Karoon Energy rides an oil price spike into a Brazilian export tax headwind

Karoon Energy's full exposure to the oil price delivered a 36% monthly return during a Middle East conflict-driven price spike, but a Brazilian government crude export tax has since split fund managers over how much jurisdictional risk the stock's cheap valuation should carry.

30 Jun 2026 · 6 min read

Karoon Energy Ltd (ASX: KAR) has become a genuine test case for how fund managers weigh cheap valuation against jurisdictional risk, as its full exposure to a Middle East conflict-driven oil price spike collided with a new Brazilian government tax on crude exports. Collins St Asset Management laid out the valuation appeal in January 2026, noting Karoon trades on around seven times forward earnings as an actual producer, having reaffirmed 2026 guidance despite recently disclosed issues with a well and undersea cabling, while highlighting a striking market disconnect: roughly 9% of the stock is shorted even as the company continues a US$75 million buyback signalling management's own confidence in its asset base and production profile.

There's a big disconnect here in the way that the market is viewing Karoon. They actually have about 9% of their stock shorted by the market at the same time that the company is actually buying back their own shares.

Collins St Asset Management, Presentation, January 2026

An oil price spike delivers outsized returns

Spheria Asset Management captured the scale of Karoon's leverage to rising oil prices, reporting the stock returned 36% in March 2026 through its 100%-operated Baúna Project in Brazil's offshore Santos Basin and a roughly 30% non-operated interest in the Who Dat field in the US Gulf of Mexico, together delivering approximately 9-10 million barrels of oil equivalent annually net to Karoon. The fund noted it had initiated the position earlier in the year and added following a relatively soft February update, with the share price tracking higher alongside oil even as gains were partially tempered by Brazil's export tax announcement.

A Brazilian export tax introduces jurisdictional risk

The clearest new headwind emerged in mid-March 2026, when Brazil's government announced a temporary additional 12% tax on crude oil exports, effective for up to 120 days unless extended by Congress. Datt Capital rated the stock a sell purely on this jurisdictional risk, explaining the tax effectively ensures upstream oil producers keep crude for domestic refineries, and while short in duration at around 90 days, flagged the potential for extension should a Middle East ceasefire fail and elevated prices persist, with the fund saying it strongly prefers Australian producers over offshore exposure for exactly this reason.

Karoon is a sell for me, and that's purely due to the jurisdictional risk... even though this is a short duration in nature, about 90 days, there is a potential for it to be extended.

Datt Capital, Article, April 2026

A high-conviction holder stays the course

Spheria Asset Management took the opposite view, describing the export tax as disappointing but not entirely unexpected under the current Brazilian administration, and noting similar fiscal pressures loom for Australian producers amid shifting political winds. The fund highlighted that despite the strong recent performance, Karoon continues to trade on a low single-digit EV/EBIT multiple, a material discount to larger Australian peers such as Santos and Woodside, partly reflecting its shorter reserve life, though recent FPSO ownership changes, cost reductions and revitalisation programs have extended the Baúna concession's economic field life from around 2032 to 2039, with 2P reserves upgraded to 52.7 million barrels. The fund continues to view Karoon as an attractively valued, high-conviction oil play with self-help potential through operational improvements and organic growth options including the Neon discovery.

A cautious hold pending the ceasefire outcome

Acorn Capital took a more measured near-term stance, rating the stock a hold in April 2026, arguing that even with a successful ceasefire it would take considerable time to restart Middle East oil production, meaning producers like Karoon, fully exposed to the oil price, should benefit from elevated prices through the June and potentially September quarters, though short-term traders washing out of the position could keep the price range-bound in the interim.

What managers are watching next

With the Brazilian export tax's initial 90-day window and potential extension by Congress a key swing factor, the catalysts fund managers are tracking most closely are whether the tax is extended beyond its initial term, how the Middle East ceasefire situation evolves and its impact on the broader oil price, and whether Karoon's ongoing buyback and reserve-life extension work continue to narrow the valuation discount to larger Australian energy peers.