Citi report of 7 May

Interesting to see the brokers & analysts coming back to KAR after all the doom & gloom, Citi today released this report (in part):

Karoon Gas Australia Limited (KAR.AX) Strong production results from Echidna oil discovery
 Echidna-1 production test results better than Kangaroo-2 — The Echidna-1 production test achieved a constrained flow rate of 4.65Kbopd (504psia wellhead pressure) from the Paleocene reservoir. These results were better than Kangaroo-2 (3.7Kbopd, 430psia), with KAR confirming that reservoir is better than that observed anywhere else in KAR’s Brazilian exploration acreage – derisking the commerciality of Echidna, and reducing number of wells (capex) required to develop the field.
 Secondary target disappoints downside to resource — Pre-drill estimate for Kangaroo was 145mmbbls gross, split ~50:50 between Paleocence/Maastritchian reservoirs. KAR decided to not production test Maastrichtian but rather evaluate in a more optimal location. While the Paleocene has outperformed pre-drill estimates, the Maastrichtian has underperformed, and in total we see downside to the resource size – we estimate ~100mmbbls gross. We now include A$1.44/shr (risked at 75%) in our target price for Echidna, assuming a combined FPSO development with Kangaroo. Our unrisked valuation for Brazil is A$4.25/shr.
 Kangaroo/Echidna slowing to appraise data, Levitt-1 next catalyst — KAR has decided not to drill a 4th well, we think to provide sufficient time to appraise data, and finalise the next step in appraisal. We expect an update on resource size in ~3months, likely further 2-3 well appraisal program in CY16 with possible extended well test (production & revenue!), with a FID on large scale development in CY17. Levitt-1 exploration well in Northern Carnarvon Basin should spud end-May targeting P50 ~220mmbbl gross oil target, with results 2-3months later.
 Maintain Buy, target price A$5.44/shr — We see a combined development as economic at US$43/bbl, within the second quartile of Citi’s global LNG cost curve (see Global Oil Vision). At A$2.70/shr, the current share prices only factors in ~20% of our unrisked Brazilian valuation (post funding dilution) after accounting for cash position, providing investors with significant exposure to the unfolding growth story, in our view. Assuming no funding dilution, we value KAR’s net cash and Brazil unrisked at A$7.81/shr. We downgrade our EPS earnings on delayed timing of Brazil proceeds, due to our expectation of an additional year of appraisal drilling.