Why Macquarie is eyeing off these three energy stocks with entry-level prices

Tue 07 Feb 23, 2:59pm (AEST)
A row of gas storage tanks are photographed in an unknown location
Source: iStock

Key Points

  • Macquarie Bank has outlined which small-to-midcap energy companies it is most bullish on ahead of quarterly reporting season
  • Macquarie analysts have a preference for Karoon (Brazil) and Tamboran (NT)
  • It remains neutral on Beach Energy, but sees “surprise potential”

Macquarie Research highlighted its preference for three companies in its research note on Australian small and mid-cap (SMID) energy producers on Tuesday.

These companies were:

Karoon Energy 

Macquarie Bank has given Karoon a price target of $3.05, indicating a 37% return for investors. 

As at 1405 AEST Tuesday 7 February 2023, KAR’s share price sits at $2.24.

Later this quarter (1Q 2023), Karoon will post results of the first flowtests to be carried out at its Patola well offshore the coast of Brazil. 

The Patola well is named after the oilfield in which it is situated. The company made a positive Final Investment Decision (FID) on the project in the second year of COVID. 

The asset is well developed: it was completed by a Maersk offshore drillship and is currently being tied-in to a nearby Floating Production Storage and Offloading (FPSO) platform.

If successful, Karoon expects Patola to give it another 10,000 barrels of oil per day (bpd) production. The company is also appraising another offshore asset, Neon.

“First oil from the Patola wells (late 1Q-23) and Neon appraisal results (first well drilling ahead) are major catalysts,” Macquarie analysts wrote. 

“We expect the stock can re-rate on: (i) Strong initial rates at Patola (ie, 12kbpd+) and (ii) confirmation of Neon’s reservoir viability which should see the market ascribe greater value to the discovery.” 

Karoon's one year charts
Karoon's one year charts

Tamboran Resources 

Macquarie Bank has given Tamboran a price target of $0.35, indicating a 46% return for investors. 

As at 1405 AEST Tuesday 7 February 2023, TBN’s share price sits at $0.24.

Tamboran is soon to post initial flowtest results from its first horizontal well, Amungee-2H. Tamboran first confirmed it hit gas on-site in late December

The asset is located in the Northern Territory’s (NT) Beetaloo Basin. Market Index has previously covered Macquarie’s bullish stance on Tamboran due to its premium location in this natural gas hotspot of growing international attention. 

Results from Amungee-2H are due sometime between March and April. 

“Flow rates from TBN’s first operated horizontal well, Amungee-2H, are expected Mar/Apr and should further advance the Beetaloo basin,” Macquarie analysts wrote. 

“We are optimistic TBN can deliver over 5 million square cubic feet of gas per day.” 

Tamboran's one year charts
Tamboran's one year charts

Beach Energy 

Macquarie Bank retains a price target of $1.50 for Beach Energy, which actually indicates a downard return for investors of -3%

As at 1405 AEST Tuesday 7 February 2023, BPT’s share price sits at $1.58. 

However, the bank is closely watching Beach Energy for “surprise potential.” 

On Monday, Beach confirmed it is still set to produce first gas from its Perth Basin Waitsia asset as Italian construction giant Webuild snatched up the project from Perth-based construction heavyweight Clough, which went into administration last year. 

Macquarie is paying attention, noting that risks around Waitsia have eased. However, the company now faces capex up to $100m higher than earlier forecasts predicted, as well as a blown out schedule. 

Still, late 2023 is better than 2024. 

“Capital management policy and dividend will also be items to watch for BPT,” Macquarie analysts wrote on Tuesday. 

“We recently factored in a lift to interim dividend with our expectation that the Board utilises BPT’s strong liquidity of $609m to improve shareholder returns in the short term while BPT works to bring Waitsia online by end-2023.” 

With that said: Macquarie still expects Beach to downgrade its FY24 gas production target. 

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Written By

Jonathon Davidson

Finance Writer

Jonathon is a journalism graduate and avid market watcher with exposure to governance, NGO and mining environments. He was most recently hired as an oil and gas specialist for a trade publication.

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