Karoon Energy Ltd

Thank you for standing by and welcome to the Karoon Energy Limited 2024 full year results. 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 via the phones, 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 the 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, Mel. And good morning, everyone. And thank you for joining our 2024 full year results webcast. My name is Julian Fowles, CEO at Karun. And I have with me this morning Ray Church, our CFO, Marco Brummelhaus, who leads Karun Brazil, and Anne Diamond, our head of IR. Earlier this morning, we released our 2024 full-year results to the market, alongside an announcement that we have signed a sale and purchase agreement to acquire the Bauna FPSO from the Altera Ocean Joint Venture. We shall discuss the FPSO acquisition a little later in the presentation. Now, moving on and noting the disclaimers on slide two, I'll move straight to slide four, which provides an overview of 2024. It was a challenging year in many ways, which saw a decline in our share price as we failed to meet our production targets, both at Bohuna and Hudat, and our safety performance was below our expectations. We'll discuss how we are addressing these issues and the actions we are taking during this morning's presentation. 2024 saw us deliver annual production of 10.4 million BOEs and sales revenue of 776 million US dollars, both some 13 to 14% up on 2023, while our underlying NPAT of $214 million was a slight improvement on 23. We have moved NEON into the select phase with a decision to potentially move into feed due in April this year. Our exploration program at Houdat delivered two out of three discoveries, and we have defined a number of attractive infield opportunities, two of which subject to various approvals we hope to drill in Houdat in the second half of 25 and early 2026. Potential development options for the two new discoveries are being investigated and we expect one of them to reach FID by early 2026. We ended the year in a strong financial position with net debt of less than $10 million and liquidity of $681 million. We formalised our capital returns policy and we paid Karun's first ever dividend of 4.496 Australian cents per share, now supplemented with an unfranked 5 cents final dividend. In addition to announcing two $25 million on market share buybacks. The dividends represent a payout ratio of 23% of 2024 underlying impact. And in January, we also announced the intention to buy back a further $75 million of shares over the course of 2025. Now moving to slide five. We've completed our strategic review, which confirms our focus on strict capital allocation to grow shareholder returns with a focus on safe, reliable, and low-cost operations in our core assets in Biona and Houdat. This slide outlines the strategic areas of focus to ensure we maximize value for our shareholders with Biona reliability and Houdat production maintenance through a value accretive infill program, the first priorities. These will ensure we have a solid platform to deliver shareholder returns. Projects such as NEON and the new Houdat discoveries must meet strict economic hurdles and will be evaluated both in the short term and longer term against capital returns and our balance sheet capacity. Slide six summarizes our safety and environmental performance during 2024. Our performance here was also disappointing and well below the standard we set ourselves. Two LTIs and two medical treatment cases, as well as nine high potential incidents, is not where we should be. We know we can achieve the outcomes we want, but we have further work to do, which will be facilitated by our ownership of the FPSO and a renewed focus on the basics, such as Karun's golden safety rules. On the environmental side, no spills were reported during 2024. Now Marco will go through our operational performance in Brazil and the status of the growth opportunity at Neon. But firstly, I'll hand over to Ray to address our financial results. Thank you, Julian.

Good morning, everyone. I'll move right into slide eight to cover a few highlights of the 2024 results. Then I'll cover earnings, cash flows, and the balance sheet in a little more detail, and then expand on the capital allocation disciplines mentioned by Julian. As Marco and Julian will elaborate, Despite the operational challenges in 2024, production increased to 10.4 million BOE, up from 9.1 million BOE last year. Revenues moved in line with production, with 16 offloads at Bona in 2024 versus 18 in 2023, more than offset by full year of sales at Houdat, concluding the year with sales of $776.5 million versus $680 million in 2023. Underlying EBITDAX increased by 57.9 million or 13% year-on-year as the higher margin BOEs from Houdat offset the margin reduction at Bauna, which was driven by lower production on a largely fixed cost base. The Houdat EBITDAX margin of 73% held the total Karoon EBITDAX margin stable around 64% year-on-year. Pre-AASB16 operating cash flow was 3% down year-on-year at $395.2 million, funding similar year-on-year CapEx investments and contingent consideration, producing $176.6 million of free cash flow from operations, which is comparable with 2023. This reflects the diversification to two producing assets and the addition of high-margin production from Houdat. As you can see, we closed the year with $8.8 million in net debt. Turning to underlying earnings on slide nine, revenue growth was mostly driven by volume, which delivered $107 million higher revenue, offset by a $10 million revenue reduction from lower average realised prices. Transportation costs increased from $7.8 million to $23.3 million, reflecting $11 million relating to a full year of pipeline tariffs in the USA and $4.8 million additional costs in Brazil, where an additional seven offloads occurred via ship-to-ship transfer. This export alternative involves delivering crude to the port of Santos for transfer to a larger tanker rather than direct offload at the FPSO and generates a net realised price improvement to Karun. Production costs increased by $22 million year-on-year, which is primarily a reflection of $29.8 million full-year OPEX for HUDAT, $4 million in increased logistics contract rates at Bayona, $4 million of non-recurring logistics and support vessel costs associated with the FPSO anchor chain repairs in December, offset by a reduction in O&M contractor costs through contract incentive mechanisms. Royalties and other government take are down year on year as $14.5 million of Brazil export tax occurred only in 2023. And the remaining $16 million relates to year on year reduced production at Baona. Corporate and other costs grew by $8 million, including 4 million additional overheads in USA, 1 million inflationary impacts and $3 million of non-recurring HUDAT integration costs. leading to an underlying NPAT of $214 million, or 3% up on 2023. Our reconciliation between underlying and statutory NPAT and EBITDA is on slide 28. And slide 10 provides a reconciliation from statutory unit operating costs to pre-AASB16 unit OPEX mentioned in the rest of this material. And I've just covered the major movements on slide nine. I'd only mention here that the unit production cost of $13.60 per BOE is a blend of $15.96 at Biona and $8.46 at HUDAP, which includes Karoon's insurance costs. Moving to slide 11, as I've already flagged, EVA-DAX of $492 million converted after taxes and net finance costs to 395.2 million of operating cash flow, including FPSO lease payments. This provided adequate funding for the Petrobras contingent payment, CAPEX investments in HUDAT development and exploration wells, and license payments in Brazil. Bond costs and capital returns, leaving $95 million free cash from the year. Moving to debt and the balance sheet, slide 12 outlines the funding work completed through the year and change in net debt, which, as we said, has now improved to $8.8 million from $103.7 million at end of 2023. We accessed the US 144A bond market and turned out our debt. supplementing the RBL debt facility for flexibility in capital allocation. We finished the year with strong liquidity, and this sets up the balance sheet in readiness for the extended shutdown, the Flotel and SPS 88 campaigns at Bauna, contingent consideration, FPSO purchase and capital returns, much of which is expected in the first half of 2025. Moving to slide 13, We've embedded the revised capital allocation framework such that all investments will be evaluated and prioritised after competing within a total shareholder returns lens. This is not a new framework and is provided for clarity of strict adherence to the allocation framework after meeting non-discretional spend and maintaining a strong and flexible balance sheet. Thank you, everyone. I'll hand now to Marco to cover our Brazil asset.