Why is this ASX 200 energy stock crashing 8% today?

Why are investors hitting the sell button on Friday?

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The Karoon Energy Ltd (ASX: KAR) share price is having a tough finish to the week.

In morning trade, the ASX 200 energy stock is down 8% to $2.03

Why is this ASX 200 energy stock crashing?

Investors have been heading to the exits on Friday after the energy producer released its quarterly update.

According to the release, total production for the quarter on a net working interest (NWI) basis was 3.11 MMboe. This represents an 18% increase on the previous quarter and was driven by a full period of production from the acquired Who Dat assets.

On a net revenue interest (NRI) basis for Baúna and Who Dat, the ASX 200 energy stock's total production was 2.94 MMboe.

Sales revenue (NRI) for the quarter came in at US$196.6 million. This reflects total sales volumes of 2.74 MMboe.

Why the selling?

While this update may look decent on paper, it was actually below expectations. So much so, that management has been forced to downgrade its guidance for FY 2024.

The release reveals that Karoon Energy's production in FY 2024 is now expected to be between 10.5 MMboe and 12.5 MMboe. This compares to its previous guidance of 11.2 MMboe to 13.5 MMboe.

Management blamed the guidance downgrade on the Who Dat operation. It advised that this reflects lower-than-expected deliverability and oil production being prioritised over gas.

Commenting on the downgrade, the ASX 200 energy stock's CEO and managing director, Dr Julian Fowles, said:

Production on an NRI basis for Who Dat in the quarter was lower than forecast, at 0.78MMboe. This was primarily due to delays in bringing the G2 and G4 wells online, lower well productivity than anticipated and bottlenecks in the G-manifold subsea production system. In addition, production from high-rate gas wells has been curtailed to prioritise oil production in the current low gas price environment, with the US Henry Hub gas price at its lowest level in more than 25 years. In the March 2024 quarter, oil, condensate and NGLs comprised 68% of production, compared to approximately 60% anticipated.

Outlook

Looking ahead, Dr Fowles highlights that the company has a couple of key development projects in the works. He adds:

During the quarter, the Board approved the progression of the Neon Foundation Project into the 'Concept Select' phase (Decision Gate 1), following the identification of two potentially viable development concepts.

The next phase will include further studies on the potential development options and additional work on the two major challenges for the project, being a sub-economic scenario for the low side resource volume outcome and the impact of increasing market contractor rates and development costs. These studies are expected to be completed in early CY25, at which time a decision (Decision Gate 2) will be made whether to move into the next phase of project maturation, the 'Define' phase. Karoon will also continue evaluating the Neon West prospect, which is located two kilometres west of the Neon field, for potential drilling in late CY25.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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