Carousing With Karoon

By James Dunn | More Articles by James Dunn

Shareholders in energy explorer Karoon Gas (KAR) know well the roller-coaster ride of such stocks on the Australian Securities Exchange (ASX).

Karoon was listed in 2004 at 20 cents a share, raising $4 million to explore onshore for coal bed methane (CBM) in West Gippsland in Victoria. But it soon gave that unpromising field away for a much more active area, the burgeoning liquefied natural gas (LNG) business off the north-west coast of Australia.

Late in 2004, Karoon nimbly picked up from US group Liberty Petroleum some highly promising exploration permits in the Browse Basin and started farming-out its leases, firstly to British major BG International, and then to US energy heavyweight Conoco Phillips, operator of the Darwin LNG project, which processes gas from the Bayu-Undan field, discovered in 1995 in the Timor Sea.

In 2009 Karoon joined the LNG big league with the discovery of the Poseidon gas field in the Browse Basin, reported as the third biggest global discovery that year, and has followed that up with another two gas discoveries in the Basin, Proteus and Kronos.

Karoon subsequently picked up areas in the Carnarvon Basin (south of Browse), Tumbes Basin (offshore Peru) and the Santos Basin (offshore Brazil), hoping to repeat that success. In January this year, the Kangaroo-1 exploration well in the Santos basin hit oil; this was followed in May with a similar strike at its third (of three) Santos well, Bilby-1. The Bilby-1 gusher sent Karoon shares rocketing 23%, in their biggest one-day jump in four years.

Even the second Santos well, Emu-1, looked promising back in March, with early signs of oil, but further drilling showed nothing but water.

That sums up the patience needed in the exploration game, which can see some wild swings in sharemarket favour. Karoon has been as high as $11 in January 2007, when it looked to have solid oil finds in its West Gippsland permits. It has also been as low as $2.83 in September 2011.

Karoon started 2013 at $5.30, and got as high as $7.37 in February, before retracing to $3.89 in April. It currently trades at $4.73.

Karoon’s total net prospective oil resource in South America is at least 1.04 billion barrels. Total net Australian gas resource is at least 1.8 trillion cubic feet. It has significant prospects and leads in both areas.

In the North Carnarvon basin in Australia alone, the company has six prospects that potentially contain a mean prospective 2.8 billion barrels of oil. Karoon’s Kangaroo basin off Brazil contains at least 11 million barrels of oil. Two new wells off Brazil are planned for the second half of next year.

The action at present is mainly in Australia. In September, the Proteus-1 well drilled at Poseidon by the ConocoPhillips/Karoon joint venture (KAR 40%) – the third of a six-well exploration program along the ‘Poseidon trend’ in the Browse Basin, that will run into 2014 – recorded strong flow rates of ‘wet’ gas (that is, gas accompanied by condensate). Karoon told the market it was “highly confident” that future production wells at Proteus “could flow at commercial rates” of more than 100 million cubic feet a day of gas, as well as a nice potential earner of 19-22 barrels of condensate for each million cubic feet of gas.

Along with the joint venture’s original Poseidon gas discovery, Proteus is one of a series of discoveries that Karoon hopes will eventually underpin an LNG export project, or provide gas to either expand or extend the life of the ConocoPhillips and Santos joint venture at the Darwin LNG plant.

This month, Karoon started drilling its Grace-1 exploration well, its fourth well in the Poseidon exploration program. The company’s October 2013 review puts its drilling success rate to date at 80%. Shareholders are hoping for two things: that the 80% success rate runs true, and that long-awaited commercialisation of the resources Karoon has found is not too far away.

Karoon October Review

James Dunn

About James Dunn

James Dunn was founding editor of Shares magazine and has also written for Business Review Weekly, Personal Investor, The Age and Management Today. He was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au.

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