Karoon Energy Ltd

Welcome to the Careering Energy 2022 Full Year Results Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr Julian Fowles, CEO and Managing Director. Please go ahead.

Yeah, thanks very much, Rachel. That's great. Good morning, everyone, and welcome to Karun Energy's FI 2022 results webcast. My name is Julian Fowles. I'm the CEO at Karun, and I have with me Ray Church, our CFO, and I'm Diamond Investor Relations. Earlier this morning, we released our FI 2022 results and annual report to the market, and we're now going to talk through the presentation that we released with those announcements. So going to that presentation and noting the disclaimer on slide two, I'll start with the overview on slide four. FY 2022 was our first full financial year of production operations, which is important to bear in mind when comparing with our FY 2021 results. And you'll see some comparisons throughout our presentation, and it's important that you bear that in mind. The context for our fourth slide lies in the strategic refresh that we presented to the market some 10 months where we highlighted a number of strategic themes. Within those themes, of course, we continue to emphasize safe and reliable operations, which really is what underpins our business. We had a number of safety incidents during the year, which is disappointing, and I'll touch on those in more detail in the next slide. Fortunately, none of those were serious incidents. Reliability of our facilities has been outstanding, with over 99% uptime, excluding scheduled shutdowns. And this is reflected in our production performance, where we achieved just above the top end of our guidance range. This production performance plays through financially as well, where we have not incurred any significant costs associated with equipment failures, partly due to the proactive maintenance programs we've put in place since assuming operatorship. Our growth activities are also well underway, with the first two wells of the Boehner work-over sequence already completed and work started on the third. The petroler development is moving forward as planned, and we're progressing the NEON drilling campaign preparations. We continue to actively pursue potential M&A opportunities, where we're taking a very disciplined approach with the application of strict screening criteria. We outlined and progressed our climate targets at the strategic refresh last year, and those are to be carbon neutral on our existing operations and net zero by 2035 on scope one and two emissions. And we also entered four new social and environmental projects in Brazil. We finished the year in a robust financial position with cash of nearly $160 million and undrawn debt of $180 million. This provides total liquidity of almost $340 million, and Ray will touch on the implications of this a little later on. Moving to slide five, this outlines our HSSE performance in a little more detail. As mentioned, we had four lost time incidents, and although each one of those was relatively minor, it's still a disappointment to us where we emphasize so much our HSSE and safety performance in our operations. Each incident was investigated thoroughly through a root cause analysis, and lessons learned have been thoroughly applied. Of course, COVID-19 was still running through the world during FY2022, and although we saw an uptick in cases in the second half of the financial year, most of those cases were mild, many of them were asymptomatic, and none required hospitalization. And due to the continued application of our COVID-safe protocols, our production has not been impacted in any way by COVID. I'll now hand over to Ray to go through the financial results in more detail.

I'm on slide seven. I'll start with the financial highlights for the year on that slide. As you can see, the business has a strong performance in the year with revenue growing by – sorry, I think we're behind on the slides. Could we go to slide seven? The revenue grew by 125% to $385 million, while unit production costs have remained stable to deliver an underlying EBITDA growth of 235% for $205 million. Conversion of EBITDA operating cash flow was high, with temporary effects of a few weeks' growth of inventory and receivables due to liftings timing in June and July and hedge premium outflows. The establishment of $210 million of new debt facilities combined with these strong cash flows meant we closed the year with $337.7 million of liquidity. And I'll talk to each of these in more detail on the following slides. Moving to slide eight, just a few points to note on the income statement. Revenue growth was driven by two contributing factors. The increase in sales volumes, which was driven by reliable production, and three more cargoes delivered in a year generated $97 million of the increase in revenues, while crude price delivered the remaining $117 million of revenue growth, for a total increase of about $214 million. Realised prices for ballon-approved improved from $58.90 to $84.74 per barrel, and this was supported by global price increases, but also as ballon-approved is now sold to five markets. OPEX was $25.36 per barrel for the year, largely unchanged from $25.11 last year, and better than expectations as unplanned maintenance items, which had been budgeted for, were not required. as a result of the efforts in reliability of production mentioned by Julian. Key movements year on year in corporate exploration and other costs relate to an additional $1.6 million of business development costs, mainly associated with the potential at-length transaction, and $3.4 million of corporate and share-based payment costs in Australia and Brazil. Net interest and finance costs include $3.5 million of debt facility costs, mostly related to to establishment and facility fees, mainly associated, sorry, up from $1 million last year. And $2.4 million unwinding of discounts in the bono restoration provision, up from $1 million last year. The effective tax rate is approximately 37%, as the Brazilian tax rate of 34% is impacted a further 3% by non-deductible share-based payments and Australian costs. Fortunately, as the US dollar to Brazilian radar exchange rate ended the year as close to the commencement of the year rates, we have only minor FX adjustments affecting income tax expense this year. The resulting underlying net profit after tax was $89.6 million compared with the restated FY21 underlying impact of $21.4 million. Moving to slide nine. Given the prevailing consensus oil price outlook through 2026, which is above the contingent consideration oil price cap of $70 in all years, continued consideration for the boner acquisition is now fully priced. So the liability with interest is now recorded at $298.3 million, including estimated interest. The income statement impacts have been removed. from underlying EBITDA and underlying NPAT to this item. And it's worth noting that if future oil price expectations fall, any decrease in anticipated continued consideration would then be recorded as a non-cash item on the income statement. Looking at cash flow on slide 10, after adjusting for AASB 16 lease accounting treatment to include the interest component of FPSO lease payments, Bayona Operations generated $114 million of cash, which has effectively funded the deferred consideration payment, the fit and settlement from FY21, and capital costs to date on the Workover and Patola Development Program. With the initial draw and establishment of the new RBL Depth Facility, we completed the year with $158 million of cash, up from $133 million last year. And staying with cash on slide 11, the undrawn debt facilities plus cash provides the business with $338 million of liquidity at year end, which provides financial flexibility to meet the remaining CAPEX commitments and contingent consideration payments. The diagram to the left shows the tenor of the debt facilities. Moving on to slide 12 and guidance for FY23 now. Production is expected between 7 and 9 million barrels for the year. This takes account of the latest completion timing for the Boehner Workover and Polar Development Program, which Julian will cover shortly. Full year unit production costs are expected to decrease to $15 to $20 per barrel as production increases and costs remain largely fixed. Other operating costs are expected to increase to $23 to $25 million, of which approximately $2 million is non-recurring. Main contributors to this are $1 million caused by inflation, which is about 12% in Brazil and 6% in Australia, $3 million full-year impact of FY22 staff changes, $2 million in IT cybersecurity and systems, and $1 million of... office and travel costs now necessary post-COVID. Business development, share-based payments and NEON studies are expected between $12 and $14 million. This includes 2 million additional NEON studies which are non-recurring. Baona work-over and Cotolla's knowledge costs are expected between $205 and $240 million, primarily due to the impact of higher diesel costs and delays at Baona, which Julian will talk about further. And Neon Evaluations, assuming two control wells, are expected between $65 and $75 million, given the current inflationary environment and with not all contracts yet locked in. On slide 13, we provide a reconciliation from underlying statutory NPAT and EBITDA. Changes in contingent consideration and fair value of cash flow hedges have been removed from the underlying result. Additionally, restructure costs and FX gains from restatement of US dollar currency held in Australian entities have also been removed, and this produces the statutory net loss after tax of $64.5 million. Thank you, and I'll pass back to Julian now.