Falcon Oil & Gas : MD&A 31 March 2025

Published: 2025-05-19 19:35:04 ET FO.V

Published on 05/19/2025 at 19:35

Form 51-102F1

Management's Discussion & Analysis

For the Three Months Ended 31 March 2025 (Presented in U.S. Dollars)

Introduction 3

Overview of business and overall performance 6

Results of operations 10

Summary of quarterly results 13

Liquidity and capital resources 15

Disclosure of outstanding share data 17

Legal matters 17

Transactions with non-arm's length parties and related party transactions 17

Off Balance sheet arrangements and proposed transactions 17

Financial instruments and other instruments 17

New accounting pronouncements 17

Business risks and uncertainties 17

Critical accounting estimates 17

Management's responsibility for MD&A 18

The following management's discussion and analysis (the "MD&A") was prepared as at 19 May 2025 and is management's assessment of Falcon Oil & Gas Ltd.'s ("Falcon") financial and operating results and provides a summary of the financial information of the Company (as hereinafter defined) for the three months ended 31 March 2025. This MD&A should be read in conjunction with the unaudited interim financial statements for the three months ended 31 March 2025 and 2024 and the audited consolidated financial statements and MD&A for the years ended 31 December 2024 and 2023.

The Company's independent auditors have not performed a review on the unaudited interim financial statements for the three months ended 31 March 2025 and 2024.

The information provided herein in respect of Falcon includes information in respect of its wholly-owned subsidiaries: TXM Oil and Gas Exploration Kft., a Hungarian limited liability company ("TXM"); Falcon Oil & Gas Ireland Limited, an Irish limited liability company ("Falcon Ireland"); Falcon Oil & Gas Holdings Ireland Limited, an Irish limited liability company ("Falcon Holdings Ireland"); Falcon Exploration and Production South Africa (Pty) Ltd., a South African limited liability company ("Falcon South Africa") and its 98.1% majority owned subsidiary, Falcon Oil & Gas Australia Limited, an Australian limited liability company ("Falcon Australia") (collectively, the "Company" or the "Group").

Additional information related to the Company, including the Company's Annual Information Form ("AIF") for the year ended 31 December 2024 dated 28 April 2025 can be found on the System for Electronic Document Analysis and Retrieval ("SEDAR+") at https://www.sedarplus.ca and Falcon's website at https://www.falconoilandgas.com.

Certain statements contained in this MD&A constitute forward-looking statements and are based on Falcon's beliefs and assumptions based on information available at the time the assumption was made. By its nature, such forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.

Any statements not of historical fact may be deemed to be forward-looking information. Forward-looking information typically contains statements with words such as "may", "will", "should", "expect", "intend", "plan", "anticipate", "believe", "estimate", "preliminary" "projects", "dependent", "potential", "scheduled", "forecast", "outlook", "budget", "hope", "support" "ongoing", "objective", "measure", "depends", "could" or the negative of those terms or similar words suggesting future outcomes. In particular forward-looking statements in this MD&A include, but are not limited to, statements with respect to: the strategy of the Board of Directors of Falcon (the "Board") and countries it believes support the exploitation of unconventional oil and gas; the shale oil and shale gas potential of the Beetaloo Sub-basin, Australia; the objectives of the wells to be drilled in the Beetaloo Sub-basin; information relating to drilling operations at the Shenandoah South 1H ("SS1H"), Shenandoah S2-2H ("SS2H"), Shenandoah S2-2H sidetrack ("SS2H ST1") and the Shenandoah S2-4H ("SS4H") wells; the belief by the Beetaloo Joint Venture partners ("BJV") of Falcon Australia and Tamboran (B2) Pty Limited ("Tamboran B2") that the SS1H 30-day initial production ("IP30"), 60-day initial production ("IP60") and 90-day initial production ("IP90") results were above the commercial threshold required to progress development plans for the proposed 40 million cubic feet per day ("MMcf/d") stimulation campaign at the Shenandoah South location subject to funding and key approvals; the two wells drilled in 2024 and plan for further wells to be drilled in 2025, collectively knowns as the Shenandoah South Pilot Project ("Pilot Project"); commencement of flow testing at SS2H ST1 and the associated expected IP30 results in June 2025 and the plan to continue for 90 days; Falcon's ownership in the northern and southern pilot areas and remaining acreage following the execution of the checkerboard; the geological rock properties in the region indicative of favourable well performance with potential to result in long-term, low-declining gas production, this region being one of the best locations in the Beetaloo Sub-basin for Pilot Project development activities; signing of a Binding Agreement for a long term Gas Sales Agreement to supply the Northern Territory, conditional on entering a binding Gas Transportation Agreement and Gas Processing Agreement and the plan for first gas flow in 2026; treatment under governmental regulatory regimes and tax laws; the quantity of petroleum and natural gas resources or reserves; statements relating to the Group's activities in the Beetaloo Sub-basin; the prospectivity of the Amungee Member play; anticipated production rates; the future coming into effect of the Upstream Petroleum Resources Development Act 23 of 2024 with respect to the Group's interest in the Karoo basin, South Africa; the awarding of exploration rights; liquidity and financial capital including the going concern capabilities of the Company and its estimated need to raise funds in H2 2025; expectations regarding the ability of Falcon to access additional sources of funding including those not currently available; and Falcon's ability to leverage its experience in the unconventional oil and gas industry to acquire interests in licenses.

Some of the risks and other factors, which could cause results to differ materially from those expressed in the forward-looking statements include, but are not limited to: general economic conditions in the Republic of Hungary, the Commonwealth of Australia, the Republic of South Africa and globally; supply and demand for petroleum and natural gas; industry conditions, including fluctuations in the price of petroleum and natural gas; governmental regulation of the petroleum and natural gas industry, including income tax, environmental and regulatory matters adversely impacting the exploitation of unconventional oil and gas resources; introduction of a moratorium; fluctuation in foreign exchange or interest rates; risks and liabilities inherent in petroleum and natural gas operations, including exploration, development, exploitation, marketing and transportation risk and for relatively under-explored basins such as the Beetaloo Sub-basin there may not be the shale oil and gas commercial potential; renewal of exploration permits; need to obtain regulatory approvals before development commences; environmental risks and hazards and cost of compliance with environmental regulations; aboriginal claims; risks and uncertainties associated with wellbore or reservoir conditions, geological, technical, drilling and processing problems; unanticipated operating events which can delay exploration and appraisal or reduce production or cause production to be shut-in or delayed; willingness of joint venture partners to continue with a work programme and bringing towards commerciality; the ability of our joint venture partners to pay their proportionate share of joint interest billings; failure to obtain industry partner and other third party consents and approvals, when required; stock market volatility and market valuations; competition for, among other things, capital, acquisition of reserves, processing and transportation capacity, undeveloped land and skilled personnel; uncertainties inherent in estimating quantities of reserves and resources and bringing to commerciality; the need to obtain required approvals from regulatory authorities with delays impacting work programmes and associated costs or not receiving the requisite license to explore; risks associated with drilling wells which is speculative and often involves significant costs that may be more than estimated and may not result in any discoveries; risks associated with the ability to raise necessary funds to continue to meet obligations and cash availability to meet expenses as they fall due; pandemics such as COVID-19 may be prolonged, delaying work programmes and increasing cost; macroeconomic risks such as inflationary pressures and the current Russian-Ukrainian war also delay work programmes due to delivery of goods and increasing costs and the other factors considered under "Risk Factors" in Falcon's AIF.

With respect to forward-looking statements contained in this MD&A, Falcon has made assumptions regarding: the countries where the Group operates supporting the exploitation of unconventional oil and gas; the shale oil and shale gas commercial potential of the Beetaloo Sub-basin while it remains relatively under-explored; the continuation of the Beetaloo Sub-basin Pilot Project and being brought towards commerciality; the original gas in place and contingent gas resource calculated with respect to the Beetaloo Sub-basin are the best estimates based on the drilling results to date and other data (including seismic) available; work with Falcon's joint venture partner, Tamboran B2, will continue, obtaining necessary approvals to continue working in the Beetaloo; estimated date for the awarding of the exploration right over the acreage in the Karoo Basin; cost estimates for twelve months from the date of approval of this document and the Group's ability to continue as a going concern; the Beetaloo Sub-basin project being brought towards commerciality.

Management has included the above summary of assumptions and risks related to forward-looking information provided in this MD&A in order to provide readers with a more complete perspective on Falcon's future operations and such information may not be appropriate for other purposes. Falcon's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, if any, that the Company will derive therefrom. Readers are cautioned that the foregoing lists of factors are not exhaustive.

The forward-looking statements contained in this document are expressly qualified by this cautionary statement. Falcon disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulation. In addition, other factors not currently viewed as material could cause actual results to differ materially from those described in the forward-looking statements.

Any references in this MD&A to initial production rates are useful in confirming the presence of hydrocarbons; however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter and are not necessarily indicative of long-term performance or ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for Falcon. Such rates are based on field estimates and may be based on limited data available at this time.

Contingent resource estimates are those quantities of gas (produced gas minus carbon dioxide and inert gasses) that are potentially recoverable from known accumulations, but which are not yet considered commercially recoverable due to the need for additional delineation drilling, further validation of deliverability and original gas in place, and confirmation of prices and development costs. There is uncertainty that it will be commercially viable to produce any portion of the resources. For additional information relating to contingent resource estimates in respect of the Amungee NW-1H Velkerri B Shale Gas Pool which were prepared by an Origin employee and a Qualified Reserves and Resources Evaluator effective as of February 15, 2017, please refer to Falcon's AIF dated April 28, 2025, which is available on SEDAR+ at https://www.sedarplus.ca.

All dollar amounts in this document are in United States dollars "$", except as otherwise indicated. "CDN$" where referenced represents Canadian dollars; "£" where referenced represents British Pounds sterling, "HUF" where referenced represents Hungarian forints and "A$" where referenced represents Australian dollars.

The financial information provided herein has been prepared in accordance with International Financial Reporting Standards and International Accounting Standards as issued by the International Accounting Standards Board (IASB) (collectively IFRS Accounting Standards).

Falcon is an international oil and gas company engaged in the exploration and development of unconventional oil and gas assets. The Company's interests are located in internationally diversified countries that are characterised by a high regional demand for energy and are close to existing infrastructure allowing for rapid delivery of oil and gas to market in Australia and Hungary.

Falcon's strategy is to leverage the Group's expertise in the unconventional oil and gas industry to acquire interests in licences covering large acreages of land and to build on its internationally diversified portfolio of unconventional assets and interests, which are located in countries that the Board believes support the exploitation of unconventional oil and gas. Falcon seeks to add value to its assets by entering into farm-out arrangements with major oil and gas companies that will fully or partially carry Falcon through seismic and drilling work programmes. The Group's principal interest is located in the underexplored Beetaloo Sub-basin in Australia; with further interests in Hungary and an underexplored basin in South Africa, covering approximately 12.3 million gross acres in total. The carrying value at 31 March 2025 of the Company's interest in Australia is $53.3 million, while the Hungarian asset is nil due to a determination in 2014 that the estimated recoverable amount was insufficient to cover the carrying value of the asset. For the South African interest, costs associated with the technical cooperation permit are expensed as incurred.

Falcon is incorporated in British Columbia, Canada and headquartered in Dublin, Ireland. Falcon's Common Shares are traded on Toronto's TSX Venture Exchange ("TSX-V") (symbol: FO.V); and AIM, a market operated by the London Stock Exchange (symbol: FOG).

The following table summarises the principal oil and gas interests of the Company in Australia, South Africa and Hungary:

Assets (Country)

Interest (%)

Operator

Status

Gross Area

(km2)

Exploration Permit EP-76 (Beetaloo Sub-basin, Northern Territory, Australia)

22.5(i)

Tamboran B2(iii)

Exploration

1,891.3

Exploration Permit EP-98 (Beetaloo Sub-basin, Northern Territory, Australia)

22.5(i)

Tamboran B2(iii)

Exploration

10,316.0

Exploration Permit EP-117 (Beetaloo Sub-basin, Northern Territory, Australia)

22.5(i)

Tamboran B2(iii)

Exploration

6,412.0

Technical Cooperation Permit, (Karoo Basin, South Africa) (ii)

100

Falcon

TCP

30,327.9

Makó Production Licence (Makó Trough, Hungary)

100

TXM

Production

994.6

Falcon owns 98.1% of Falcon Australia, which holds a 22.5% interest in EP76, EP98 and EP117 (collectively the "Exploration Permits"). The remaining 1.9% interest of Falcon Australia is held by others. The Exploration Permits are currently in year 2 with a permit year end of 31 May 2028. On 25 March 2024 Falcon announced that Falcon Australia had elected to reduce its participating interest ("PI") in the proposed Pilot Project from 22.5% to 5% for the first two wells and on 24 January 2025 it was announced that Falcon Australia would reduce its participation in the remaining wells of the Pilot Project to 0%.

In compliance with the terms of the Technical Cooperation Permit ("TCP"), the Company submitted its application for an exploration licence in August 2010. Local counsel has confirmed that despite the TCP having an expiry date of October 2010, the Company's interests remain valid and enforceable.

In September 2022 Origin announced the divestment of their interest in the Exploration Permits to Tamboran B2, with Tamboran B2 appointed as operator.

Beetaloo Sub-basin, Northern Territory, Australia

Overview

Falcon Australia is one of the two registered holders of approximately 4.6 million gross acres (~ 18,619 km2), 1 million net acres of the Exploration Permits in the Beetaloo Sub-basin, Northern Territory, Australia. The Beetaloo Sub-basin is located 600 kilometres south of Darwin, close to infrastructure including a highway, a pipeline and a railway, offering transport options to the Australian market and beyond via the existing and developing liquified natural gas capacity in Darwin.

Exploration Permits

A summary of Falcon Australia's Exploration Permits is contained in the table on the previous page.

In accordance with local law and regulations, Falcon Australia's acreage interests are subject to combined government and Northern Land Council royalties on production values of up to approximately 12%, for other royalties granted by Falcon Australia, please refer to the section below. Falcon Australia is subject to Commonwealth Government corporation tax of 30%, however where the entity has aggregated annual turnover of less than A$50 million for the financial year and 'base rate entity passive income' of 80% or less of assessable income, Falcon Australia would be considered a 'base rate entity' for Australian tax purposes and would be taxed at a lower rate of 25%. Falcon Australia is also subject to the Commonwealth Government's Petroleum Resource Rent Tax ("PRRT") levied at the rate of 40% on taxable profits derived from the petroleum projects. The PRRT is calculated on the individual projects, and royalties are deductible for PRRT purposes. The PRRT tax system is separate from the company income tax system and is based on cash flow. Both royalties and PRRT are deductible for corporate income tax purposes.

Overriding Royalty - Beetaloo Sub-basin Exploration Permits

On 18 April 2024 Falcon announced that Falcon Australia had agreed to grant Daly Waters Energy, LP ("Daly Waters") and a major US-based energy industry service provider an overriding royalty interest ("ORRI") over Falcon Australia's PI in the Exploration Permits in return for cash payments of $3 million and $1 million respectively.

Falcon Australia agreed to grant:

to Daly Waters, in consideration for a cash payment of $3 million, an ORRI of 6.0% in respect of the area around the Pilot Project development in which Falcon Australia has a 5% PI, and an ORRI of 1.3333% in respect of the remaining ~4.5 million acres; and

to a major US-based energy services provider, in consideration for a cash payment of $1 million, an ORRI of 2% in respect of the area around the Pilot Project development, and an ORRI of 0.4444% in respect of the remaining ~4.5 million acres.

Other ORRIs granted in previous years over Falcon Australia's 22.5% PI are as follows:

2% ORRI to Sheffield Holdings LP ("Sheffield"); and

1% ORRI Malcolm John Gerrard, Territory Oil & Gas LLC and Tom Dugan Family Partnership LLC.

Current Activity Shenandoah South 1H

On 26 February 2024 Falcon announced that the SS1H well in EP117 achieved a commercial IP30 flow rate of 3.2 MMcf/d (normalised to 6.4 MMcf/d over 1,000 metres), significantly higher than pre-drill expectations. The SS1H demonstrated that the geological rock properties, indicative of favourable well performance, met or exceeded the US Marcellus shale (including reservoir pressure, effective porosity and gas in place). The SS1H IP30 flow rate delivered the highest normalised rates achieved in the Beetaloo Sub-basin to date, exceeding the previous normalised IP30 record achieved by the Tanumbirini 3H well in the Santos-operated EP161 acreage in 2022. The SS1H result demonstrated that the deepest regions of the Beetaloo Sub-basin have the most consistent geology and deliver the highest flow rates and recoverable volumes.

In March 2024 the SS1H well achieved above a commercial IP60 flow rate of 3.0 MMcf/d (normalised to 6.0 MMcf/d over 1,000 metres) and on 26 April 2024 Falcon announced that the SS1H achieved above a commercial IP90 flow rate of 2.9 MMcf/d (normalised to 5.8 MMcf/d over 1,000 metres). The SS1H flow test indicates that future development wells with lateral lengths of ~3,000 metres may be capable of delivering average rates of 17.8 MMcf/d over the first 90 days of production. The strong SS1H result validated the decision to progress with the Pilot Project in the Shenandoah South region within the deep shale in the Beetaloo West.

Pilot Project, reduced participating interest

On 25 March 2024 Falcon announced that Falcon Australia had elected to reduce its PI in the proposed Pilot Project from 22.5% to 5%, for the first two wells in the 2024 drilling program creating two new drilling and spacing units ("DSUs") totalling ~51,200 acres. This optimises Falcon Australia's interest in the Beetaloo, since Falcon Australia would only have to pay for 5% of the costs of the two wells to be drilled in 2024. Furthermore, on 25 January 2025, it was announced that Falcon Australia would reduce its participation in the Pilot Project to 0% for wells to be drilled in 2025.

SS2H & SS2H ST1

On 30 August 2024 Falcon announced the commencement of the 2024 drilling programme with the spudding of the SS2H horizontal well in EP98 with the H&P super-spec FlexRig® Flex 3 Rig. The SS2H well was successfully drilled to a total depth of 6,300 metres (20,669 feet) in 35 days, intersecting the Amungee Member B-Shale and including a 3,000 metre (9,843 foot) horizontal section. Data from the SS2H well demonstrated geological rock properties consistent with the SS1H location, with strong gas shows across the entire horizontal section and no observed faulting. When preparing to run production casing, a downhole mechanical issue was unable to be remediated which resulted in the SS2H well been plugged and sidetracked. On the 18 November 2024 it was announced that the SS2H ST1 sidetrack well had been cased and suspended at a total measured depth of 4,932 metres (16,182 feet), including a 1,800 metre (5,906-foot) horizontal section within the Amungee Member B-Shale.

On 7 February 2025 Falcon announced the completion of the SS2H ST1 stimulation with 35 stages successfully completed across the 1,671-metre (5,483-foot) horizontal section of the Amungee Member B-shale with the Liberty Energy (NYSE: LBRT) modern stimulation equipment. Stimulation activities achieved five stages over a 24-hour period on multiple days, the average proppant intensity was 2,706 pounds per foot and achieved wellhead injection rates above 100 barrels per minute and the average stage spacing was 48-metres (~157-feet). On 14 May 2025 Falcon announced that flow testing had commenced after a longer soaking period following analysis of wells across the Beetaloo Sub-basin, allowing water to imbibe into the rock, increasing the formation's relative permeability to gas. The IP30 flow test is expected to be announced in June 2025 and testing is planned to continue for a full 90-days, subject to weather or unforeseen events.

SS4H

On 25 November 2024 Falcon announced the spudding of the SS4H horizontal well in EP98 and on the 23 December 2024 it was announced that SS4H was successfully drilled, cased and cemented to a measured depth of 6,452 metres (21,169 feet). Data has indicated strong gas shows, and a continuation of the high-quality shale and rock properties observed in the SS1H and SS2H ST1 locations with no faulting observed along the entire 3,048-metre (10,000 foot) lateral section. In February 2025 it was noted that stimulation operations had commenced in January 2025, however Tamboran B2 took proactive and precautionary steps to pause completion operations due to the detection of stress in a casing connection.

Gas Sales Agreement ("GSA")

On 23 April 2024 Falcon announced that the BJV had signed a Binding Agreement for a long-term GSA to supply the Northern Territory Government (Buyer) with 14.6 PJ (13.8 BCF) per annum from the proposed Pilot Project for an initial term of nine years, with a Buyer's option to extend for a further six-and-a-half years.The GSA is a binding supply commitment conditional on the BJV entering into a binding Gas Transportation Agreement with APA on the proposed Sturt Plateau Pipeline, a binding Gas Processing Agreement for the proposed Sturt Plateau Compression Facility, reaching a final investment decision on upstream drilling activity and receiving all necessary approvals to proceed with these projects. First gas flow is planned for 2026.

Checkerboard

On 13 May 2025 it was announced that Tamboran Resources Corporation (NYSE: TBN, ASX: TBN) ("Tamboran Corp") and Daly Waters Energy, LP ("DWE") had signed a binding agreement to finalise the checkerboard of their joint acreage across the Exploration Permits. Both parties will hold operated working interest areas at 77.5% (except two smaller areas which are the subject of the sale of 100,000 acres by Tamboran Corp to DWE), with Falcon Australia having the remaining 22.5% non-operating interest across the wider acreage. Ownership of the proposed northern Pilot Area containing 20,309 acres, the focus for initial gas production, remains unchanged with Falcon Australia at 5%, Tamboran Corp (operator) 47.5% and DWE 47.5%. Ownership of the anticipated expansion into the southern Pilot Area containing 20,309 acres will be Falcon Australia at 22.5%, Tamboran 38.75% and DWE (operator) 38.75%. Falcon Australia is uniquely placed as the only party with an interest across all checkboard pieces.

Valuation of acreage

Furthermore, on 13 May 2025 it was announced that DWE and Tamboran Corp had entered a binding agreement whereby DWE will acquire a non-operating and non-controlling interest across 100,000 acres within two areas of Tamboran Corp's post-checkerboard acreage position for a consideration of $15 million, equating to $150/acre. The

$150/acre would translate to a valuation of Falcon Australia's acreage at a minimum of $150 million.

Karoo Basin, South Africa

The Company holds a TCP covering an area of approximately 7.5 million acres (~ 30,327 km2), in the southwest Karoo Basin, South Africa. The TCP granted Falcon exclusive rights to apply for an exploration right over the underlying acreage, which they duly did in August 2010, submitting an application to the Petroleum Agency of South Africa ("PASA"). Local counsel has confirmed that despite the TCP having an expiry date of October 2010, the Company's interests remain valid and enforceable The Company also submitted an environmental management plan in January 2011 which was updated at the request of the PASA and submitted on 27 February 2015. On 25 April 2024, the National Council of Provinces passed the Upstream Petroleum Resources Development Bill ("Upstream Bill") which separated the regulatory frameworks governing mining and upstream petroleum exploration and production which were previously collectively addressed under the Mineral and Petroleum Resources Development Act, 2002. On 25 October 2024 the Upstream Bill, now the Upstream Petroleum Resources Development Act 23 of 2024 ("Upstream Act") was assented by the South African President and published in the Government Gazette on 29 October 2024. The Upstream Act will only come into effect by a further proclamation by the South African President. The Board does not foresee the awarding of an exploration right over the acreage within the next 12 months. For further details on South Africa, please refer to Falcon's AIF on page 15.

Makó Trough, Hungary

Falcon has been active in the Makó Trough since 2005 when it acquired the Makó and the Tisza exploration licences. In 2007, Falcon's subsidiary, TXM, was awarded the 35-year Makó Production Licence which covers some of the acreage originally covered by the Makó and the Tisza exploration licences. Falcon continues to maintain and safeguard its Hungarian wells and review its operations in Hungary, evaluating all options available to the Group to deliver shareholder value. The Group maintains its 100% interest in the Makó Trough. For further details on the Makó Trough, please refer to Falcon's AIF on page 16.

This review of the results of operations should be read in conjunction with the unaudited unreviewed interim condensed consolidated financial statements for the three months ended 31 March 2025 and 2024 and, the audited consolidated financial statements for the years ended 31 December 2024 and 2023.

Management's Discussion and Analysis of financial condition and results of operations for the three months ended 31 March 2025 as compared to the three months ended 31 March 2024

The Company reported a net loss of $497,000 for the three months ended 31 March 2025 as compared to a net loss of $806,000 for the three months ended 31 March 2024. Changes between 2025 and 2024 were as follows:

Three months ended 31 March

Changes

2025

$'000

2024

$'000

Revenue

Oil and natural gas revenue

Expenses

Exploration and evaluation expenses

(40)

(44)

-9%

General and administrative expenses

(491)

(528)

-7%

Foreign exchange gain

120

(43)

-36%

(454)

(452)

(2)

Results from operating activities

(454)

(452)

(2)

Finance expense

Interest income on bank deposits

Accretion of decommission provisions

(141)

(130)

(11)

Net foreign exchange gain / (loss)

(232)

322

-139%

(43)

(354)

311

-88%

Loss and comprehensive loss

(497)

(806)

309

-38%

Loss and comprehensive loss attributable to:

Equity holders of the company

(497)

(804)

307

-38%

Non-controlling interest

(2)

-100%

Loss and comprehensive loss

(497)

(806)

309

-38%

Exploration and evaluation expenses

Three months ended 31 March

Change

2025

$'000

2024

$'000

Consulting, legal and other associated costs

(8)

(0)

Well related costs

(32)

(36)

-11%

(40)

(44)

-9%

Exploration and evaluation expenses relate to maintenance and landowner costs in maintaining and safeguarding the Company's Hungarian wells along with costs associated with the Company's TCP in South Africa. Main movement relates to reduced well specific costs and favourable exchange rates.

General and administrative expenses

Three months ended 31 March

Change

2025

$'000

2024

$'000

Accounting and audit fees

(55)

(53)

(2)

Consulting fees

(21)

(19)

(2)

11%

Legal fees

(13)

(4)

(9)

225%

Investor relations

(48)

(59)

-19%

Office and administrative costs

(32)

(36)

-11%

Payroll and related costs

(244)

(243)

(1)

Directors' fees

(59)

Travel and promotion

(19)

Share based compensation

(36)

-100%

(491)

(528)

-7%

General and administrative expenses decreased to $491,000 in 2025 from $528,000 in 2024. The main changes were as follows:

Accounting and audit fees: Audit fee increases resulted in a movement period on period.

Consulting and legal fees: Consulting fees movement period on period was minimal with legal fee increases driven by business needs.

Investor relations: The decrease period on period is mainly attributable to the termination of a joint broker contract with Tennyson in Q4 2024.

Office and administrative expenses have decreased period on period due to business needs.

Travel and promotion costs have remained constant based on travel requirements in the period relative to the same three months in 2024.

Share based compensation had no charge in 2025 given there were no grants since 2022.

Foreign exchange gain

The foreign exchange gain recorded in operating expenses for the three months ended 31 March 2025 is attributed to favorable movements to the US Dollar since 31 December 2024. Similarly, there were favourable movements to the US Dollar in the same three-month period in 2024.

Finance expense

The favourable variance in finance expenses for 2025 relative to the same period in 2024 is predominantly related to favourable movement in foreign exchange rates to the US dollar period on period, offset by a minimal increase in accretion costs for the period.

Loss attributable to non-controlling interest

The amounts reflected in 2025 and 2024 represent Falcon Australia's losses attributable to shareholders other than Falcon.

Three months ended 31 March

2025

$'000

2024

$'000

Net cash used in operating activities

(622)

(611)

Net cash generated by / (used in) investing activities

605

(2,861)

Change in cash and cash equivalents

(17)

(3,472)

Effect of exchange rates on cash & cash equivalents

(231)

Cash and cash equivalents at beginning of period

6,823

7,992

Cash and cash on equivalents at end of period

6,896

4,289

Cash and cash equivalents have increased by $2.6 million to $6.9 million in 2025 from $4.3 million for the same period in 2024. The main period on period changes were as follows:

Net cash used in operating activities: The increase is driven by the timing of payments and operational costs for certain activities in Q1 2025.

Net cash generated by / (used in) investing activities: The BJV costs for the three months ended 31 March 2025 were offset by a R&D tax incentive refund and a refund for exploration permit legacy bonds received in the period.

Cash and cash equivalents: Further to the points noted above, Falcon completed a fund raising and granted two ORRIs which increased the cash position in April 2024

Effect of exchange rates on cash & cash equivalents: There were favourable movements against the US Dollar in Q1 2025.

The following is a summary of the eight most recently completed quarters:

(In thousands of $ unless otherwise stated)

As of:

For the three months ended:

30 June

2024

30 September

2024

31 December

2024

31 March

2025

Revenue

Loss

(749)

(243)

(1,167)

(497)

Loss attributable to common shareholders

(747)

(247)

(1,160)

(497)

Loss per share-basic and diluted (cent)

(0.001)

(0.000)

(0.001)

(0.000)

For the three months ended:

30 June

2023

30 September

2023

31 December

2023

31 March

2024

Revenue

Loss

(741)

(1,049)

(891)

(806)

Loss attributable to common shareholders

(740)

(1,046)

(893)

(804)

Loss per share-basic and diluted (cent)

(0.001)

The Group is an exploration company with no revenue. The Group's loss and loss per share relate to the Group's operations during a particular period and are not seasonal in nature.

General and administrative expenses ("G&A costs") decreased period on period by $0.5 million, this was driven by reduced payroll costs due to bonuses paid in Q2 2022 and no similar payment in the same quarter in 2023, along with a reduction in share-based compensation expenses, driven by the vesting schedule of the share options and their associated cost. Further movement period on period was driven by foreign exchange loss reductions for the period relative to losses for the same three months in 2022.

The accretion cost increased period on period due to provisioning costs for the Group's Australian assets commencing during 2023, G&A costs also increased period on period due to bonuses being paid during the quarter. There was no similar payment in Q3 2022 as bonuses were paid in Q2 2022. The quarterly loss was also impacted by movements in the foreign exchange gains and losses.

G&A costs were the largest cost for the quarter but decreased period on period due to a decrease to the share-based compensation expense. The decommissioning provision charge is due to a revision of costs for the year. The accretion cost increased period on period due to provisioning costs for the Group's Australian assets commencing during 2023. There was a net favourable decrease on the foreign exchange gain period on period.

G&A costs were the largest cost for the quarter but decreased period on period due to a decrease to the share-based compensation expense, given the vesting schedule of the 2022 grants, with an associated reduction in the charge of over $0.1 million for the quarter relative to the same period in 2023. The accretion cost increased period on period due to decommissioning provision for the Group's Australian assets recognised from 2023. There was a net unfavourable decrease on the foreign exchange gain period on period.

G&A costs reduced slightly period on period, mainly due to a reduction in share-based compensation expenses, driven by the vesting schedule of the share options and their associated cost. There were increased foreign exchange losses for the period relative to the losses for the same three months in 2023. The accretion cost increased period on period due to the decommissioning provision for the Group's Australian assets as further wells are drilled.

G&A costs decreased period on period due to bonuses being paid in Q3 2023 with no similar payment in Q3 2024. The quarterly loss was also impacted by favourable foreign exchange movements and a reduction in share-based compensation period on period.

G&A costs decreased period on period across most categories of costs, the main drivers were payroll related costs and share based compensation costs with further reductions in the decommissioning provision. These reduced costs were offset by significant unfavourable movements in foreign exchange in the quarter.

G&A costs decreased period on period mainly a result of no share-based compensation expense in the period as all share options are fully vested and a reduction in investor relations given the termination of the joint broker agreement in December 2024. There were also significant favourable movements in foreign exchange in the quarter.

For further details of 2024/2025 updates please refer to the Beetaloo Sub-basin, Northern Territory, section of this document.

Generally, the Group's total assets, exploration and evaluation costs, working capital and total shareholders' equity fluctuate in proportion to one another unless the Group completes financing.

On 17 May 2019 the Company completed a Placing and raised gross proceeds of c. £7 million (c.$9 million). On 31 March 2022 Falcon announced it had received a subscription from Sheffield for a $10 million private placement. On 22 April 2024 Falcon announced the Company had raised gross proceeds of c.$4.9 million (c. £3.9 million) through the Subscription and Placing, for a total number of 64,794,087 New Common Shares at an issue price of £0.06p per share. Details of placements are included on page 16.

Going Concern

For the year ended 31 December 2024, the Group incurred losses of $3 million, had operating cash outflows of $2.1 million and a deficit of $410.2 million. For the three months ended 31 March 2025, the Group incurred losses of

$497,000, had operating cash outflows of $622,000 and a deficit of $410.7 million.

As at 31 March 2025 the Group had $6.9 million of cash and cash equivalents which is sufficient to cover Falcon's own ongoing operating costs for the next 12 months from the date of the approval of the financial statements. However, as outlined below, further funding will be required for Falcon Australia's continued participation in the Beetaloo and estimated costs to be incurred in H2 2025, which is within the 12 months from the date of approval of the financial statements. Falcon Australia holds a 22.5% PI across the Exploration Permits situated in the Beetaloo Sub-basin, Northern Territory, Australia with Tamboran B2 appointed as operator. As part of the executed joint operating agreement, Tamboran B2 granted Falcon Australia an additional gross carry beyond Stage 3 of A$30 million (net A$6.75 million) and terms were agreed on DSUs for sole risk operations, the size of these DSUs depending on (a) the type and length of the well to be drilled and (b) whether or not the well is a "commitment well" under the terms of the Exploration Permits, a non-commitment well creates a DSU to a maximum of 6,400 acres, while a commitment well creates a DSU to a maximum of 25,600 acres, providing Falcon Australia with participation optionality on the drilling of future wells. As announced on 25 March 2024 Falcon Australia elected to reduce its working interest from 22.5% to 5% in the first two wells of the Pilot Project, with the Pilot Project consisting of 2 wells drilled in 2024 and a further three wells to be drilled in 2025. Falcon further announced on the 24 January 2025 it would not be participating in the wells to be drilled in 2025.

The A$263.8 million gross cost cap and gross A$30 million (net A$6.75 million) additional carry for 2023 and 2024 are now utilized, therefore cash on hand at 31 March 2025 will contribute to costs of completion of the first two wells in the Pilot Project, however funding will be required to meet estimated expenditure in H2 2025.

Management and those charged with governance are confident that further funding required can be raised through either an equity raise or debt funding. As at the date of the approval of these financial statements no such further funding has been raised and there can be no certainty that sufficient funds can be raised if required. This indicates the existence of a material uncertainty, which may cast significant doubt over the Group's ability to continue as a going concern, and therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include adjustments that would result if the Group was unable to continue as a going concern. Having given due consideration to the cash requirements of the Group, management and those charged with governance has a reasonable expectation that the Group will have adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the financial statements. For this reason, the Board continues to adopt the going concern basis in preparing these consolidated financial statements which assumes the Group will be able to meet its liabilities as they fall due for the foreseeable future.

Working Capital

Cash and cash equivalents at 31 March 2025 were $6.9 million, with a increase of $0.07 million from $6.8 million as at 31 December 2024. Working capital at 31 March 2025 decreased to $5.4 million from working capital of $8.9 million as at 31 December 2024.

The minimal increase to cash and cash equivalents from 31 December 2024 is driven by operating expenses of $0.6 million and exploration and evaluation asset expenses of $2.4 million within investing activities offset by an R&D incentive refund of $2.9 million and favourable foreign exchange movements on cash balances period on period.

Accounts Receivable

Current accounts receivable as at 31 March 2025 were $0.1 million, which is prepayments of $0.1 million.

Accounts Payables and Accrued Expenses

Accounts payable and accrued expenses as at 31 March 2025 were $1.6 million which includes $0.9 million for accounts payable and $0.7 million accrued expenditures.

Capital Expenditures

For the period ended 31 March 2025 the following expenditure commitments exist.

Australia - Beetaloo Sub-Basin, Northern Territory, Australia

The Group planned a drilling programme which commenced in 2015 with its farm-in partners. Work recommenced in 2019 following the moratorium on hydraulic fracturing, details of current operations are included on pages 6-8.

Since April 2020 Falcon Australia holds a 22.5% PI in the Exploration Permits and there was also an overall cost cap of A$263.8 million resulting from farm out transactions agreed to up to that date. In October 2022, Falcon Australia was granted an additional carry on costs up to A$30 million (gross) and there was the introduction of DSUs on sole risk operations providing optionality to Falcon Australia on future wells drilled. The size of a DSU varies depending on (a) the type and length of the well to be drilled and (b) whether or not the well is a "commitment well" under the terms of the Exploration Permits, a non-commitment well creates a DSU to a maximum of 6,400 acres, while a government commitment well creates a DSU to a maximum of 25,600 acres. The optionality created by the DSUs allows Falcon Australia to participate at its PI of 22.5% or reduce its interest as low as 0% in a particular DSU without impairing the percentage it participates in a future DSU across the acreage. The cost cap and the additional carry have now been consumed and Falcon Australia is contributing to the costs in proportion to its 22.5% PI or reduced interest as elected. A Pilot Project at the Shenandoah South location commenced in 2024 with Falcon Australia electing to reduce its PI in the first two wells of the Pilot Project to 5% and reducing its PI in the wells to be drilled in the Pilot Project through 2025 to 0%.

The terms of the Beetaloo Joint Venture continue to necessitate specific minimum work obligations through May 2028. Future commitments for the next three years to May 2028 include an expected gross spend of A$106,750,000 across the Exploration Permits, related to drilling and multi-stage stimulations, 3D seismic survey, and sub-surface studies, with gross expenditure across EP76 of A$20,750,000, EP98 of A$63,500,000 and EP117 of A$22,500,000. Falcon Australia's level of future spend will be dependent on the participating interest it opts into each of the joint operations at.

South Africa - Karoo Basin, South Africa

On granting of an approved exploration right in South Africa, the Group will be required to make a payment to the South African government of approximately $0.7 million.

Hungary - Makó Trough, Hungary

As at 31 March 2025, the Group's cumulative expenditures for the Production License and Exploration Licenses, including the acquisition, seismic testing, drilling of exploratory wells, and initial testing and completion of wells, was approximately $245 million.

The Group is not planning any independent technical operations in Hungary, and as such no material capital expenditures are expected.

Debt and Equity Capital

The availability of debt and equity capital, and the price at which additional capital could be issued will be dependent upon the success of the Group's exploration activities, and upon the state of the capital markets generally.

On 22 April 2024 Falcon announced the Company had raised gross proceeds of c. $4.9 million (c. £3.9 million) through the Subscription and Placing, for a total number of 64,794,087 New Common Shares at an Issue Price of £0.06 per share.

The settlement of the relevant New Common Shares forming part of the First Admission (being 58,155,490 New Common Shares) and the admission became effective and dealings in those New Common Shares commenced on 26 April 2024.

The settlement of the relevant New Common Shares forming part of the Second Admission (being 6,638,597 New Common Shares) and the admission became effective and dealings in those New Common Shares commenced on 7 May 2024.

The following is a summary of the Company's outstanding share capital as at 31 March 2025 and 19 May 2025:

Class of securities

31 March 2025

19 May 2025

Common shares

1,109,141,512

Stock options

59,750,000

Fully diluted common shares

1,168,891,512

The Company may, from time to time, be involved in various claims, lawsuits, disputes with third parties, or breach of contract incidental to the operations of its business. The Company is not currently involved in any claims, disputes, litigation or other actions with third parties which it believes could have a material adverse effect on its financial condition or results of operations.

There were no related party transactions during the period.

The Company does not have any off-balance sheet arrangements, other than operating leases which is deemed immaterial and payments with regards overriding royalties as disclosed within section "Overriding Royalty Beetaloo Sub-basin exploration permits" on page 6. The Company has no proposed transactions.

Derivatives (including embedded derivatives) are initially recognised at fair value of the date a derivative contract is entered into and subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group has not designated any derivatives as hedges as at 31 March 2025 or 31 December 2024. The Group has not entered into any contract for "other instruments" during 2025. The Group has no "other instruments" as at 31 March 2025 or 31 December 2024.

The Interim Condensed Consolidated Financial Statements ("Interim Statements") of the Group have been prepared in accordance with IAS 34 'Interim Financial Reporting' and, on the basis of the same accounting principles as, and should be read in conjunction with, the Consolidated Financial Statements for the year ended 31 December 2024 (pages 11 to 16) as filed on SEDAR+ at https://www.sedarplus.ca.

There are no amended accounting standards or new accounting standards that have any significant impact on the 31 March 2025 Interim Statements.

Risks and uncertainties that could cause the actual results to materially differ from current expectations have not changed from those disclosed in the Company's AIF dated 28 April 2025.

Critical accounting estimates that could cause the Company's actual results to materially differ from current expectations have not changed from those disclosed in the Company's MD&A and Consolidated Financial Statements for the year ended 31 December 2024 and 2023.

The information provided in this MD&A is the responsibility of management. In the preparation of this MD&A, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected in this MD&A.

The audit committee has reviewed the MD&A with management and has approved the MD&A as presented.

Disclaimer

Falcon Oil & Gas Ltd. published this content on May 19, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 19, 2025 at 23:34 UTC.