Karoon Finds Oil Offshore Brazil, Shares Jump

SYDNEY - Karoon Gas Australia Ltd. has made its second significant oil discovery offshore Brazil, sending its shares soaring as much as 28% Monday and increasing the possibility of finding another partner to share development costs.

The Australian company has now discovered oil in two out of three wells drilled in the Santos Basin, located south of Rio de Janeiro, with joint venture partner Pacific Rubiales Energy Corp. Karoon owns 65% of the venture and analysts expect it sell more of its interest if there's enough oil to underpin a multibillion dollar development.

Karoon said the Bilby-1 well discovered oil across a 200-meter gross column, although more work needs to be done to determine the size of the find and whether it can be developed commercially.

The rise in Karoon's stock lifted the company's value to 1.1 billion Australian dollars (US $1.1 billion), although doubts remain about its ability to fund projects that include developing natural gas fields offshore Australia in partnership with ConocoPhillips.

Scott Ashton, a senior energy analyst at BBY in Sydney, said it is too early to be sure the Bilby discovery can be developed commercially. "We do not know the net pay, the quality of the oil, and whether it is capable of flowing," he said in a note.

The well hasn't yet reached its target depth of 4,537 meters and Karoon expects further drilling to encounter a different geological structure, which could also contain oil.

The Bilby-1 discovery follows the success of the Kangaroo-1 well offshore Brazil. However, the drilling program hasn't been a complete success, with the Emu-1 well failing to find commercial quantities of oil.

The fluctuating fortunes of the drilling campaign has intensified volatility in the company's shares. Karoon was worth A$1.6 billion as recently as early March, just before it announced the outcome of the Emu-1 well.

Karoon is planning to test the Kangaroo and Bilby discoveries with appraisal wells.

Citigroup analyst Mark Greenwood said earlier this year that Karoon could eventually reduce its holding in the Brazil venture to 20% to raise funds for drilling and development.

Edward Munks, Karoon's chief operating officer, told The Wall Street Journal in March that the company had several funding options. "Having a discovered resource with high equity levels gives you a lot of flexibility," Mr. Munks said.

Options include a further stake sale, issue of new Karoon shares or an initial public offering of the South American assets. Of these, Mr. Munks said the company isn't likely to revisit an IPO after shelving plans in 2010.

The venture's properties are in much shallower water than giant discoveries made by international energy companies further offshore Brazil, such as the Tupi field.

However, significant commercial discoveries have been made close to the coast. Among the most notable is the Piracuca oil field just five kilometers northeast of Karoon's blocks. Petroleo Brasileiro SA, known as Petrobras, and partner Repsol SA in 2009 declared Piracuca a commercial discovery estimated to contain 550 million barrels of light oil.

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Karoon Finds Oil Offshore Brazil, Shares Jump

SYDNEY - Karoon Gas Australia Ltd. has made its second significant oil discovery offshore Brazil, sending its shares soaring as much as 28% Monday and increasing the possibility of finding another partner to share development costs.

The Australian company has now discovered oil in two out of three wells drilled in the Santos Basin, located south of Rio de Janeiro, with joint venture partner Pacific Rubiales Energy Corp. Karoon owns 65% of the venture and analysts expect it sell more of its interest if there's enough oil to underpin a multibillion dollar development.

Karoon said the Bilby-1 well discovered oil across a 200-meter gross column, although more work needs to be done to determine the size of the find and whether it can be developed commercially.

The rise in Karoon's stock lifted the company's value to 1.1 billion Australian dollars (US $1.1 billion), although doubts remain about its ability to fund projects that include developing natural gas fields offshore Australia in partnership with ConocoPhillips.

Scott Ashton, a senior energy analyst at BBY in Sydney, said it is too early to be sure the Bilby discovery can be developed commercially. "We do not know the net pay, the quality of the oil, and whether it is capable of flowing," he said in a note.

The well hasn't yet reached its target depth of 4,537 meters and Karoon expects further drilling to encounter a different geological structure, which could also contain oil.

The Bilby-1 discovery follows the success of the Kangaroo-1 well offshore Brazil. However, the drilling program hasn't been a complete success, with the Emu-1 well failing to find commercial quantities of oil.

The fluctuating fortunes of the drilling campaign has intensified volatility in the company's shares. Karoon was worth A$1.6 billion as recently as early March, just before it announced the outcome of the Emu-1 well.

Karoon is planning to test the Kangaroo and Bilby discoveries with appraisal wells.

Citigroup analyst Mark Greenwood said earlier this year that Karoon could eventually reduce its holding in the Brazil venture to 20% to raise funds for drilling and development.

Edward Munks, Karoon's chief operating officer, told The Wall Street Journal in March that the company had several funding options. "Having a discovered resource with high equity levels gives you a lot of flexibility," Mr. Munks said.

Options include a further stake sale, issue of new Karoon shares or an initial public offering of the South American assets. Of these, Mr. Munks said the company isn't likely to revisit an IPO after shelving plans in 2010.

The venture's properties are in much shallower water than giant discoveries made by international energy companies further offshore Brazil, such as the Tupi field.

However, significant commercial discoveries have been made close to the coast. Among the most notable is the Piracuca oil field just five kilometers northeast of Karoon's blocks. Petroleo Brasileiro SA, known as Petrobras, and partner Repsol SA in 2009 declared Piracuca a commercial discovery estimated to contain 550 million barrels of light oil.

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SandRidge CEO Sells Shares Days After Truce With Activist Investor

HOUSTON - SandRidge Energy Inc. Chief Executive Tom Ward sold about 13.5% of his SandRidge stock days after the company reached a truce with an activist investor that could lead to the executive's departure.

Mr. Ward sold 3.7 million shares of SandRidge in two transactions Friday and Monday, netting about $21 million, according to a filing with the Securities and Exchange Commission. He still owns nearly 23.5 million shares, or close to 5% of SandRidge's shares according to figures from the company's website.

The move came in the wake of the partial success last week of a months-long campaign by hedge fund TPG-Axon Capital Management, which sought to replace SandRidge's board, including Mr. Ward. The campaign ended in a settlement, under which four of the fund's nominees would join the board.

Under the deal, Mr. Ward will keep his position as chief executive and board chairman for the time being, but the board will have to decide his fate by June 30. If it keeps him in place, three current SandRidge board members will have to leave and an additional nominee by TPG-Axon will join, giving the activist investor a majority of the seats on the board.

If Mr. Ward is terminated, current chief financial officer James Bennett will become interim chief executive and the board will conduct a search for a successor.

A spokesman for SandRidge did not immediately respond to a request for comment.

The board's decision will come after a review of the company's strategy and costs, including an independent firm's review of land deals the company entered with entities controlled by relatives of Mr. Ward, according to the settlement announced last week.

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SandRidge CEO Sells Shares Days After Truce With Activist Investor

HOUSTON - SandRidge Energy Inc. Chief Executive Tom Ward sold about 13.5% of his SandRidge stock days after the company reached a truce with an activist investor that could lead to the executive's departure.

Mr. Ward sold 3.7 million shares of SandRidge in two transactions Friday and Monday, netting about $21 million, according to a filing with the Securities and Exchange Commission. He still owns nearly 23.5 million shares, or close to 5% of SandRidge's shares according to figures from the company's website.

The move came in the wake of the partial success last week of a months-long campaign by hedge fund TPG-Axon Capital Management, which sought to replace SandRidge's board, including Mr. Ward. The campaign ended in a settlement, under which four of the fund's nominees would join the board.

Under the deal, Mr. Ward will keep his position as chief executive and board chairman for the time being, but the board will have to decide his fate by June 30. If it keeps him in place, three current SandRidge board members will have to leave and an additional nominee by TPG-Axon will join, giving the activist investor a majority of the seats on the board.

If Mr. Ward is terminated, current chief financial officer James Bennett will become interim chief executive and the board will conduct a search for a successor.

A spokesman for SandRidge did not immediately respond to a request for comment.

The board's decision will come after a review of the company's strategy and costs, including an independent firm's review of land deals the company entered with entities controlled by relatives of Mr. Ward, according to the settlement announced last week.

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Carl Icahn Acquires 5.61% of Transocean's Shares -Filing

Activist investor Carl Icahn increased his stake in Transocean Ltd. (RIG) to 5.6% and urged the company to declare a $4-a-share dividend, saying he believes the company's shares are undervalued.

Shares were up 2.5% to $58.20 after hours. The stock is up 26% over the past six months.

According to a regulatory filing, Mr. Icahn and his affiliates have had talks with Transocean management and plan to have further discussions with them. Mr. Icahn "strongly believes" Transocean should return capital to shareholders and should declare a per-share dividend of at least $4.

Swiss law stipulates, according to the filing, that a shareholder has the right to propose a dividend at a company's annual meeting, and the dividend will be declared upon majority shareholder support regardless whether the company's board is supportive. Mr. Icahn plans to propose the $4 a share dividendat this year's annual meeting if Transocean's board doesn't declare one of at least that amount.

Mr. Icahn also plans additional discussions with Transocean management to discuss the business and strategies, as well as the potential addition of shareholder-selected nominees to the board.

Mr. Icahn and his affiliates now hold roughly 20.2 million shares in the company, at an aggregate purchase price of about $525.7 million. Transocean had 359.4 million shares outstanding as of Oct. 23.

In view of the Swiss takeover rules, Mr. Icahn notes that nothing in the filing should be viewed as an indication that he plans to launch, or is considering, a public takeover of the company.

Last week, Transocean disclosed that Mr. Icahn had taken a stake of more than 3% in the offshort driller. Mr. Icahn had told the company he was planning to acquire more than $682 million of stock in total, which was about 3.4% of Transocean's outstanding shares. That would make him the second largest shareholder in the company, which is based in Zug, Switzerland, after Capital Research and Management Co., which owns more than 5%.

Mr. Icahn has been active in energy investments in the last year, taking stakes in such companies as refiner CVR Energy Inc. (CVI) and Chesapeake Energy Corp. (CHK), the second-largest natural gas producer in the U.S. His Chesapeake investment helped spur major corporate-governance changes at the company, including the replacement of a majority of the board.

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Bleak forecast hits Aggreko shares

Aggreko (AGK) was the biggest faller on the FTSE 100 in early trading, losing 16%, after the company warned its 2013 forecasts had been too optimistic.

The temporary power firm said that with military orders falling, Japanese renewals not expected and the effect of the Olympics in 2012, it is likely to report lower revenue next year.

The market for international power projects was waning, the company said, but stressed that it expected growth in both domestic and international business.

However, this was not expected to be significant enough to offset the expected

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Shares to buy, hold and sell

Paul Marriage is manager of the Cazenove UK Smaller Companies fund. With strong performance, up 26.6% over one year and 72.3% over three, the fund has

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Royalties and Fair Shares

 

Great post by the American Enterprise Institute’s Steven Hayward (similar version posted on Powerline), breaking down a recent study of government revenues from oil and natural gas leases on public lands, onshore and off. The study is important because it refutes the claim that energy companies don’t pay their “fair share” for the right to develop federal lands.

Interestingly, as Hayward notes, the IHS-CERA study was requested by the Interior Department’s Bureau of Land Management (BLM) after another government study suggested exactly that. A 2008 report by the Government Accountability Office (GAO) said the federal government wasn’t collecting as much from oil and natural gas production on public lands as it should – ranking 93rd out of 104 fiscal systems around the world and losing between $21 billion and $53 billion in potential revenue. Red meat for the “fair share” theorists!

Only it’s not so. The BLM/IHS-CERA study simply blows away the GAO report. Hayward:

It becomes quickly apparent from the IHS-CERA report that the GAO’s analysis of this extremely complicated arena was superficial and inadequate, and that the government makes out quite well, no matter how you define “fair share” that is supposed to be the guide of oil royalty and tax policy. In fact, if you consider the government take as a proportion of the cash flow from oil and gas projects, the government typically nets more than the oil or gas-producing company does.

Here’s how well:  IHS-CERA found that on average, the federal government gets 64 percent of the cash flow from Gulf of Mexico oil leases. Although there are variances from lease to lease, onshore and offshore, “in no case does the government receive less than half the cash flow,” Hayward writes. He cites natural gas leases in Wyoming, where the government take ranges from 50 percent to 73 percent.

Here’s another chart from Hayward’s post, showing that when oil prices spike as in 2008, so do government revenues, boosted by “signature bonuses,” in which energy companies buy rights to a lease in advance:

Again, the importance here is knocking down the myth that oil and natural gas companies aren’t paying their “fair share” for developing federal leases – just as some argue companies don’t pay their “fair share” of taxes overall despite the fact the industry pays more than $86 million every day to the U.S. Treasury in rents, royalties and income taxes. The fact is, compared to what other governments around the world are collecting, the United States ranks high. IHS-CERA:

A ranking of fiscal terms based on all four variables puts all U.S. federal jurisdictions in the top half of the index, which indicates high government take, low (internal rate of return), low (profit-investment ratio), and highly regressive fiscal terms. The (Gulf of Mexico) shelf appears to be least favorable to investors among the U.S. jurisdictions, ranking in the top 10 percent, with Wyoming gas and the GOM deep water ranking in the top 35–50 percent range.

Hayward:

IHS-CERA’s conclusion is that when compared properly with the royalty and tax systems of 29 other nations, only Venezuela extracts a higher take from oil and gas production than the United States. Nice company we’re in.

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