Latest MacQ Report. " Stock: | KAR AU Name: | Karoon Gas Price:...

Latest MacQ Report.

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	Column 1	Column 2
0	Stock:	KAR AU
1	Name:	Karoon Gas
2	Price:	A$2.75 (At 06:10, 17 April 2015 GMT)
3	Recommendation:	Outperform
4	12mth price target:	A$3.75
5	12-month TSR:	36.4%
6	Market Cap (m):	A$678
7	Market Cap (m):	US$527
8	Current valuation (DCF):	A$4.11

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Event

• After encountering hydrocarbons at Echidna-1 last week, Karoon has confirmed a 213 metre gross oil column across both Paleocene and Maastrichtian intervals. Furthermore a net interval 111m points a net-to-gross ratio of 52%, which appears largely consistent with the Kangaroo-2 results.

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Impact

• Reservoir quality largely confirmed: Reservoir quality at the eastern flank of the salt diaper was likely to be viewed as the key risk here pre-drill. While average porosity of 25% across the Paleocene interval, 21% across the Maastrichtian interval and 23% across the deeper Maastrichtian interval it would appear that results again appear similar to Kangaroo-2 (where porosity ranged 26-34%). Plans to production test the Paleocene reservoir could provide further confirmation of reservoir quality (Kangaroo-2 flowed at 3,700bopd from the three Paleocene sections encountered).
• A meaningful resource addition, but unlikely to be standalone commercial: KAR saw Echidna as a lookalike 'salt flank play' to Kangaroo, targeting similar tertiary sands on the eastern flank of a salt diaper.KAR estimates a 43% geological chance of success (which is higher than the 39% CoS attributed to Kangaroo prior to drilling) with a best unrisked net resource size of 95mmbbl. If confirmed, this resource is unlikely to be commercial on a standalone basis, but could be aggregated with nearby ~30mb Pirucca discovery (located  20km North East). With a decision to take up the second well option expected in coming weeks, this could be used for further appraisal at either Kangaroo or Echidna.

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Action and recommendation

• Maintain an Outperform rating and a A$3.75/sh target.