We’ve been able to put together a couple of days of strength in the market but it’s still too early to get too excited at this point.
Granted, it’s nice to see the market rally nicely for 2 straight days but all the major indices in the US are still below their short term 21 day moving average. We’ll need a couple more days like this to see a follow through day for a signal of a confirmed-up trend, although, if we do get a confirmed uptrend, this just might mean we have a tradeable rally up to the 50 DMA or the 200 day line.
So we’re a long way from seeing 2 days of strength turn into a confirmed uptrend to eventually transition into the next bull market. While the short-term move is encouraging, we’ll need to pay close attention and not get too excited or too aggressive because there is a long way to go to really feel confident in this rally.
Today we are opening a position in Karoon Energy (KAR).
KAR’s main producing asset is the Bauna oil field in the Santos Basin (offshore Brazil). The company acquired this asset in 2019 from the Brazilian energy giant Petrobras.
The Bauna oil field has a long history of steady production, having been in operation since February 2013. The Buna field consists of six oil-producing wells, three water injection wells, and a single gas injection well.
Oil production from Bauna increased from 3.14 million barrels (MMbbl) in FY-21 to 4.64 MMbbl in FY-22. The company sold oil at a weighted average price, net of selling expenses of US$84.74, and had a unit production cost of US$25.36 bbl.
The company finished the financial year in a strong position with cash and cash equivalents of US$157.7M. The strong oil price also meant the company only had a draw down US$30 Million of its debt facility, leaving the company with undrawn debt facility of US$180m.
To increase oil production, the company is completing an intervention campaign. An intervention campaign is just oil industry jargon for installing new pumps and equipment to increase production. Per the company’s announcement on the 26th September, the third well intervention has been completed, and the well brought back online.
The intervention program will increase production and lower the cost of production, with the company forecasting FY2023 output in a range of 7-9MMbbl, while the unit production cost is forecast to decline to a range of US$15 – $20/bbl. They can achieve lower production cost because they have a fixed cost base.
The company’s strong position means the board is also considering returning funds to shareholders via dividends or buybacks. So, there is a lot to like.
TRADE ACTION
Number of shares: 3,000
Buy up to: $2.07
Stop Loss: $1.70
Profit Target: $2.70
