KAR 0.00% $2.16 karoon energy ltd

Where are we going...

  1. 1,154 Posts.
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    * Producer as of Jan 2019
    * Breakeven this year is $29 brent (on the CC they say long term will be $19)
    * Oil sells at $1-2 premium on brent
    * Bauna production at 20k a day // this was at 28k in 2018. reason for this is 3 pump failures - this is not the natural decline. (per cone call) *** expect karoon to increase production not decrease.
    ** Macs research has production at 20k a day and increasing to 30k when Patola comes online. (conf call says production will be > 40k barrels at the start)
    ** Cash flow - $270m in 2020 // asset paid off by 2022
    ** RBC -> Bauna at current oil prices has generated $600m usd of value for shareholders **
    ** oil hedging of Bauna will happen when the asset completes (perhaps 50% of production) ** we need oil higher into 2020 **

    So what does all this mean?

    Well, $3 price targets from RBC/MACQ are factoring dilution at 1.40 - (which would be impactful).. at $2.50? price targets move significantly higher
    It also doesn't account for any Neon/Peru activity.

    So where do we price a company which will be 4th largest oil producer on the asx .. $250m of debt and rev of $500m usd - thats the million dollar question.

    Well if RBC says at current oil prices - extracted value is $600m usd = that is $3.50 of share price. then if we add in Neon & Peru - perhaps we are closer to $5. The major delta is the oil price - if that goes up by $20 then that will add 30% to our free cash flow numbers. I don't see any risk to the deal not closing.

    We are also getting a free carry on this purchase - we are accumulating oil $ based on jan 2019 and we don't have to pay any interest. infant the longer this is drawn out the better - we will have to raise less.

    I believe this is now part of a much bigger story and funds will want to add this in to their portfolios. Im not sure when the share price stops - but most oil cos are trading 2-3x revenue(and we will have far less debt). We have good growth options - we don't need excessively more debt to increase our reserves. Its very exciting. Im confident we head to $3 fairly quickly based on relative valuations.

    buckle up.

    PB
 
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