Karoon Gas Australia: Large, Very Favorable Flow Rate From Kronos-1

Karoon Gas Australia Ltd. (KAR.AU) said Thursday that its joint venture with ConocoPhillips (COP) has achieved a "large" flow rate from its Kronos-1 exploration well offshore Western Australia state, supporting its ambition to supply a standalone liquefied natural gas development that could be sanctioned as early 2012.

Karoon said Wednesday that it has obtained flow rates from Kronos-1 of 26 million standard cubic feet of gas per day, but the flow rate was constrained by the size of the testing equipment.

"Basically it's almost the maximum flow rate that you could get out of the infrastructure that's there," Company Secretary Scott Hosking told Dow Jones Newswires.

"What it will extrapolate to down the track I'm not precisely sure, but it's a large flow rate."

Hosking said that while achieving a commercial flow rate is important, the JV needs to drill around another 6-8 more wells before it can determine whether it has a commercial resource size.

"But this type of flow rate is very favorable and indicates that it's a very good reservoir," Hosking said.

Karoon and ConocoPhillips will spend the rest of 2010 doing research to identify more drilling targets before resuming exploration and appraisal drilling in the first quarter of 2011.

Hosking said the JV will consider carrying out front-end engineering and design work during that drilling campaign, which would last about 12-18 months.

"Then we can probably go to FID (a final investment decision), so we would expect that probably 2012 will be the big decision time."

An LNG development could be completed four or five years later, depending on its size.

EL&C Baillieu Analyst Ivor Ries said the test result "has proved beyond doubt" that Karoon and ConocoPhillips have made "a major discovery that will contain 7-15 trillion cubic feet of recoverable gas," potentially supporting a two-train LNG development.

"As the well was constrained by a choke and equipment limitations, the well has proved a high permeability gas reservoir that should flow at rates of up to 100 million standard cubic feet per day from individual production wells,"

Ries has increased his price target on Karoon shares to A$12.88 from A$11.33. At 0300 GMT, they were down 7 cents at A$8.05.

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

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