Karoon Energy Ltd

Thank you for standing by and welcome to the Karun Energy Limited 2024 half-year results. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question via the phone, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via webcast, please enter it into the ask a question box and click submit. I would now like to hand the conference over to Mr. Julian Fowles, CEO and Managing Director. Please go ahead.

Thank you, Kayleigh. Good morning, everyone, and thank you for joining our 2024 half-year results webcast. My name is Julian Fowles, and I'm the CEO at Karun, and I have with me this morning Ray Church, our CFO, and Anne Diamond, our head of IR. Earlier this morning, we released our 2024 half-year report and presentation to the market, which we're now going to talk through. Noting the disclaimers on slide two, I'll move through to slide four, which provides an overview of the first half of 2024. Karun's main focus during this period was on ensuring the safety and reliability and production from our base assets to support sustainable shareholder returns. We also progressed our organic growth opportunities in both Brazil and in the USA. The three-week shutdown of the Bona FPSO was completed as scheduled, and production is currently around 25,000 to 26,000 barrels of oil per day, in line with our expectations. Meanwhile, HUDAT production reached more than 42,000 barrels of oil equivalent per day gross at the end of June. Looking at our organic growth opportunities, the NEON Foundation project has entered Concept Select and work is underway ahead of a potential feed entry decision in early 2025. In the USA, the Hudat East well was successfully drilled, while the Hudat South and Hudat West wells are both approved and expected to spud in the coming months. While Ray will go through the financials in more detail, I would like to highlight that the first half 2024 financial results demonstrate the improved resilience of Karun's operations following the acquisition of Houdat, with profits generated by Houdat partly offsetting lower profitability from Bauna. As anticipated in our strategic review of 2021, having diversified sources of income has also allowed Karun's board to determine to pay Karun's first ever dividend, of 4.496 Australian cents per share. The dividend will be fully franked, releasing the 15.5 million Aussie dollars of franking credits on Karoon's balance sheet at 30 June. The dividend will represent a payout ratio of a little over 21% of underlying earnings, in line with our new capital returns policy. This half-year payment is equivalent to an annualized yield of approximately 5% at yesterday's share price. It should be noted that the dividend is in addition to the US$25 million on-market buyback which commenced on the 12th of August. The company is in robust financial shape with low gearing and strong liquidity. Slide 5 summarizes our safety and environmental performance. Safe and reliable operations are Karun's highest priorities. But unfortunately, we had a lost time injury and a medical treatment case in the first half of 2024. This is the first LTI at Bowen in over 18 months. The team, together with our contractors, is implementing further measures to improve the focus on safety as we believe all injuries are preventable. Turning to our environmental performance, no spills were recorded in the first half of 2024. I'll come back to our operational performance and growth opportunities a little later in the presentation. But now I'll hand over to Ray to talk in more detail about our financial results.

Thanks, Julian. Good morning, everyone. I'll start with a reminder that this is a half year result on a new calendar year basis of reporting. So comparisons are made against the transition year 2023, which covers July to December 23. And just a reminder, we report in U.S. dollars, so all the figures except the franking account balance references are in that currency. Slide 7 reflects current transformation over the last few years. Our investment in the Bowen Intervention Program and Patola Project, together with the acquisition of interest in HUDAT, has led to an increase in production from 2.3 million barrels of oil in the six months to June 2021 to just over 5 million barrels of oil equivalent in the first half of 2024. This was accomplished and accompanied by a five-fold increase in underlying EBITDAX from $58 million in the six months to June 21 to $266.8 million in the first half of 2024, as our assets have a largely fixed cost base. I'd note that HUDAT's first six months contribution almost fully replaced the production sales and EBITX deficits in the Bona project. At the same time, this growth has been achieved while maintaining a prudent balance sheet with net debt and net gearing at US $68 million and 6% respectively at the end of 30 June 2024, while also funding increased capex at HUDAT. Moving on to slide eight, I'll go through our first half 2024 underlying results in a little bit more detail. As we saw, a similar average oil price in both periods. Volume sold drove most of the revenue movement, which was slightly lower in the first half of 2024 compared to 2020, TY 2023. The lower bonus sales largely replaced by the HUDA sales volumes. Transportation costs increased $4.3 million due to a full period of pipeline tariffs related to transporting HUDAT hydrocarbons onshore. This was partly offset by $1.9 million of lower tariff transfer costs in Baona as the prior period experienced more weather disruption. Operating costs shown here on an accounting basis, which includes production-linked amortization of capitalized leases at Bona, where operating costs reduced by $12.4 million, offset by $13.2 million of production costs at HUDAT. And I'll mention this again on the next slide. Royalties in the half were lower in line with revenues from Bona. DD&A is higher between periods. This was driven by the addition of HUDAT. which has a higher unit DDNA than Bauna, reflecting depreciation of the acquisition and development costs on a 2P unit of production basis. Finance costs were also higher in the first half of 2024, reflecting the cost of debt used to acquire HUDAT. The increase in inventory expense reflects a reduction in inventory levels as no cargo is in transit at 30 June 2024. The effective rate, tax rate in first half 2024, 29%, now reflects a blend of Brazilian 34% and US 21% income tax rates. Reconciliation between underlying and statutory impact and EBITDA is provided on slide 25 for reference. Moving to slide 9, this shows cash objects per BOE after normalising for AASB16 effects. This is a better representation of the production cost and aligns with industry practice. Unit OPEX in the first half of 2024 increased 22% against TY23, largely due to lower production at Bayona and partly offset by lower unit OPEX at HUDAT. I'd point out that the unit production cost of $13.51 per BOE includes HUDAT OPEX of $8.74 per BOE based on Karun's net revenue interest production. This is after netting off government and third-party royalties. So on a net working interest basis, consistent with how Baones reported, PUDAT unit costs in first half 2024 were US$7.18 per BOE. You can see on slide 10 that Karun operations generated $202 million of cash, and that covered our increased capex spend, mostly Houdat development and exploration wells, and the contingent payment of $86 million made to Petrobras, leaving $45 million of free cash flow for the period. Slide 11 provides some colour to our CAPEX spend in the last 12 months. and revised guidance for calendar year 24. We expect calendar year 24 CAPEX to be between $150 to $177 million, down from $170 to $207 million, with $20 to $30 million that was expected to be spent on SPS 88 well intervention in the second half now deferred to 2025. As the Hoodat West exploration wells have now all been approved by the joint venture, CAPEX related to this well has been moved from contingent to firm and all other CAPEX guidance is unchanged. Moving to debt and the balance sheet, slide 12 summarises our two available debt funding facilities as As I mentioned earlier, we have a prudent level of gearing on the balance sheet. However, we do expect the balance sheet to work, and in May we accessed the US 144A bond market by issuing an inaugural $350 million bond. This supplements our RBL debt facility and expands Karoon's sources of debt and does so with less onerous terms in the largest pool of capital for mid-cap energy companies. The proceeds of the bond were used to repay the RBL and the bond was priced at 10.5% or 11.7% all in cost, including fees. And that compares to 13.7% for the RBL when you consider hedging costs. Slide 13 reflects our revised capital allocation framework, reflecting the board approved approach to shareholder returns and clarity of the balance sheet strength measures. Our highest priority remains on ensuring safe, reliable and sustainable business operations. We also aim to maintain a strong and flexible balance sheet while making 20% to 40% of underlying impact available for returns to shareholders subject to market conditions and board approval, either as a cash dividend, a share buyback or a combination of both. We believe this framework strikes the right balance between rewarding shareholders while retaining sufficient capital to reinvest in the business. Thank you, everyone. I'll now hand you back to Julian for update on the assets.