Karoon Energy Ltd (KAR)
BUY

Temporary tax

 6 Mar 2023
Sector: Energy

TEMPORARY BRAZILIAN EXPORT TAX

Need To Know

  • 4-month export tax on crude oil sales
  • US$22-35m pre-tax profit impact

The Brazilian Government, under a new leader, has imposed a temporary four month 9.2% tax on exports (sales volumes) from 1 March to 30 June 2023.

KAR said the financial impact would potentially be between US$22-35m on a pre-tax basis (US$15-23m after tax) based on its estimates of crude oil exported in that period. KAR also assumed an oil price of US$82.50/bbl (not guidance). 

Investment View

The timing is unfortunate for KAR as its first production from Patola is imminent. The estimated pre-tax profit impact implies KAR would produce approximately 2.9-4.6 MMbbls in the four month period.

If KAR delayed the start-up of Patola, the tax avoided by producing less product during the stated period might be worth consideration.

KAR has not said it will alter its planned production profile so it should not be assumed the company would attempt to mitigate the impost.

Perhaps of some concern is that the temporary status of the tax might be extended or even become permanent. Again, this cannot be assumed but is a risk.

KAR has said it is looking for new investments in oil and gas exploration, but this is likely to be in the Gulf of Mexico, in our view. Any geographic diversification might be seen positively by the market.

The negative share price reaction in the last few days has been overdone, in our view. We reiterate our Buy recommendation.  

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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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