Karoon Energy Ltd (ASX: KAR) shares are taking a hit on Monday morning, and investors have another setback to digest.
The oil and gas producer's shares are currently down 12.04% to $1.57, after finishing Friday's session at $1.785.
It's another frustrating development for shareholders, particularly after the stock had started to recover some ground over the past month.
So, what's happened this time?
Image source: Getty Images
Why are Karoon shares crashing 12%?
In its announcement, Karoon revealed another operational setback at its Bauna oil project offshore Brazil.
The company identified an electrical fault at its SPS-92 well on 21 September, shutting down production the following day to investigate.
It turns out that one of the three electrical phases supplying power to the well's downhole pump was faulty.
Production has since resumed using the remaining two phases, although the pump is operating at reduced capacity.
Unfortunately, getting the well back to full production won't be a quick fix.
Karoon will need a drilling rig to replace the faulty cable system and is already working to secure the necessary permits and services.
Until then, it's expecting to lose around 3,500 barrels of oil per day.
And with production taking another hit, Karoon has had to lower its expectations for the year.
The company now expects Bauna to produce between 5.4 million and 5.7 million barrels in 2026, down from 6 million to 6.7 million barrels previously.
Who Dat guidance remains unchanged. Karoon now expects total production of 6.6 to 7.2 million barrels of oil equivalent in 2026.
That's compared with its previous forecast of 7.2 to 8.2 million barrels.
Unit production costs are also expected to increase from US$12 to US$15 to US$15 to US$16 per barrel.
What about the financial impact?
The good news is that Karoon is expecting its insurance to cover much of the financial damage.
The company anticipates to recover almost all lost production revenue and repair costs, subject to the terms of its insurance policies.
However, the cause of the failure remains under investigation. This means it's still unclear when any insurance payments will be received.
CEO Carri Lockhart said the fault was disappointing, particularly as the new pump and cable system has been operating for less than 3 months.
Management is now focused on restoring SPS-92 to full production while also looking to increase production from Bauna's other wells.
Foolish takeaway
I think today's announcement adds to Karoon's challenges, especially with the company already dealing with production issues at Who Dat.
The question now is how long it will take to complete the repairs and get production back on track.
I'll be watching next month's quarterly update for details on when Karoon expects to restore full production.
