Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Karoon Energy Ltd (KRNGF, Financial) completed the three-week shutdown of the Bauna FPSO as scheduled, with production currently around 25,000 to 26,000 barrels of oil per day.
- Who Dat production reached over 42,000 barrels of oil equivalent per day gross at the end of June.
- The company declared its first-ever dividend of AUD0.04496 per share, fully franked, representing a payout ratio of over 21% of underlying earnings.
- Karoon Energy Ltd (KRNGF) has a robust financial position with low gearing and strong liquidity.
- No environmental spills were recorded in the first half of 2024, highlighting strong environmental performance.
Negative Points
- The company experienced a lost time injury and a medical treatment case in the first half of 2024, the first in over 18 months.
- First half 2024 production at Bauna was lower than expected due to a three-week shutdown and FPSO reliability issues.
- Operating costs increased due to higher transportation costs and production costs at Who Dat.
- Finance costs were higher in the first half of 2024, reflecting the cost of debt used to acquire Who Dat.
- The company faced delays in bringing new wells on stream at Who Dat, impacting production rates.
Q & A Highlights
Karoon Energy Ltd (KRNGF) Earnings Call Highlights
Q: Can you expand on the capital allocation for Who Dat and the expected production outlook?
A: Julian Fowles (CEO) explained that Who Dat has a range of opportunities from high CapEx infield drilling to lower CapEx sliding sleeves and sidetrack opportunities. These opportunities are assessed for economic viability and risks. The G wells, despite some production curtailment, have been highly profitable. The company is working with the joint venture to prioritize opportunities for 2025 and 2026.
Q: With CY24 production guidance tracking towards the lower end, is there a risk of falling below the guidance due to unplanned downtime?
A: Julian Fowles (CEO) stated that in the absence of significant unforeseen events, they are comfortable with the current guidance. However, they acknowledge the inherent risks in offshore operations and will update the market if they anticipate falling below the guidance.
Q: Can you provide more details on the SPS-88 timeline and the likelihood of securing an intervention vessel next year?
A: Julian Fowles (CEO) mentioned that the IBAMA industrial action delayed the environmental permit, but they are now in advanced negotiations with several vessel owners. They are confident in securing a vessel and obtaining the necessary regulatory approvals for the first half of 2025.
Q: What are the key areas targeted in the enhanced maintenance program to improve FPSO reliability?
A: Julian Fowles (CEO) highlighted three key areas: gas compressors, corrosion in the production header, and the dehydration unit. These areas are critical for maintaining optimal gas lift and overall production reliability.
Q: What is the expected CapEx for the Bauna life extension project if brought forward to 2025?
A: Julian Fowles (CEO) stated that the scope and timeline for the Bauna life extension project are still being defined. The objective is to minimize production impact and ensure cost efficiency. Detailed guidance will be provided later in the year.
Q: Can you provide a range for maintenance CapEx and exploration spending in the Gulf of Mexico?
A: Ray Church (CFO) estimated sustaining maintenance CapEx at around $5 million per annum, with development wells every couple of years averaging $20 million per annum. Exploration spending will depend on the success of current wells and future opportunities.
Q: What is the current production at Who Dat, and how is it affected by maintenance activities?
A: Julian Fowles (CEO) reported that Who Dat is currently producing just over 40,000 BOEs per day. Maintenance on gas compressors is ongoing, which can temporarily reduce production by about 10,000 BOEs per day.
Q: Why was the decision made to pay a dividend instead of a larger buyback, given the current share price?
A: Ray Church (CFO) explained that the dividend decision was driven by the need to return franking credits to shareholders. The exploration investments are expected to yield higher returns than buybacks, making them a better use of funds.
Q: What are the expected returns on capital and CapEx compared to current dividend yields?
A: Ray Church (CFO) stated that exploration investments are expected to produce materially higher returns than developed CapEx investments. The Board's decision on buybacks and dividends is based on long-term cash flow modeling and shareholder value.
Q: What is the production outlook for the Gulf of Mexico in terms of liquids and gas production splits?
A: Julian Fowles (CEO) provided guidance for 2024, with a production range of 3 million to 3.5 million BOEs, net revenue interest Karoon share. The oil to gas ratio is expected to be around 70% to 75% oil.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
