One of my few “Green” emotional support positions during the recent Iran related Red days, the Brazilian Government have also seen green and slapped a 12% tax on oil exports starting immediately (12 Mar) for 120 day, unless they extend it…

Classic sovereign risk issue however Karoon is still a long way ahead with oil at US$100 compared to the recent range US$65-70bbl. This is just Brazilian operations so doesn’t include Who Dat in the Gulf of Mexico, but Brazil is currently ~75% of production and that’s not changing in the next 120 days.

I saw Karoon as undervalued when oil was ~US$70bbl, with this tax the equivalence is ~US$77bbl. The current US$100bbl is obviously very encouraging for value, but it depends more on what a post Iran price will be. I suspect, given the destruction of oil production facilities, disruption and instances like this effectively adding to the cost of oil production that the oil price is probably going to be well above the previous US$65-70bbl range, I anticipate the new range will be US$80-90bbl and is where I am thinking Karoon should be valued against.

Operational issues have held this company back for a while now which has been exacerbated by low oil prices. Operations seem to be improving but we won’t see much impact this year, the near-term upside is defiantly price rather than volume.

Disc: I own RL