Mr. Philip O'Quigley reports

FALCON OIL & GAS LTD.: AUSTRALIA BEETALOO BASIN AGREEMENT TO REDUCE OVERRIDING ROYALTY TO 1%

Falcon Oil & Gas Ltd.'s subsidiary, Falcon Oil & Gas Australia Ltd., has entered into an agreement with Malcolm John Gerrard, Territory Oil & Gas LLC and Tom Dugan Family Partnership LLC to acquire up to seven-eighths of the remaining 8-per-cent private overriding royalty interest over FOGA's exploration permits in the Beetaloo basin for the following consideration:

• FOGA will make a payment to TOG group of $5-million (U.S.) to acquire five-eighths of its ORRI only on completion of a Beetaloo farm-out transaction acceptable to Falcon.
• TOG group will grant FOGA a five-year call option to acquire a further one-quarter of its ORRI for a payment of $15-million (U.S.).
• All ORRIs acquired under the agreement will be immediately cancelled by FOGA.
• TOG group will retain a 1-per-cent ORRI.

Philip O'Quigley, chief executive officer of Falcon, commented:

"We are delighted to have concluded a further significant reduction in the private overriding royalty interest over our Australian assets.

"This transaction, combined with the ORRI transaction announced on Nov. 1, 2013, will allow for the reduction of the privately held overriding royalty interests from 12 per cent to just 1 per cent and will help to further progress our farm-out negotiations, which are at an advanced stage.

"We have now completed two agreements to acquire 8 per cent of the privately held overriding royalty interests at a total cost of just $7-million, of which $6-million is payable only upon completion of a farm-out acceptable to Falcon. In addition, we have secured agreement to acquire a further 3 per cent based on two five-year call options granted to Falcon at a future combined cost of $20-million leaving only a 1-per-cent royalty in private hands."

About the overriding royalty interests

The total amount of the private ORRIs is 12 per cent. The ORRI entitles its owners to earn 12 per cent of the gross well head proceeds of any future production, subject only to transportation and marketing costs. The TOG group, predominately based in the United States, is the owner of 8 per cent with the balance of 4 per cent being held by CR Innovations. The privately held ORRIs were created during the years 2006 to 2008 when the exploration permits were sold by their original owners.

We seek Safe Harbor.