Riffing somewhat off @Goldfish's thread on “Timing the sale of oil and coal stocks,” as a holder of Karoon this is a pertinent issue for me. As a cyclical, the timing of when to buy and particularly when to sell is critical, unlike with growth companies where time tends to heal timing issues. With the price whipsawing on each Trump tweet, I need to have a well‑founded view on an exit price.

I continued to hold Karoon when it tipped over $2 about a year ago on valuation grounds, and that was at much lower oil prices. However, that was based on the premise that an oil price of around US$60–70/bbl at the time was at the low end of a range. So now that we are over US$100/bbl, why isn’t Karoon over $4 a share, and does that suggest I have missed something, i.e. that it is time to recheck the thesis and valuation assumptions?

What the new short‑ to medium‑term oil price “normal is” remains the ultimate question (welcome, captain obvious). My assumption is that it is above US$60–70 but could be anywhere from US$80–110, given the following factors:

• Iran war: There are three key impacts from the war:

1. Supply route blockage: The blocking of the Strait of Hormuz is bottling up roughly 20% of world oil supply, but unblocking is a matter of a decision that could be made at any time. This is therefore a short‑term impact that could disappear as quickly as it appeared.
2. Iranian oil “tariff” on the Strait of Hormuz may be how it gets unblocked, which would potentially be a medium‑term impact on prices and would depend on how it is priced and structured.
3. Gulf oil/gas infrastructure damage: This is the most significant risk to medium‑ and long‑term oil prices.

• Ukraine attacks on Russian oil (Ukraine Ramps Up Attacks on Russian Oil, Aiming to Curb Iran War Windfall - The New York Times): Russia has probably been the greatest beneficiary of the war in Iran, which is rarely mentioned. Sanctions were eased to increase supply and higher prices are helping to fund the Russian war effort; the oil price probably would have hit US$150, as some predicted, without this extra supply. However, Ukraine is trying to offset that advantage by increasingly targeting Russian oil export lines and infrastructure. As with Iran, blocking a supply line is a problem only until a decision is made to unblock it, but blowing up infrastructure creates a problem that takes years to fix. So the price implications of this look likely to be lasting.
• Global production response: Higher prices will certainly make more wells commercially viable and encourage drilling, but it takes time for this to occur. The Venezuelan oil situation is a good example: plenty of oil, but fixing/building the infrastructure to sell it is going to take time, and presumably many of the skilled people and required equipment are going to be deployed fixing facilities currently being bombed.
• Acceleration to electrification: Another slow‑burn solution that is not going to move the dial in the short term, but one that will now be accelerated and will be more impactful in the medium and long term due to the Iranian war.

So, if oil infrastructure damage is kept to a minimum and the Strait reopens, a price around US$80 will probably be a reasonable expectation for the CY26 average. If the current ceasefire evaporates, the Strait remains blocked, and infrastructure damage ramps up, a price close to US$110 or even more could be on the cards.

Then there are company‑specific factors impacting value: the GoM purchase mistake, operating issues, a new CEO with technical skills, capital management improvements, production vessel ownership, and production output expectations. For the purpose of this exercise, I am going to remain neutral on these factors and assume oil sales/production remains around 10 MMbbl.

Below is a P&L scenario look for FY26 (note YE 31 Dec). I have applied the Brazilian government’s 12% temporary tax on 50% of revenue for the year, assuming it will be extended for the full year, which would see it apply to 75% of Karoon’s current production (ie 25% GoM excluded).

So what to make of it?

FY26 is likely to be a good year and could be a great year. The PE is likely to be below 8 and maybe below 4, but what about further out, which accounts for most of the value? I view the US$80 price scenario and EPS of about A$0.28 as an achievable/conservative medium‑term expectation and a PE of 10 (ie value ~$2.80), which is well above historical averages of 4–8. The PE uplift is based on now having decent management and improved prospects in GoM leading to improve earnings quality, plus a possible upside oil price surprise may offer an exit around ~$3.00.

Just my totally unprofessional view and plan for KAR. I welcome hole‑pokers and other thoughts, any of which may lead to me changing my mind!

Disc: I own RL.