Why the Karoon Gas Share Price Rocketed Up This Week

What happened to the Karoon Gas share price?

Oil and gas exploration and production company Karoon Gas [ASX:KAR] has seen its share price spike over 35% in just over a week. For a stock that peaked at over $12 at the height of the gas stock  boom in 2009, though, this latest spike came off a pretty low base — around $1.35.

Since that lofty share price seven years ago, the trend for Karoon shares has been down. This jump only puts the share price back to where it was at the start of the year.

Why did Karoon Gas do this?

Over the last 12 months, an undisclosed number of oil and gas companies have been bidding for two oil fields owned by Brazil’s largest oil company (and Fortune 500 member), Petrobas.

Last week, it was announced by Karoon that they’d been awarded the ‘right to negotiate a final agreement with Petrobas’ over these two fields. The first, a 100% ownership of a field already producing around 45,000 barrels per day. And the second, 50% in a project still in development.

But the Petrobas story isn’t the only news for Karoon. On the day of the Petrobas deal, it also announced it has been awarded a permit to explore a large section of the oil rich Great Australian Bite.

Why now for Karoon Gas?

While the purchase price won’t be known for some time, there is speculation that Karoon won’t go into the deal alone. There is the possibility that they could sell a stake in the project to fellow Australian oiler, Woodside Petroleum [ASX:WPL].

The deal is big news for Karoon, but there is still some way to go. First they need to negotiate the final agreement, including the price. They will also need to conduct due diligence, and the boards of both Petrobas and Karoon need to sign off on the deal.

If successful, the deal could change the fortunes of Karoon. But this will depend on the future oil price as much as the terms of the deal.

Matt Hibbard,
Money Morning

Money Morning Australia