An almost immaculate year from Karoon is a stepping-stone towards an even bigger year in FY23f. In a high oil price environment, that is manna from Brazil.
The full year production details reported recently had provided most of what we needed to know for this result. FY22 production of 4.64mmbbls from Bauna attracted an average price of US$84.74/bbl (US$59/bbl in FY21) which translated into revenue of US$385.1 million (US$170.8m FY21).
The offshore facilities lifted nine cargoes and operated at 99% uptime, which is remarkable considering the industry and the threat of COVID-19 getting in the way. KAR ended the year with US$157.7 million cash with undrawn debt facilities of US$180 million.
Production for FY23f is being guided to 7-9mmbbls with lower unit production costs of US$15-20/bbl.
The Bauna intervention campaign commenced in May 2022 and the first well produced approximately 2,000 bopd while the second well is complete and ready to begin production. But there have been some delays creeping in that have added 7 weeks to the program, partly due to bad weather. Most of the project costs are locked in, but diesel costs have risen bringing the Bauna Intervention total cost up to US$135-145 million, of which US$68 million is already spent.
Higher diesel costs have also affected the Patola project which will now cost US$180-205 million. The development is still on track for first production in early CY23.
A further US$65-75 million has been marked for the Neon evaluation. This is high risk, high reward spending which could be a duster or might unlock 55mmbbls of 2C resource and would potentially de-risk the 27mmbbls of 2C resource at Goia.
The combined Bauna and Patola projects will bring an extra 30,000 bopd of production to KAR.
The company said the internally assessed 2P Reserves at 30 June 2022 were 44.8mmbbls. KAR has reprocessed the seismic survey data showing significantly better results than the legacy datasets. This decreases the uncertainty on field volumes and KAR will provide an updated reserves statement in due course. Decline rates have been mitigated to ~10% pa compared to the previous 15% so this will be a factor in the calculations.
Investment view
KAR’s progress to date has been almost blemish free, pointing to the smart and tight management in control. The small delays and higher diesel prices are nuisance factor rather than serious concern.
The bigger picture is the rapidly increasing production of pure oil in a market that wants to pay top dollar for every barrel. KAR is a well-managed, low cost oil producer with production and reserves quickly increasing.
Risks to investment view
Oil prices are volatile and KAR’s production could be interrupted by operational issues. Both would impact earnings.
Recommendation
We have retained our Buy recommendation.
FIGURE 1: FY22 RESULT
