KEY POINTS
- Karoon shares jumped more than 9% after its main oilfield in Brazil returned to full production.
- The bounce follows a painful 12% drop two weeks ago, when a problem in the US Gulf of Mexico forced a guidance cut.
- A new share buyback starting in July suggests management thinks the stock is too cheap.
- We think the recovery is real, but soft oil prices keep this a higher-risk pick.
Karoon Energy (ASX:KAR) shares jumped more than 9% to close at A$1.38 on Monday after the company got its most important oilfield, Baúna in Brazil, back to full production of about 20,500 barrels a day. It is a welcome turnaround. Just two weeks ago, the stock tumbled almost 12% after a problem at one of its US wells forced it to cut production guidance for the year. Today’s update tells investors the worst of the operational trouble may now be behind it, even if a few clouds remain.
Why Karoon Energy Shares Are Bouncing Back
The reason for the bounce is simple: Baúna is working properly again. The field had been through a long maintenance shutdown earlier in the year, and production had only been creeping back slowly. Those last repairs were not entirely smooth, slowed by mechanical problems and bad weather, but they are now finished, and output has climbed back to full speed.
This matters more than it might sound. Baúna is where Karoon makes most of its money. The company sells its oil at the going market price and locks in very little in advance to soften a fall. So when the field runs at full tilt, cash comes in quickly. After weeks of bad news, this is exactly the proof investors were hoping for that the worst is behind the company.
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A Fresh Buyback Hints at Confidence
There was a second piece of good news. Karoon is about to start a new round of buying back its own shares in July. When a company buys back stock, it shrinks the number of shares on the market, which can support the price and lift earnings for everyone still holding.
But the bigger message is about confidence. Management has said more than once that it believes the shares are worth more than the market is paying. Choosing to buy them back right after a heavy sell-off is a clear way of putting its money where its mouth is.
Karoon is also a low-cost producer that, like most oil companies, earns in US dollars even though its shares trade in Australian dollars. That low-cost base keeps it profitable even when oil prices are soft.
Buy the Recovery or Wait?
So is it time to buy? In our view, the recovery is real, but it is not without risk. The US, well behind the recent guidance cut, will not be back until the second half of 2027, so this year’s story rests mainly on Brazil. Oil prices have also eased as Middle East tensions cool, and because Karoon locks in very little of its price ahead of time, a weaker oil price feeds straight through to profits.
For investors happy to take on some risk for direct oil exposure on the ASX, the mix of restored production and a fresh buyback makes Karoon look more appealing than it did a month ago. It also helps that the shares still sit well below last year’s highs and pay a dividend yield of around 4%, giving patient investors a little income while they wait.
More cautious investors might prefer to wait for the next quarterly update to be sure the field keeps running smoothly before adding to a position. Either way, the things to watch are simple: steady output from Baúna, the buyback in action, and where the oil price finally settles.
