Karoon Energy secures Bauna oil field from Petrobras for US$665m

Oil and gas explorer Karoon Energy (ASX: KAR) has entered a “transformational” binding agreement to purchase the Bauna oil field in Brazil’s Santos Basin from Pertobras for US$665 million (A$954 million).

The offshore asset currently produces 20 million barrels of oil per day with this expected to expand to 33MMbopd during 2022.

Karoon expects Bauna will generate stable cashflow over the medium to long-term.

Commenting on the acquisition, Karoon’s managing director Robert Hosking said the company had been hunting for a quality asset the last three years.

“Bauna will provide Karoon shareholders with material oil production (currently approximately 20MMbopd before development workovers) and a platform for future growth.”

“The transaction will be transformational for Karoon shareholders, providing significant exposure to reserves, resources and high-margin oil production,” Mr Hosking added.

Bauna oil field

The Bauna field comprises two producing oil reservoirs – Bauna and Piracaba. Both reservoirs are tied back to the leased floating production, storage and off-loading facility Cidade de Itajai and undeveloped Patola discovery.

Bauna currently has six production wells, plus three water injection wells and a gas injection well.

The project hosts 68MMbbls in reserves and contingent resources.

Karoon has more than 10 years’ operating experience in Brazil and “extensive” knowledge of the asset.

Bauna is also close to Karoon’s existing acreage in the Santos Basin including the Neon and Goia discoveries.

“The acquisition of Bauna opens a new phase for Karoon as a significant ASX listed oil producer,” Mr Hosking said.

“It is expected to generate significant operational and logistical synergies with Karoon’s other 100%-owned southern Santos Basin exploration and development assets.

The deal

Under the deal, Karoon will acquire 100% of the Bauna field from Petrobras for US$665 million; however, this price is expected to be lowered by US$140-US$200 million via a consideration adjustment at financial close.

The effective date of the transaction is 1 January this year, which means cashflow from Bauna production will accrue for Karoon from this date.

As part of this arrangement, there is a contingent consideration where Karoon will make a US$50 million payment to Petrobras if oil prices average above US$90 per barrel in the 2019 calendar year.

A further US$50 million contingent payment is due if oil prices average above US$100/bbl in 2020.

Karoon has already paid a US$49.9 million deposit and financial close for the acquisition is anticipated in the first half of 2020.

To fund the purchase, Karoon has US$228 million in existing cash reserves as well as an approved commitment from ING of US$250 million for a loan facility.

Karoon will undertake an equity raising for any remaining acquisition fund requirements.

Investors reacted positively to the news, with Karoon’s share price up more than 13% to $1.37 in late afternoon trade.