Macquarie says Karoon worth $5.15 if oil > 100, page-9

Finally the street is catching up with the deep value in Karoon.

It has been surprising to see how slow analysts have been to upgrade the stock despite a clear roadmap to doubling production, the positive changes of management and strong tailwinds from oil prices. IMO this slowness can be attributed to:-

1. The local sell-side's lack of understanding of the Brazil opportunity set and the value in the Bauna acquisition.
2. Underperformance of the KAR share price over the last 5 years and the delays in the completion of the Bauna acquisition during this time.
3. Unwillingness to credit new management on the upcoming Bauna work-over and Patola expansion to 30,000 bbls/day until completion in late 2022.
4. An embedded conservatism on valuing fossil fuel companies by sell side analysts, due to domestic institutional climate change bias against the sector.

The company is dealing with all of these issues professionally and executing on its business plans competently, so the stock will rerate as the market sees the strong underlying cashflows delivered in its results.

IMO the stock should be in the $5-10/share range once it reaches 30,000/bbls day later this year. The large range is a function of oil prices and above $100/bbl I believe Macquarie is being too conservative (see 4 above). But herein lies the opportunity for KAR shareholders.