The Motley Fool

Karoon Gas Australia Limited: Like buying a lottery ticket

Back in March this year, we noted that 8 out of 9 broker analysts still thought Karoon Gas Australia Ltd (ASX: KAR) was a ‘buy’, despite the share price plunging 63% since their high of $6.69 around a year ago.

The share price is down 2% since that article, and the oil and gas explorer is again in a trading halt, pending ‘the release of a material announcement in relation to the Company’s funding position.’

More than likely this means the company is likely to be seeking more funds, either from its bankers, or investors.

Not much has gone right for the company over the past few years. Wells have turned out dry and the company has been unable to find potential partners to help fund its exploration program in the Browse and Carnarvon Basins in Western Australia, the Santos Basin in Brazil and the Tumbes Basin in Peru.

Karoon is also reported to have hired an investment bank to manage a farm-out process over a block in the Tumbes Basin.

Despite the bad luck, Karoon’s estimated oil and gas resource stands at a whopping 4.2 billion barrels of oil, while its gas resources in the Browse Basin are estimated at around 4.5 trillion cubic feet of gas.

As we noted in the March article, Karoon has yet to earn one dollar of operating revenue since listing in June 2004 – close to 10 years – despite raising more than $600 million in equity from investors over that time. And investors could be asked to put their hands in their pockets again.

You can see why an investment in Karoon now would be pure speculation. Given the company’s track record, there’s a distinct possibility that the share price in ten years’ time could be lower than today’s.

Foolish takeaway

Of course, it could only take one hugely successful well to see the share price take off. But that’s akin to saying I may win Lotto. Better bets in the oil and gas space include Woodside Petroleum Limited (ASX: WPL), Santos Limited (ASX: STO), Oil Search Limited (ASX: OSH) and Drillsearch Energy Limited (ASX: DLS).

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Motley Fool writer/analyst Mike King owns shares in Santos. You can follow Mike on Twitter @TMFKinga