Karoon Gas to tap punters after Brazil upgrade

Karoon Gas is raising extra cash so it can press ahead with its Brazil discovery. Investors hope it has learned from past mistakes.

Oil hopeful Karoon Gas has wasted no time in tapping shareholders for more cash to fund further exploration at its Santos Basin discovery in offshore Brazil.

Karoon this morning requested a trading halt as it launched a $150 million institutional placement and share purchase plan (SPP), with the placement priced at $5.10 a share – an 8.9% discount to its closing price yesterday. The SPP is capped at $15,000 per shareholder, with more details to come.

The company said the raising was to get the best outcome for its farmout negotiations, progress its drilling programs on schedule, and support its rig contract negotiations and the purchase of long lead items.

The company, which has taken shareholders on a wild ride in recent years, last week announced a major upgrade at its Kangaroo 1 field; an upgrade that many analysts now believe could transform the field into a commercial operation.

Reserve estimates at the field were upgraded by 85% last week but the huge range between probable and possible reserves requires further drilling.

Karoon stock last traded at $5.58 but Macquarie has a valuation on the stock at $9, while UBS considers the company is worth $8 a share.

Most brokers have a buy recommendation on the stock despite its chequered history.

It was a punter’s delight from the day it listed in 2004 at 20c a share, soaring to $12 by 2009 as it rode a wave speculation on the prospects of its Poseidon well in the Browse Basin off the West Australian coast.

But difficulties with the drilling program saw the share price more than halve during 2009. Drilling continues on the prospect which is adjacent to Woodside territory with ConocoPhillips as the operator.

Hopefully, Karoon management has learned from those events and the often long lag between discovery and development and the corresponding gap between expectations and reality.