Mr. Philip O'Quigley reports

FALCON OIL & GAS LTD.: TRANSFORMATIONAL FARM-OUT OF BEETALOO UNCONVENTIONAL ACREAGE, NORTHERN TERITORY, AUSTRALIA

Falcon Oil & Gas Ltd.'s 98-per-cent subsidiary, Falcon Oil & Gas Australia Ltd., has executed definitive agreements including a farm-out agreement and joint operating agreements with Origin Energy Resources Ltd., a subsidiary of Origin Energy Ltd. and Sasol Petroleum Australia Ltd., a subsidiary of Sasol Ltd., to each farm into 35 per cent of Falcon's exploration permits in the Beetaloo basin, Australia. The agreements are subject to conditions inter alia government, statutory authority consents and relevant stock exchange approvals.

Transaction details

• Farminees to carry Falcon in a nine-well exploration and appraisal program over five years, detailed as follows:
  • Three vertical exploration/stratigraphic wells and core studies;
  • One hydraulic fracture-stimulated vertical exploration well and core study;
  • One hydraulic fracture-stimulated horizontal exploration well, commercial study and 3C resource assessment;
  • Four hydraulic fracture-stimulated horizontal exploration/appraisal wells, microseismic and 90-day production tests.
• Drilling to commence as soon as possible following completion of the agreements -- targeting 2014 subject to the normal regulatory requirements and rig availability;
• Drilling/testing specifically planned to take the project toward commerciality;
• Farminees to pay Falcon $20-million (Australian) cash on completion of the agreements;
• Origin and Sasol to each earn 35-per-cent interest in the permits;
• Falcon to retain a 30-per-cent interest in the permits;
• Origin to be the operator;
• Farminees to pay for the full cost of completing the first five wells estimated at $64-million (Australian), and to finance any cost overruns; work expected to be completed within the first three years;
• Farminees to pay the full cost of the following two horizontally fracture-stimulated wells, 90-day production tests and microseismic with a capped expenditure of $53-million (Australian), any cost overrun financed by each party in proportion to its working interest; work program expected to be undertaken in fourth year;
• Farminees to pay the full cost of the final two horizontally fracture-stimulated wells and 90-day production tests capped at $48-million (Australian), any cost overrun financed by each party in proportion to its working interest; work program expected to be undertaken in fifth year;
• As part of the agreements to reduce the overriding royalties from what was originally 12 per cent to 1 per cent, farminees to pay their pro rata share ($14-million (U.S.)) of the two five-year call options entered into by Falcon as part of agreements announced on Nov. 1, 2013, with CR Innovations AG and Dec. 17, 2013, with the TOG Group, should farminees and Falcon decide to exercise the call options;
• Farminees may reduce or surrender their interests back to Falcon only after:
  • The drilling of the first five wells;
  • Or the drilling and testing of the next two horizontally fracture-stimulated wells.

Renewal and relinquishment

Three (EP-76, EP-98 and EP-117) of Falcon Australia's four Beetaloo permits were due for renewal at Dec. 31, 2013. As part of the renewal process, Falcon agreed to relinquish approximately 26 per cent of the three Permits which was not considered to be core to the unconventional play in the Beetaloo basin by Falcon, Origin and Sasol. The renewal of the three permits was completed on April 30, 2014. Falcon Australia's fourth permit, EP-99, which was due for renewal at Dec. 31, 2014, was surrendered as it too was not considered to be core to the unconventional play.

Philip O'Quigley, chief executive officer of Falcon, commented: "We are delighted that we have brought two great fit for purpose partners, Origin and Sasol to work alongside us in the evaluation of our highly prospective acreage in the Beetaloo basin as we move the project toward commercial reality.

"The farm-out announced today marks a significant milestone in the history of Falcon as it provides for a five-year, nine-well, technically comprehensive exploration work program in the Beetaloo. Together with $20-million (Australian) cash up front, the deal is worth up to approximately $200-million (Australian) to Falcon.

"This farm-out marks the end of a very busy period for Falcon. In July, 2013, we consolidated our interest in Falcon Australia and increased our shareholding from 73 per cent to 98 per cent. In November and December, 2013, we completed two agreements that will result in the reduction of the 12 per cent privately held overriding royalty interests on the permits to just 1 per cent.

"Origin brings with it an enormous wealth of expertise as an unconventional operator in Australia. Sasol, through its interest in the Montney unconventional shale play in North America brings with it enormous expertise of operating unconventional shale plays and is a world leader in gas to liquids. In addition, Origin and Sasol offer many potential options for the monetization of any natural gas discovered on the permits."

John Craven, chairman of Falcon, said: "This is a monumental deal for Falcon. Apart from the value of the carried, no-cost drilling program to Falcon, the real value is that with Origin/Sasol we now have the financial and technical firepower to unlock the real hydrocarbon potential of the Beetaloo basin. I am particularly pleased that the initial focus of evaluation will be on the Middle Velkerri formation which according to RPS has prospective potentially recoverable oil and gas resources of over 12.7 billion barrels of oil and 74.5 trillion cubic feet of natural gas in the Beetaloo.

"I see this is as a win-win for all stakeholders, particularly the people of Northern Territory where any success will have a major impact.

"I would like to thank shareholders for their patience. It is because of our belief in the potential of the Beetaloo basin that management has in recent months focussed on maximizing shareholders' upside to the Beetaloo play by increasing Falcon's stake in our Australian affiliate and significantly reducing legacy royalties, both of which were necessary to allow a successful farm-out process to occur.

"Finally I would like to thank and congratulate all those who have worked on this project for their hard work and diligence in making this happen."

We seek Safe Harbor.