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Why this ASX energy share is sinking lower on Monday

oil rig, mining, resources

One of the worst performers on the All Ordinaries index on Monday has been the Karoon Energy Ltd (ASX: KAR) share price.

In afternoon trade the oil and gas company’s shares are down over 5% to $1.06.

Why is the Karoon Energy share price sinking lower?

Investors have been selling the energy company’s shares after it provided an update on drilling activities in Peru.

According to the release, the Marina‐1 exploration well in Block Z‐38 Tumbes Basin has now been drilled down to a depth of 3021mm near the top of the Cardalitos Formation.

Unfortunately, the results from the drilling have been very disappointing. Mudlogging and LWD logging results from the primary targets in the Tumbes Formation indicated that the well encountered thin water bearing sands with no oil and only minor gas shows.

In light of this, final logging is now being completed and the Marina‐1 well is to be plugged and abandoned.

The Marina‐1 well had provided a large amount of valuable data on the geological setting for this region of the Tumbes Basin. However, the several potential reservoir sequences that were encountered in the well, were water wet and provide no prospectivity at this location. 

The well results will now be thoroughly analysed, but no further drilling is planned in Block Z38 in this campaign.

One positive, was that operationally the well has progressed to plan. It was on time and within budget, with no safety or environmental incidents.

Karoon Energy will now focus on its primary objective of completing the Baúna acquisition and delivering on its growth aspirations in Brazil.

Investors will no doubt be hoping that these opportunities are much more successful and help put its share price on a positive trajectory. Over the last five years the trend has been overwhelmingly down for its shares. They have fallen from $2.53 in January 2015 to $1.06 today.

As a comparison, over the same period the Beach Energy Ltd (ASX: BPT) share price has almost doubled from $1.11 to $2.16.

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Returns as of 6th October 2020

Motley Fool contributor James Mickleboro 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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