• 2024 second quarter production was 2.14 MMboe on a Net Revenue Interest basis (NRI), 27% lower than the prior quarter, largely due to the scheduled three week maintenance outage at Baúna.
• Sales revenue (NRI basis) for the quarter rose 8% to US$212.8 million, based on sales volumes of 2.73 MMboe, which was higher than production primarily due to the timing of Baúna liftings.
• Karoon’s capital returns policy has been finalised. The policy comprises paying 20-40% of underlying Net Profit after Tax (NPAT) to shareholders by way of a dividend and/or share buyback, subject to market conditions and Board approval. The policy will be applied from the 2024 half year results.
• In addition, given the Board considers that Karoon’s current share price does not accurately reflect the underlying value of the Company’s assets, it has launched a US$25 million share buyback. The buyback represents an opportunity to add value to the remaining shares on issue.
• Due to ongoing delays in receiving regulatory approvals and finalising contracts, there is a risk that the SPS-88 well intervention will not take place in the third quarter of 2024, although Karoon continues to work to enable the activity to take place as soon as possible.
• The Who Dat East well was drilled during the quarter and discovered hydrocarbons with a total aggregate net pay thickness of 45 metres measured depth. The well was suspended as a potential future producer, pending further evaluation.
• Subject to receipt of regulatory approvals and the drillship remaining on schedule, the Who Dat South exploration well is expected to commence drilling in the third quarter of 2024.
• Two recordable personal safety incidents were reported during the quarter (one Lost Time Injury and one medical treatment case), as well as a Tier 2 Process Safety Event.
• CY24 production and costs remain unchanged. Unit DD&A guidance for CY24 is provided, of US$16 – 17/boe.

Karoon CEO and MD, Dr Julian Fowles, said:
“Karoon’s 2024 second quarter (NRI) production was 27% lower than the first quarter, primarily due to the three week scheduled maintenance shutdown at Baúna. Nonetheless, revenues increased 8% to US$212.8 million, reflecting the timing of shipments in Brazil as well as higher oil price realisations.

The Company’s key focus during the quarter was to safely improve reliability and increase production at Baúna and Who Dat. In Brazil, the FPSO annual maintenance shutdown was completed in June. Following the resumption of production, rates peaked at more than 31,000 barrels of oil per day (bopd), declining to approximately 27,000 bopd by the end of the quarter. A heightened level of maintenance activity will continue over the balance of 2024 and into 2025, to support the ongoing integrity and reliability of the FPSO. This will impact production rates periodically as systems are taken off-line for maintenance.

Unfortunately, a Lost Time Injury and a Medical Treatment Case occurred during the quarter, the first reportable injuries at Baúna in more than 18 months. Together with our contractors, additional steps to improve the focus on safety are being taken, as we believe all injuries can be prevented. A Tier 2 process safety event occurred on 1 May, with a gas release from one of the FPSO’s gas compressors which has been taken offline pending inspection and repair.

With the delays to regulatory environmental approvals currently being experienced across the industry in Brazil, it is now unlikely that we shall receive the permits required for the SPS-88 well intervention to take place this quarter, as targeted. We are working to ensure contracts can be finalised in the case of delayed approvals to enable the intervention to still take place this calendar year, but there is a risk of deferral into 2025. If the SPS-88 intervention is delayed to 2025, Baúna 2024 production will likely be in the lower half of current guidance, while 2024 capex would be reduced by US$20-30 million, with SPS-88 expenditures moved into CY25.

In the US Gulf of Mexico, the Who Dat Joint Venture continued to evaluate opportunities for production optimisation. Towards the end of the quarter, gross Who Dat production reached a new high for the year of approximately 43,000 barrels of oil equivalent per day (boepd). The Joint Venture has identified other opportunities that have the potential to improve production performance which, subject to further evaluation, may be implemented over the next six to 18 months.

During the quarter, the Who Dat East exploration/appraisal well was successfully drilled. The results will help us to update the Resources and evaluate the commerciality of a potential Who Dat East tieback development. Any revisions in Resources will be included in the year end 2024 Hydrocarbon Reserves and Resources Statement. The Seadrill West Neptune drillship is now scheduled to spud the Who Dat South exploration well in the third quarter of 2024. The well has been delayed due to Hurricane Beryl and operational complexities on the prior well. Consequently, a short lease extension application will be filed. The well will test a prospect containing an estimated 31 MMboe (gross) of 2U Prospective Resources.

In May, Karoon successfully accessed the US 144A bond market, with an inaugural US$350 million high yield bond issue. The bond lengthens Karoon’s debt maturity profile and supplements our Reserve Based Lending facility, which was fully repaid during the quarter. Importantly, the bond issue gives Karoon access to a new, long term, strategic funding source, at a time when commercial banks are reducing the funding available to E&P companies. Karoon Energy Ltd was assigned a corporate credit rating of “B” with a stable outlook by both S&P Global and Fitch Ratings.

As indicated at our 2024 AGM, Karoon has announced its capital returns policy. Under the new policy, which will be applied from the 2024 half year, we intend to pay 20-40% of NPAT to shareholders by way of a dividend and/or a share buyback, subject to market conditions and Board approval. The Board believes this will provide a good balance between rewarding shareholders and retaining sufficient funds within the business to support ongoing operations and value accretive growth. In addition to the new policy, we have announced the launch of a US$25 million share buyback, based on our view that the current share price does not reflect Karoon’s underlying value.

I look forward to updating the market further at our 2024 first half results briefing next month.”

BAÚNA PROJECT, SANTOS BASIN, BRAZIL
Equity interest: 100%. Operator: Karoon

2024 second quarter production from BM-S-40 (Baúna Project) was 1.38 MMbbl, 36% lower than the first quarter of 2024 primarily due to the three week planned annual shutdown, lower gas compressor reliability and production pipework issues. FPSO efficiency, excluding the planned maintenance shutdown, was 78.3%, compared to 90.7% in the prior quarter. 99% of the work planned for the annual shutdown was completed, as well as several additional scopes of work. Baúna Project production restarted on 11 June 2024 BRT.

Four cargoes were lifted during the period, totalling 1.98 MMbbl, with the cargoes sold to refineries in North America and Europe. The average realised price for the cargoes, net of selling expenses, was US$82.55/bbl, 8% higher than the average realised price in the first quarter of 2024.

WHO DAT ASSETS, OFFSHORE GULF OF MEXICO, US.
Equity interests: Who Dat and Dome Patrol – 30%, Abilene – 16%. Operator: LLOG

Gross average production from Who Dat during the quarter was 34,678 boepd, largely unchanged from the prior quarter (34,962 boepd). Production was limited primarily by well and production system constraints and reservoir management strategy. Karoon’s NRI production from Who Dat was 0.76 MMboe, compared to 0.78 MMboe in the first quarter of 2024.

During the period, the Who Dat Joint Venture worked together to identify, evaluate and implement potential production optimisation opportunities. Towards the end of the quarter, production from higher gas producing wells, which had been curtailed to prioritise oil production in the very low gas price environment previously prevailing, was increased. This, together with improved management of the G manifold facility constraints, resulted in an increase in total production to approximately 43,000 boepd in late June. The Joint Venture continues to seek additional potential opportunities to improve the Who Dat production performance.

The average realised price for Who Dat liquids (including oil, condensate and NGLs) was up 5% on the previous quarter, at US$81.58/bbl. However, the Who Dat realised sales gas price (of US$2.76/mcf) was 12% lower than in the first quarter, as 40% of gas sales in the previous quarter took place in January, before the sharp fall in Henry Hub gas prices.

EXPLORATION, APPRAISAL AND POTENTIAL DEVELOPMENT UPDATE

SANTOS BASIN, S-M-1037, S-M-1101
Equity interest: 100%. Operator: Karoon
During the quarter, the Neon Foundation Project team continued its evaluation of the potential development of the Neon field, as part of the ‘Concept Select’ phase of the project. Ongoing reprocessing of seismic data is taking place to better define the potential range of gross rock volume estimates, while other opportunities to better mitigate low case reservoir outcomes and reduce project capital costs are being assessed. The project remains on track for the next milestone in early CY25, when Karoon will decide whether to progress the project into the ‘Define’ phase. The Define phase would include developing detailed project execution plans, basis for design specifications and detailed cost estimates.

In addition, work continued on assessing the potential value of other prospective resources in the area, such as Neon West, which could be developed via a Neon facility.

SANTOS BASIN, S-M-1537
Equity interest: 100%. Operator: Karoon

Desktop geological and geophysical studies on Block S-M-1537 continued during the quarter.

SANTOS BASIN, S-M-1356, S-M-1482
Equity interest: 100%. Operator: Karoon

The concession contracts for the deepwater blocks S-M-1356 and S-M-1482, which were awarded to Karoon in the ANP 4th Permanent Offer Bid Round for Concession Contracts in late 2023, were executed by the ANP on 25 June and 26 June 2024, respectively, and gazetted in early July 2024. Karoon paid a US$5 million signature bonus for the two blocks.

The forward plan over the next year is to continue studies to assess the prospectivity of these two blocks.

US GULF OF MEXICO, MC 508, MC 509, MC 421, MC 464, MC 465, MC 545, MC 589, MC 629
Equity interests: Various. Operator: LLOG

The Who Dat East exploration/appraisal well, MC 509-1 (LLOG), located approximately 27 kilometres east of the Who Dat Floating Production System (FPS), was drilled during the quarter to a total depth of 7,670 metres measured depth (MD) and wireline logging data acquired. The well discovered high liquid yield gas-condensate in four intervals between 4,500 – 7,600 metres MD in the target Mid Miocene turbidite sandstones, with a total net pay of 45 metres MD. The well was suspended as a potential future producer.

Karoon’s 2C Contingent Resource and 2U Prospective Resource estimates for Who Dat East will be reassessed based on further wireline log interpretation, laboratory analyses of samples and geotechnical studies of the identified hydrocarbon zones. This work is expected to be completed in late 2024/early 2025.

During the quarter, the licenses in which Who Dat East is located were unitised, to allow their exploration and development as a single area. A Unit Operating Agreement has been entered into by the parties, with the following working interests:

• LLOG (operator): 40%
• Karoon: 40%
• Westlawn Americas Offshore: 20%

Subject to regulatory approvals and the drillship remaining on schedule, the Who Dat South exploration well, MC 545-1 (LLOG), is expected to spud in the third quarter using the Seadrill West Neptune drillship. The primary aim of the well, in which Karoon has a 30% interest, is to test two prospective Miocene intervals. Karoon estimates that the Who Dat South prospect contains 31 MMboe of gross unrisked 2U Prospective Resources (7.6 MMboe net to Karoon on a NRI basis), with a geological probability of success estimated to be 52%.

Drilling of the Who Dat West exploration well, MC 629 (LLOG), remains subject to approval by the Joint Venture, expected in the third quarter of 2024.

KeyFacts Energy: Karoon Gas Brazil country profile   l   Karoon US Gulf of Mexico country profile