Karoon unlocks a leaner path for Neon offshore Brazil

Neon advances after a lower-capital redesign

Karoon Energy Ltd (ASX:KAR) has moved its Neon offshore Brazil project into FEED after reshaping the development around lower upfront capital exposure. Phase 1 development costs are now estimated at US$800-950 million on a 100% project basis, including contingency, compared with the US$900 million to US$1.2 billion range outlined in April 2025.

The revised concept uses a phased well plan, with three subsea production wells and one gas injection well in the initial phase, down from four production wells previously. Karoon’s internal mid-case assessment points to approximately 60 MMbbl of recoverable oil from Phase 1, a portion of Neon’s 90.3 MMbbl of 2C Contingent Resources. The move follows the company’s earlier indication that a Neon FEED decision was expected in the fourth quarter of 2026.

TechnipFMC and Piranema Spirit anchor execution plan

Karoon has signed a subsea Engineering, Procurement, Construction and Installation memorandum of understanding with TechnipFMC to develop the technical scope and execution strategy. It has also agreed an exclusivity arrangement with Altera Infrastructure covering the Piranema Spirit FPSO through the targeted Neon FID.

The agreement gives Karoon an exclusive right to transact on the vessel while it assesses modifications, life-extension work and refurbishment costs. Current planning assumes the FPSO could support nameplate production of 25,000-30,000 barrels of oil a day if selected and redeployed, although the vessel choice and associated works remain part of the development process.

Preliminary economics point to mid-20% returns

Karoon estimates that Phase 1 could deliver a post-tax, unlevered IRR in the mid-20% range, with payback in less than two years after first oil. Those figures use a long-term Brent assumption of US$73.50 a barrel in 2026 real terms, exclude future development phases and farm-down proceeds, and remain preliminary pending further refinement during FEED.

The company says its downside case remains NPV-positive at a 12% discount rate using US$60 a barrel Brent in 2026 real terms. A leased FPSO option will also be assessed; that approach could reduce upfront capital spending but would bring higher ongoing operating costs.

Farm-down remains a condition for FID

Karoon plans to restart a process to sell a 30-50% interest in Neon by the end of 2026. The company says bringing in a partner would share development risk and capital requirements, but the terms of any transaction and Karoon’s retained exposure will form part of the eventual investment decision.

FEED is expected to cost approximately US$25 million and will focus on binding supplier bids, drilling-rig and long-lead-item engagement, operating plans, potential logistics synergies with the Baúna project and the marketing strategy. Karoon is targeting FID in the second half of 2027 and first oil in 2030, subject to technical maturity, economics and acceptable farm-down terms.

Future resources remain outside the initial case

Neon’s wider resource base gives the project a possible expansion path, but those barrels are not included in the Phase 1 economics. Karoon’s resource table lists 2C Contingent Resources of 90.3 MMbbl at Neon, alongside 19.6 MMbbl at Piracucá and 27.0 MMbbl at Goiá. Neon West also carries 25.0 MMbbl of unrisked 2U Prospective Resources, with a stated 45% probability of success.

Any later development would require separate technical evaluations, FEED and investment decisions. The immediate test is narrower: whether FEED can turn the revised concept into firm costs and a financeable execution plan, while the farm-down process determines how much of Neon’s capital burden Karoon ultimately retains.