Oil prices will stay high due to insufficient investment in supply, says Karoon
Karoon Energy expects strong demand for oil from its Brazilian operations thanks to years of under-investment by the global industry.
Karoon Energy says oil prices are likely to remain high over the medium term due to a lack of investment in supply, with the company on the hunt for new deals in Brazil to meet market demand.
The ASX-listed mid-tier producer owns a string of prospects in Brazil, including Bauna, a lucrative offshore oilfield it snapped up for $US665m ($966m) from national oil company Petrobras in 2019.
Oil remains above $US90 a barrel amid concerns about tight supplies and lower volumes from Russia.
Karoon chief executive Julian Fowles predicts that crude prices will be elevated “for some time” given a lack of spending on delivering new production to market.
“Structurally there are still some major issues around supply and there’s been such a lack of investment over the last seven or eight years on the supply side, and that’s not always easy to just bounce back from” said Dr Fowles, a former Oil Search executive. “Brazil is continuing to see very strong growth but there’s a lot of areas where there just hasn’t been the type of investments that there were previously.
“So the supply side is still restricted and will be for many years.
“The demand side – there’s still some growth there at the same time as there are concerns over a recession.” Demand for its oil products has shifted to new regions as energy security becomes a bigger focus for nations following Russia’s assault on Ukraine. “In the early days, we were selling a lot to China and to northeast Asia, together with some that we were selling into other parts of South America, and the occasional cargo was going into southern Europe,” Dr Fowles said.
“Now we’re seeing two additional markets that are really taking off. One is in northwest Europe and one is the west coast of the USA. Both of those markets are where we’re seeing an awful lot of pressure on energy prices.
“Some of those economies in Europe, but also California too, are actively going back to some of the fossil fuel energy supply they were so intent to move away from.”
Karoon is targeting boosting production by 5000-10,000 barrels a day from an “intervention” campaign at Bauna designed to head off natural decline rates at the field, while first output from the nearby Patola field of 10,000 b/d is expected in early 2023.
Costs for Bauna have risen to $US135m-$US145m due to higher diesel costs and weather delays, while the Patola budget rose to $US180m-$US205m, also due to a slug from diesel prices. Other fields in Karoon’s exploration portfolio include the Neon and Goia oil discoveries and the Clorita exploration prospect.
Karoon in May terminated a deal with Enauta Energia to buy a half-stake in the producing Atlanta oilfield off the Brazilian coast, but with liquidity of $US338m it is scanning fresh targets, probably in its home market of Brazil – but Australia remains an option.
“One of the things we’re looking at are assets that are potentially a little earlier in the cycle … at or close to a final investment decision. We are still focused on oil and that is where we see our strongest capabilities and where we’ve got the right level of knowledge,” Dr Fowles said.
“Primarily Brazil is the focus and then the broader Americas but also keeping a footprint in Australia to make sure we’re still looking at some assets there.”
Karoon shares are up 14 per cent so far this year.