Karoon Energy buying Brazilian FPSO that broke down last year for US$115M

What do you do when two anchor chains on your Brazilian FPSO rented to you by another company fail and impact oil production? You buy the FPSO, apparently, if you’re Karoon Energy (ASX:KAR).

For US$115M, the company is buying the FPSO – called Cidade de Itajaí – from offshore service heavyweight Altera & Ocyan.

These talks have been progressing for a while. While Karoon suffered through a 12 day shutdown last year following the anchor failings, it still clocked record production.

And that record production appears to be worth the cost of buying the FPSO outright and handling repairs and maintenance themselves. To be fair, FPSOs are in perhaps the harshest operating environment on Earth and frequently subject to tempests.

They break pretty often. Just think of Shell’s Prelude. It’s also true they take a lot of time and money to build, and so Karoon is either looking at taking on the FPSO itself, or somehow getting another one – which would leave its 100% owned Brazilian Bauna project which it services stranded.

Talk about a rock and a hard place.

At any rate, if the decision is being taken badly by shareholders, it’s not evident in Karoon’s share price on Thursday. Shares jumped nearly 5% in the second hour of trades to just shy of $1.50/sh.

“Karoon intends to contract a new O&M contractor to operate and maintain the FPSO on its behalf, while [Karoon] will take over the overall ownership and strategic optimisation plans for the FPSO,” the company wrote.

“The acquisition is expected to be funded from existing cash on hand, subject to timing of closing and near term cashflow. A deposit of US$30 million has been paid into an escrow account and the balance is payable on closing.”

KAR last traded at $1.46/sh.

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