hi golfy, copy of good report from broker AFTER shelving plans for an initial public offering of its South American assets as market conditions deteriorated late last year, Karoon Gas may finally be making some headway in its farm-out process with major oilies flocking to its data room.
While the data room is set to be formally opened later this month, companies are already lining up to take a look at the data.
"We are organising three data rooms and companies are trying to get in early but we have got to be fair to everybody," Karoon head of investor relations James Wootton told Energy News Premium.
He said there were around 15 interested parties and Karoon was showing older data to companies that had not seen it yet.
The data room is expected to stay open until the end of November, with the company hoping a deal and contract will be signed in the first quarter of next year.
Last year Karoon was looking to launch an IPO of its assets in Brazil, where it has five exploration permits in the highly prospective Santos Basin.
But the company abandoned the float as the IPO market headed south, and conditions this year haven't been conducive to attempt a revival.
Industry analysts say Karoon will use up a fair chunk of its cash balance on its existing drilling commitments at Browse, where it has a joint venture with ConocoPhillips. And it needs a farm-out deal to advance its exploration program in the Santos Basin.
Wootton said Karoon had a cash balance of $A270 million and $45 million in escrow in Brazil, which will be released for the drilling campaign there.
As part of the farm-out process, Karoon is looking to divest 30% of its stake in its five permits and also give up operatorship of the permits. But as the regulatory approval for a JV agreement could take up to 12 months, Karoon will start a drilling campaign there next year.
"After we go through this campaign, we'll be handing out to the farm-out partner," Wootton said.
It is understood that major international oil companies are set to run their ruler over Karoon's permits.
"I think there will be lot of interest from major companies," EL&C Baillieu head of research Ivor Ries told ENP.
"They acquired their interest a long time ago and people were very surprised that they picked up so much good acreage.
"There have been people looking to swap acreage with them.?
Wootton said there was interest from those already in Brazil and others "desperate to get in there?.
"Brazil in general and Santos Basin specifically is a hot turf and where people want to be. But it is no easy feat to get in there now with the government closing the bidding round," he said.
While it is unclear whether Karoon will structure a cash and carry transaction or look for an asset swap to diversify risk and broaden its exploration portfolio, analysts note a preference for the former as opposed to an asset swap would require Karoon to head back to the market to raise capital.
Analysts say the drilling targets in excess of 50 million barrels would attract big name oilies including the usual suspects such as Chinese and US majors.
One analyst with a US investment bank said Karoon would want someone that had operating experience and "see themselves as being in the Petrobras camp and would like to see them there?.
"Petrobras may be a good partner especially with its plan for the southeast hub ? that could get the permits into early production. And the likes of BG will come to the data room anyway," he said.
Karoon is expecting to upgrade its contingent resource numbers after independent valuation by DeGolyer and MacNaughton, but analysts say a farm-out will typically be done at a discount to the IPO.
"They were going to do the IPO at a high price. No one is expecting them to realise that kind of price from a farm-out," the investment bank analyst said.
He said while Karoon could do exploration work, its expertise in doing a full scale development was limited, so it needed a partner that would take the company through to production.
"And as you can imagine if you are someone that is coming in with skills then you'll command a bit more discount than investors," he said.
Ries believes Karoon could get $200-300 million in value either through upfront cash or drilling commitments.
But Wootton said the company was hoping for a higher valuation as since the IPO Karoon had done 3D seismic and interpreted the data.
"We have got an additional lead and prospect in Peru. With the wide azimuth 3D seismic in Brazil, we may see that presalt lead come into play," he said.
And with a potential resource upgrade, possible closing of a farm-out deal, first well results from Browse and spudding in Brazil, all expected in the first quarter of next year, it is going to be a busy summer for Karoon
KAR Price at posting:
$2.71 Sentiment: ST Buy Disclosure: Held
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