Karoon Gas Shares Hammered By Tepid Well Result
February 03 2010 - 7:56PM
Dow Jones News
Investors on Thursday lost patience with Karoon Gas Australia
Ltd. (KAR.AU) and its string of tepid drilling results, dumping the
company's shares after it reported weak gas flow rates from a key
appraisal well.
Analysts and market watchers, though, said the initial 30% fall
in Karoon shares was overdone and by 0020 GMT they had recovered to
be down 14% at A$5.75.
Share prices of companies without producing assets that are
relying on the results of exploration campaigns are especially
vulnerable to any perceived negativity in drilling results.
So far, Karoon and its joint venture partner ConocoPhillips
(COP) have drilled three wells in the Browse Basin offshore Western
Australia state, and on all three occasions the results have been
mixed or poor.
The first well, Poseidon-1, last year struck a 200 meter gas
column, putting a rocket under Karoon's shares, but gas flow
testing couldn't be completed because two measuring tools got stuck
in the drill hole.
The second well, Kontiki-1, didn't find much and was written off
as a miss.
In a promising sign, the third well, Poseidon-2, penetrated the
same three gas-bearing sand intervals in the Plover geological
formation struck 6 kilometers away at Poseidon-1. It also
penetrated the higher Montara formation in a surprising
development.
In an eagerly awaited update, Karoon said late Wednesday that
flow testing from the lower porosity middle, or B, interval at
Poseidon-2 indicated gas flows at 850 standard cubic feet per day.
Unfortunately that isn't a particularly inspiring flow rate.
Karoon said higher flow rates would probably be achievable from
the other two intervals, considering that the B interval contains
lower porosity sand.
Macquarie analysts again noted Thursday that the Poseidon-2 well
was a risky play because it was attempting to test the outer limits
of the Plover formation.
Karoon confirmed that it wasn't anticipating fantastic flow
rates from Poseidon-2 anyway. "Positioning of the well 6 kilometers
from Poseidon-1 in a down-dip setting was considered risky with
respect to obtaining high gas flows, but information from down-dip
positions on the field is critically important for optimal field
appraisal," Karoon said.
Importantly, the company said the latest test results were
unlikely to materially impact an early-stage contingent resource
estimate for the Poseidon field of 7 trillion cubic feet of gas. At
least 4 tcf is needed to support the construction of an onshore
liquefied natural gas terminal.
Macquarie's energy analysts said 7 tcf is "looking increasingly
aspirational".
"This is a potential problem as the commerciality threshold is
high in the Browse Basin and any significant cut from 7 tcf could
rule Poseidon uncommercial as a standalone project," Macquarie
said.
With the market's patience tested, Macquarie said pressure is
building on the next scheduled well in the campaign, Kronos-1, to
be drilled later this year. It has downgraded Karoon shares to
Outperform and cut its price target on the stock to A$7.00.
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692;
ross.kelly@dowjones.com
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