Karoon plots path from oil junior to major through the Gulf of Mexico
Offshore oil industry vessels in the Gulf of Mexico. The acquisition of interests in the region diversified Karoon’s production from the Bauna oil field that lies off Brazil’s coast.
Karoon Energy is moving swiftly to try to capitalise on its $1.1 billion acquisition of oil and gas interests in the Gulf of Mexico, with a new drilling campaign that could potentially lift the company’s total reserves by more than a third to some 70 million barrels.
The drilling of the Who Dat East and Who Dat South wells, the first of which will get under way next month, could add 18.3 million barrels to Karoon’s pre-acquisition reserves of about 51.8 million barrels.
Offshore oil industry vessels in the Gulf of Mexico. The acquisition of interests in the region diversified Karoon’s production from the Bauna oil field that lies off Brazil’s coast.
The Melbourne-headquartered oil and gas junior has more than doubled its capital spending budget for this year as a result of its share of the work, which is expected to be between $US67 million ($102.9 million) and $US77 million.
Karoon, which owns 40 per cent of the Who Dat East venture and 30 per cent of Who Dat South, now puts spending this year at as much as $US134 million, mostly in the US, but the final figure is likely to be higher again once a third well planned at the same project in the September quarter is included.
The three exploration plays were one of the big attractions of the asset for Karoon, but are understood to have represented only a small part of the acquisition price.
Karoon’s capex bill is still lower than last year, which included investment in an oil project in Brazil.
Karoon’s acquisition of the Who Dat and Dome Patrol fields offshore Louisiana in December transformed the Australian company from a single production asset company focused on Brazil and lifted production by about 50 per cent and reserves by 75 per cent.
MST Marquee energy analyst Saul Kavonic said the two wells were a key part of the upside case for Karoon’s US entry transaction, which he described as rather fully priced.
“Karoon’s Gulf of Mexico acquisition was at a rather full price tag, with the upside potential to come from these exploration and appraisal wells, in addition to portfolio and political risk diversification,” he said.
The probability of success of the Who Dat East well, which is targeting gas and condensates, is 62 per cent, and slightly lower at 52 per cent for Who Dat South, which is primarily an oil exploration play. Shares in Karoon rose as much as 3.7 per cent on Wednesday before closing flat at $2.18.
Karoon chief executive Julian Fowles said in November, as he announced the acquisition, that the Who Dat interests provided both geographical and asset diversification, with production that would offset a natural decline from the Bauna field in Brazil and with an operating cost of less than $US6 per barrel.
The acquisition increased Karoon’s carbon emissions, but the company noted in its sustainability report last month that the emission intensity of the US operation was lower than its Brazil venture. It is targeting net zero direct emissions by 2035.
Analyst lifts forecast
Mr Fowles, who is based in Brazil, was not available to comment on Wednesday.
In January, Jarden upgraded its target price on the stock to $2.40, despite a downgrade by Karoon of its production guidance in Brazil, and what it said had been a larger-than-expected equity raising to fund the US deal.
Karoon raised about $480 million in equity for the acquisition, which at the time was equivalent to 41 per cent of its size. Sub-underwriters took up a $74 million shortfall in an entitlement offer to retail shareholders. Institutional and retail shareholders paid $2.05 apiece for shares, a discount of about 12.4 per cent on the five-day volume weighted average price at the time.
The Who Dat wells, which are managed by venture operator LLOG, one of the largest privately owned exploration and production companies in the US, lie within connection distance to an existing floating production plant off the Louisiana coast. That Who Dat production system, which came online in 2011, produced about 12 million barrels of oil equivalent last year.
Westlawn Group, a Houston-based private investment firm focused on oil and gas, also holds stakes in the ventures.
LLOG said the three additional prospects at the Who Dat field to be drilled in 2024 all had the potential to be connected to the existing production system.
LLOG president Philip LeJeune said oil production at Who Dat had already been increased to its highest level since 2016 as a result of work at the field, and new wells.
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