Initial drilling targets are potential black coal seams identified by seismic in the Narracan Trough, which historically has hosted Victoria's only commercial back coal operations. The trough runs south from Warragul and at its north eastern tip is close to the LaTrobe Valley with its brown coal fired power stations. Because of the environmental attractions of methane over brown coal these stations are potential customers in the event of a commercial discovery. An adjacent gas pipeline also serves the exploration area.

Until 2000 Victoria's Department of Natural Resources believed the Narracan Trough was only about 1500 metres deep. However subsequent interpretation of seismic and gravity surveys have given rise to a belief that it may be deeper and more prospective for oil and gas than previously thought with similarities emerging between it and gas-producing zones of the Otway Basin.

Karoon chairman Robert Hosking says that with this in mind two of the initial exploration wells will continue on below the750-1200 metre target depth for coal to see if the area might be prospective for oil or conventional gas.

The IPO is for 20 million shares at 20 cents, each share carrying a one for two option.

However, under the terms by which Karoon acquired the permit areas from the previous owner, Nexus Energy Ltd, some 25% of the shares will be offered on a priority basis to Nexus shareholders.

Karoon is the fourth CBM float in recent weeks, others being CH4, Comet Ridge and Planet.