Karoon Energy Ltd (KAR)
BUY

Flowing nicely

 22 Feb 2023
Sector: Energy

1H23 RESULT

Need To Know

  • Underlying net profit up 275% to US$82.4m
  • FY23 production guidance unchanged
  • Cash of US$163.2m at 31 Dec 2022

A methodical approach to developing its Brazilian assets is paying off for Karoon, helped by decent oil prices and rigorous cost control.

Result. A 35% increase in production enabled sales revenue to reach US$299.4m in 1H23, up 61% on last year. The average realised oil price of US$87.86/bbl was 21% higher than last year. Unit production costs declined -26% to US$17.30/bbl, within guidance range and are expected to trend down in 2H23f.

The January review of Bauna’s reserves and resources added 23% or 10.2mmbbls to 2P reserves compared to 30 June 2022. Now that drilling has commenced at the nearby Neon (potential) development, KAR has another opportunity to build its resources. Initial drill results confirm the presence of a primary reservoir which has previously been reported as 55MMbbls at Neon and 27MMbbls at Goia (2C contingent resource). Beyond that, KAR has an exploration block south of Bauna, called Clorita. The company is actively looking at acquisitions as well.

Operating cash flow nearly doubled in the period so that KAR’s cash balance at 31 December 2022 was US$163.2m.

Investment View

The Bauna intervention wells and development of Patola to first production (end of 1Q CY23) has formed an excellent base for the full year. Production is expected to increase from the current 21.5kbopd to more than 30kbopd when Patola comes onstream. The utilisation of the FPSO is improving and this contributes to the steady reduction in unit production costs.

In short, KAR has increasing production, falling production costs, higher reserves and new development potential underway. The price of oil will do its own thing, but while KAR is executing strongly on everything else, this supports a Buy recommendation on Australia’s purest oil play. 

Figure 1: 1H23 Result

Figure 2: Bauna reserves and resources  (MMBBL)

View the latest Research Report

Stock Overview

Share Price

Company Overview

KAR is a Brazil-focused oil production company, based in Melbourne. Its main assets are located in the Santos Basin offshore Brazil where the company has 100% interest in the Bauna field and is the operator.

Disclaimers and Disclosures

Issuer

The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").

Reliance

Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.

General Advice

Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs. 

General Disclosures

This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au. 

Currency of Research

The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.

Access and Use

Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.

Equities Research Methodology

Please click here for information about MST equities research methodology.