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KAROON ENERY


Sector: Oil and gas

Industry: Oil Production

HOW THE BAUNA IS GOING TO TRANSFORM KAROON

The Bauna oil field offshore in Brazil comprises two producing oil reservoirs: Bauna and Piracaba, as well as an undeveloped Patola discovery. Both reservoirs are tied back to the leased floating production, storage and off-loading facility Cidade de Itajai.

The Patola project is subject to a final investment decision, which is due to occur prior to the end of FY21 (year end 30 June 2021). It has similar high quality reservoir characteristics to Bauna and Piracaba. First oil is expected from Patola in by the end of FY22.

The company’s expectations are high. Initial flow rates are projected to be greater than 10,000 barrels per day, but are expected to almost double oil production from current levels of around 15,000 to 25,000 to 30,000.

Operating costs in calendar year 2021 for Bauna are expected to be US$25/ barrel of oil. However, with Patola onstream and scale, Karoon expects life of field operating costs to drop to below US$20/bbl. This is in the lowest quartile and is particularly impressive when you consider that the current oil price (Brent) is US$55/bbl.

PRDUCTION GROWTH POTENTIAL FROM NEON AND GOIA FIELDS

In the medium term, cash flow from Bauna will help fund the potential development of the Neon and Goia projects, located 50-60km from Bauna. These projects will have material operational and logistics synergies with the Bauna operation.

Neon and Goia are light oil discoveries. With moderate water depth, shallow reservoir depths and a high quality seismic data set, Karoon considers them to be analogous to the Bauna asset. Initial development flow rates of up to 25,000 to 28,000 barrels of oil per day have been estimated.

With a range of production, nearfield development, appraisal and exploration assets now owned 100% by Karoon, there is significant potential for growth. The company will consider farm-outs or sell downs to better fund and accelerate development.

Karoon envisages cash flow from the Santos Basin assets being used for further production acquisitions, appraisal opportunities and focussed exploration.

THE DEAL

Payment terms for the Bauma acquisition were restructured to account for the fall in oil prices. A fixed payment of US$150m (A$194m) was made at financial close (6 November 2020) from the company’s cash resources. A further payment of US$40m is payable 18 months after financial close. There is a contingent consideration of US$285m with payment size aligned with the recovery of oil prices and skewed to higher prices in each year of payment. It is linked to average Brent prices between US$50 and US$70/bbl from 2022 to 2026.

KEY RISK: SLIPPAGE TO THE TIMELINE TO FULL PRODUCTION

The oil price is obviously a factor, but in its favour this is a low cost project. Beyond this, there needs to be a successful completion at Bauna, a positive financial investment decision by the year end for the undeveloped Patola discovery and project delivery over the succeeding 12 months.

INVESTMENT PROPOSITION

Oil companies have been avoided by many investors, which provides this opportunity. Karoon offers investors strong growth through production expansion, development of discoveries and further exploration. The company has a highly credentialled executive and board. Most important, it’s not expensive!

**After settlement of Bauna acquisition 6 November 2020
***FY21 Forecast

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  • Radar Rating Unlock
  • Market Cap ($m)* 625.6
  • Dividend Yield (%)* 0
  • NET CASH ($M) 156
  • * Data as of 06 March 2021

Latest Research Summary

KAROON ENERGY : RESEARCH TIP UPDATES - JANUARY 2021
21 Jan, 2021

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KAROON ENERGY : RESEARCH TIP UPDATES - JANUARY 2021 21 Jan, 2021 5b61e482 View Research