Karoon Energy Ltd (KAR)
BUY

Neon to light up FY24

 28 Jul 2023
Sector: Energy

4Q23 PRODUCTION

Need To Know

  • June quarter production -15% on pcp due to 6-week shutdown, but FY23 production +52% to 7 MMbbls.
  • Initial FY24 production guidance is 9-11 MMbbls, will allow for a major shutdown in early CY24.
  • Strong balance sheet, exploration upside at Neon and potential for acquisition keeps our Buy rating in place.

Investment Implications

Karoon Energy has shimmied past the Brazilian Government’s temporary oil export tax with a six-week shut in that brought forward some necessary work. The outlook is bright for KAR with a good balance sheet, a growing resource base and potential to acquire new assets.

The restart of production at Bauna on 9 May has allowed KAR to defer the next planned maintenance into early CY24. Bauna is now producing ~34kbopd in line with expectations.

FY23 revenue jumped 47% to US$566.5m on an average realised oil price of US$80.2/bbl (US$84.7/bbl in FY22).

The 9.2% temporary oil tax has ended, and KAR will report a smaller than expected impact of US$14.6m pre-tax for the FY23 result due on 23 August.

The balance sheet at 30 June 2023 had US$74.8m cash and US$180m of undrawn available debt. During the year, KAR spent ~US$191m on the Bauna and Patola fields and a further US$45m evaluating the Neon field. Total capex was approximately $238m near the upper end  of guidance. The revised 2C Resource at Neon currently stands at 60.1 MMbbls and there is more work underway to fully scope the development. Capex in FY24 will be US$19-24m, (including about US$12-14m at Neon) which is well down on FY23.

KAR is changing its financial year end to December which aligns with other Australian oil and gas companies. The next full financial year will therefore end on 31 December 2023 – a six month transition to the new basis.

Investment View

A pure oil play for investors with growth options and a strong balance sheet to make it happen. That’s a good recipe for those seeking exposure to the oil price which has yielded to fears of global economic slowdown but ignored the underinvestment in new oil production.

We have retained our Buy recommendation.

Figure 1: KAR quarterly production

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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.

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