Australia's Karoon soars after striking new oil field deal terms
Australian oil and gas explorer Karoon Energy has renegotiated the terms of a deal worth nearly $1 billion to acquire an oil field off the coast of Brazil due to the coronavirus crisis and global oil price crash.
Karoon last year sealed a deal to buy the shallow-water Bauna field for $US665 million ($935 million) from Brazilian state-owned Petrobras, marking the Melbourne-headquartered company's first move into oil production. But following negotiations this year, the company said it would now pay an initial $US380 million consisting of a $US50 million downpayment already made, an upfront payment of $US150 million and the remainder payable in the following 18 months.
Australian oil producers have slashed their price forecasts in the wake of coronavirus.Credit:Rob Homer
A further $US285 million would be paid up to 2026, the companies said.
The terms of the deal were changed to require less upfront cash due to the impact of the COVID-19 pandemic, which has gutted global oil demand and sent benchmark prices falling to multi-year lows.
Karoon's share price surged more than 15 per cent following the news to 77¢ in early trading on Monday.
"Despite the changed environment, this revised agreement delivers the benefits we always wanted from acquiring a producing asset including immediate cash flow, reasonable terms, management of risk and opportunity for the future," Karoon Energy managing director Robert Hosking said.
Morgans analyst Adrian Prendergast described the revised structure of the deal as a "better outcome".
"The most important aspect for Karoon from the above deal structure is that only paying [the] $US150 million payment upfront means the company can complete the transaction without the need for any debt," he said.
As a result of the transaction, Karoon would now become a "rare mid-tier ASX oil producer", analysts from RBC said on Monday. "This development significantly de-risks Karoon as it now becomes an unhedged oil producer that is not affected by restrictive debt financing terms," the bank said. "Assuming subsequent approvals are obtained, Karoon would become a relatively large scale producer."
The Bauna field, located in the Santos basin off the coast of Brazil, produces about 16,000 barrels of oil a day and is expected to increase output to as much as 30,000 barrels in the coming two years.
The coronavirus emergency has caused a sharp decline in global demand and prices, putting intense pressure on oil producers with large debts. Prices for benchmark Brent crude oil fell by more than 50 per cent this year to below $US30 a barrel. It was trading around $US43 a barrel on Monday.