Brent >120 Karoon = ?, page-3

Karoon is entering its most profitable time in its history in the next 6 months as it continues with the live Bauna interventions, then moves into the Patola expansion in 2H22. I agree with pointbreak that the market will (eventually catch up) for the following reasons:-

1. Brazil Execution, IMO the market wants to see :-

• Production, A. moving to 20,000 after the Bauna intervention and B. 30,000 after the Patola expansion.
• Cost of production move down to US$25 /bbl or below that would make Karoon one of the best in class oil producers globally; and
• Financial results in 1H2023 once year from now delivering on free cash flow.

1. With no debt, KAR management are in a strong position to commence dividends, and stock buybacks in 2H2023.

• At US$100-120/bbl oil, if Karoon distributed 50% of the projected free cash flow in 2023 the dividend would be $0.80-$1/share or a dividend yield of 38-48%. Not clear what franking credits would be available given taxes are mainly offshore so perhaps a buyback would be better (see below).
• Using the same 50% of 2023 free cash flow the company could buy back over 200m shares (ie 35% of the current outstanding shares ) at current prices by launching an on marker tender offer at say $2.5/sh. This would remove any remaining overhead / weak hands who need liquidity and generation enormous value for remaining LT shareholders by rerating the stock towards the A$5-10 /sh range. This may be a better alternative than dividends for long term shareholders bullish on Karoon and the energy market / oil prices.

Karoon and other oil companies are outperforming this year, but not to the extent of the US listed super major and international oil companies for a variety of reasons including,

1. Institutional reticence towards energy on the ASX due to multi year underperformance of energy companies,
2. ESG issues down under,
3. Discounting of the long term inflationary impact of energy - IMO longer and higher than markets expect; and
4. lack of understanding of the long term impact of the global underinvestment in energy that is only now becoming apparent.

Management has the tools to rectify this in time.

Exciting times ahead.