Karoon Cuts Brazil Neon Oil Project Cost Estimate to $800M-$950M

Australian oil and gas producer Karoon Energy has advanced its Neon offshore oil project in Brazil to front-end engineering design (FEED), unveiling a revised development plan that reduces estimated capital expenditure and targets first oil in 2030.

The company now estimates Phase 1 development costs of $800 million to $950 million, including contingency, compared with its previous forecast of $900 million to $1.2 billion in April 2025. The revised figures represent the total project cost before any potential reduction in Karoon’s ownership interest.

Located in the Santos Basin, approximately 75 kilometers northeast of Karoon’s Baúna project, Neon is being developed using a phased approach designed to limit upfront investment and reduce subsurface risks.

The initial development will involve three subsea production wells and one gas injection well, compared with four production wells under the previous plan.

Karoon estimates that Phase 1 could recover approximately 60 million barrels of oil, representing part of Neon’s 90.3 million barrels of 2C contingent resources. The development is targeting peak production of 25,000 to 30,000 barrels per day, subject to project execution and reservoir performance.

As part of the revised development strategy, Karoon has signed a memorandum of understanding with TechnipFMC to advance subsea engineering and execution planning.

The company has also reached an exclusivity agreement with Altera Infrastructure concerning the potential redeployment of the Piranema Spirit floating production, storage and offloading vessel (FPSO).

The preliminary development cost estimate assumes the FPSO would be purchased and refurbished. However, Karoon will also assess a leasing alternative during FEED, potentially lowering upfront capital requirements in exchange for higher operating costs.

The revised project follows a reassessment launched in late 2025 after declining oil prices and a substantial increase in the estimated cost of the previously preferred FPSO prompted Karoon to reconsider its development strategy.

Under the latest economic assumptions, Neon Phase 1 could generate a post-tax, unlevered internal rate of return in the mid-20% range, based on a long-term Brent crude price of $73.50 per barrel in 2026 real terms.

Karoon also estimates a capital payback period of less than two years after production begins. Its downside scenario, based on Brent at $60 per barrel, remains net-present-value positive using a 12% discount rate.

The company plans to restart its farm-down process before the end of 2026, seeking a partner to acquire a 30% to 50% interest in Neon.

Securing a suitable partner on acceptable terms is a prerequisite for the project’s final investment decision, which Karoon is targeting for the second half of 2027.

Approximately $25 million is expected to be spent on FEED, including further engineering, obtaining binding supplier bids and refining the development’s commercial strategy.

Beyond the initial development, Karoon has identified potential expansion opportunities involving additional Neon resources and nearby discoveries and prospects, including Piracucá, Goiá and Neon West. Those opportunities would require separate evaluations and investment approvals.

The revised project could strengthen Karoon’s long-term production outlook in Brazil, although the 2030 startup target remains dependent on securing a development partner, completing engineering and approving the investment.

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