11-04-08 Falcon Oil & Gas has announced that it and its wholly owned Hungarian subsidiary, TXM Exploration and Production, have entered into a Production and Development Agreement with ExxonMobil affiliate Esso Exploration International under which Falcon and ExxonMobil will become joint owners in a specified portion of Falcon's long-term production license in the Mako Trough, Hungary.
The Contract Area consists of around 184,300 acres, or 75 % of Falcon's 246,000-acre Production License. The Contract Area will be owned jointly, with Falcon owning a 33 % undivided working interest and ExxonMobil owning a 67 % undivided working interest. The agreement is effective as of 10 April.

“This agreement is a milestone in Falcon's history and is the culmination of Falcon's extensive efforts, announced on June 27, 2007, to find a strategic partner to support and enhance Falcon's exploration and development efforts on Falcon's long-term Production License," said Marc A. Bruner, Falcon's Chairman and CEO.
ExxonMobil pay $ 25 mm (EUR 16 mm) to Falcon and will spend $ 50 mm (EUR 32 mm) to conduct an Initial Work Program to test one or more of Falcon's existing wellbores or drill one or more new wells for such tests.

Field operations under the Initial Work Program are scheduled to commence this year.
“After the Initial Work Program is completed and if ExxonMobil elects to proceed to the next phase (the “Appraisal Work Program"), it will pay Falcon an additional $ 50 mm and will expend $ 100 mm on the Appraisal Work Program," Falcon said. “If ExxonMobil elects not to proceed beyond the Initial Work Program, it will relinquish and reassign to Falcon all of ExxonMobil's interest in the Contract Area. After the Appraisal Work Program is completed, ExxonMobil will pay Falcon an additional $ 75 mm if it elects to proceed to the next phase (the “Development Program") or it will reassign its interest to Falcon, subject to the terms of the Agreement."

Falcon will incur no development costs within the Contract Area for ExxonMobil's commitments during the Initial Work Program or the Appraisal Work Program. ExxonMobil has the right to assign half its interest to MOL, a publicly traded Hungarian oil and gas company.
In addition to Falcon's 33 % undivided ownership in the ExxonMobil-operated Contract Area, Falcon will remain sole owner and operator of 391,445 acres outside the Contract Area boundaries, as well as shallow rights covering 184,336 acres within the Contract Area, as follows:

Falcon Lands:
Falcon retains 100 % ownership in the remaining 25 % (61,445 acres) of the Production License that is not part of the Contract Area.

Exploration Licenses:
Falcon retains 100 % ownership in 330,000 acres which are outside the boundaries of the Production License, under the original Mako Exploration License and original Tisza Exploration License.
Falcon also retains 100 % ownership in the portions of the Exploration Licenses which are above 2,800 meters within the boundaries of the Production License. The 330,000-acre area outside the Production License, and the shallower depths are not part of the Production License.

Regarding Falcon's retained acreage, Bruner stated, “We see significant upside potential within the large portion of the Mako Trough where Falcon still owns 100 %, and we intend to continue to evaluate and pursue opportunities simultaneously with ExxonMobil's operations."
BMO Capital Markets has acted as exclusive financial advisor to Falcon with respect to the transaction.