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Karoon Gas Video




 

Stock Of the Day  - Karoon Gas  (BUY)

We saw a positive rigour with Karoon Gas’ (KAR) results for the half-year ended 31 December 2014 entailing a profit after tax of $209.1 million in comparison to a loss of $8 million in 2013. The profit included a gain of $276,446,665 on the divesture of exploration permits WA-315-P and WA-398-P to Origin; interest income of $936,234 (2013: $4,249,958) earned on interest-bearing assets; and net foreign currency gains of $83,484,258 (2013: $2,098,383) on assets denominated in US dollars held during the period. The net currency gains ascribed to the appreciation of the US dollar against the Australian dollar from AUD1 : USD0.9420 at the beginning of the half-year to AUD1 : USD0.8202 at the end of the half-year.

KAR reported that the profit was partly counterpoised by impairment charge on the capitalised exploration expenditure on Block S-M-1352 in Brazil amounting to $32,494,689 (2013: $Nil); $4,731,098 (2013: $6,179,817) on net employee benefit expenses; and finance costs of $2,991,723 (2013: $140,002) primarily because of a bridge loan taken from the National Australia Bank. Expenditure for the half-year included expenses on exploration and evaluation of $641,621 (2013: $2,878,301) in Australia and Brazil.

At the end of December 2014, KAR reported cash and cash equivalents of $680,092,710 (30 June 2014: $39,013,343) with no outstanding debt. This entailed short-term bank deposits and the Company’s share of joint operation cash balances. The working capital, calculated as current assets less current liabilities, increased from $416,963,558 as at 30 June 2014 to $621,624,499 as at 31 December 2014 primarily because of the divestment of the Company’s 40% equity interest in exploration permits WA-315-P and WA-398-P.
 

Marañón Basin (Source – Company Reports)
 
During the half-year, total assets increased from $800,312,561 to $1,096,851,331, total liabilities rose from $33,838,630 to $147,708,902 while the total equity weakened by $30,716,686 to $805,529,759. The major changes in the condensed consolidated statement of financial position were largely due to divestment of the 40% equity interest in exploration permits WA-315-P and WA-398-P to Origin; on-market share buy-back; exploration and evaluation expenditure in Australia, Brazil and Peru; impairment charge on capitalised exploration and evaluation expenditure for Block S-M-1352 in Brazil; and constructive foreign currency rate movements. The market capitalisation was $601 million as at 31 December 2014 (30 June 2014: $785 million).
 


Tumbes Basin Z-38 Marina Prospect (Source – Company Reports)

The exploration and evaluation expenditure of $89,487,688 during 1H15 was primarily found to be emanating from the processing and interpretation of the Kraken 3D marine survey in exploration permit WA-314-P and the Chrysalids marine 3D survey in exploration permit WA-482-P, and Levitt-1 exploration well, in Australia; completion of the Kangaroo-2 appraisal well drilling and preparatory work for the anticipated Kangaroo West-1 exploration well campaign, in Brazil; and the preparatory work and planning for the Tumbes Basin Phase 1 exploration drilling campaign and work in the Marañón Basin Block 144, in Peru.

Recently, the Company came out with its progress reports on Kangaroo West-1 Exploration Well wherein drilling has been ahead in the 12-1/4” hole section at 1,759 mRT. Further, the 20” casing was found to run to a depth of 1,106 mRT and KAR proceeded with drilling the 17-1/2” hole section to a depth of 1,700 mRT. It is believed that success at the Kangaroo West-1 can proffer further development of the Kangaroo oil field. KAR also updated about the progress at Kangaroo-2 Appraisal Well with 39 degree API oil recovered from Paleocene aged reservoir. Further, the Company reported about Kangaroo-2 up-dip side-track reaching a total depth (1,960 mRT) and the wireline program near completion with evaluation work ongoing. A 250 metre gross (135 metre net) oil column was confirmed in Paleocene and Maastrichtian aged reservoirs.


Santos Basin (Source – Company Reports)

So far, positive results have been noted from drilling off the coast of Brazil with regards to the Kangaroo oil discovery. There is still some time before Kangaroo West performs outstandingly which is targeting about 508 million barrel resource. The Levitt well is also expected to be targeting a 110 million barrel resource. We do make a note of the fact that the $US600 million cash sale of 40% interest in the Poseidon gas field in the Browse Basin to Origin Energy timed before the decline in oil price which in a way helped the Company towards a $209.1 million first-half profit while enhancing cash in the bank to about $680 million.


Karoon Daily Chart (source - Thomson Reuters)

Based on the foregoing, we put a BUY recommendation for the stock at the current price of $2.60.