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Falcon Oil & Gas: Falcon Oil & Gas Ltd. Announces Amendment to Production and Development Agreement With ExxonMobil and MOL

^{Published on 2008-12-08 08:30:35 - Market Wire}
 

DENVER, CO--(Marketwire - December 8, 2008) - Falcon Oil & Gas Ltd. (TSX-V: [ FO ]) today announced that it has entered into an amendment (the "Amendment") to its April 10, 2008 Production and Development Agreement (the "PDA") with Exxon Mobil Corporation affiliate ExxonMobil Hungary (Mako) Limited ("ExxonMobil") and MOL Hungarian Oil and Gas Plc. ("MOL"). Under the Amendment, the parties agreed to three principal matters: (1) the parties have agreed to use reasonable efforts to combine their respective exploration licenses and mining plots to form one unit consisting of all or part of the Makó Trough; (2) if ExxonMobil and MOL elect to proceed to the Appraisal Work Program, the parties agree to expand the area where wells may be located and apply a portion of the US$100 million Appraisal Work Program expenditures basin-wide in a combined work program, based on the optimum locations from a technical basin-wide appraisal standpoint; and (3) if ExxonMobil and MOL elect to proceed to the Development Work Program, the parties agree to apply 50% of the US$75 million payment due to Falcon to the same expanded basin-wide area in a combined work program.

Amendment to the PDA

Background to the PDA: As a result of the extensive technical data developed by Falcon, on May 22, 2007 the Hungarian Mining Authority granted to Falcon a production license (the "Production License"), which covers a significant part of the Makó Trough. A substantial portion of the remaining adjacent area in the Makó Trough is covered by licences, which are held by MOL and currently operated by ExxonMobil (the "MOL Area"). On April 10, 2008, Falcon announced the entering into of the PDA among Falcon, ExxonMobil and MOL, covering a part of the Production License (the "PDA Area"). ExxonMobil is the contract operator of both the MOL Area and the PDA Area.

The Amendment addresses three principal matters:

(1) Formation of Unit: Falcon, ExxonMobil and MOL all recognize the significant potential benefits, from an operating efficiency and technical analysis standpoint, of combining all or a portion of their jointly-owned interest into one unit. Therefore, they have agreed to commence technical discussions and use reasonable efforts to combine all or a portion of their respective interests in the Makó Trough. The Amendment provides that Falcon, ExxonMobil and MOL will pursue discussions toward that objective, beginning in the first calendar quarter of 2009.

(2) Application of Work Commitment Budget: Falcon, ExxonMobil, and MOL are continuing the Initial Work Program, Phase I of the PDA, on the PDA Area without any modifications. The Amendment does not affect any aspect of the ongoing Initial Work Program. If ExxonMobil and MOL elect to proceed to Phase II of the PDA, the Appraisal Work Program, there will be no change in the US$50 million which will be paid to Falcon at the time of such election.

Under the Amendment, a portion of the US$100 million expenditures which ExxonMobil and MOL will be committed to spend in Phase II for drilling wells and related expenditures, will now be applied on the basis of the optimum well locations from a technical appraisal standpoint. Specifically at least one well will be drilled on the PDA Area, with a minimum expenditure of US$25 million and a maximum of US$40 million. The balance of the US$100 million (the "Appraisal Program Balance") will be applied to wells either on the PDA Area or within the MOL Area. All seismic and technical data resulting from the Appraisal Work Program from both the PDA Area and the MOL Area will be shared among the parties. The parties will analyze all such data, discuss well locations, the combined work program and related expenditures through the three companies' joint Operating Committee, however, the final decision on location of such wells shall be an ExxonMobil/MOL decision.

(3) Reallocation of Third Payment: The Amendment further provides that Falcon agrees to reallocate one-half of the US$75 million payment that is due to Falcon if ExxonMobil and MOL elect to proceed to the Development Work Program. Those funds (US$37.5 million) will now be applied in the same manner as the Appraisal Program Balance to the optimum locations and operations on a basin-wide technical basis, to be discussed by the companies' joint Operating Committee, however, the final decision on location of such wells shall be an ExxonMobil/MOL decision.

Marc A. Bruner, Chairman and CEO of Falcon, stated, "We are pleased to enter into the amended terms with ExxonMobil and MOL. The Makó Trough is potentially an enormous resource, and Falcon regards these modifications to the April agreement as a significant step forward in optimizing the ultimate development of Falcon's assets. All parties have a single common goal, and will greatly benefit from a combined work program."

Update on drilling program in the Makó Trough

Falcon is pleased to announce that the Földeák 1 well is expected to spud in January 2009 with the purpose of testing the hydrocarbon potential of the Szolnok formation as part of the Initial Work Program in the PDA Area. This well is located approximately 1000 metres from the Makó 6 well.

About Falcon Oil & Gas Ltd.

Falcon Oil & Gas Ltd. is a British Columbia corporation 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, in Romania through its wholly owned subsidiary JVX Energy Corporation, in Colorado through its wholly owned subsidiary Falcon Oil & Gas USA, Inc., and in Australia through its wholly owned subsidiary Falcon Oil & Gas Australia Pty Ltd. Further information about Falcon is available at [ www.falconoilandgas.com ].

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.

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