Karoon Energy Limited (ASX: KAR) is an Australia-based oil and gas exploration and production company with a primary focus on offshore assets in Brazil and the Gulf of Mexico. Its flagship Baúna project, located in Brazil’s Santos Basin, forms the core of its production operations, while the recently acquired Who Dat assets in the Gulf of Mexico offer additional upside and diversification. Despite delivering record revenue and production volumes in 2024, Karoon continues to face operational headwinds, including unplanned shutdowns and adverse weather impacts.

Karoon also operates the Neon oil development project in Brazil, which is undergoing planning and investment to unlock further production capacity in the coming years. The company has focused on optimising its asset base through infrastructure upgrades, wellfield developments, and exploration that meets strict investment criteria. Operations are supported by a commitment to safety and environmental management, with an emphasis on reliability, uptime, and cost control. Karoon’s operational strategy is centred on maximising production from existing assets while advancing high-value, near-term development opportunities across its portfolio.

Strategic Capital Allocation and Share Buyback Initiatives

Karoon Energy has recently intensified its capital management initiatives, unveiling a comprehensive share buyback program aimed at enhancing shareholder value and signalling confidence in its financial health. This move comes amid operational challenges and investor scrutiny, positioning the company at a pivotal juncture in its strategic evolution.

In early 2025, Karoon announced an ambitious plan to repurchase up to US$75 million worth of its own shares on the open market throughout the calendar year.

This initiative supplements an existing US$25 million buyback program initiated in July 2024, culminating in a total planned investment of US$125 million in share repurchases over an 18-month period ending December 2025 .

The first phase of this buyback, approved in March 2025, involves the repurchase of approximately 20.8 million shares, valued at around US$22 million . To complete the remaining US$53 million of the buyback, Karoon intends to seek shareholder approval at its Annual General Meeting scheduled for May 22, 2025.

Karoon’s Board has articulated that these buybacks are a reflection of the company’s belief that its shares are significantly undervalued. By reducing the number of outstanding shares, the company aims to enhance earnings per share and provide a more favourable return on equity for investors.

Financial Performance and Operational Highlights

Karoon’s financial results for the year ending December 31, 2024, underscore its robust operational performance. The company reported a record sales revenue of US$776.5 million, marking a 14% increase from the previous year . This growth was primarily driven by a full year of production from the Who Dat assets, acquired in late 2023, which offset lower revenue from the Baúna Project.

Total production for 2024 reached 10.4 million barrels of oil equivalent (MMboe), with fourth-quarter sales volumes of 3.14 MMboe, a 53% increase from the third quarter. This surge was attributed to the timing of liftings at the Baúna field in Brazil.

Despite these positive indicators, Karoon faced operational challenges in the fourth quarter, including a 12-day shutdown to repair anchor chains at the Baúna floating production storage and offloading (FPSO) facility and disruptions due to an active hurricane season in the Gulf of Mexico. These issues contributed to a 3% quarter-on-quarter decline in production.

Financially, the company ended the year with net debt of less than US$10 million and liquidity of US$681 million, reflecting a strong balance sheet . Karoon also reported an underlying net profit after tax (NPAT) of US$214 million, a 3% increase compared to 2023.

Investor Outlook and Market Response

The market’s reaction to Karoon’s buyback announcement was initially positive, with shares rising by nearly 8% following the news . However, this enthusiasm was tempered by ongoing investor concerns regarding the company’s capital allocation strategy. Activist shareholders, including Sandon Capital and Samuel Terry Asset Management, have been vocal in their demands for increased dividend payouts and a clearer focus on shareholder returns, especially in light of past acquisitions that diluted share value.

In response, Karoon has formalised a capital returns policy aiming to distribute 20-40% of underlying NPAT to shareholders through dividends and/or buybacks, subject to market conditions and Board approval . This policy is designed to balance the company’s growth objectives with the need to provide consistent returns to shareholders.

Support has been expressed for this balanced approach, suggesting that a 30% payout ratio would yield a 5-6% return for investors while allowing sufficient capital for ongoing development projects like the Neon oil field.

Karoon Energy’s strategic implementation of a substantial share buyback program, coupled with a formalised capital returns policy, represents a concerted effort to enhance shareholder value and address investor concerns.

While operational challenges persist, the company’s strong financial performance and commitment to returning capital position it favourably for sustained growth and investor confidence.