brasil oil game heating up, page-4

From todays Age

Karoon Gas (ASX: KAR)

KAROON Gas's mix of Australian and Brazilian oil and gas interests has created a valuation problem for the Melbourne-based group.

Local analysts don't give it much in valuation terms for its Brazilian interests while overseas analysts don't give it much for its Browse Basin gas joint venture with ConocoPhillips.

We know this because to date, there has been little reaction to the company's recent decision to float off a 25-30 per cent stake in its Brazilian oil exploration assets.

The expectation is that that the float could raise about $650 million, indicating a valuation for 100 per cent of the Brazilian assets of more than $2.6 billion.

The only problem is that on Friday's closing price of $6.90 a share, Karoon's all-up valuation was $1.22 billion. So at some point the valuation gap will be brought closer together. There are some if and buts with all that, the main thing being that Karoon first has to confirm the Brazilian valuation by successfully floating off the 25-30 per cent interest at the suggested price.

You've got to assume it would not have gone down the float path unless it thought it was on to a winner. The five offshore blocks it owns in the greasy Santos Basin will definitely attract attention.

Petrobras, the state-owned oil company, and others have been drilling all around the 100 per cent-owned Karoon blocks and have found several big oilfields.

And more recently, Karoon has struck a farm-in deal with Petrobas under which it can earn a 20 per cent interest in two exploration blocks by funding 35 per cent of the work. Drilling has started in the Quasi prospect and drilling in the Maruja prospect is about due. Results from both wells are expected by the end of 2010. The targets are 100 million barrels-plus, with any success juicing up the planned float of Karoon's broader Brazilian interests.