Business Irish

Wednesday 25 April 2018

Drilling gets under way at €111m Falcon Oil venture

Falcon chief executive Philip O'Quigley said that drilling at the three wells is to be completed this year at a cost of $22m.
Falcon chief executive Philip O'Quigley said that drilling at the three wells is to be completed this year at a cost of $22m.

Paul O'Donoghue

Drilling has started at Falcon Oil's hotly anticipated Australian shale venture, where it is estimated that AUS$165m (€111m) will be spent by 2018.

The 4.6m-acre area in the Beetaloo basin in northern Australia is the flagship asset of the Dublin-based company. The area is almost the size of Wales.

The firm announced yesterday that it has broken ground at the first of three wells to be drilled this year as part of a $200m farm-out deal with South African firm Sasol and Australian company Origin.

Falcon's 30pc share of the drilling costs will be paid by the partners, who each own 35pc of the venture.

The farm-out was conducted after Falcon refused to give US oil giant Hess an extension on a drilling commitment in the Australian asset. Hess walked away after sinking $100m into the project. Falcon has spent $50m on the project so far.

Speaking to the Irish Independent, Falcon chief executive Philip O'Quigley said that drilling at the three wells is to be completed this year at a cost of $22m.

After the first three wells are drilled, it is planned that two additional wells will be developed every year until 2018.

The first three wells will not be fracked - the process of drilling into the earth before a high-pressure water mixture is directed at rock to release the resources inside - although the fourth and fifth will.

Origin and Sasol may only reduce or surrender their interests back to Falcon after drilling the first five wells.

"The total cost of the project will be about $165m. Falcon is fully covered for all nine wells, [there is] no cost exposure for Falcon until after 2018," Mr O'Quigley said.

"The wells in 2015 will be about trying to prove the viability of asset and the technical merits of the project, while 2016 will be looking at the frackability of the operation and the 2017 wells will be focused on the commerciality of the asset."

The Beetalo site seen in the industry as a major litmus test which will reveal much about the viability of fracking outside the US. A best estimate of the site puts its reserves at 21.3bn barrels of oil and 162tn feet of natural gas. However, Mr O'Quigley points out that there is a huge difference between the estimated resources and what is commercially viable to recover.

"There is always huge potential but the real issue is can it be extracted commercially, the real eureka moment will be commerciality," he said.

The company's backers include Viktor Vekselberg, the fourth-richest Russian oligarch who has a fortune estimated at US$14.7bn.

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