Investors on Thursday lost patience with Karoon Gas Australia Ltd. (KAR.AU) and its string of tepid drilling results, dumping the company's shares after it reported weak gas flow rates from a key appraisal well.

Analysts and market watchers, though, said the initial 30% fall in Karoon shares was overdone and by 0020 GMT they had recovered to be down 14% at A$5.75.

Share prices of companies without producing assets that are relying on the results of exploration campaigns are especially vulnerable to any perceived negativity in drilling results.

So far, Karoon and its joint venture partner ConocoPhillips (COP) have drilled three wells in the Browse Basin offshore Western Australia state, and on all three occasions the results have been mixed or poor.

The first well, Poseidon-1, last year struck a 200 meter gas column, putting a rocket under Karoon's shares, but gas flow testing couldn't be completed because two measuring tools got stuck in the drill hole.

The second well, Kontiki-1, didn't find much and was written off as a miss.

In a promising sign, the third well, Poseidon-2, penetrated the same three gas-bearing sand intervals in the Plover geological formation struck 6 kilometers away at Poseidon-1. It also penetrated the higher Montara formation in a surprising development.

In an eagerly awaited update, Karoon said late Wednesday that flow testing from the lower porosity middle, or B, interval at Poseidon-2 indicated gas flows at 850 standard cubic feet per day. Unfortunately that isn't a particularly inspiring flow rate.

Karoon said higher flow rates would probably be achievable from the other two intervals, considering that the B interval contains lower porosity sand.

Macquarie analysts again noted Thursday that the Poseidon-2 well was a risky play because it was attempting to test the outer limits of the Plover formation.

Karoon confirmed that it wasn't anticipating fantastic flow rates from Poseidon-2 anyway. "Positioning of the well 6 kilometers from Poseidon-1 in a down-dip setting was considered risky with respect to obtaining high gas flows, but information from down-dip positions on the field is critically important for optimal field appraisal," Karoon said.

Importantly, the company said the latest test results were unlikely to materially impact an early-stage contingent resource estimate for the Poseidon field of 7 trillion cubic feet of gas. At least 4 tcf is needed to support the construction of an onshore liquefied natural gas terminal.

Macquarie's energy analysts said 7 tcf is "looking increasingly aspirational".

"This is a potential problem as the commerciality threshold is high in the Browse Basin and any significant cut from 7 tcf could rule Poseidon uncommercial as a standalone project," Macquarie said.

With the market's patience tested, Macquarie said pressure is building on the next scheduled well in the campaign, Kronos-1, to be drilled later this year. It has downgraded Karoon shares to Outperform and cut its price target on the stock to A$7.00.

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; ross.kelly@dowjones.com
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