Why Is Karoon Energy (KAR) Falling Today?

By Jason McIntosh | 21 January 2025

Karoon Energy Ltd (ASX: KAR) shares dropped 5.7% to $1.41 following disappointing news about the Who Dat West exploration well in the US Gulf of Mexico. The announcement has added to the challenges faced by the company, whose share price has been under pressure for over a year.

Let’s explore the key factors behind today’s decline and the technical outlook for KAR.

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Who Dat West: A Disappointing Outcome

Karoon Energy’s decline follows its announcement of the abandonment of the Who Dat West exploration well, part of a joint venture with US companies LLOG, Westlawn Americas Offshore, and Houston Energy.

Key Details:

• Karoon Energy’s Who Dat West prospect, located in the US Gulf of Mexico, was estimated to hold 77 million barrels of oil equivalent, with Karoon’s share amounting to 21.6 MMboe.
• The well had a 36% geological probability of success but ultimately failed to find any significant hydrocarbon-bearing zones.
• This marks the conclusion of the Who Dat exploration campaign, which had previously yielded positive results at the Who Dat East and South wells.
• Karoon and its joint venture partners will now evaluate development opportunities for the successful discoveries made earlier in the campaign.

This result has dampened investor sentiment, especially given the expectations surrounding the exploration effort.

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Technical Analysis: A Bearish Trend

Karoon Energy’s shares have been under sustained pressure since October 2023, reflecting a structural bear market.

Key Observations:

• Declining Moving Averages: KAR’s share price has remained mostly below its 50- and 100-day moving averages for 14 months. Stocks trading below declining moving averages often face downward momentum, making them less attractive to professional investors.
• Bear Market Rally: While prices have rallied off the December low, this rebound fits the description of a bear market rally. Such rallies often attract buyers hoping for a recovery, only for prices to reverse and reach new lows.
• Significant Decline: KAR is down 55% from its October 2023 high, highlighting the prolonged weakness in the stock.

Risk Management Strategies:

• Stop Losses: A stop-loss strategy can help minimize losses and allow investors to exit positions in downtrends earlier.
• Focus on Strong Stocks: Redirecting capital to stocks in uptrends with higher probability setups can improve portfolio performance.

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Key Takeaways for Investors

1. Understand Technical Trends: Stocks trading below declining moving averages are in technical downtrends, where the path of least resistance is typically downward.
2. Manage Risk: Using stop-loss strategies can help protect capital and limit exposure to further declines.
3. Be Cautious with Bear Market Rallies: These rallies can be deceptive, drawing investors in before resuming the downtrend.

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Conclusion

Karoon Energy’s disappointing drilling outcome and ongoing technical weakness highlight the importance of disciplined investing. While the Who Dat campaign has had earlier successes, the abandonment of the Who Dat West well raises concerns about future prospects. With the stock in a clear downtrend, adopting risk management strategies, such as stop-losses and focusing on stronger setups, can help investors navigate these challenges.

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Jason McIntosh | Founder, Motion Trader

Jason’s professional trading career began over 3 decades ago. He’s a founder of two stock advisory firms, a listed funds management business, and has helped thousands of investors navigate the stock market. Click here to read Jason’s incredible story of, at age 20, sitting alongside some of the world’s greatest traders (and the life changing experience that came with that).