Fund Manager Summary on Karoon Energy Ltd (ASX:KAR)
Karoon Energy Ltd (ASX:KAR) has gained attention following its acquisition of 100% interests in six offshore blocks in Brazil, a strategic move that could enhance reserves near existing infrastructure. Despite recent volatility in oil prices, which fell nearly 9% due to OPEC’s production adjustments, the company's operational improvements are starting to yield positive results, as evidenced by a successful maintenance campaign at Baúna and increased production from the SPS-88 well. Fund managers commend Karoon's shift towards enhancing shareholder returns through operational efficiency rather than mergers and acquisitions, alongside a robust share buyback program totaling US$100 million. While geopolitical tensions driving oil prices up present opportunities, managers also highlight the need for vigilance regarding market fluctuations and operational execution to sustain growth and shareholder value.
Commentary From The Managers
There are 15 insights from 7 fund managers regarding their investment in Karoon Energy Ltd (ASX:KAR) available on Thesis Tracker.
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Updates are made available to members within 12 hours of being released. The completeness, accuracy or current status of the investments referenced are not guaranteed.
Commentary From The Managers
Collins St Asset Management
7 Jan 2026
$1.45
Summary
- Collins St Asset Management recognizes Karoon Energy Ltd as a compelling investment opportunity due to its productive status.
- The company is trading at a valuation of around seven times estimated forward earnings.
- Despite recent issues related to one of their wells and undersea cabling, Karoon has reaffirmed guidance for 2026, which aligns with the fund's investment outlook.
- The market has a big disconnect regarding Karoon, with approximately 9% of its stock shorted while the company actively engages in share buybacks.
- Following a share buyback announcement of 75 million USD, the ongoing repurchases indicate management's confidence in the company's assets and production capabilities.
- Karoon's operational presence in Brazil, North America, and Australia offers significant geopolitical diversification, reducing dependence on OPEC regions.
- This diversification enables Karoon to access refineries and markets in Europe and the US, making it an attractive prospect for potential growth.
Tyndall Asset Management
30 June 2025
$1.92
Summary
- Karoon Energy outperformed due to geopolitical risk in the Middle East, leading to increased oil prices.
- Company has low-cost assets in Brazil and the US Gulf of Mexico.
- Currently trading on 8-times earnings.
- Active share buyback program in place.
- Tyndall Asset Management continues to hold as they see Karoon as an attractive investment proposition amidst geopolitical uncertainties.
Sandon Capital
30 June 2025
$1.92
Summary
- KAR secured 100% interests in six Santos Basin blocks offshore from Brazil.
- Includes Piracucá near the Neon field and four deepwater blocks near Baúna.
- Considered a low-cost option for KAR to potentially add incremental reserves.
- Enhances proximity to nearby hydrocarbon fields and infrastructure.
- Sandon Capital continues to hold because of these strategic acquisitions.
Sandon Capital
30 Apr 2025
$1.44
Summary
- Sandon Capital notes that KAR’s shares have been negatively impacted by a falling oil price, which declined almost 9% due to global trade volatility and OPEC’s decision to increase oil production.
- Despite oil market volatility, KAR’s quarterly production report indicates that the company’s renewed focus on its existing assets is yielding positive results.
- The flotel supported maintenance campaign at Bauna has been successfully completed, and production has resumed at the SPS-88 well.
- The acquisition of the Bauna Floating Production, Storage and Offloading vessel (FPSO) was completed, enhancing Karoon’s operational control.
- Sandon Capital looks forward to updated production guidance in the upcoming months.
Sandon Capital
28 Feb 2025
$1.54
Summary
- Sandon Capital notes KAR's new focus on delivering shareholder returns through improved operating performance.
- The shift towards organic growth instead of M&A is viewed positively.
- KAR announced the acquisition of the Cidade de Itajaí FPSO for US$115 million, anticipated to yield a high teens rate of return.
- Sandon Capital commends the Board and management for addressing investor concerns regarding M&A ambitions.
- The new strategy is seen as more shareholder friendly, with expectations of benefits over time.
Sandon Capital
31 Jan 2025
$1.58
Summary
- Sandon Capital notes that Karoon Energy Ltd (KAR) plans an additional US$75.0 million buyback in 2025, following two previously announced buybacks of US$25.0 million.
- The dividend payout ratio remains steady at 20-40% of underlying Net Profit After Tax.
- Sandon Capital is encouraged by the company's focus on returning excess capital to shareholders efficiently.
- KAR is in constructive negotiations with Altera & Ocyan regarding the potential acquisition of the Baúna FPSO.
- If the price is right, this acquisition could be a sensible use of capital, addressing operational issues.
- The acquisition could save approximately US$60 million in annual lease costs and enable commercial development of ~10mmbbls of resources.
- It may also help defer abandonment spending.
Sandon Capital
31 Dec 2024
$1.39
Summary
- Sandon Capital notes a disappointing production update from Karoon Energy Ltd (KAR).
- Bauna production affected by broken mooring chains and Who Dat production impacted by Hurricane Rafael.
- Total production for CY24 revised to 10.1-10.3Mboe, significantly below original guidance of 12.0-14.5Mboe.
- Unit costs increased from US$9.00-14.00/boe to US$13.00-15.00/boe due to high fixed costs.
- High acquisition cost for Who Dat assets in late 2023 adds to the disappointment.
- Unforced capital allocation errors and operational challenges have damaged investor confidence.
- Recent capital management initiatives and a focus on consistent production could restore investor faith.
- A moratorium on acquisitions is suggested to help drive a re-rating of KAR shares.
- Investor patience with KAR appears to be wearing thin.
Monash Investors
31 Oct 2024
$1.39
Summary
- Monash Investors recently reintroduced a position in Karoon Energy due to positive fundamental developments.
- The investment follows a significant de-rating of shares, making them more financially attractive.
- Karoon operates in Australia, Brazil, and the US, previously facing negative sentiment due to low reserve life.
- The company's concentrated asset exposure has limited its broader investment appeal.
- Historical capital allocation towards growth over returning capital to shareholders has affected market rating.
- Recent adoption of a capital management framework includes initiating dividends and share buybacks.
- Monash Investors sees this framework as a significant step, anticipating increased cashflow distribution to shareholders.
- With a market cap around $1b and a broad shareholder base, Karoon could be a target for acquisition by larger operators if shareholder-friendly actions do not follow.
Sandon Capital
31 Oct 2024
$1.39
Summary
- Sandon Capital notes a downgrade in Karoon Energy Ltd's full year production guidance to the bottom end of the previous range.
- The relatively fixed cost base has resulted in increased unit costs, now at the upper end of the previous range.
- On a positive note, Karoon announced a US$25m buyback.
- There has been a significant increase in contingent resources at Who Dat East.
- The discovery of hydrocarbons at the Who Dat South exploration well is promising.
- If Who Dat East and Who Dat South prove economical, they could unlock attractive, low capex growth options for Karoon Energy Ltd.
Clime Investment Management
30 Sept 2024
$1.57
Summary
- Clime Investment Management downgraded their outlook for KAR due to poor operational performance.
- Exiting the position was influenced by lack of exploration success in the Gulf of Mexico.
- KAR's Who Dat assets disappointed relative to expectations, increasing growth risk.
- Focus on lower probability exploration in the Gulf of Mexico and Brazil raised concerns.
- With slowing global growth and potential for lower oil prices, exposure to commodities was reduced.
- Exiting KAR aligns with the strategy to minimize risk in the portfolio.
- KAR's share price weakened, reflecting trends in the broader energy sector.
- Reduced confidence in management and the company's strategy contributed to the exit decision.
- Capital from the exit will be redeployed into higher conviction investments.
Endeavor Asset Management
31 July 2024
$1.87
Summary
- Endeavor Asset Management exited their position in Karoon Energy (KAR) at $1.78 per share.
- The decision was influenced by the current spot valuation.
- A weaker near term cash flow outlook was identified.
- The exit was partly due to ongoing production issues.
- There is a concern regarding increasing capital intensity.
Endeavor Asset Management
31 May 2024
$1.81
Summary
- Karoon Energy’s (KAR) share price fell 9% due to downgraded production guidance.
- Shareholder activism is influencing changes in the strategic direction and governance practices.
- Despite current challenges, Karoon is positioned as a key player in the energy sector.
- Recent acquisitions and ongoing projects offer significant growth potential.
- The activism could serve as a positive catalyst for improvements in operations and governance, potentially unlocking further value for shareholders.
Sandon Capital
30 Apr 2024
$1.95
Summary
- Sandon Capital continues to hold an interest in Karoon Energy Ltd (ASX:KAR), an Australian oil and gas producer.
- Karoon has transitioned from exploration to production, particularly after acquiring the Baúna project in Brazil.
- In 2023, Karoon raised equity by issuing shares at $2.05 to fund an acquisition in the Gulf of Mexico.
- Karoon’s shares are trading at a significant discount compared to its Australian peers that pay dividends.
- The fund believes that allocating free cash flow to regular dividend payments could narrow the valuation gap.
- Karoon seems to prioritize growth through exploration and acquisitions rather than immediate dividend payments.
- Sandon Capital has formed an association with Samuel Terry Asset Management to influence the upcoming 2024 Annual General Meeting.
- Efforts are underway to campaign for voting intentions that align with the interests of shareholders.
Endeavor Asset Management
31 Mar 2024
$2.18
Summary
- Karoon Energy presents a compelling opportunity for exposure to the oil & gas sector.
- The company boasts strong cash generation and low production costs.
- Significant growth potential is anticipated for Karoon Energy.
- Recent acquisition of the Who Dat asset in the U.S. Gulf of Mexico enhances scale and diversification.
- Upcoming drilling activity and potential development projects offer exciting possibilities.
- Endeavor Asset Management believes Karoon is currently undervalued compared to its peers.
- Represents a better long-term investment opportunity than BPT at this time.
Oracle Advisory Group
31 Mar 2024
$2.18
Summary
- Oracle Advisory Group continues to hold a positive outlook on Karoon Energy.
- The firm has increased their position in Karoon Energy due to a recent acquisition.
- Karoon has acquired a non-operating stake in the “Who Dat” oil field located in the Gulf of Mexico.
- This oil field is classified as low-cost compared to Karoon’s existing operations in Brazil.
- Oracle believes that oil prices will remain elevated due to ongoing OPEC+ supply influences.
- Recent events in the Red Sea are also impacting supply levels.
- If oil prices maintain their current levels, Karoon is expected to become a cash-making machine over the next few years.
The completeness, accuracy or current status of the investments referenced are not guaranteed.
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Frequently Asked Questions
Who is investing in Karoon Energy Ltd (ASX:KAR)?
Fund managers including Endeavor Asset Management, Monash Investors, Oracle Advisory Group, Sandon Capital, Clime Investment Management, Tyndall Asset Management and Collins St Asset Management have invested in Karoon Energy Ltd (ASX:KAR).
Why do fund managers invest in Karoon Energy Ltd?
Fund managers invest in Karoon Energy Ltd due to its strategic assets in Brazil and the US Gulf of Mexico, which offer growth potential and diversification. The company has made significant operational improvements and is focused on returning capital to shareholders through buybacks and dividends. Despite market volatility affecting oil prices, Karoon has reaffirmed its production guidance and shows a strong risk/reward profile, trading at an attractive earnings multiple while actively managing its operational issues.
What happened to Karoon Energy Ltd (ASX:KAR)?
Fund managers are investing in Karoon Energy Ltd due to its favorable valuation, trading at approximately seven times estimated forward earnings. Despite some recent operational challenges, the company has reaffirmed its guidance for 2026, indicating strong performance. Additionally, the company's ongoing share buyback program, amounting to $75 million, reflects management's confidence in its assets and production capabilities. With diversified assets across Brazil, North America, and Australia, Karoon mitigates geopolitical risks, making it an appealing investment opportunity.
What is the short interest in Karoon Energy Ltd (ASX:KAR)?
The short interest in Karoon Energy Ltd (ASX:KAR) is 9.40% which makes it the 12th most shorted stock on the ASX. Of the 726.1M shares that Karoon Energy Ltd has on issue, 68.2M have been sold short.
What does Karoon Energy Ltd (ASX:KAR) do?
Karoon Energy Ltd. is an oil and gas exploration company, which engages in oil and gas production, development assets, and providing energy. It operates through the following geographical segments: Australia, Brazil, U.S.A., and All Other. The Australia segment is involved in the exploration and evaluation of hydrocarbons. The Brazil segment refers to the exploration, development, and production of hydrocarbons. The U.S.A segment focuses on the acquisition of LLOG interests in the Mississippi Canyon Blocks in the Gulf of Mexico. The All Other segment relates to the closure of its Peruvian branches. The company was founded by Robert Michael Hosking on November 11, 2003 and is headquartered in Southbank, Australia.