Here’s why the Karoon Energy (ASX:KAR) share price is up 22% this week

Karoon Energy Ltd (ASX: KAR) shares are up 8% in afternoon trading today, bringing the the company’s share price gains for this week to nearly 22%.

The string of daily gains this week follow Karoon’s ASX announcement on Monday, updating investors on its Baúna oil field acquisition in the Santos Basin off the coast of Brazil.

This week’s big gains in the Karoon share price will come as welcome news to the company’s shareholders.

It certainly hasn’t been an easy year for companies involved in the oil and gas business. To give you just one benchmark, Brent crude oil (as priced in US dollars) tumbled 72% from early January through to mid-March this year as the pandemic dried up demand. Despite doubling since then, to today’s price of US$42.10 per barrel, Brent crude is still down 39% since 6 January.

Crashing energy prices were clearly mirrored in the Karoon share price, which fell 74% from 21 February through to 19 March. Despite this week’s big gains, Karoon shares remain down more than 25% year to date.

For comparison, the S&P/ASX 300 Index (ASX: XKO) is down 8% since 2 January.

What does Karoon Energy do?

Karoon Energy is an international oil and gas explorer headquartered in Melbourne. The company has projects in Australia, Brazil and Peru. Karoon was founded as an exploration company but is transforming into a global energy producer.

The Karoon share price first began trading on the ASX in June 2004. Since then, its market capitalisation has grown from $8 million to $469 million.

What’s moving the Karoon share price?

On Monday, Karoon announced a promising update to its Baúna oil field acquisition. The company first announced the signing of a binding sale and purchase agreement (SPA) for the oil field in July 2019, stating the acquisition “moves Karoon directly into production, marking a new phase in Karoon’s history”. The effective date of the transaction was 1 January 2019.

Monday’s announcement reiterated that certain remaining conditions need to be met to complete the transaction. These include: “outstanding third party/regulatory conditions precedent: (i) Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (“ANP”) approval, and (ii) FPSO charter assignment”.

Karoon reported significant progress on the ANP approval, citing only minor administrative issues remain.

The company also reported progress with the FPSO charter assignment, and expects that to be ready for execution once the ANP approval is received. Karoon forecasts the transaction will be complete in the latter half of October 2020 and is preparing to market its first Baúna cargo.

Judging by this week’s action on the Karoon share price, if the company is able to announce it’s successfully completed all the remaining conditions for the transaction by the end of this month, shares could move considerably higher.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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