Sorry should have added the following:Impact· While the deeper,...

Sorry should have added the following:

Impact

· While the deeper, primary targets were dry, KAR has made a potentially significant light oil discovery in the shallower Eocene sections at Kangaroo-1. However, as the Eocene was not the primary target, this well was drilled off-crest leaving ~300m of up dip potential remaining to be tested. While this potentially points to a significantly more material discovery in the future, we note that considerable uncertainty remains over flow rates, the lateral extent of the structure or the net-to-gross ratio. As a result, while encouraging, it remains very early days.

· With Eocene structures apparently mapped across KAR's Brazilian acreage, this discovery would appear to meaningfully de-risk similar prospects in future wells (with the Emu and Bilby wells next on the agenda). We currently value KAR's Brazilian prospects alone at ~A$6/sh on a risked basis (broadly in-line with the current share price). Given that the deeper structures appear not to have come in while very little is known about the shallower prospects, it is too early to be changing this in a meaningful way on the back of this result.



Action and recommendation

· Maintain Outperform rating and A$10/sh price target: While not what the company was originally looking for, the Kangaroo discovery is clearly encouraging, from the potential commerciality of what KAR has already found but also the de-risking effect this could have on future prospects. That said, we note it also remains very early days and given how little is known about these Eocene targets, it's too early to get too excited.