Gabriel Radzyminski’s Sandon Capital (ASX: SNC) are self proclaimed activist investors, who aim to deliver:

“An activist investment strategy applied to undervalued companies, that few investors have the capacity to implement themselves.”

Since their inception SNC’s list of campaigns include activist actions against the boards of WTP, CYG, ILU, FWD, A2B.

I have become interested in the work of Gabriel Radzyminski, with SNC sitting in a watch list of LIC’s that I have for some years. However his work has recently come into focus for me, with his views on the Karoon Energy (KAR) board.

SNC clearly see untapped value for KAR shareholders, via dividends and increased SP, if the board only would play ball.

On the 30th April 2024, Sandon Capital and Samuel Terry Asset Management Pty Ltd, formed an “association”. Creating an alliance for the purpose of voting against several of the Karoon boards resolutions at the up coming AGM. Together they own 44,718,234 KAR shares giving the "association" 5.6% voting power 

On 1 May 2024, they wrote to Karoon’s chairman, Peter Botten, detailing their voting intentions for Karoon’s 2024 Annual General Meeting to be held on 23 May 2024.

Read that letter here

They claim the board have said one thing and done another. 

“We consider that the Board and Management have failed to properly adapt to Karoon’s evolution from an exploration company to a fully-fledged oil and gas producer which is now generating attractive free cashflows. Whilst we acknowledge the improvements to corporate governance that have taken place in recent years, this does not mean shareholders are safe from value-destructive “empire building”. Indeed, the recent acquisition of Who Dat, partly funded by what we view as a poorly-executed equity raising, the threat of further acquisitions and the prospect of further significant investment in the development of Neon, leads us to fear that Karoon’s Board and Management do not understand the basics of shareholder value creation.”

Money of mine you tube interview with Gabriel Radzyminski

While I have run into board shake ups and the associated argy bargy during my investing life, it strikes me that Radzyminski seems to have a hard won reputation, with runs on the board, matched with conviction and dedication. An admirable combination.

Whether SNC and Samuel Terry can pull together enough support to get the job done, will be interesting to see.

I hold KAR in RL and on Strawman

I will be looking into SNC, with a view to invest.

Keep on truckin

Seems governments are tinkering with tax regimes everywhere. Karoon SP today down 3.5% on the back of the Brazilian Government announcement that they will levy a tax on oil exports for the next four months.

Temporary Brazilian crude oil export tax announced

Karoon advises that the Brazilian Government has announced that a 9.2% tax will be levied on oil exports (sales volumes) for a term of four months, from 1 March 2023 until 30 June 2023 (Term). The tax is expected to be deductible for corporate income tax purposes.

Based on current production guidance, Karoon estimates that this will result in the potential payment of US$22 – 35 million1 (US$15 – 23 million on a post-tax basis) in respect of the Term, subject to the volume of crude oil exported and realised oil prices during the Term.

Karoon today announced significant increases in the 2P reserves for its Bauna fields. This is good news for the longer-term plans to develop longer-term asset utilisation through increased capital inputs in the short-term.

Muddled of course as to whether any oil producer should be in my portfolio, but if KAR stays, I'm bullish on its long term potential.

23% increase in BM-S-40 (Baúna) 2P Reserves

Karoon is pleased to announce an updated assessment of reserves and resources as at 31 December 2022 for its 100% owned Santos Basin concession, BM-S-40, in Brazil. This follows a review of all available subsurface and production data, including a reprocessed seismic dataset, newly acquired data from the recently completed Baúna well interventions and Patola drilling, and updated reservoir modelling. Karoon’s internal assessment of reserves has been reviewed and certified by an independent third party, AGR Energy Services.

BM-S-40 contains the Baúna and Piracaba producing fields and the Patola field, which is currently under development. Proved (1P), Proved and Probable (2P) and Proved, Probable and Possible (3P) reserves at 31 December 2022 have increased by 17%, 23% and 7%, to 42.8 MMbbl, 55.0 MMbbl and 65.5 MMbbl, respectively, compared to 30 June 2022.

Dr Julian Fowles, Karoon’s CEO and Managing Director, said:

“The material increase in Baúna reserves announced today follows extensive reprocessing of seismic, reservoir modelling and dynamic simulation work undertaken by our technical teams in Brazil and Australia.

The resolution of the reprocessed seismic is significantly better than legacy datasets, decreasing the uncertainty on field volumes. The results from the three Baúna well interventions recently completed have been very positive and, together with information from the two Patola wells, have provided valuable additional data points, which have also assisted in the reserves definition announced today.

The expectation of extended field life brings greater longevity to Karoon’s existing production base that should bring further opportunities to maximise asset value.”

DISC: held IRL and here

Strong results yesterday from Karoon in line with expectations. There is still quite a runway for improvement with the well improvement program, higher oil prices and a focus on appropriate cost management. There's probably a capital raise at some stage to fund the entirety of that improvement program and new wells but these high oil prices likely push that back.

Previous straws tell the story of why the massive turnaround in revenue.

Highlights from their release:

• Underlying net profit after tax (NPAT) for the first half of FY2022 was US$21.1 million

• A statutory net loss after tax of US$97.7 million was reported, which included a non-cash adjustment to the anticipated contingent consideration payable to Petrobras for the Baúna asset of US$121.3 million net of tax (US$183.8 million pre-tax), following an increase in Karoon’s oil price outlook.

• The solid underlying NPAT1 reflected oil production from the Baúna Field of 2.50 million barrels (MMbbl), and oil sales of 2.57 MMbbl. The weighted average realised price, net of selling expenses and logistics, was US$72.43/bbl, which was 23% higher than the average price of US$59.00/bbl realised in FY2021. Oil revenue received from the five cargoes lifted was US$186.5 million.

• Unit production costs were US$23.50/bbl, below the US$28 – 32/bbl FY2022 guidance range due to higher than anticipated first-half production over a largely fixed cost base. Unit depreciation and amortisation was US$11.79/bbl, in line with prior market guidance.

• Cash and cash equivalents at 31 December 2021 were US$204 million and the Company had US$130 million of undrawn debt, placing Karoon in a strong financial position.

• Production guidance for FY2022 has been narrowed to 4.4 – 4.6 MMbbl, while guidance for unit production costs has been reduced to US$28 – 30/bbl. Unit depreciation and amortisation guidance is unchanged at US$12 – 13/bbl.

• Activities on the Baúna well intervention program and Patola field development, which together have the potential to increase Karoon production to over 30,000 bopd by early 2023, are targeted to commence in late April/early May 2022.

• The recent entry into an agreement to purchase more than 480,000 Verified Emission Reductions (carbon credits) from Shell, which have VCS and CCB Verra certifications, will enable Karoon to be carbon neutral for its Scope 1 and 2 Baúna greenhouse gas (GHG) emissions in FY2021, and result in an estimated 60% of total Baúna-Patola Scope 1 and 2 emissions to be offset between 2022 and 2030.

DISC: held IRL and here

Positive results announcement at last from Karoon.  At last actually producing revenue.  Feels like this might be the start of some positive news for the next several years.

Karoon posts full year net profit after tax of US$4.4 million and underlying net profit after tax of US$33.4 million following transformational year

Highlights:

• Oil production from the Bau?na Field totalled 3.14 million barrels (MMbbl), produced at an average rate of 13,317 barrels of oil per day (bopd), since Karoon’s assumption of ownership and operatorship on 7 November 2020 until 30 June 2021.

• Six oil cargoes were lifted, totalling 2.90 MMbbl, realising a weighted average price, net of selling expenses and logistics, of US$59.00/bbl, reflecting the strength in global oil markets and healthy demand for Bau?na crude.

• Oil revenue for the 2021 financial year (FY2021) from the cargoes lifted was US$170.8 million.

• Unit production costs were US$25.11/bbl, while unit depreciation and amortisation was US$11.97/bbl, both in line with prior market guidance.

• Karoon recorded a statutory net profit after tax (NPAT) of US$4.4 million and an underlying NPAT of US$33.4 million (see adjustments to derive underlying NPAT in Note 5 to Table 1 on page 3).

• The result included a number of significant items, including net foreign currency losses of US$17 million, Bau?na transition costs of US$15.7 million and US$9.6 million relating to settlement of a dispute with Pitkin Petroleum Peru.

• Cash and cash equivalents at 30 June 2021 were US$133.2 million, placing Karoon in a strong financial position.

• Production in FY2022 is expected to be in the range of 4.2 – 4.6 MMbbl, while unit production costs are forecast to be between US$28 – 32/bbl, with unit depreciation and amortisation of US$12 – 13/bbl.

• Sanction of both the Bau?na well intervention program and Patola field development, which together have the potential to increase Karoon production to over 30,000 bopd by early 2023.

• Commenting on the results, Chief Executive Officer and Managing Director Dr Julian Fowles said:

• “The 2021 financial year has been transformational for Karoon.

  Following the acquisition of the Bau?na oil field in Brazil in November 2020, the Company has now entered a new era as a material oil producer and operator. A strong emphasis on safety and reliability, coupled with operating and financial discipline, has enabled Karoon to safely deliver a strong underlying profit from our first eight months as an oil producer. This is testament to the commitment and hard work from our teams across our operating regions. Substantial changes to the Board and management have enabled the transformation and provided the Company with new skills and capabilities to support our production, development and growth aspirations.

  Karoon’s new phase as an oil producer has been delivered against a backdrop of the unprecedented COVID-19 pandemic, which continues to cause significant hardship for many of our staff and contractors, as well as disruption to normal operational practices. On a more positive note, the macro-oil environment has been very supportive, with the oil price increasing from US$45/bbl to more than US$70/bbl during the year. With no hedging in place over the year, Karoon benefited from the oil price strength, ending the year in a robust financial position. Following the sanctioning of the Bau?na intervention campaign and the Patola development, Karoon has two projects which are expected to add between 15,000 – 20,000 bopd by early 2023 and more than double current production before natural decline resumes.

Having completed our transition into an oil producer, in April 2021, a Strategic Refresh commenced, aimed at updating Karoon’s corporate strategy and our key objectives for the next five years and beyond. Our goal is to create a sustainable oil business, anchored by our current Brazilian producing asset and projects under development.

The Refresh has considered the Company’s operational and financial objectives, as well as evaluating organic and inorganic growth options. In addition, a major component of the Refresh has been our approach to the communities where we operate and managing our carbon emissions. Sustainability and management of our carbon footprint will form a key component of our strategy and how we position ourselves for both the challenges and opportunities that the energy transition brings. The Strategic Refresh is now nearing its conclusion and we intend to share the outcomes with the market in late October 2021.

Our highest priority in FY2022 will be on continuing to deliver safe and reliable production from the Bau?na concession while we focus on progressing the Bau?na intervention and Patola projects, on time and on budget, and implementing the Strategic Refresh initiatives.”

12-Aug-2019:  NGE Capital (ASX: NGE) have a large exposure to Karoon Energy (KAR) - KAR was 41.5% of their portfolio at the end of July.  NGE had a good July, with their portfolio value (but not their share price) rising +24.9% mostly on the back of a positive market re-rating of KAR.  You can read their July report here:  Karoon Energy (KAR) Investment and NTA update - July 2019

If you want to spread the risk a bit, rather than invest directly in KAR, you could invest instead in NGE, which is currently around 41% to 42% KAR, 23% United Company RUSAL (HKE: 0486), 13% Yellow Cake plc (LSE: YCA), 7.4% Horizon Oil (ASX: HZN) and 5.9% Base Resources (ASX: BSE).  Not exactly a low-risk portfolio by any stretch, but a little more diversified than 100% KAR, who are one of the more volatile stocks on our market - with plenty of cash, but not much in the way of earnings and profits.  NGE have a concentrated portfolio of high conviction energy and resources companies, and prior to July 2019, they have seriously underperformed the market, but their best months might still be ahead of them...

Disclosure:  I don't hold KAR or NGE - both are outside of my risk tolerance limits.