News: KAR Brazil's Petrobras says in talks with Karoon for stake in two fields, page-10

I would call that confirmation in itself. Petrobras put that news out too early IMO..

	Column 1	Column 2
0	Stock:	KAR AU
1	Name:	Karoon Gas
2	Price:	A$1.40 (At 05:11, 06 October 2016 GMT)
3	Recommendation:	Outperform
4	12mth price target:	A$2.90
5	12-month TSR:	107.9%
6	Market Cap (m):	A$342
7	Market Cap (m):	US$260
8	Current valuation (DCF):	A$3.29

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Event

• As part of its US$15bn debt reduction program, Petrobras has announced it is in discussions with KAR for the sale of a 100% interest in its producing Baúna field and 50% of its Tartaruga Verde field offshore Brazil.

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Impact

• Adding reserves and production: The transaction would provide KAR with a 100% interest in the ~110mmboe Baúna field, located in shallow post-salt Santos Basin, and a 50% interest in larger ~230mmboe near production Tartaruga Verde field in the deep water post-salt Compos Basin.
• A transformational deal: The Baúna field is an early-life asset, having commenced operations in 2013, and currently producing at ~45,000bopd. The Tartaruga Verde field is currently in development and is expected to commence production in late-2017.
• Funding options open: We believe the value of the transaction and near-term capital investment would be in excess of US$1bn, well above KAR’s A$480m (~US$360m) cash balance as of June 30. Given this cash differential, we believe that funding for this acquisition would come through either issuance of debt/equity, a delayed payment structure or an alternative structured finance deal.

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Action and recommendation

• Maintain Outperform. Though not yet completed, we see this acquisition as transformational for KAR. With the prospect of bringing production into their portfolio three years before proposed first production from Echidna, we are positive on the impact this would have on the company. However, due to the size of the deal and KAR’s cash balance, we remain cautious about how funding for this acquisition would be structured.