Karoon Gas buys Brazilian oilfield for $954m
Perennial explorer Karoon Gas has spent $954m on a Brazilian oilfield, sending its shares soaring by 22 per cent.
Perennial explorer Karoon Gas will finally join the ranks of oil producers after it snared what it says will be a particularly lucrative oilfield off the coast of Brazil for $US665 million ($954m).
The acquisition of the Bauna field, about 15 years after the Bob Hosking-led company listed on the ASX and three years after an earlier attempt to secure the asset failed, promises to deliver Karoon the cash flow it has long been chasing and should help unlock the company’s nearby oil resources.
Investors welcomed the news, sending Karoon shares as much as 22 per cent higher even as the company flagged the need to raise equity to help fund the purchase.
Karoon stands to collect an immediate $US140m-$US200m when it closes the acquisition early next year.
“It’s transformational for the company because we’ve finally got some production,” Mr Hosking, Karoon’s managing director, said. “It’s a very good fit for us geologically and geographically.
“Because we’ve been working on it so long, we really know it backwards.”
Karoon was originally slated to buy Bauna and the bigger Tartaruga field three years ago but the deal was one of a host of proposed divestments from Brazilian giant Petrobras that were scuttled after local unions secured court injunctions to block the deals. Bauna currently produces around 21,000 barrels of oil each day, and Karoon believes that could rise to 33,000 barrels by 2022 after existing oil pumps are replaced and the Patola resource is developed.
“The asset itself is one of the most economic-producing assets in South America; it will generate a lot of free cash flow for us,” Mr Hosking said.
The acquisition will see Karoon jump up the pecking order of locally listed oil and gas producers. Mr Hosking believes the field will also become a hub for its broader suite of assets in the area.
He said synergies between Bauna and Karoon’s existing Neon and Goia fields would save Karoon tens of millions of dollars.
Ultimately, he said, the neighbouring fields could prove to be even bigger than those at Bauna. Karoon already has $US228m in cash to its name and a commitment for a $US250m underwritten loan. The company also plans to raise equity to cover the balance of the funding needs. The cash on Karoon’s balance sheet is a legacy from the $US600m sale of its gas interests in Western Australia’s Browse Basin to Origin Energy in 2014.
Karoon looked to be the great white hope of Australia’s oil and gas sector a decade ago after it made its big Poseidon gas discovery in the Browse, which propelled its shares to almost $12.
It leveraged that success to build a position in Brazil’s red-hot Santos Basin, before the collapse in oil and gas prices robbed it of its momentum, sent its shares sinking — they bottomed out late last year to 80c each — and led to calls for a leadership overhaul.
Mr Hosking has survived through it all, and is looking forward to seeing Karoon officially become a bona fide producer.
Shares in Karoon closed yesterday at $1.36, up 12.4 per cent.