UPDATE: Karoon Shares Continue Roller Coaster Ride, Jump 14%

Shares in Karoon Gas Australia Ltd. (KAR.AU) on Friday defied a rout on global markets to jump 14% after the company got some promising results from a key exploration well and a broker slapped a buy rating on what is one of Australia's most volatile stocks.

The roller coaster ride for shareholders continued after a drilling report released after the market closed Thursday said that the Kronos-1 exploration well, being drilled by joint venture partner ConocoPhillips (COP), has found enough gas to justify production testing.

While the news is positive, it's by no means outstanding, with a commercial flow rate from the well no certainty.

Karoon and ConocoPhillips found lots of gas with an earlier well but couldn't get a production test result after a testing tool got stuck in the drill hole.

Since then there's been a mix of bad or promising results from other wells, with the only production-tested discovery, Poseidon-2, generating poor flow rates, although that was higher-risk well than Kronos-1.

"Petrophysical interpretation indicates the presence of net pay gas sands with good reservoir properties," Karoon said of Kronos-1 late Thursday.

Production testing is expected to take 20 days, it said.

Mark Hume, an energy analyst at Merrill Lynch, upgraded Karoon to "Buy" from "Neutral" with a A$8.89 price target, noting the stock has fallen a bit in the last month.

Hume still says Karoon shares could swing anywhere between A$4.50 and A$12.00 depending on the production testing results from Kronos-1.

Still, he said the fact that Karoon's doing production testing confirms the presence of gas in the well and noted its claim of good reservoir characteristics.

Chief Executive Bob Hosking has said that Kronos-1 is a lower risk well because it's further "up-dip", meaning it's at a shallower point in the geological structure the JV's testing than other wells.

"It's on top of the structure...so this is an area where you'd look at putting production holes," Hosking told Dow Jones Newswires in February.

"So, yes, we would call it a low-risk well, although that's not to say that there's no risk at all."

Karoon shares closed trading Friday up 99 cents, or 14%, to A$7.99 after rising as high as A$8.24.

It's unusual for a relatively small company like Karoon to be engaged in such a large and expensive deep-water drilling campaign. Continuous disclosure requirements mean Karoon has to give a blow-by-blow account of its progress. Much larger companies make more selective disclosures.

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; Ross.Kelly@dowjones.com

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