Karoon Energy is on course to beat its FY22 production guidance in a rising oil price environment. The company's strategy is simple and clear with plenty of options available for future development.
KAR produced 1.28mmboe in 1Q22 which was very good based on reservoir performance and 98% facilities uptime. Two cargoes were lifted in the period which generated revenue of US$70.7 million. The average realised price achieved of US$68/bbl was 4% higher than the June quarter average. A further cargo was lifted shortly after the end of the quarter which could bring in US$40 million of revenue by November.
KAR generated US$62 million of net cash from operating activities in 1Q22. The company has no external debt on the balance sheet and its capex program at Bauna and Patola is on budget.
Production remains on target to more than double by FY23f to 8-10mmboe.
KAR added to its senior executive ranks by appointing a new CFO and an Executive Vice President of the Brazilian unit of the company. This strengthens an already impressive management and Board lineup.
Investment view
KAR's strategy is very clear – run the assets extremely well and harvest the huge cashflows, then look to develop organic growth from existing assets at Neon and Goia. Beyond that, there are plenty of other opportunities to consider with plenty of sellers in Brazil and limited competition for the assets.
Brazil is one of the largest oil and gas producers in the world with production about the size of Kuwait and just under Iran and China. There is significant untapped potential to explore and just as much opportunity to selectively acquire assets. KAR will seek to take advantage of this at some future point. There are obviously political risks in this strategy as well as deal completion risks to be contemplated.
In the near term, the guidance range for FY22 production looks set to be comfortably beaten. If KAR achieves its targeted decline of less than 15% pa, then it will easily exceed the top end of guidance. Watch for an upgrade at the 1H22 result in February.
KAR is simply a very well run company that produces oil. We have maintained our Buy recommendation.
