Why Karoon Gas Australia Limited skyrocketed today

Karoon sells off its share of Browse Basin permits to Origin Energy

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Oil and gas explorer Karoon Gas Australia Limited (ASX: KAR) has handed shareholders winning lottery tickets, with the company’s shares soaring more than 60% in early trade, hitting the $4 mark.

Karoon has announced a deal with Origin Energy Limited (ASX: ORG) that could be worth as much as US$800 million. The company has sold its 40% interest in two Browse Basin exploration permits, with Karoon to receive US$600 million up front in cash, and a number of conditional deferred payments following that, worth up to US$200 million.

But shareholders are unlikely to see much, if any, of the cash, with Karoon chairman Robert Hosking earmarking the funds to be spent on further exploration and appraisal drilling in the Santos, Carnarvon and Tumbes Basins. “Upon receipt of proceeds, Karoon will be in apposition to advance the Kangaroo oil discovery toward development, pending a successful outcome from the Kangaroo-2 appraisal well”, he said.

For its part, Origin obviously sees plenty of value in Karoon’s Browse permits. The offshore Western Australia region has been a prolific hunting ground for large oil and gas deposits, with a number of LNG projects under-development, including Woodside Petroleum Limited’s (ASX: WPL) Browse LNG and Chevron’s Gorgon and Wheatstone LNG projects. The area also has producing assets such as Woodside’s North-West Shelf LNG and Pluto PLNG operations.

Even BHP Billiton Limited (ASX: BHP) holds oil and gas assets offshore Western Australia, including the Macedon gas plant, and is contemplating using floating LNG technology to develop the Exxon-led Scarborough gas field in the region.

Karoon shareholders will be hoping the cash influx will finally lead to Karoon finally emerging as a significant oil and gas producer. It’s been a long wait, with the company yet to report $1 dollar of operating revenues, despite being listed for 10 years.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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