Born-again pure oil play Karoon Energy is celebrating its first year under new stewardship with a strong production report, a buffed balance sheet and expansion developments well underway.
Since Dr Julian Fowles and his new team took the helm at KAR just over a year ago, the business has produced more than 5.5mmbbls of oil and is on target to produce 4.2-4.6mmbbls in FY22f in a rising oil price environment. Unit production costs are expected to be US$28-32/bbl with capex on the main development projects between US$100-135 million.
2Q22 production of 1.23mmbbls has put 1H22 production at 2.51mmbbls. A planned 11 day shutdown in March is incorporated into unchanged FY22 production guidance. Depending on how quickly the intervention program at Bauna can get underway (the rig is expected to be on site around late April), the upper end of guidance might be realistically challenged.
Net cash of US$186.5 million is better than we had expected despite the cash for the December cargo not being received until January.
Unsurprisingly, there will be an upward revaluation of the contingent payments for the Bauna deal when the interim result is reported on 23 February. Paying higher contingent payments is a good thing for KAR because it means the company has been receiving more revenue. Those payments are capped at US$70/bbl, so as the oil price goes up there will be more cream for KAR.
Investment view
The Bauna intervention and Patola development is set to double KAR’s production by early calendar 2023. With a competent management in control, shareholders can be optimistic these high quality assets will be delivering benefits for shareholders. That is not to ignore the usual risks with any offshore oil business but the very low injury rate is a good signal that it is a tight ship.
Beyond Bauna and Patola, there are further opportunities available to KAR but the key factor to appreciate is the high leverage to the near-term oil price.
