As Karoon Gas managing director Robert Hosking says, it is all about the “size of the prize”, and as far as prizes go, they don’t come much bigger than that being pursued by Karoon Gas at its Browse Basin acreage off the northwest coast of Western Australia.
Central to that pursuit is what Karoon describes as a wealth of knowledge provided by many years of experience in the form of the company’s geological and geophysical technical team.
Headed by Mark Smith, a former BHP exploration manager, the team also features Michelle Grosser and Jorg Bein, who have many years of geological and geophysical experience with many large companies.
Karoon announced today that the Ramform Victory had begun the 845sq.km 3D seismic survey over its WA-314-P and WA-315-P permits. Completion is expected by mid-January.
The company is also contracting the Veritas Vessel Pacific Sword to undertake a further 286 sq.km #D survey plus 845km of 2D seismic, due for completion in February.
By the end of the third or fourth quarter of 2006, Karoon plans to drill two wells in this acreage to test some of the risked 30 trillion cubic feet of gas and 600 million barrels of condensate potential contained across seven prospects in the area.
That is massive potential upside in anyone’s language, particularly in a company that just over a year ago was capitalised at around $10 million.
Karoon’s present position, where it sits on top of a mass of opportunity, is a far cry from where it sat when it listed on the Australian Stock Exchange in June 2004.
At that time, Karoon had raised around $4.7 million with which to pursue its collection of onshore Gippsland Basin coalbed methane projects.
But nowadays it is the huge potential and excitement of the company’s offshore play that is drawing in the investors.
Karoon acquired its offshore permits WA-314-P and WA-315-P in November 2004, and the company’s share price has increased substantially since then.
Having consolidated around the 20c mark during the first few months of listing on the Australian Stock Exchange, the Karoon share price increased in the wake of the WA acquisition.
Over a matter of months, the stock surged above and beyond firstly the $1 and then the $2 mark.
Today, the company has a market capitalisation of around $72 million – impressive growth indeed, but just a fraction of what will come if Karoon’s offshore ambitions prove fruitful.
On the basis Karoon achieves just a fraction of the 30Tcf potential within its Browse Basin position, the company, says Hosking, stands to be on the receiving end of substantial share price multiples.
Karoon’s Browse Basin permits are on trend with Woodside Petroleum’s largest asset, the Scott Reef-Brecknock gas and condensate fields complex.
The Scott Reef/Brecknock reserves are estimated to contain around 21Tcf of recoverable gas reserves and 210 million barrels of condensate, which amply supports the potential theory that Karoon is in the right place for a big discovery.
And, if the recent deal for the partners in the North West Shelf’s Gorgon project
Karoon acquired the two permits from USA-based Liberty Petroleum – an exploration company that picks up released acreage near major fields and then farms out or sells their interest – in return for a small royalty on any discoveries made by Karoon.
Soon after acquiring the assets, Karoon announced a farm-in deal with UK-based BG International. BG handed withdrew from the joint venture partnership in September after it was unable to renegotiate the terms of its agreement with Karoon, but not before it had acquired aeromagnetic data across the project.
Karoon has not allowed the BG withdrawal to hold up its progress with the project, with the company deciding to proceed with the seismic program that the partners had already arranged.
According to Karoon, the results of the most recent geological 2D seismic and aeromagnetic data interpretation have confirmed earlier interpretations suggesting the presence of large structures with the potential to contain large reserves of gas and condensate.
Those interpretations also confirmed the geological similarity of the permits to the Scott Reef and Brecknock gas and condensate fields immediately south.
Karoon’s expectation is that the program of seismic will help refine the location of the two wells the company plans to drill in the second half of next year.
Drilling those two wells will be no cheap process – each of the wells is expected to cost around $30-35 million – but it is not hard to envisage another company farming in to the project before that time.
Karoon has already told the market that “a number of large international companies” had expressed an interest in farming into the permits, even before BG had officially withdrawn.
In the wake of the BG decision to exit the joint venture, Karoon has received “repeated unsolicited requests” for farm-in discussions from interested third parties.
Today the company told the ASX that it was "progressing well with farm-in interests and hopes to have more news in the near future."
Karoon’s maiden wells will test the risked 30Tcf gas, 600mmbbls condensate potential that the company has so far defined across seven large, high-relief leads ranging in size from 60 to 360 square kilometres.
Karoon has built a base economic case using what it describes as the “minimum case” of a production reserve of 4Tcf gas and assuming an annual production of 4Mt of LNG and 3.8 million barrels of concentrate.
Karoon’s minimum case project value sits between $6.8 and $8.5 billion, and putting it in the same league as the ConocoPhilips-led Bayu Undan project.
Indications are that Karoon will have enough cash to meet its commitments under the exploration program, given its successful capital raisings through this year.
Karoon has raised more than $25 million over the course of 2005, including a $13.95 million raising back in August that attracted strong interest not only in Australia but also from the UK and the USA.
Karoon Gas …at a glance
HEAD OFFICE
Suite 7a, 34 Lochiel Ave
Mt Martha Vic 3934
Ph: +61 8 5974 1044
Fax: +61 8 5974 1644
Web: www.karoongas.com.au
Email: rhosking@karoongas.com.au
DIRECTORS
Robert Hosking, Mark Smith, Geoff Atkins, Stephen Power
MARKET CAPITALISATION
$72.4 million (at press time)
MAJOR SHAREHOLDERS
Ropat Nominees 13.41%
Westpac Custodian Nominees 9.87%
Summerlea Nominees 6.79%
*This profile, first published in a different form in ResourceStocks, was commissioned by Karoon Gas
