, or on behalf of, the Company and the
foregoing list of important factors is not exhaustive. These forward-looking
statements made as of the date hereof disclaim any intent or obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or results or otherwise. Company shareholders and
potential investors should carefully consider the information contained in the
Company's filings with Canadian securities administrators at www.sedar.com
before making investment decisions with regard to the Company.
The TSX Venture Exchange does not accept responsibility for the adequacy
or accuracy of this release.
For further information: Marc A. Bruner, President, Chairman & CEO, or
Michael K. Lam, Corporate Development North America, +1-416-303-8810; or
Alexander Hubbard-Ford, Corporate Development Europe, +44-79-8448-1541, all of
Falcon Oil & Gas Ltd.; or Graeme Dick, Canada, Brisco Capital Partners Corp.,
+1-403-313-9663, or Carina Corbett or John Carrick-Smith, United Kingdom,
4C-Burvale, +44-20-7907-4761/0 Web Site: http://www.falconoilandgas.com
