Australia's Karoon To Invest $300 Million In Latin America In 2011

Karoon Gas Australia Ltd. (KAR.AU, KRNGY) plans to invest about $300 million in South America next year as it ramps up exploration for oil and natural gas in Brazil and Peru.

Karoon plans to drill three exploration wells in Brazil, where it holds five offshore blocks in the shallow waters of the Santos Basin, exploration director Tim Hosking told Dow Jones Newswires in a recent interview. Two additional wells are planned for the end of 2011 or early 2012 for a block in waters off the coast of Peru.

At $60 million each, the wells represent about $300 million in investments next year, he said.

The exploration wells in Brazil and Peru will likely be just a start for Karoon's efforts in South America, which the company sees as a land of opportunity thanks to rising political stability and surging economic growth.

Karoon made its first foray into Brazil in November 2007, when the company snagged 100% stakes in the five Santos Basin blocks in the country's ninth-round oil auction.

Hosking said Karoon benefited from the Brazilian government's decision to pull deep-water offshore blocks from the auction, as that effectively distracted competitors. The blocks were pulled after the discovery of the Tupi prospect, as it opened the possibility of mammoth oil reserves deep under the ocean floor.

Many larger oil companies had focused on the deepwater blocks, and when they were suddenly pulled, there wasn't time for the those companies to prepare bids for the shallow-water blocks, Hosking said.

Karoon's luck didn't end there -- a series of discoveries on the edges of Karoon's blocks increased the chances there is oil on its land. The blocks lie in a geological trend that includes the Tiro, Sidon and Piracuca finds made by Brazilian state-run oil company Petroleo Brasileiro (PBR, PETR4.BR), as well as the Vampira and Panoramix discoveries made by Spain's Repsol YPF (REP).

The company hopes to cash in by selling a 20% to 40% stake in the five blocks to a company that can operate any potential oil fields, Hosking said.

"We're purely an exploration company," Hosking said. "We're happy to drill the wildcats, and maybe the first few appraisal wells. But past that time, we want to turn it over to an operator."

A number of interested companies have already looked at Karoon's seismic data. Karoon will open a second data room, including what Hosking thinks is the first use of wide-azimuth three-dimensional seismic offshore Brazil, to possible partners in the first half of 2011, Hosking said.

"We'll identify between 10 and 15 companies that we'll invite to return," the executive said.

The cash raised from a stake sale, however, won't be used to fund exploration. Karoon has about $330 million in cash to fund its exploration activities for the next year, Hosking said.

Instead, Karoon will look for openings to grab more offshore acreage in Brazil -- and that is likely where the company will feel the pinch of the failed IPO.

"We think there will be a lot of opportunities in Brazil," Hosking said. "We wanted to have a warchest to dive into those opportunities."

Karoon would look to buy new concession at future government auctions or look to partner with other oil companies, Hosking said. Earlier this year, Karoon agreed to buy a 20% stake in two offshore blocks owned by Petrobras but is still awaiting regulator approval, Hosking said. Karoon would also consider swapping stakes in offshore blocks with another company.

In November, Karoon called off the sale of shares in its South American operations that would have raised about $773 million. Officially, the company cited a downturn in interest in the Brazilian oil and natural gas sectors.

The third and fourth quarters featured a plethora of equity offerings, including Petrobras's record $69.9 billion share sale and HRT Participacoes em Petroleo SA (HRTP3.BR) raised $1.44 billion in an IPO. Repsol, meanwhile, sold a 40% stake in its Brazilian assets to China's Sinopec for US$7.1 billion

Both Petrobras and HRT saw their stocks decline in the wake of the share sales.

"I would say it was more timing," Hosking said when asked about tepid response to the offer from investors. "We had a set value for our assets, and we weren't going to go below that set value."

--By Jeff Fick, Dow Jones Newswires; 55-21-2586-6085; jeff.fick@dowjones.com

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