RBC note regarding current situation.

Petrobras this morning announced that the Federal Accounting Court (TCU) has repealed the preventative order stopping it from concluding a number of asset sales and entering into new asset sales. The court has ordered Petrobras to adopt its reviewed divestment process methodology for the divestment of projects. Petrobras also reported that this decision allows it to conclude the asset sales of Bauna and Tartaruga from the current stage of negotiations using the reviewed divestment methodology.

While the TCU order is separate to the proceedings being faced by Karoon in the Federal Court of Sergipe (Karoon Gas: Hopes for a speedy resolution of Petrobras asset sale process dashed), the read-through is that if one Brazilian court has reviewed the asset sale process and is allowing the sale to continue, this sets a precedent for the court in Sergipe. While this is no guarantee that Karoon will be able to continue negotiations on the purchase of Bauna and Tartaruga, we see it as a positive  development that implies a successful outcome for the court proceedings in Sergipe.

We note that our A$3.50/share price target and Outperform recommenda on are premised on value for the company ’s sizable net cash balance (~A$1.60/shr) and risked value for Karoon’s 10% owned Echidna and Kangaroo oil discoveries in the post-salt Santos Basin. We do not include any explicit value for the possible acquisitions of Bauna and tartaruga Verde