Karoon changes terms for Brazilian oilfield acquisition

Australia’s Karoon Gas has executed a binding agreement to amend the sale and purchase agreement (SPA) to acquire a 100 per cent operating interest in the Baúna field located offshore Brazil.

Karoon presented the high bid in the process to acquire Petrobras’ 100% operating interest in concession BM-S-40, which contains the producing Bauna light oil project, in July 2019.

The transaction amount was $665 million, to be paid in two instalments: $49.9 million upon contract signature; and $615.1 million, before adjustments, on the closing date.

However, Karoon has now negotiated and agreed on a revised transaction to acquire the producing Baúna oil field.

In a statement on Monday, Karoon said that the amendments to the SPA split the previously announced “headline” $665 million consideration into $380 million of “firm” consideration and $285 million of “contingent” consideration.

The revised purchase price will now comprise $380 million “firm” consideration payable by way of $150 million payable on closing of the transaction; closing adjustment offset, comprising the operating and investing cashflows in the period from the transaction effective date up to the closing date, the deposit (paid at SPA execution in July 2019), along with interest payable on firm consideration; and, deferred “firm” consideration payable 18 months after closing (equal to $380 million less the closing adjustment, less $150 million payable on closing).

The revised purchase price will also comprise up to, in aggregate, $285 million (plus interest at 2% per annum) of contingent consideration payable based on the average annual daily Platts Dated Brent oil price (based on thresholds between ≥$50 per barrel and ≥$70 per barrel) in respect of calendar years 2022 to 2026 (inclusive); and an additional $50 million in the event the average Brent oil price exceeds $100/bbl in 2020 (which remains in place from the original SPA).

The firm and contingent consideration payable is expected to be funded from Karoon’s existing cash and organic cash flows from the asset.

According to Karoon, the amended terms simplify and significantly de‐risk the transaction.

The amendments preserve Karoon’s financial position, enabling it to set about the immediate workover of Baúna’s underutilised production infrastructure and thereby materially boost production, unencumbered by debt or onerous payment terms.

Robert Hosking, Karoon’s Managing Director said: “Karoon has assessed several opportunities as part of its broad-ranging strategic review and this revised deal for Baúna has proven the best outcome for shareholders on an overall valuation and returns basis”.

The Baúna field consists of two producing oil reservoirs, Baúna and Piracaba (2P producing reserves of 46.8 MMbbl5 ), which are both tied back to the leased FPSO Cidade de Itajai, and the existing undeveloped Patola discovery (2C contingent resources of 15.6 MMbbl6 ), the development of which remains a priority for Karoon.

Karoon now expects to complete the transaction in the third quarter of 2020.