Company Interview / Karoon Energy announces inaugural dividend

Key points:

Karoon Energy's (ASX:KAR) 20% drop in profit due to lower Brazil productionJulian Fowles announces inaugural dividend, commitment to shareholdersFocus on improving production reliability and safety, positive future outlook

Karoon Energy reports a 20% drop in first-half underlying profit to $115.8 million due to a 34% decrease in production from its Brazil project. Statutory profit falls 50% to $61.8 million, and revenue declines by 1% to $409.4 million.

Julian Fowles highlights Karoon's strong underlying profit despite production challenges. He announces the company's inaugural interim dividend of 4.496 Aussie cents per share and stresses the commitment to returning capital to shareholders as part of its 2021 strategy, including a $25 million buyback.

Julian discusses various initiatives to improve production reliability in Brazil and provides updates on the Who Dat project, which sees steady production improvement. He also addresses safety, environmental concerns, and future capital returns, noting strong cash flows and a constructive outlook on oil prices.

Full unedited transcript:

0:00

I think, um, what we've delivered in a time which has had some difficulties around reliability of our production in Brazil, um, there's still a very strong result. It's a strong underlying net profit. Um, and of course, announcing the inaugural dividend for, for Karen, um, our first dividend is listed. Company I think it's it's great news and shows the commitment I think of the board to returning capital into shareholders hands. How much of that was driven by the push that you got from activist shareholders to pay out dividends? Yeah. Look, it's an interesting question. Our strategy that we put in place in 2021, um, really has all been delivered. Um, and the final step in that strategy was always to look at the best way to return capital to shareholders. So this is always something that we intended to do. Um, I think the timing of it, um, is perhaps six months later than, than perhaps shareholders would have expected. Um, but that's due primarily because we made an acquisition at the end

1:00

of last year and we needed to bed that down prior to. To to putting in place the capital returns policy. So it's really the last step in the 2021 strategy, as I said. And is it likely that shareholders can continue to see dividends now they're here. And what sort of payout ratio would you be targeting.

1:20

So look, we announced the returns policy about a month ago with the quarterly report. Um, and that is to return 20 to 40% of our underlying net profit after tax to shareholders in the form of buybacks and or dividends. We actually announced the 25 million US dollar buyback at that time about a month ago. And that's currently, um, sort of going through the market until the end of this year. So this dividend that we've announced now is part of the the policy itself, 20 to 40%. And we've looked at a number of years to make sure that we can maintain that level of dividend, that level of payout, um, as we go to the future, our cash flows are strong. And certainly in the current environment of what we believe to be reasonably constructive supply and demand dynamics in the oil market, that that should be able to be maintained. So let's talk about what you're focusing on for the remainder of your financial year. We talked about the bout of project. What are you seeing in terms of improving production and reliability there?

2:20

Look, we have a number of projects in place in Bowen on our floating production storage, offtake vessel, um, projects that need to really, um, be, be, be put in place in order to improve reliability. Our target reliability is between 80 and 95% uptime on the FPSo. Currently we're hitting less than that. So it's absolutely something that we have to focus on. And there's a number of projects around gas compression, also around the reliability of our pipework on the FSO that we've got to do this year to make sure in 2025 we can have improved reliability. Can you give us an update as well on your Who Dat project? Yeah. So who dat? Um, started the year slowly, I would say. Um, it's steadily improved during the year. We've worked with the joint venture to make sure that we're bringing forward optimization opportunities and de Bottlenecking opportunities on the facility itself. Uh, that it's good to see has come through late in the second quarter.

3:20

So towards the end of June, we were producing at rates, which were what we were expecting to do by that stage, about 42 or 43,000 Boes per day. On a gross basis, our share is 30%. And that's been continued through into the third quarter. Um, although we will have some planned downtime this quarter and early next quarter as we undertake some further maintenance activities on on the facility there. On the safety front, calendar year 23 was a good one. You yourself has said a disappointing first half for safety performance in this half. Just tell us where you're at with that. And I assume safety is a key priority. Yeah. Look at safety. Safety and reliability together are really our primary priorities. Safety coming first all the time. Of course. Look we had our first LTI first last time incident for 18 months. 2023 was a stellar year, as you've said, with no incidents. But now we've had an incident this year. We also had a medical treatment case. Um, those workers, I'm pleased to say, are

4:19

fine. They're back at work. Um, and no, no long lasting damage. Um, but of course, it's a really concerning, um, incident for us. Any last time incident is. And we've certainly put our full focus on making sure that that cannot recur and that we understand the root causes of that. So I'm confident the team is now working in a way that will help to mitigate any future potential for incidents like that. And what about the potential to mitigate any environmental concerns as well?

4:50

Yeah. So look, we've got a very good system on board. Uh, a facility in Brazil. Um, we have had a couple of minor spills. They're all contained on the deck of the FPSo. It's built to to ensure that we do that. We've had no reportable spills nor spills that have gone into the ocean. And of course, that that's the primary objective there. So I think on the environmental front, we're we're doing okay from a spills point of view. Um, I think from the point of view of, of the broader environment and sustainability issues around carbon and carbon emissions over the last couple of years, our carbon emissions intensity has come right down. It's stabilized now around about 11 or 12. Um, uh, um, uh, tonnes, um, uh, on, on a, on a production basis. Um, and that's an area that we're focusing on to see if we can mitigate that further within our operations. Brazil historically

5:50

has higher rates of emissions than the Gulf of Mexico. So our average rate has come down with the Gulf of Mexico acquisition, but we still have more work to do in Brazil to look at what we can mitigate there. Julian, you announced last month a 25 million US share buyback. Do you think given where your share price is over the past year, you're sort of unfairly valued?

6:15

Oh, look, I think if you ask any CEO about the value of his company, he'll tell you they're undervalued. I think without a doubt, though, the value that we see in our assets as a board, we don't believe that that is properly reflected in our share price. Um, and hence the board has looked to, to implement this buyback. Um, I think we'll look very carefully at that in the future, depending on where our share price goes. Of course. Um, but what we've set up in our, in our capital returns policy is the ability to return either through dividends or through share buybacks or a combination of the two to ensure that we're maximizing the benefit to our shareholders. And Julianne, what is the start of this second half looking like for Korean energy?

7:02

Look, our production has been strong in in both. We still have one. Well, the SPS 88 well, which is not online. We were hoping to bring that back online. Um, this quarter or certainly this half, due to some delays in permitting. Um, we've not been able to secure a rig for that. The rig we had targeted has gone elsewhere, but we do now have, um, firm plans in place for the first half of 2025 to bring that well back on stream. So despite that, well, not being on stream, we still have had strong bone of production so far this quarter. Um, obviously the whole quarter is still to play out and who dat has been going pretty strongly as well despite those planned maintenance shutdowns. And I guess, just where are you at with your cash flow. And given what we could see in terms of a lot of volatility in the commodities markets.

7:57

Look, I think my view on on oil, if I look long term karoun is, I think, reasonably constructive about the supply and demand picture. We think demand will stay strong, certainly through to the end of this decade, and I believe well into the next decade. Um, I think that that will support prices. But pricing of oil, of course, is always something that that is partly emotional as well. And uncertainty is in the hands of some of the traders with prices where they are today, 75, 80 to $85 per barrel. Um, we have very strong cash flows. We have a low unit production costs. Um, and maintaining financial discipline, of course, is a key target for us to ensure that we remain robust in terms of our cash flows, with potential fluctuations in oil price