25 August 2022
Company Announcements Office
ASX Limited
Dear Sir / Madam
2022 Annual Report
In accordance with the ASX Listing Rules, Karoon Energy Ltd releases its 2022 Annual Report to the market.
This announcement has been authorised by the Board of Directors.
Yours faithfully
Nick Kennedy
Company Secretary
Building
Momentum
Annual Report 2022
K A R O O N A N N U A L R E P O R T 2 0 2 2
28 Sustainability
120 Directors’ Declaration
36 Reserves and Resources
121
38 Strengths and Key Risks
40 Directors’ Report
70
71
Auditor’s Independence
Declaration
Consolidated Financial
Statements
Independent Auditor’s
Report
126
Additional Securities
Exchange Information
128 Glossary of Terms
130 Corporate Directory
12
14
FY2022 Operating and
Financial Highlights
Letter from Our Chairman
and Our CEO
18
Financial Overview
20
24
Production and
Development
Subsurface Evaluation
and New Ventures
K A R O O N A N N U A L R E P O R T 2 0 2 2
M O M ENTU M
The result of effort. Of action.
Of rolling up your sleeves and
getting things done. Momentum
is gained through progress.
01
K A R O O N A N N U A L R E P O R T 2 0 2 2
Respect
is actively listening to,
harnessing and embracing
different backgrounds, cultures,
thoughts and ideas.
Safety
is our highest priority, a state of mind
in respect of personnel, community
and the environment.
Collaboration
is working together to achieve
our goals and striving for better
outcomes for all stakeholders.
02
K A R O O N A N N U A L R E P O R T 2 0 2 2
Progress through
TR A N S F O RM ATI O N
Our newly refreshed brand identity symbolises Karoon’s nimble,
entrepreneurial spirit and our focus on constantly refining our expertise
across our values and disciplines.
Integrity
is honestly doing what is
right and doing what we say
we will do.
Commitment
is following through on our
promises with focus, passion
and dedication.
03
K A R O O N A N N U A L R E P O R T 2 0 2 2
Progress through
E XPERTI S E
Over FY2022, Karoon continued to build its reputation as a
safe, reliable and responsible operator, achieving facilities
uptime of 99%*, with no material safety or environmental
incidents. The Baúna intervention program commenced in
May 2022 and the Patola oil field development is on track to
come onstream in early CY2023. Combined, these projects
are targeted to more than double production, driving value
for shareholders and providing a platform for further
growth. With experienced teams in Brazil and Australia,
Karoon has the technical, commercial and strategic skills
required to deliver strong business performance.
* Excluding scheduled shutdowns for maintenance
04
K A R O O N A N N U A L R E P O R T 2 0 2 2
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K A R O O N A N N U A L R E P O R T 2 0 2 2
Progress through
F O C U S
In October 2021, Karoon completed a Strategic Refresh, which confirmed three
overarching strategic imperatives. These are the delivery of safe and reliable
production from the Baúna field, the Baúna intervention campaign and the Patola
oil field development; building near- and medium-term production through
value-accretive, organic and inorganic growth opportunities; and designing and
implementing a high-quality sustainability program. Material progress was achieved
on all these key strategic objectives in FY2022, which are designed to create value
for all stakeholders.
06
K A R O O N A N N U A L R E P O R T 2 0 2 2
07
K A R O O N A N N U A L R E P O R T 2 0 2 2
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K A R O O N A N N U A L R E P O R T 2 0 2 2
Progress through
FI N A N C IA L RES I L I EN C E
A major milestone was achieved in late 2021, when financial close was reached
on a US$160 million reserve-based, non-recourse, syndicated debt facility
with a high-quality lending group. The facility was expanded in April 2022 to
US$210 million, through a US$50 million Accordion Facility. This debt package
broadens the sources of capital available to support Karoon’s growth ambitions.
Together with strong cash flows from operations and a risk-appropriate oil
hedging program, Karoon is financially resilient.
09
K A R O O N A N N U A L R E P O R T 2 0 2 2
Progress through
C O M M ITM ENT
10
K A R O O N A N N U A L R E P O R T 2 0 2 2
Karoon made material progress on its Five Pillar Sustainability Strategy over
FY2022, encompassing Health and Safety, Climate, Our People, Community and the
Environment. The Company purchased carbon offsets to achieve carbon neutrality*
in FY2021 and is targeting to be Net Zero* by 2035. Karoon’s first Modern Slavery
Statement was submitted, and the Company agreed a new program of voluntary
community, social and environmental investment in Brazil. These activities
demonstrate the Company’s commitment to operating sustainably in all areas
of its business.
*Scope 1 and 2 GHG emissions
11
K A R O O N A N N U A L R E P O R T 2 0 2 2
F Y2022 O PER ATI N G &
FI N A N C IA L H I G H L I G HT S
4.64 MMBBL
PRODUCTION
US$84.74
AVERAGE REALISED
OIL PRICE PER BARREL
US$385 MILLION
OIL SALES REVENUE
US$154 MILLION
OPERATING
CASH FLOW
US$90 MILLION
UNDERLYING NET PROFIT
AFTER TAX
0.77 PER 200,000
HOURS
LOST TIME
INCIDENT RATE
12
K A R O O N A N N U A L R E P O R T 2 0 2 2
0.77 PER 200,000
HOURS
TOTAL RECORDABLE
INCIDENT RATE
0 SPILLS TO SEA
PROCESS SAFETY
46%FEMALE
GROUPWIDE
DIVERSITY
82,870tCO2e
SCOPE 1 & 2
EMISSIONS
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K A R O O N A N N U A L R E P O R T 2 0 2 2
L E T TER FRO M O U R
C H A I RM A N & O U R C EO
In November 2021, Karoon celebrated its first full year of oil production from the
Baúna asset in the BM-S-40 Concession, offshore Brazil, completing its transformation
from an explorer to an oil producer and operator, and delivering on the promises
made at the time of the Baúna acquisition. The transformation took place against the
backdrop of a world economy emerging from the COVID-19 pandemic, with a major
rebound in the oil price also reflecting heightened global security tensions.
BRUCE PHILLIPS
CHAIRMAN
JULIAN FOWLES
CEO & MD
14
Strategic Refresh
A Strategic Refresh, to update our
corporate strategy and objectives for
the next five years, was completed
during FY2022. A deep dive into global
energy fundamentals concluded that
while the global transition to renewable
energy sources is accelerating, there
is likely to be demand for oil that is
produced responsibly, sustainably and
at a competitive cost for some time.
This view has strengthened over the year,
with security of energy supply during
the transition increasingly important
given growing world political instability.
The bottom-up Strategic Refresh
supported many of our existing goals,
including a focus on accelerating and
extracting maximum value and resource
from the Baúna asset though the Baúna
intervention program and Patola oil
field development.
The work also highlighted the desirability
of Karoon having a second asset, to
diversify risk, amortise corporate
costs, and expand our production
opportunities. Consequently, we are
pursuing both organic development
opportunities, such as the potential
Neon development, and inorganic oil
acquisition opportunities. A rigorous
technical and disciplined financial
approach is used when assessing
these growth options, which will only
be progressed if they are demonstrably
value-accretive for shareholders when
compared to capital returns. This approach
was used during FY2022 when evaluating
the potential acquisition of a 50%
interest in the Atlanta field offshore
Brazil from Enauta Energia SA, which
we ultimately decided not to pursue.
“A deep dive into global energy
fundamentals concluded that while
the global transition to renewable
energy sources is accelerating,
there is likely to be demand for
oil that is produced responsibly,
sustainably and at a competitive
cost for some time.”
Given the global energy transition, our
subsurface focus has moved away from
greenfield exploration towards activities
that maximise near-field exploitation
and support new short- to medium-term
production opportunities.
FY2022 financial
performance and capital
management
Underlying net profit after tax for
FY2022 was US$89.6 million, compared
to US$21.4 million in FY2021. The
statutory net loss after tax of US$64.5
million in FY2022 was impacted by
several significant items, but primarily
a US$227 million increase in the
assessed fair value of the Petrobras
contingent consideration.
Karoon ended the financial year with
a strong cash and cash equivalents
position of US$157.7 million, despite
our significant investment program
over the year and the final firm payment
for the Baúna purchase of US$43.6
million made in May 2022. Together
with US$180 million of undrawn debt,
the Company’s liquidity at 30 June 2022
was US$337.7 million.
Capital management
Given the financial commitments
related to our growth projects which are
currently underway, the Board decided
FY2022 was not an appropriate time
to commence returns to shareholders.
However, the Board is committed to
making returns to shareholders when
supported by sustainable free cashflows.
We intend to provide more detail on
capital management during FY2023.
FY2022 operating
performance
Karoon delivered a strong first full
financial year as an oil producer.
One of the most pleasing achievements
was the high level of reliability of our
infrastructure, with facilities uptime,
excluding planned maintenance
shutdowns, of approximately 99%.
This was a result of the comprehensive
review of the facilities and operating
practices in FY2021, and subsequent
work on upgrades and proactive
maintenance, to minimise downtime
and shutdowns and to maximise
backup system availability. Facilities
uptime remains a key focus area for
our operating teams, with a recognition
that for a mature field, production
outcomes are driven to a large extent
by operating reliability.
The high uptime in FY2022 combined
with a continued strong reservoir
performance, led to oil production for
the year of 4.64 MMbbl, slightly above
the upper end of market guidance.
15
US$157.7
MILLION
FY2022 cash and cash
equivalents position
4.64
MMBBL
FY2022 oil production
Nine oil cargoes were sold over the year,
with the June 2022 cargo realising a
record US$55.9 million, reflecting the
sharp rise in oil prices over the year due
to the tightening global supply/demand
balance, in part resulting from the
Russian invasion of Ukraine.
Development projects
After more than 18 months of detailed
planning, the Baúna intervention
campaign commenced in May 2022.
The first of four planned well
interventions, expected to add in total
5,000-10,000 bopd to production,
came onstream in line with expectations
in late June. This first well has continued
to see improving production and as
at mid-August was steadily producing
at approximately 4,000 bopd, more
than double its pre-workover rate.
Preparations for the Patola development,
which is targeted to commence
immediately after the intervention
campaign, are progressing on schedule.
Patola is forecast to add a further 10,000
bopd, taking total expected production
from BM-S-40 in early CY2023
to approximately 30,000 bopd, before
natural decline resumes.
While many of the costs for these
projects remain unchanged, diesel
fuel costs are significantly higher than
budgeted, due to strong crude prices.
Due to this and some delays to the
campaign, forecast costs for the Baúna
intervention program have increased,
to between US$135 - 145 million. Patola
costs have also been impacted by higher
diesel costs and are now estimated at
US$180 - 205 million.
KAROON ANNUAL REPORT 2022
K A R O O N A N N U A L R E P O R T 2 0 2 2
LETTER FROM OUR CHAIRMAN & CEO
CONTINUED
During the year, we committed to
drilling up to two control wells on the
Neon discovery following the Patola
wells, subject to the receipt of required
regulatory approvals. A decision on
whether to proceed into concept select
and a detailed engineering evaluation
of a potential Neon development is
targeted to be taken following analysis
of the drilling results. If the new wells
demonstrate that sufficient recoverable
volumes exist within Neon, there are
several potential development scenarios
being considered, including a tieback to
the existing (or a new Neon-optimised)
Baúna FPSO and a standalone FPSO
concept at Neon.
Sustainability
Health & Safety
Karoon’s highest priority is safe and
reliable operations, with the Company’s
HSSE culture and practices led by the
Board (on advice from the Sustainability
and Operational Risk Committee) and
the executive team. During FY2022,
we continued to embed our values
and expectations with our staff and
contractors, with a focus on maintaining
a safe and healthy work environment
and protecting the natural habitats in
which we work.
Managing COVID-19 remained one of
the Company’s biggest challenges during
the year. Despite stringent testing and
quarantine procedures, there was an
outbreak of COVID offshore on the FPSO
and the Maersk Developer rig in the first
half of CY2022. Fortunately, none of
the cases required hospitalisation and
many were asymptomatic, with Karoon’s
COVID-19 management plans ensuring
that production was not impacted.
With a resurgence in COVID-19 occurring
in Brazil, as in many parts of the world,
COVID-19 prevention and control will
continue to be a major focus for the
Company in FY2023.
Disappointingly, four Lost Time Incidents
were recorded during the year leading to
a total recordable incident rate (TRIR) of
0.77. While we believe that all incidents
are preventable and we take each very
seriously, we were fortunate that none of
the incidents has had a long-term effect
on the individuals impacted. Each LTI was
comprehensively investigated, and the
lessons learned were thoroughly applied
to our current and future operations.
There were no material environmental
incidents during the year. We give our
environmental responsibilities the
highest attention, with an ongoing
program of preventive maintenance
and infrastructure upgrades combined
with regular analysis and implementation
of potential improvement projects
helping to maintain our performance.
Environment & Climate Change
A major component of the Strategic
Refresh was dedicated to reviewing
our sustainability programs and our
approach to the issue of climate change
and the global energy transition.
During the year, we released short and
long-term targets, to be carbon neutral
from FY2021 onward on Baúna-Patola
and Net Zero by 2035 for Scope 1 and 2
GHG emissions.
To achieve these objectives, we have
developed a Carbon Management Action
Plan. Our first priority is to avoid or
reduce emissions within our operations.
The installation of a new mooring
buoy was completed and a project
to reduce operational emissions by
optimising scheduling of support vessels
implemented during the year, leading
to a total reduction of more than 2,850
tCO2e. We have also been assessing
investments in high quality projects
to offset future residual emissions.
Given the rapidly evolving global
carbon market and the long-dated
nature of finding appropriate projects,
the Company has agreed to purchase
more than 480,000 high quality verified
emission reduction credits between
2022 and 2030 from Shell Western
Supply and Trading Limited, to offset
an estimated 60% of total Baúna-Patola
Scope 1 GHG emissions. We have since
purchased additional carbon offsets to
become carbon neutral for FY2021 on
Baúna Scope 1 GHG emissions and, until
we develop or acquire our own projects,
intend to continue acquiring sufficient
offsets to be carbon neutral.
Work took place on quantifying Scope
3 emissions, which are disclosed for the
first time in our Sustainability Report,
and external assurance on Scope 1
and 2 emissions was also completed
in FY2022.
>2,850
tCO2e
Reduction of operational
emissions during the year
>480,000
Credits
high quality verified emission
reduction credits purchased
between 2022 and 2030
Social programs
In 2022, we submitted our first Modern
Slavery Statement and sponsored four
new voluntary social-environmental
projects in Brazil. These projects seek
to provide a range of positive social
and environmental outcomes. This
includes the provision of employment
for vulnerable individuals, providing
access to recycling facilities to reduce
landfill waste, increasing awareness and
knowledge of indigenous and traditional
culture, protecting endangered species,
and providing education opportunities
for disadvantaged children centred on
music and citizenship.
More details on these activities are
contained in our FY2022 Sustainability
Report, which is the first time the Company
has produced a standalone report.
Governance
The Board recently conducted its first
face-to-face meetings in Brazil since
the COVID-19 pandemic restricted travel.
Apart from conducting our normal Board
and committee business, directors
took the opportunity to meet with
key regulators, political leaders, other
E&P entities, and external auditors. In
addition, directors inspected the FPSO
and the Maersk Developer rig, and met
key representatives from our major
contractors, Maersk Drilling, TechnipFMC
and Altera&Ocyan. Board members also
visited and gained insights into our
environmental and social programs.
16
The key takeaways were the high-
quality capabilities of our workforce,
the opportunities for growth in Brazil,
the ready availability of world class
contractors, and the sophisticated,
stable regulatory regime governing
the Brazilian oil and gas operating
environment.
“We expect to finalise the Baúna
intervention program in CY2022
and the Patola development
drilling, completion and tieback
by early CY2023, to be followed
by the Neon control well drilling.”
Outlook for FY2023
FY2023 will be a busy year operationally
for Karoon. We expect to finalise the
Baúna intervention program in CY2022
and the Patola development drilling,
completion and tieback by early CY2023,
to be followed by the Neon control
well drilling. If the Baúna and Patola
wells are successful, we anticipate that
Baúna production in FY2023 could be
between 7 and 9 MMbbl, which should
drive materially higher cash flows for the
Company than in FY2022, subject to oil
prices and general economic conditions.
The Company also plans to continue
to seek value-accretive inorganic
growth opportunities.
who joined in September and October
2021, respectively, have had a strong
positive impact on the organisation,
strengthening our operating and
financial capability, regulatory relations
and ensuring high levels of governance.
Most importantly we wish to thank you,
our shareholders, for your continued
loyalty and support.
Bruce Phillips
Chairman
Julian Fowles
CEO and MD
Scope 1 and 2 GHG emissions will increase
in FY2023 due to higher activity levels
as we undertake the interventions and
Patola development but are expected to
reduce once the Maersk Developer rig
activities have been completed. We will
continue to focus on reducing emissions
within our operations and on acquiring
offset projects in Brazil or Australia.
Conclusion
Finally, we wish to say thank you to
our Board colleagues for their guidance
and support during what was a very
busy year.
We are sure you will also join us in
thanking the management team, and
indeed all of the talented and dedicated
people across our business, for their hard
work and dedication during difficult times.
In particular, our new senior executives,
EVP and CFO, Ray Church, and EVP and
President Brazil, Antonio Guimarãe
17
KAROON ANNUAL REPORT 2022
FI N A N C IA L OV ERV I E W
Karoon’s 2022 financial results benefited from the first full year of Baúna operations and strong realised
oil prices. This resulted in underlying earnings before interest, tax, depreciation and amortisation (EBITDA)
and an underlying net profit after tax (NPAT) of US$205.2 million and US$89.6 million, respectively.
Despite the commencement of expenditure on the Baúna intervention and Patola development projects
and the final firm payment for the Baúna asset, the Company finished the year with cash and cash
equivalents, net of US$30 million of drawn debt, of US$127.7 million and liquidity of US$337.7 million.
Crude oil liftings
Nine oil cargoes were lifted from Baúna in
FY2022, totalling 4.54 MMbbl, compared
to six cargoes lifted (2.90 MMbbl) in
FY2021. The increase reflected Karoon’s
first full year of operations since the
acquisition of Baúna on 7 November 2020
and high levels of operations uptime. The
Company realised a weighted average
price, net of selling expenses, of US$84.74/
bbl, compared to US$59.00/bbl in FY2021,
due to stronger global crude oil prices and
the expansion of buyer markets for Baúna
crude, which now include Europe, Asia and
North and South America.
Profitability
Crude oil sales revenue from the cargoes
lifted was US$385.1 million, resulting in a
statutory gross profit of US$193.4 million
(FY2021: US$59.4 million). Adjusting
production costs to reflect the FPSO
charter lease, unit production costs for
the period were US$25.36 per barrel
(2021: US$25.11 per barrel). Consequently,
underlying EBITDA grew to US$205.2
million (FY2021: US$61.1 million) and
underlying NPAT for the financial year
increased to US$89.6 million (2021:
US$21.4 million).
The Company reported a statutory net
loss after tax of US$64.5 million (2021:
statutory net profit after tax US$4.4
million), which was impacted by several
factors, including:
• An increase in the fair value of the
contingent consideration payable
to Petrobras of US$227.1 million
(US$149.9 million net of deferred tax),
due to an increase in Karoon’s future
oil price expectations. At 30 June
2022, the contingent consideration
payable to Petrobras, which is
dependent on future oil prices each
calendar year from 2022 to 2026
inclusive, was estimated at
US$298.3 million (reflecting the
maximum payment of US$285 million
plus accumulated interest, and
discounted using an appropriate rate).
• Realised losses on cash flow hedges
of US$11.8 million, required under the
terms of our syndicated loan facility.
See FY2022 Financial Summary on
page 19 for full details.
Cash flows
Over FY2022, cash receipts from oil sales
were US$363.0 million and operating
activities generated net cash inflows of
US$154.2 million (2021: US$29.8 million).
Significant operating cash payments
for the year included the following:
• Payments to suppliers and employees,
including production costs, of
US$117.0 million (2021: US$56.5 million).
•
Income tax of US$39.4 million
(2021: US$10.8 million).
• US$20.8 million (2021: nil) of out
of the money oil hedges and upfront
hedge premiums.
• Finance-related interest and other
costs, predominantly relating to
finance charges on the FPSO lease, of
US$18.9 million (2021: US$13.2 million).
US$113.0 million (2021: US$169.2 million)
was applied to the following investing
activities during the year:
• Capital expenditure relating to
the Baúna intervention campaign,
Patola development and ongoing
field maintenance of US$59.6 million
(2021: US$16.0 million).
• Deferred consideration paid to
Petrobras for the Baúna acquisition of
US$43.6 million (2021: US$150 million
for the Baúna completion payment).
• US$5.8 million (2021: US$0.2 million)
of capitalised borrowing costs
associated with the Company’s
loan facility.
Financial position
In preparation for the commencement
of the Baúna intervention campaign
and Patola development, in November
2021, Karoon closed its first debt
facility, a US$160 million reserve-based,
non-recourse facility, and made an
initial drawdown of US$30 million.
The facility, with a high-quality lender
group comprising Deutsche Bank, ING,
Macquarie and Shell, represents a cost-
competitive funding source. In April
2022, the Company expanded the facility
through a US$50 million accordion,
increasing its total debt facilities to
US$210 million.
18
US$363
million
receipts from oil sales
US$117
Million
Payments to suppliers
and employees, including
production costs
US$39
Million
Income tax paid
US$60
Million
cash payments on Baúna
and Patola developments
At 30 June 2022, US$180 million remained
undrawn which, together with cash and
cash equivalents of US$157.7 million,
provided total liquidity of US$337.7 million.
To support the loan facility, the
Company entered into Brent oil price
cash flow hedges covering the period
from December 2021 to March 2024.
The hedging program is designed to
protect operating cashflows against the
risk of lower oil prices, allowing for debt
repayments, while retaining upside price
exposure on the unhedged volumes.
Refer to pages 43-45 of the Directors’
Report for further discussion of the
results, cash flows and changes to the
Group’s financial position.
KAROON ANNUAL REPORT 2022 FY2022 Financial Summary
YEAR TO 30 JUNE
Production volume (MMbbl)
Oil sales volume (MMbbl)
Unit production costs1 ($/bbl)
Weighted average net realised price ($/bbl)
Sales revenue
Underlying EBITDA2,3,5
EBITDA2,3
Net interest and other finance costs
Depreciation and amortisation4
Underlying net profit before income tax2,5
Underlying net profit after income tax2,5
Net profit/(loss) after income tax
Operating cash flows
Net assets
Investment Expenditure:
– Baúna intervention and Patola CAPEX6
– Exploration and evaluation expenditure and new ventures7
– Other plant and equipment8
2022
4.64
4.54
25.36
84.74
US$ MILLION
385.1
205.2
(28.4)
5.7
55.7
143.8
89.6
(64.5)
154.2
276.2
92.0
6.5
5.0
2021^*
3.14
2.90
25.11
59.00
US$ MILLION
170.8
61.1
11.4
1.7
37.6
21.8
21.4
4.4
29.8
380.3
18.6
7.1
6.0
^ Reflects Baúna operations from 7 November to 30 June 2021 and is therefore not directly comparable.
*
FY2021 underlying NPAT has been restated from US$33.4 million to US$21.4 million, to include the tax effect of underlying adjustments.
1. Unit production costs are based on operating costs as disclosed in Note 5(a) of the financial statements adjusted for depreciation on the FPSO
right-of-use asset and related finance cost to reflect the accounting expense related to the FPSO charter lease.
2. EBITDA (earnings before interest, tax, depreciation, depletion, and amortisation), underlying EBITDA, underlying net profit before tax, and
underlying net profit after tax are non-IFRS measures that are unaudited but are derived from figures within the audited financial statements.
These measures are presented to provide further insight into Karoon’s performance.
3.
Includes depreciation on FPSO charter lease right-of-use asset and finance charges on the FPSO right-of-use lease refer Note 1 above.
4. Excludes depreciation on FPSO charter lease right-of-use asset refer Note 1 above.
5. Underlying EBITDA, underlying net profit before tax (‘NPBT’) and underlying net profit after tax (‘NPAT’) have been adjusted for the following items:
YEAR TO 30 JUNE
Change in fair value of contingent consideration
Realised losses on cash flow hedges
Foreign exchange losses/(gains)
Employee restructure cost
Baúna transition costs
Legal settlement
Impairment and inventory write-down
Total adjustments to EBITDA and NPBT
Initial recognition of historical Brazilian tax losses and temporary differences
Impact of tax on adjusting items
Total adjustments to NPAT
2022
US$ MILLION
227.1
11.8
(6.2)
0.9
-
-
-
233.6
-
(79.5)
154.1
2021
US$ MILLION
6.6
-
17.1
-
15.7
9.6
0.7
49.7
(20.7)
(12.0)
17.0
6. Excludes Baúna acquisition costs and capitalised borrowing costs associated with the Patola development.
7.
Includes exploration and evaluation capitalised and exploration, evaluation and new venture expenses.
8. Excludes leased right-of-use asset additions.
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KAROON ANNUAL REPORT 2022 K A R O O N A N N U A L R E P O R T 2 0 2 2
PRO D U C TI O N A N D D E V ELO PM ENT
Karoon produced 4.64 MMbbl of oil from Baúna in FY2022. Health, Safety, Security and
Environment, and operational efficiency metrics were also sound, which, given the continued
significant challenges from COVID-19 over the year, was a substantial achievement. In November
2021, Karoon celebrated its first full year as an oil operator, having produced oil safely, reliably
and responsibly without any serious incidents over this period, with the solid operating
performance continuing through the balance of FY2022.
20
Production and sales
FY2022 production performance
FY2022 oil production from Baúna,
comprising the Baúna and Piracaba
fields in BM-S-40 located approximately
220 kilometres offshore Brazil in the
southern Santos Basin, was 4.64 MMbbl.
Production benefited from facilities
uptime of 97% including an 8-day shut-
down for scheduled maintenance, or 99%
excluding the shut-down. This excellent
level of uptime reflected the success
of the improved maintenance and pre-
emptive facilities integrity programs,
which were implemented by Karoon
and the FPSO operator, Altera&Ocyan,
in FY2021 and continued during FY2022.
Báuna reservoir performance was also
strong, consistently in line with or above
expectations over the year, with the
wells exhibiting lower than expected
decline rates. A key focus for the Karoon
production and operations teams
is to continue to optimise the wells
and topside configurations to
maximise output.
During the year, several activities took
place to ensure the ongoing integrity
of the production facilities. These
included undertaking mooring chain
repairs, replacing the forward offloading
hose and refurbishing three turbine
generators on the FPSO. In addition, a
new mooring buoy for Baúna support
vessels was installed, which is also
helping to reduce diesel consumption
while the vessels are stationary.
Safety and environmental
performance
Karoon is committed to delivering a
safe work environment for its staff and
contractors in both its onshore and
offshore operations. Safety and safe
outcomes continue to be emphasised as
a priority in all the Company’s operations,
and education regarding the importance
of following procedures and keeping
training up to date is provided to staff
and contractors on an ongoing basis.
Period
Production (MMbbl)
Number of cargoes
Sales volume (MMbbl)
Weighted average realised price (US$/bbl)
Note: Numbers may not add up due to rounding.
Monthly production rate, BM-S-40 (Baúna and Piracaba fields)
15,000
12,000
9,000
6,000
3,000
)
D
P
O
B
I
(
E
T
A
R
N
O
T
C
U
D
O
R
P
0
Jul 21
A ug 21
Sep 21
O ct 21
N ov 21
D ec 21
Jan 22
Feb 22
M ar 22
A pr 22
M ay 22
Jun 22
Notes:
• Nine day scheduled shut-down took place in March 2022.
• Baúna intervention campaign commenced in May 2022.
Unfortunately, four Lost Time Incidents
occurred during the year:
• A third-party contractor injured the tip
of a finger while handling a pneumatic
torque tool on the FPSO.
• A cook slipped in the galley onboard
the FPSO, fracturing their elbow.
• A third-party contractor onboard a
support vessel slipped and fractured
a rib.
• An employee onboard the FPSO
twisted their ankle which was
subsequently identified as a fracture.
All incidents underwent a thorough
investigation process and targeted
safety campaigns were subsequently
implemented.
The Company’s stringent COVID-19 safety
protocols continued to be implemented.
These include encouraging all staff to be
vaccinated and receive booster doses as
they become available, as well as regular
testing and isolation protocols for those
that test positive.
Unfortunately, despite these precautions,
there was an outbreak of COVID-19
during the year, including 69 cases
detected onboard the FPSO, and 45
on the Maersk Developer rig. Fortunately,
no cases required hospitalisation and
production was unaffected.
In line with Karoon’s commitment to
minimise its environmental impact,
protect biodiversity and seek continuous
improvement in operations, the Company
continued to implement careful
planning and monitoring to seek to
ensure compliance with environmental
regulations and licence requirements.
FY2022 oil sales
Nine oil cargoes were lifted from Baúna
over FY2022, totalling 4.54 MMbbl.
The average realised price, net of selling
expenses, was US$84.74/bbl, compared
to US$59.00/bbl realised for FY2021,
reflecting the strength in global oil prices
due to the tightening supply and demand
balance and the invasion of Ukraine
by Russia.
The cargoes, marketed by Shell Western
Supply and Trading Limited (a member
of the Royal Dutch Shell Plc group),
were sold to a range of customers in
South America, North America, Europe
and Asia, with each cargo well bid for,
highlighting the attractiveness of the
Baúna light sweet crude.
September
Quarter
2021
December
Quarter
2021
1.23
3
1.53
75.44
1.28
2
1.04
68.00
21
March
Quarter
2022
1.05
2
0.99
95.02
June
Quarter
2022
1.08
2
0.98
107.52
FY2022
4.64
9
4.54
84.74
KAROON ANNUAL REPORT 2022
PRODUCTION AND DEVELOPMENT
CONTINUED
FY2023 Outlook
Planned activities in FY2023 include
the following:
• Completion of the intervention
campaign on Baúna and operational
ramp-up to full production.
• Drill and complete two Patola wells,
install Patola subsea infrastructure
components and tie into the
Baúna FPSO.
• Complete a Reserves and Resources
reassessment.
• Replace the aft offloading hose.
Patola development
Immediately following the Baúna
intervention program, the rig is planned
to move to the Patola field, which is
located adjacent to the Baúna and
Piracaba accumulations, within BM-S-40.
The development of Patola comprises
drilling two subsea production wells,
the installation of subsea infrastructure
and tying back the wells to spare riser
slots on the Baúna FPSO. First oil is
targeted for the first quarter of CY2023.
During FY2022, key contracts for the
Patola development continued to be
negotiated and locked in, and the design
and manufacture of infrastructure
and specialised tools progressed on
schedule. In addition, the pipelaying
vessel was nominated and approval was
received from the Brazilian authorities
for the connection of the two Patola
wells to the FPSO.
The Patola development is expected
to come onstream at an initial rate of
more than 10,000 bopd, which would
take total production in early 2023
to approximately 30,000 bopd,
prior to natural decline resuming.
Development
Baúna intervention campaign
The Baúna intervention program
commenced in May 2022, representing
the culmination of more than 18 months
of detailed planning by Karoon teams
and contractor partners in Australia
and Brazil. The intervention campaign,
which is aiming to add 5,000 – 10,000
bopd to Baúna production, presently
comprises the installation of new electric
submersible pumps (ESPs) in the PRA-2
and SPS-92 wells, installation of gas-lift
equipment in SPS-56 and re-opening
the lower zone of the BAN-1 well.
The Company’s key priority is to deliver
this campaign safely, efficiently and
on schedule.
In early May 2022, the Maersk
Developer rig, operated by Maersk
Drilling, arrived on location in the
Baúna field following the receipt of
all required permits and regulatory
approvals. The first intervention, in
PRA-2, was completed in late June,
with the installation and commissioning
of a new ESP. This new artificial lift
system has increased production from
1,900 bopd prior to the intervention
to approximately 4,000 bopd as at
August 2022.
As at August 2022, the second workover,
on SPS-56, was ready to be brought back
online with the third intervention in
SPS-92, underway.
22
KAROON ANNUAL REPORT 2022 BRAZIL
Map area
Rio de Janeiro
São Paulo
SANTOS BASIN
Itajaí
Shorebase
Florianópolis
Goiá
Neon
Baúna
50km
50km
Clorita
BM-S-40
SPS-93
Piracaba
PRA-1
SPS-57
PRA-2
SPS-92
Baúna
SPS-56
BAN-1
SPS-87D
PRA-3
Planned PAT-1
Planned PAT-2
SPS-91
Patola
125 km
SPS-88
SPS-89
23
LEGEND
Production well
Injection well
Temp. abandoned
oil producer
Temp. abandoned
oil discovery
FPSO
Flowlines
Producing oil field
Oil discovery
Karoon block
2 km
KAROON ANNUAL REPORT 2022 K A R O O N A N N U A L R E P O R T 2 0 2 2
S U B S U RFAC E E VA LUATI O N
A N D N E W V ENTU RES
Following the Strategic Refresh, Karoon has commenced implementing its corporate strategy to build
near and medium-term production through value-accretive, organic and inorganic growth opportunities.
The main focus for Karoon’s Subsurface and New Ventures team during FY2022 was on re-evaluating the Neon
discovery and actively assessing merger and acquisition opportunities. The Company also continued to study
near-field exploitation targets, which have the potential to bring incremental production into the existing
facilities, building on the Baúna production asset.
24
Subsurface evaluation activities
Brazil
• Confirm the reservoir quality in crestal
field areas.
Santos Basin, Blocks S-M-1037, S-M-1101
100% Equity Interest, Operator
During FY2022, extensive work was
undertaken by Karoon’s technical teams
on the 100% owned Neon oil discovery,
aimed at improving the economics of a
potential development. The re-evaluation
of Neon, which is located 60 kilometres
northeast of Baúna, considered updated
subsurface geological and reservoir
simulation modelling, drilling well design
modelling and a range of alternative
development concepts. The results of
the studies, together with financial and
economic analyses, confirmed that a
Neon development presents a potentially
attractive investment option for Karoon.
In April 2022, Karoon committed to
drilling a control well and, subject to the
results of that well, a second control well
at Neon, with the following objectives:
• Establish reservoir continuity and
calibrate predictive models.
• Narrow the range of oil:water contact
and field limit uncertainty.
• Provide key data for the calibration
of production performance
expectations.
• Determine fault characteristics.
• Test potential upside in deeper
reservoirs.
Subject to the receipt of required
environmental approvals, the control
well(s) will be drilled by the Maersk
Developer rig following the drilling
and completion of the two Patola
development wells.
Preliminary development options
envisage Neon oil being produced
through a number of subsea wells,
tied back to either a standalone local
FPSO, or to the existing (or potentially
a new, Neon-optimised) FPSO at Karoon’s
producing Baúna oil field. Reservoir
simulation modelling estimates that
the Neon field could commence
production at an initial oil plateau rate
of potentially 30,000 to 50,000 bopd.
If the control well drilling is successful
and indicative development returns
meet internal hurdle rates, the project
is anticipated to proceed through
Concept Select and into Front End
Engineering and Design, before a
potential Final Investment Decision.
The re-evaluation of Neon also included
a study of the nearby Goiá discovery and
Neon West prospect, which potentially
could provide incremental resource to
a Neon development. These opportunities
are both 100% owned by Karoon and
would be partially de-risked if the control
well drilling results at Neon are positive.
Santos Basin, Block S-M-1537
100% Equity Interest, Operator
Geological and geophysical studies
continued over the year on Block
S-M-1537, located 50 kilometres south
of Baúna. Activities were focused on
de-risking the Clorita prospect, which
is targeting the same high quality
Oligocene turbidite reservoirs seen
in the Baúna field to the north.
Peru and Australia
During FY2022, Karoon advanced its
withdrawal from exploration interests
in Peru and Australia, in line with its
strategy to exit greenfield exploration.
25
KAROON ANNUAL REPORT 2022 BRAZIL
Map area
Rio de Janeiro
São Paulo
SANTOS BASIN
Itajaí
Shorebase
Florianópolis
Goiá
Neon
Baúna
50km
50km
Clorita
S-M-1037
Neon West
Emu-1
Potential control well 2
Neon
Echidna-1
Planned control well 1
S-M-1101
LEGEND
Discovery well
Dry hole
Proposed control well
Oil discovery
Prospect/lead
Salt zone
Karoon block
10 km
125 km
Kangaroo
West-1
Kangaroo-1
Goiá
Kangaroo-2
26
KAROON ANNUAL REPORT 2022 SUBSURFACE EVALUATION AND NEW VENTURES
CONTINUED
Peru
Karoon decided not to proceed into
the Fourth Period for Block Z-38 in the
Tumbes Basin, and the concession
agreement was terminated in July 2021.
The termination of the Area 73 Technical
Evaluation Agreement was completed
in September 2021, following Karoon’s
decision not to negotiate a licence
contract.
Australia
After completing geological and
geophysical studies and work programme
commitments on reprocessed 3D seismic
data on WA-482-P in the Northern
Carnarvon Basin, the WA-482-P Joint
Venture applied to the National Offshore
Petroleum Titles Administration (NOPTA)
to surrender the permit.
Karoon applied to surrender Permit
EPP46 in the Ceduna Sub-basin, Great
Australian Bight, in late 2019 and the
permit was cancelled in September 2021.
WA-315-P and WA-398-P contingent
payments
At the end of FY2022, deferred
contingent milestone payments relating
to Karoon’s sale of a 40% interest in
permits WA-315-P and WA-398-P in the
Browse Basin, including the Poseidon gas
discovery, to Origin Energy Browse Pty
Ltd in June 2014, remained outstanding.
These contingent payments comprise
US$75 million due at FID, US$75 million
due at first production and a resource
step-up payment of up to US$50 million
payable on first production.
New Ventures activity
Over the year, Karoon’s New Ventures
team actively screened a range of high-
quality inorganic growth opportunities.
The team uses a rigorous process with the
following key asset selection priorities:
• Value accretive, exceeding Karoon’s
return threshold.
• Producing or at least at FID stage
in the case of a pre-production asset.
• Fundable.
• Complementary to Karoon’s footprint
and/or capabilities.
• Compatible with Karoon’s carbon
targets.
• Any acquisition must be balanced
against the return of capital
to shareholders.
F Y2023
O U TLO O K
Planned activities in FY2023 include
the following:
Evaluation of strategic merger and
acquisition opportunities.
Detailed planning for, and
implementation of, control well drilling
at Neon.
Assessment of organic growth
opportunities.
Integration of the well drilling
results into the Neon commercial
model, which will inform any future
investment decision.
27
KAROON ANNUAL REPORT 2022
K A R O O N A N N U A L R E P O R T 2 0 2 2
S U S TA I N A B I L IT Y
Sustainability touches all areas of our business, playing a major role in our decision making as
we build a future delivering energy through safe, reliable and responsible operations. As an oil
producer, Karoon faces the challenge of continuing to participate in providing the world with
a much-needed secure and reliable supply of oil while also being committed to reducing our
carbon emissions and delivering value for our stakeholders.
PRO CREP Social Environmental Project
28
Our Approach to
Sustainability
Karoon considers a successful approach
to sustainability to be a key enabler
to the overall success of our Company
strategy. This was particularly evident
during our 2021 Strategic Refresh, the
results of which are summarised in our
investor presentation of 28 October
2021. Sustainability was a core element
in decision-making throughout the
Refresh process, culminating in the
definition of Karoon’s five core pillars
of sustainability:
1. Health, Safety and Security
2. Climate
3. People and Culture
4. Community
5. Environment
Our five pillars of sustainability are
closely tied to Karoon’s Corporate
Purpose, Vision and Mission, which
focus on providing energy in a dynamic
world through safe, reliable and
responsible operations.
Managing Sustainability
Risks and Opportunities
Karoon understands that the careful
management of risks and opportunities
is critical to achieving a successful
and sustainable business. Karoon’s
risk management framework is well
established and is regularly reviewed
and updated as the business grows and
we seek to respond to the expectations
of our key stakeholders.
The Board ultimately has responsibility
for risk management at Karoon, assisted
by a number of committees:
• The Audit and Risk Committee (ARC)
assists the Board in discharging
its oversight responsibilities with
respect to overall risk identification
and management, including the
Corporate Risk register and all aspects
of Karoon’s financial reporting.
• The Sustainability and Operational
Risk Committee (SORC) assists the
Board in fulfilling its responsibility
for operational risk oversight
and management and fostering a
culture of sustainability and social
responsibility. This includes Health,
Safety, Security and Environment
(HSSE), Climate Change Strategy,
Social and Environmental projects,
regulatory compliance and Karoon’s
operating management system (OMS).
The committee also has oversight of
Karoon’s Operational Risk Register.
• The People, Culture and Governance
Committee (PCGC) assists the
Board in discharging its oversight
responsibilities for Karoon’s corporate
governance framework to attract,
retain and drive high performance
in all employees.
Executive Remuneration is linked to
financial, operating and sustainability
outcomes, with all employees motivated
to achieve success. Refer to our
Remuneration Report on pages 48-68
for a comprehensive description of
individual key management personnel
(KMP) and corporate performance
benchmarks and outcomes.
Health and Safety
People are the heart of our business
and their safety is our priority.
We strive to ensure that our commitment
to safe, reliable and responsible
operations is evident throughout all
our projects and activities. Karoon
works closely with the Baúna FPSO
operator, Altera&Ocyan, to deliver
on Karoon’s commitment to health,
safety, security and environment and
embed a safety-first culture throughout
the Baúna operations.
No Medical Treatment Injuries
or Restricted Work Cases were
recorded during the reporting
period and no fatality has ever been
recorded in Karoon’s operations.
Unfortunately, we did record four
Lost Time Incidents (LTIs) during
the reporting period, resulting in
a LTI rate (LTIR) equal to our Total
Recordable Incident Rate (TRIR),
of 0.77.
In 2021, Karoon contracted the Maersk
Developer rig, owned and operated by
Maersk Drilling, to undertake a series
of activities in Baúna, Patola and Neon.
These activities are the first for Maersk
Drilling in Brazil and Karoon spent almost
a year planning with Maersk to align the
rig operations to Karoon’s safety culture.
During its first full year of operations on
Baúna, Karoon was able to successfully
navigate operational challenges without
any major incidents or injuries, due to our
focus on health and safety, engagement
with stakeholders and compliance with
applicable laws and regulations.
29
No Medical Treatment Injuries (injuries
requiring more than basic first aid but
not resulting in any days away from work)
or Restricted Work Cases were recorded
during FY2022 and no fatality has ever
been recorded in Karoon’s operations to
date. Unfortunately, we did record four
Lost Time Incidents (LTIs) during FY2022,
resulting in a LTI rate (LTIR) equal to our
Total Recordable Incident Rate (TRIR),
of 0.77.
While Karoon is proud of our strong
safety record, we are always striving for
continuous improvement. In FY2023, we
intend to commence a new Safety Culture
research and development project on the
Maersk Developer rig to educate workers
while also investigating ways to improve
safety outcomes through better safety
culture and behaviours.
Managing the impacts of COVID-19
While the COVID-19 pandemic continued
to have a global impact during FY2022,
Brazil experienced significantly less
cases and deaths related to COVID-19
compared to the prior year. Despite a
dramatic spike in cases due to the arrival
of the Omicron variant in January 2022,
which also resulted in a number of
cases onboard the Baúna FPSO and
the Maersk Developer rig, Karoon has
yet to experience any interruption to
production as a result of COVID-19.
All staff have received at least two doses
of a vaccine and have been encouraged
to receive booster doses as they become
available. While strict COVID-19 protocols
are in place across both operational
sites and offices throughout the
organisation, and despite the strong
commitment to vaccinations, cases
continue to be recorded in Karoon
personnel in both Australia and Brazil.
In respect of offshore operations, testing
is undertaken of all suspected cases
and isolation protocols enacted, with
sanivac (evacuation to shore) services
provided for symptomatic positive cases
identified at offshore facilities.
Thankfully, Karoon has not recorded
any COVID-19 fatalities throughout the
pandemic and no Karoon personnel were
hospitalised due to the disease during
the reporting period.
KAROON ANNUAL REPORT 2022 regularly reviews climate risks, which
are included in our business risk
registers. The SORC typically reviews
climate-related physical risks while the
ARC typically reviews climate-related
transition risks. The SORC has the
ongoing responsibility for monitoring
and overseeing Karoon’s climate-related
goals and targets while the Board
monitors progress against our climate-
related strategy and investments and
has ultimate oversight of Karoon’s
risk management.
Our Strategic Approach
Over FY2022, Karoon has defined and
assessed climate-related impacts for our
business. During our Strategic Refresh,
the influence of climate impacts on all
aspects of Karoon’s business was evident
and helped us identify specific climate-
related risks and opportunities that
will affect our success as we continue
to grow. These will change over time
as our business changes and as the
world around us responds to global
decarbonisation challenges.
Various scenarios and analyses were
considered in the Strategic Refresh
discussions that helped shape our
climate targets, particularly regarding
transition risks and the impact on future
oil demand. The International Energy
Agency’s (IEA) World Energy Outlook
scenarios1 formed the basis of Karoon’s
own analysis, particularly with regard
to projected oil demand. Further
details can be found in our FY2022
Sustainability Report.
Cyber Security
The global rise in cyberattacks and the
professional nature of hacks launched
by cyber-criminal organisations are
presenting enterprises with the
challenge of developing, implementing
and constantly reviewing security
strategies. Operators of critical
infrastructure need to implement
a cybersecurity strategy that ensures
comprehensive protection of their
data, production facilities and critical
IT systems. Protection against specific
cyberattacks is therefore an important
part of the overall IT architecture at
Karoon Energy. No intrusions to Karoon’s
network were detected during FY2022.
Cybersecurity is sustainable when
security resources are implemented,
used, managed and maintained in a way
that does not degrade the performance
level of IT services or deplete over a
period of time due to anything that
affects overall security of networks,
systems, business operations or
organisational performance. Karoon
addresses the cybersecurity challenge
with a four principle approach, based
on reliability, accuracy, architecture and
resilience. (See the FY2022 Sustainability
Report for further details).
Climate
Karoon recognises the global climate
challenges facing the oil and gas industry
and we acknowledge the expectation for
oil and gas companies to play a key role
in the pathway to net zero. We believe we
should seek to reduce our GHG emissions
where feasible and to mitigate what
SUSTAINABILITY
CONTINUED
cannot be removed, thereby helping
with the effort to reduce the impacts
of climate change.
We are determined to deliver safe and
reliable operations that reflect our
deep commitment to acting responsibly
in all aspects of our business. As a
producer, Karoon’s GHG emissions have
become material, going from almost
zero in FY2019 to more than 80,000
tCO2e in FY2022. This presented
us with both a challenge and an
opportunity as we developed our plans
to significantly grow our production,
balanced with our climate-related and
fiscal responsibilities, during our 2021
Strategic Refresh.
The Strategic Refresh marked a
significant milestone in Karoon’s climate
journey. It resulted in a commitment
to Scope 1 and 2 greenhouse gas
(GHG) emissions targets and a Carbon
Management Action Plan. The ambitious
nature of our targets and action plan
demonstrates the high priority Karoon
places on climate action and our
dedication to acting responsibly
to deliver strategic growth. In addition,
Karoon has committed to reporting on
Scope 3 emissions from FY2022. Further
details are available in our Sustainability
Report.
Oversight of Climate-Related
Issues
Karoon takes its climate responsibilities
very seriously, with oversight of the
impact of climate-related risks and
opportunities on decision making
occurring at the Board. The Board
Carbon Neutral FY 2022
Scope 1 and 2 GHG Emissions
Carbon Neutral on
Baúna-Patola* now
Carbon Neutral on new assets
within five years of purchase*
Internal carbon pricing for
new investment decisions
Net Zero 2035
Scope 1 and 2 GHG Emissions
*Scope 1 and 2 GHG emissions
Carbon neutral refers to having a balance between emitting and offsetting greenhouse gas (GHG)
emissions. Achieved through acquiring carbon offsets in respect of Scope 1 and 2 GHG emissions.
Net zero refers to reducing GHG emissions as far as possible and balancing the residual GHG
emissions produced with GHG emissions removed from the atmosphere. To be achieved through
future transition planning in respect of Scope 1 and 2 emissions.
1.
IEA, Oil demand by scenario, 2010-2030, IEA, Paris https://www.iea.org/data-and-statistics/charts/oil-demand-by-scenario-2010-2030
30
KAROON ANNUAL REPORT 2022 Carbon Management Action Plan
Avoid and reduce
First priority is to avoid or
reduce emissions within
existing operations
Assess
investments in
high quality offsets
Assessing investment in high
quality projects to offset
residual emissions
Purchase
additional if needed
Until generating own
offsets, will purchase only
high-quality carbon credits
Internal
carbon pricing
Internal carbon pricing
incorporated into future
investment decisions
Our Strategy
During the Strategic Refresh, Karoon
considered a range of climate-related
issues. The Company has designed a
climate strategy that is aimed at enabling
growth in oil production while also
achieving Scope 1 and 2 carbon neutral
and Net Zero by 2035 climate targets.
A Carbon Management Action Plan was
developed to seek to enable Karoon to
achieve our climate-related targets. The
Plan prioritises avoiding and reducing
emissions, which Karoon believes is
critical for successful climate action.
However, recognising the limitations
of Karoon’s existing facilities with respect
to commercially responsible changes
for reducing emissions, the Plan also
contemplates the ongoing requirement
for carbon offsets. In keeping with our
commitment to responsible action,
the Plan contemplates investment in a
long term supply of high quality offset
projects, ensuring Karoon has a clear
line of sight over the control of those
projects. Karoon implemented action
under each of the four elements of
our carbon management action plan
during FY2022.
The Baúna intervention activities,
Patola development campaign and Neon
control well(s) have a material impact
on Karoon’s absolute Scope 1 emissions
due to the additional emissions from
these operations. Planning began in
2021 to identify potential projects that
could avoid or reduce emissions during
these activities. Karoon’s logistics team
identified an opportunity to optimise the
scheduling of support vessel movements
to provide for more consistent movement
and less wait time, resulting in less
fuel use. This resulted in approximately
380m3 of fuel saved over the period
to end FY2022, reducing Karoon’s
emissions by more than 1,000 tCO2e.
In addition, Karoon’s mooring buoy
project was completed during FY2022.
The mooring buoy enables vessels to
anchor safely without burning fuel.
So far, this project has resulted in fuel
savings, of approximately 680m3, and
reduced emissions by approximately
1,850 tCO2e, bringing the total emissions
reduced or avoided in FY2022 to more
than 2,850 tCO2e.
Importantly, the increased production
expected from the Baúna intervention
and Patola development activities
is aiming to decrease the emissions
intensity of Karoon’s operations so
that the direct emissions generated
to produce each barrel of oil drops
from 15.3 kgCO2e/bbl in FY2021 to
reach levels below 12 kgCO2e/bbl
by the end of CY2023.
Karoon entered a non-binding
Memorandum of Understanding
with Shell to investigate equity and/
or development opportunities for
new Nature Based Solution offset
projects. Karoon is continuing to seek
opportunities for investment in high-
quality offset projects in Australia and
Brazil with other project developers.
Two offset purchase agreements were
entered into during FY2022:
• A long term agreement was signed
with Shell Western Supply and
Trading Limited (SWST) to purchase
more than 480,000 Verified Emission
Reductions (VERs), or carbon credits,
between 2022 and 2030, to offset
>1,000m3
Fuel Saved
Over the period to end FY2022
100%
Baúna FY2021 GHG
Emissions Reduced
or Offset
an estimated 60% of total Baúna-
Patola Scope 1 and 2 GHG emissions
generated from FY2021 to FY2029.
The VERs purchased under this
agreement in 2022 were sourced from
the ‘Tambopata-Bahuaja Biodiversity
Reserve’ project in Peru (VCS ID 1067).
• The remainder of Karoon’s FY2021
Scope 1 emissions were offset through
the purchase of credits from the
Enviro Amazonia project located in
the Acre region of Brazil (VCS ID 1382)
through Climate Impact Partners
(formerly Natural Capital Partners).
As Karoon seeks to grow our business
through organic and inorganic growth
opportunities, it is important that our
investment decisions take into account
our climate-related goals, particularly
with regard to our carbon neutral and
net zero targets.
31
KAROON ANNUAL REPORT 2022 SUSTAINABILITY
CONTINUED
Guarda do Embaú Beach – Palhoça – Santa Catarina
Our Performance
FY2022 is the first that includes a full
year of production activities, increasing
Karoon’s emissions compared to FY2021.
In addition, the Baúna intervention
campaign commenced during the
FY2022 reporting period, which resulted
in an increase in Karoon’s Scope 1
emissions due to the operations of the
Maersk Developer rig and associated
support vessels.
Karoon’s Scope 1 emissions are expected
to rise again in FY2023 due to ongoing
rig operations and related activities.
Karoon’s emission intensity at Baúna
was 15.3 kgCO2e/bbl in FY2021. This
gradually rose over FY2022 as production
followed a natural decline. The intensity
increased over the fourth quarter
of FY2022 as intervention activities
impacted production, bringing our
average emissions intensity up to 18.3
kgCO2e/bbl for FY2022. By completion
of the workover activities and Patola
development the emissions intensity
of our operations is expected to reduce,
with average monthly intensities below
12 kg CO2e/bbl anticipated.
Scope 2 emissions
Karoon’s Scope 2 emissions are indirect
emissions resulting from the use of
electricity in our offices and shorebases.
These form less than 0.1% of our total
Scope 1 and 2 emissions. Karoon’s
FY2021 and FY2022 Australian Scope
2 emissions were offset by Small
Scale Technology Renewable Energy
Certificates purchased through the
Australian Government Clean Energy
Regulator. Karoon’s Australian office has
committed to 100% GreenPower since
the end of CY2021.
tCO2e
Scope 1
Scope 2
Total
Production
(FPSO and Support)
Workover Activities
(Rig and Support)
Offices and
Shorebases
72,445
NA
72,445
10,344
NA
10,344
32
16
65
81
Total
82,805
65
82,870
KAROON ANNUAL REPORT 2022 Scope 3 emissions
Scope 3 emissions are indirect GHG
emissions created either ahead of (Scope
3 categories 1 to 8) or following (Scope 3
categories 9 to 15) Karoon’s operations,
excluding those captured in Scope
2. During FY2022, Karoon examined
each of the eight upstream and seven
downstream Scope 3 categories to
assess which were relevant and material
to Karoon. The results showed that the
two downstream categories related
to the refining and eventual use of
Karoon’s produced oil account for the
overwhelming majority of Karoon’s Scope
3 emissions.
Karoon’s total FY2022 Scope 3 emissions
were estimated to be approximately
2 million tCO2e, making up more than
95% of Karoon’s total GHG emissions.
People and Culture
Karoon values and respects every
employee and is committed to providing
a safe, diverse and inclusive workplace
that enables people to thrive. We strive
to engage and motivate our staff to
achieve the best they can and in doing
so, deliver outstanding results for all
our stakeholders.
We expect the same of our suppliers
and engage with them in our efforts
to prevent unethical behaviour in our
supply chain.
Diversity
Karoon has a diverse team of dedicated
professionals with deep experience,
which is the key to our success. We value
the diversity of thinking that comes not
just from gender diversity but from our
range of nationalities across our Brazilian
and Australian offices and of experiences,
from young interns to experts with more
than 40 years’ experience. The growth
in our business has seen our workforce
grow and change significantly over the
past two years, especially in Brazil.
As of 30 June 2022, Karoon had 109
employees, 46% of whom are female.
This is lower than the proportion at
30 June 2021, primarily due to the
closure of our Peru office which had a
high percentage of females, including
in senior management positions.
Proportion
of females
Target by 2025
As at 30 June 2022
Board
30%
17%
Senior Executive
Group
30%
17%
30%
46%
in place. Karoon encourages employees
and stakeholders to speak up without
fear of intimidation or reprisal and will
protect those that do so. We offer an
anonymous Whistleblower reporting
service, available in both Portuguese and
English, that enables reports to be made
via telephone, email and internet.
Karoon’s Code of Conduct and corporate
policies, including our Whistleblower
Protection Policy, are available on
our website.
In 2022, Karoon submitted our inaugural
Modern Slavery Statement to the
government register under the
Australian Modern Slavery Act 2018
(Cth). This was prepared following a
questionnaire process with each of
our major suppliers to identify potential
risks in our supply chain.
During FY2022, Karoon carried out a
review of our community engagement
programs to assess engagement with
indigenous communities impacted by our
operations. This review found that there
are no traditional owner communities
specifically impacted by our operations
in Brazil. We also engaged with our
material suppliers to assess traditional
owner risks in our supply chain.
Contributing to Local Economies
Karoon is pleased to support the local
Brazilian economy. During FY2022, more
than US$5 million was paid in local
wages to our staff in Brazil. As a result
of our success in operating safely and
reliably in a period of high oil prices,
Karoon increased our government
spending on taxes and royalties from
approximately US$21 million in FY2021
to more than US$80 million in FY2022.
The percentage of female employees
across the group is well above our target
of 30% by 2025. Karoon is continuing
to work toward reaching our gender
diversity targets at Board and executive
leadership level.
Our diversity objectives are reviewed
annually by the Board through the
PCGC and extend beyond gender
diversity targets.
Staff Engagement
Karoon strives to be an employer of
choice, attracting and retaining talented
staff with different backgrounds, skills
and experience. We do this by engaging
with our staff, aiming to offer them a safe
and respectful workplace where they
can be challenged and motivated,
knowing they are a valued member
of the Karoon team.
In keeping with our philosophy of
continuous improvement, Karoon
receives and offers staff feedback
regarding performance on an ongoing
basis and through a more formal annual
review process. This occurs throughout
the Company, at all levels including the
Board. This process provides a positive
opportunity to find ways to improve
individual and Company outcomes.
During FY2022, Karoon established a
new Staff Development Protocol with
the aim of building a high performing
organisation populated with individuals
that possess fit-for-purpose skills and
are good leaders.
Operating with Integrity
and Respect
Karoon strives to foster a culture
that values operating safely and with
integrity, collaboration, commitment
and respect. Where any member of our
team or any of our stakeholders have
a concern that business is not being
conducted in accordance with our Code
of Conduct, grievance mechanisms are
33
KAROON ANNUAL REPORT 2022 Community
Karoon believes that a successful
project should contribute to an
improved quality of life for our people
and the communities impacted by our
operations. Karoon recognises the
importance of establishing transparent
relationships with all our stakeholders.
We understand that building these
relationships from a foundation of
respect and integrity, two of our core
values, is critical to our goal of delivering
safe, reliable and responsible operations.
Karoon’s major social monitoring project,
called Project RUMO, continued during
FY2022. The acronym RUMO is the
same in Portuguese and English and
stands for ‘Resilience and Union for
Marine Organisation’. The project seeks
to investigate the use of the maritime
zone and the coastal space of the Itajaí-
Açu River estuary, providing valuable
information to help plan for the safe and
economically efficient use of the river
going forward.
During FY2022, Karoon began to develop
our voluntary investment program with
projects concentrating on at least one
of three important areas: Education,
Sustainable Economic Development
and Biodiversity. These voluntary
investments go beyond legal obligations
and are in line with our commitment
to generate positive impacts on society
and the environment.
Four projects have been identified to
date, three of which are located around
the Serra do Tabuleiro State Park, one
of the state parks protected through
Karoon’s governmental environmental
compensation contributions. The Serra
do Tabuleiro State Park sits within Mata
Atlântica, the Atlantic Forest, and is the
largest fully protected conservation unit
in the state of Santa Catarina, where our
Itajaí shorebase is located. The Serra do
Tabuleiro State Park is considered an
area of extreme biological importance
for the conservation of the Atlantic
Forest and each of Karoon’s projects
aims to empower people in local
communities while also protecting
this area of Mata Atlântica.
SUSTAINABILITY
CONTINUED
Creating Sustainable Economic
Opportunities in Local
Communities
Pró-CREP (Create, Recycle, Educate,
Preserve) is a social environmental
project that provides work with steady
income to 64 families in socially
vulnerable situations. In addition,
Pró-CREP aims to protect the
environment by raising awareness of the
correct methods of recycling, by building
and supplying recycling containers to
be installed in the communities that
are located around the border of the
Serra do Tabuleiro State Park.
The Pró-CREP facilities include a
Container Production Workshop and a
waste recycling centre which provides
equipment for waste to be repurposed
and a small retail area where recycled
goods are sold. Pró-CREP will reduce the
amount of solid waste going to landfill
in the local area by up to approximately
82 tonnes per month.
The income generated from the sale
of containers will be used to increase
production and ensure the project is
sustainable, expanding to include at least
12 more families over the coming year.
Protecting Indigenous and
Traditional Culture
The Atelie Tabuleiro project aims to raise
awareness of local indigenous culture
and traditions by providing educational
tours of the Serra do Tabuleiro State
Park, focussed on traditional practices
associated with food and medicinal
plants from the Atlantic Forest. Tours
offer a range of art, culture, and science
experiences to promote indigenous
culture and practices associated with
biodiversity. Importantly, the project
contributes to the strengthening of
social relations, community-based
tourism, resilience, and food security.
Karoon aims to make the program
accessible to local communities through
weekend and school holiday workshop
programs focussing on the traditional
uses, flavours and knowledge of
local flora.
Protecting Biodiversity
Santa Catarina’s Guinea Pig, Cavia
Intermedia, also known as Preá de
Moleques do Sul, is listed as Critically
Endangered by the International Union
for Conservation of Nature (IUCN).
34
The project will include controlling and
monitoring access to, and impacts on,
the Moleques do Sul islands to prevent
further damage to Cavia Intermedia
habitat. Importantly, the project plans
to involve local communities in the
conservation effort.
The education project will provide
innovative training to public school
biology teachers in the region so that
they can pass this knowledge to their
students. Karoon will provide certified
training courses for 100 biology teachers
at public schools, and focused learning
materials to reach around 1,600 local
students. A “Prea Centre” will be created
at each school.
In addition to the projects associated
with Mata Atlântica, Karoon provides
sponsorship to a cultural program
through a Music and Citizenship project
in Rio de Janeiro and in Florianópolis, in
the region of Karoon’s area of influence.
The project enables hundreds of children
and young people who would otherwise
not have access to a musical education
the opportunity to learn to play
musical instruments. The students
also participate in citizenship classes,
where they play, create, and reflect on
themes of life in society.
Karoon is committed to delivering
safe, reliable and responsible
operations that respect our local
environments by minimising
impact, protecting biodiversity
and seeking continuous
improvement in operations.
Environment
Karoon aims to deliver safe, reliable and
responsible operations that respect
our local environments by minimising
our impact, protecting biodiversity
and seeking continuous improvement
in our operations. This is achieved
through careful planning and monitoring
which seeks to ensure compliance
with all environmental regulations
and licence requirements and through
implementation of our specifically
designed environmental plans.
Karoon’s environmental plans and
processes cover a range of areas,
including environmental monitoring
in key areas and water and waste
management.
KAROON ANNUAL REPORT 2022 K A R O O N A N N U A L R E P O R T 2 0 2 2
Environmental Monitoring
and Protection
A fundamental element of responsible
operations is environmental monitoring
to enable any potential impacts to be
identified as soon as possible and action
taken to protect local environments.
Karoon undertakes environmental
monitoring in four main areas:
• Water and Plankton Monitoring
• Sediment and Benthic Monitoring
• Produced Water Monitoring
• Spill Monitoring.
No spills to sea occurred in either
production (FPSO) or intervention (rig)
operations during the reporting period.
Environmental Contributions
As an oil producer in Brazil, Karoon
provides significant environmental
contributions to protect state and
federal parks in Brazil. The payments
for Baúna total more than US$1.8 million
and contribute to the upkeep and
protection of:
• Arvoredo Marine Biological Reserve
(Federal)
• National Park Superagui (Federal)
• Taim Ecological Station (Federal)
• Lagoa do Peixe National Park (Federal)
• Ecological Park Serra do Tabuleiro
(Santa Catarina State).
Tabuleiro Workshop - Social Environmental Project
35
RES ERV ES A N D RES O U RC ES
Karoon’s internal assessment of 2P Reserves at 30 June 2022 is 44.8 MMbbl, with the decline from the
prior year’s 2P Reserves estimate of 49.4 MMbbl reflecting production for the year of 4.6 MMbbl.
During FY2022, Karoon finalised reprocessing of seismic and carried out reservoir modelling and dynamic simulation work on Baúna.
The resolution of the reprocessed seismic is significantly better than legacy datasets, decreasing the uncertainty on field volumes.
The results of this work, together with recent production history and information from the Baúna intervention campaign currently
underway, are being incorporated into a Reserves reassessment. Once this work is completed, a revised Reserves and Resources
statement will be released at that time, if required.
Net Oil Reserves at 30 June 2022 (MMbbl)
BM-S-40 (Baúna)
Developed1
Undeveloped2
Total
1. Baúna Producing.
2. Patola under development.
Year-on-year movement in Net Oil Reserves (MMbbl)
BM-S-40 (Baúna)
Reserves at 30 June 20211
FY2022 Production
Reserves at 30 June 2022
1. Disclosed in Karoon 2021 Annual Report.
1P
25.4
11.1
36.5
1P
41.1
-4.6
36.5
2P
30.1
14.7
44.8
2P
49.4
-4.6
44.8
3P
42.2
19.3
61.5
3P
66.1
-4.6
61.5
2C Contingent Resources at 30 June 2022 are assessed at 86.2 MMbbl oil. No changes have occurred to the Contingent Resource
estimates during the year.
Net Contingent Oil Resources at 30 June 2022 (MMbbl)
2C
4.2
55.0
27.0
86.2
2C
86.2
86.2
3C
8.3
92.0
46.0
146.3
3C
146.3
146.3
BM-S-40 (Baúna)
S-M-1037 (Neon)
S-M-1101 (Goia)
Total
1C
1.9
30.0
16.0
47.9
Year-on-year movement in Net Contingent Oil Resources (MMbbl)
Contingent Resources at 30 June 20211
Contingent Resources at 30 June 2022
1. Disclosed in Karoon 2021 Annual Report.
1C
47.9
47.9
36
KAROON ANNUAL REPORT 2022 Forward Looking
Statements
Petroleum exploration and production
operations rely on the interpretation
of complex and uncertain data and
information which cannot be relied upon
to lead to a successful outcome in any
particular case. Petroleum exploration
and production operations are inherently
uncertain and involve significant risk of
failure. All information regarding reserve
and contingent resource estimates and
other information in relation to Karoon’s
assets is given in light of this caution.
This Annual Report may contain certain
“forward-looking statements” with
respect to the financial condition, results
of operations and business of Karoon
and certain plans and objectives of
the management of Karoon. Forward-
looking statements can generally be
identified by words such as ‘may’, ‘could’,
‘believes’, ‘plan’, ‘will’, ‘likely’, ‘estimates’,
‘targets’, ‘expects’, or ‘intends’ and other
similar words that involve risks and
uncertainties, which may include, but are
not limited to, the outcome and effects of
the subject matter of this Annual Report.
Indications of, and guidance on, future
earnings and financial position and
performance, well drilling programs and
drilling plans, estimates of reserves and
contingent resources and information
on future production are also forward-
looking statements.
You are cautioned not to place undue
reliance on forward-looking statements
as actual outcomes may differ materially
from forward-looking statements. Any
forward-looking statements, opinions
and estimates provided in this Annual
Report necessarily involve uncertainties,
assumptions, contingencies and other
factors, and unknown risks may arise
(including, without limitation, in respect
of imprecise reserve and resource
estimates, changes in project schedules,
operating and reservoir performance,
the effects of weather and climate
change, the results of exploration and
development drilling, demand for oil,
commercial negotiations and other
technical and economic factors) many of
which are outside the control of Karoon.
Such statements may cause the actual
results or performance of Karoon to
be materially different from any future
results or performance expressed
or implied by such forward-looking
statements. Forward-looking statements
including, without limitation, guidance
on future plans, are provided as a general
guide only and should not be relied upon
as an indication or guarantee of future
performance. Such forward looking
statements speak only as of the date
of this Annual Report.
Karoon disclaims any intent or obligation
to update publicly any forward-looking
statements, whether as a result of new
information, future events or results
or otherwise.
Notes on calculation of
Reserves and Resources
Reserves and resources estimates
are prepared in accordance with the
guidelines of the Petroleum Resources
Management System (SPE-PRMS)
2018 jointly published by the Society
of Petroleum Engineers (SPE), World
Petroleum Council (WPC), and American
Association of Petroleum Geologists
(AAPG) and Society of Petroleum
Evaluation Engineers (SPEE).
All statements are net to Karoon’s
interests as of 30 June 2022 and use
a combination of deterministic and
probabilistic methods.
The reference point for reserves
calculation is at the fiscal meter
situated on the FPSO Cidade de Itajaí.
Governance and
Competent Persons
Statement
Members of Karoon’s Subsurface and
Engineering teams have considered
and assessed all proposed changes and
additions to the Company’s Reserves
and Resources (as set out in this report),
considering advice and contributions
from subject matter experts and external
consultants.
All reserves and resources statements
in this report are based on, and fairly
represent, information and supporting
documents prepared by, or under the
supervision of Mr Lino Barro, Karoon
Energy Ltd, Engineering Manager.
Mr Barro holds a Bachelor of Engineering
(Chemical – Hons) and a Master of
Business Administration and is a member
of the Society of Petroleum Engineers.
Mr Barro has consented in writing to
the inclusion of this information in the
format and context in which it appears.
37
KAROON ANNUAL REPORT 2022 K A R O O N A N N U A L R E P O R T 2 0 2 2
S TREN GTH S A N D
K E Y RI S KS
STRENGTHS
• 100% owner and operator of quality
• Additional organic growth potential at Neon
production asset producing 33-38 API crude oil
with no impurities.
• Clear corporate strategy, including
sustainability targets.
and Goiá light oil discoveries.
• Robust financial position and balance sheet
with now demonstrated ability to access
debt financing.
• Operates in Brazil, an attractive oil and
• Hedge position significantly reduces exposure
gas jurisdiction.
to downside oil price risk.
• Production growth expected through
• Knowledgeable and experienced operations
sanctioned Baúna intervention campaign
and Patola development.
and development teams.
• One of the only companies with pure oil exposure
listed on the ASX.
Federal Conservation Unit REBIO Arvoredo in Santa Catarina (SC) Ilha do Arvoredo
ao fundo photo credit Joao Paulo Krajewski – Arquivos Projeto
38
K A R O O N A N N U A L R E P O R T 2 0 2 2
KEY RISKS
• Failure to deliver Baúna intervention campaign
• Policies related to climate change and the energy
or Patola development and unplanned interruptions
to production may result in inability to meet
production forecasts and generate revenue to support
delivery of base business and to fund growth.
• Geographic, geopolitical and social risks resulting
from production located in a single jurisdiction
(Brazil) and production concentration risk resulting
from single asset production.
• Geological evaluation relies on interpretation
of complex and often uncertain data, which may
not lead to expected outcomes. Oil production
and recovery volumes may differ from Karoon’s
assumptions and forecasts.
• Lower than expected demand for oil or low oil prices
may negatively impact revenues, available liquidity
or access to capital markets, resulting in funding
shortfall and/or inability to service debt.
• Changes to the rate of taxes imposed on Karoon,
changes in tax legislation or changing
interpretations enforced by taxation authorities,
whether in Australia, Brazil or other foreign
jurisdictions in which Karoon operates.
• Changes in foreign exchange rates and interest rates
may negatively impact the Company’s liquidity.
• Supply or availability of required infrastructure
(including drilling rigs), equipment, goods or services
could be subject to interruptions, delays or increases
in cost, which may impact production and the cost
of running Karoon’s operations and projects.
• Cyberattacks could result in interruptions to, or
failure of, the Company’s operations and business.
• Regulatory approvals or required licences may not
be forthcoming or may be delayed.
•
•
Insufficient cashflow could result in inability to
meet contingent payment obligations to Petrobras
that might arise under the Baúna acquisition oil-
linked contingent consideration regime.
Insurance coverage may be insufficient to cover
all risks associated with oil and gas production,
development, exploration and evaluation.
• Karoon may be required, but unable, to raise
or attract debt or equity finance to fund
ongoing operations.
transition may adversely affect oil demand, oil prices
and oil industry investment and funding behaviour.
• Weather events (including those related to climate
change) may result in physical damage to assets or
interruption to operations.
• Changes in regulations or investor sentiment
regarding measures taken by Karoon to neutralise
its carbon emissions.
• Ability to attract, motivate and retain talent.
• Development work has inherent risks and is subject
to various hazards including unexpected geological
conditions, equipment failures, environmental
incidents and risks to the health and safety of
personnel and other incidents.
• Oil and gas exploration, development and production
activities may damage the environment. If Karoon
is responsible, it will be required to remediate such
damage which may involve substantial expenditure
and adversely affect Karoon’s reputation.
• Karoon has entered into a debt facility agreement.
In certain circumstances, the facility may be
terminated, funding unavailable or withdrawn
and/or repayments accelerated.
• Liabilities relating to the Baúna concession (in respect
of periods prior to Karoon’s ownership) may arise
which Karoon is not currently aware of but liable for.
Each of the key risks set out above, if they were to
materialise, could have a material and adverse impact
on (among other aspects) Karoon’s business, reputation,
growth, financial position and/or financial performance.
Karoon has an established risk management
framework in place to identify, assess and mitigate
risks in accordance with the materiality and risk
tolerance parameters set by the Board of Directors.
A corporate and operational risk register is maintained
by senior management with oversight from the
executive leadership team. The executive leadership
team reports regularly to the Board through the Audit
and Risk Committee (in respect of corporate risks) and
the Sustainability and Operational Risk Committee
(in respect of operational risks), including mitigation
and monitoring plans for all key risks.
39
K A R O O N A N N U A L R E P O R T 2 0 2 2
DIRECTORS’ REPORT
2
1
3
4
6
5
Board of Directors
Under the Company’s Constitution, the minimum number of Directors that may comprise the Board of Directors is currently 3 and the
maximum number of Directors is 10. Directors are elected and re‑elected at annual general meetings of the Company.
The names of the Directors of the Company during the financial year and up to the date of this Directors’ Report are set out below (from left
to right in the image above):
1. Ms Luciana Bastos de Freitas Rachid
B Chem Eng. Post Grad Degree Corporate Finance
Independent Non‑Executive Director (Appointed 26 August 2016)
Ms Rachid has over 40 years’ experience in the oil and gas industry in both technical and senior leadership roles in Brazil, including 20 years
in the Exploration and Production Division of Petrobras.
Ms Rachid’s technical experience covers a variety of project evaluation, development and management roles, the design of the first offshore
platforms in the Campos Basin, the production, handling and processing of natural gas onshore and offshore and the coordination of the
Petrobras E&P Deepwater Strategic Project.
Ms Rachid has also held positions in the Petrobras financial team including Executive Manager of Investor Relations and Executive Manager
of Financial Planning and Risk Management. She also served as Chief Executive Officer of Transportadora Brasileira Gasoduto Bolivia‑Brasil
SA (TBG) and Chief Executive Officer of Transportadora Associada de Gás SA (TAG), each of which is a subsidiary of Petrobras.
Ms Rachid also has a number of years’ experience serving on Boards in Brazil. She has represented Petrobras as Chairperson of TBG and
Gás Brasiliano Distribuidora SA as well as a Director of TAG, Companhia de Gás de Minas Gerais and Companhia Paranaense de Gás.
Chair of the Sustainability and Operational Risk Committee.
2. Mr Peter Botten AC, CBE
BSc ARSM, MICD
Independent Non‑Executive Director (Appointed 1 October 2020)
Mr Botten is a highly experienced and successful former Chief Executive and internationally recognised business leader with over 40 years’
experience in the international resources sector. His executive career was dominated by his 26‑year tenure as CEO of Oil Search, where he
was synonymous with its growth from a market capitalisation of A$200 million to a peak of A$15 billion.
Peter’s executive experience spanned all aspects of the upstream petroleum sector, including deep experience in upstream oil and gas
exploration, development and production operations through his involvement in projects in PNG, Australia, Africa, the Middle East and
North America.
Peter also has considerable experience in governing and growing ASX‑listed companies and other business entities. Apart from his previous
involvement at Oil Search, he is currently the non‑executive Chairman of AGL Energy Limited (2021‑present), non‑executive Chairman of
Aurelia Metals Ltd (2021‑present), Chairman of Hela Provincial Health Authority (2015‑present) and Chairman of the Oil Search Foundation
(2011‑present).
Peter holds a Bachelor of Science (Geology) from the Imperial College of Science and Technology, London University and the Royal School
of Mines. In recognition of building relations between Australia and PNG, along with services to business and communities in PNG, Peter was
awarded Companion of the Order of Australia (AC) along with Commander of the British Empire (CBE).
Current directorships of other listed companies include: Chair, AGL Energy Limited and Chair, Aurelia Metals Ltd.
Member of the Audit and Risk and Sustainability and Operational Risk Committees.
40
3. Mr Bruce Phillips
BSc. (Hons), (Geology)
Independent Non‑Executive Chairman (Appointed 1 January 2019)
Mr Phillips has approximately 45 years of technical, financial and commercial experience in the global energy industry, encompassing
a number of corporate entities. Bruce has extensive experience in upstream oil and gas exploration and production via involvement in
projects in Australasia, Africa, Europe and the Americas. He also has considerable experience in governing publicly listed companies,
including the chairmanship of four companies listed on the ASX.
Since founding AWE Limited in 1997, Mr Phillips has held positions as CEO, Chairman and Non‑Executive Director. He is currently the
Chairman of ALS Limited (ALQ: ASX), is the former Chairman of Platinum Capital and AWE Limited (now part of Mitsui Corporation), and
a former Non‑Executive Director of AGL Energy Limited (AGL: ASX) and Sunshine Gas Limited (formerly SHG: ASX: pre‑merger with QGC).
During Mr Phillips’ executive career he held varied positions within the industry initially as a geophysicist for AMAX and Esso, graduating
to a business development role at Command Petroleum Limited and General Manager of Petroleum Securities Australia Limited.
He is a member of the Petroleum Society of Australia and the Australian Society of Exploration Geophysicists. Current directorships
of other listed companies include: Chair, ALS Limited.
Member of the People, Culture and Governance Committee.
Chairman of the Board of Directors.
4. Mr Peter Turnbull AM
B. Commerce, LLB, FGIA (Life), FAICD
Independent Non‑Executive Director (Appointed 6 June 2014)
Mr Turnbull is an ASX experienced independent non‑executive director and chair with significant exposure to the global mining, energy
and technology sectors.
Peter brings to the board significant commercial, legal and governance experience gained from working with boards and management
to conceive, structure, fund and complete corporate transactions and to prioritise and maximise the value of organic growth strategies
for shareholders.
Peter also has significant regulatory and public policy experience from prior executive roles including as a Director of the Securities &
Futures Commission of Hong Kong and roles with ASIC. Over time, Peter has held roles as a director or senior officer of several global
organisations which promote best practice governance and is a regular contributor and speaker in Australia and overseas on corporate
governance issues. Peter is a former President and current Life Member of the Governance Institute of Australia and the current president
of the global Chartered Governance Institute.
Peter’s senior executive roles over 30 years involved significant experience in very large publicly listed organisations with global operations,
particularly South East Asia, Europe and the USA. This experience included over a decade in energy markets and the resources sector
including as Company Secretary of Newcrest Mining Limited, Company Secretary and General Counsel of BTR Nylex Limited and General
Manager, Legal and Corporate Affairs with Energex Limited.
In June 2020, Peter was made a member of the Order of Australia for services to business and corporate governance institutes.
Current directorships of other listed companies include: Chair, Calix Limited, since its ASX listing on 20 July 2018.
Chair of the People, Culture and Governance Committee.
Member of the Audit and Risk and the Sustainability and Operational Risk Committees.
5. Mr Clark Davey
B. Commerce, FTIA, MAICD
Independent Non‑Executive Director (Appointed 1 October 2010)
Mr Davey is an independent Company Director with long experience in the natural resources industry as a taxation and strategy advisor.
Clark was a partner at Price Waterhouse and PricewaterhouseCoopers for a number of years with an oil and gas and natural resources
specialty holding industry leadership roles in both firms. Clark is a member of the Australian Institute of Company Directors.
The wealth of taxation and business advisory experience Clark brings to Karoon includes input on international company tax, Australian
and overseas resource and indirect taxation and oversight of accounting, governance and capital management procedures. Clark has
advised many companies with both tax and management of joint venture interests as well as merger and acquisition transactions.
He has also assisted both listed and unlisted companies expand their resource industry interests internationally.
Chair of the Audit and Risk Committee. The Audit and Risk Committee has played an important role in supporting the Board in many
reporting, budgeting and financial risk management areas following Karoon’s transition to oil production.
Member of the People, Culture and Governance Committee.
6. Dr Julian Fowles
BSc (Hons), PhD, Grad Dip App Fin Inv, GAICD
Chief Executive Officer and Managing Director (Appointed 27 November 2020)
Dr Fowles started his career with Shell International where he spent 17 years working across the upstream sector in Europe, West Africa,
Australasia, South Asia and Latin America, including 5 years as the Exploration and New Ventures Manager in Shell Brazil. Following Shell,
he held senior executive positions with Cairn India, Petra Energia, and most recently Oil Search, where he firstly led exploration and
new business and then the PNG operated and non‑operated oil and LNG production and development businesses. Leaving Oil Search in
late 2018, Dr Fowles joined the boards of Central Petroleum and FAR Limited in 2019 as an independent non‑executive director, roles he
relinquished prior to joining Karoon in November 2020.
Dr Fowles speaks Portuguese and is a Graduate of the Australian Institute of Company Directors. He holds a BSc (Hons) degree in Geology
from the University of Edinburgh and a PhD from the University of Cambridge. Dr Fowles also holds a Graduate Diploma in Applied Finance
and Investment from the Australian Securities Institute.
41
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Company Secretary
Nick Kennedy
B.Com., LLB (Hons.), Grad Dip Applied Corporate Governance, FGIA
Appointed on 25 June 2020
Mr Kennedy is an experienced lawyer and company secretary with over 16 years’ experience in corporate and commercial law,
including particular expertise in public and private mergers and acquisitions, equity and debt capital markets, energy and resources
and corporate governance.
Prior to joining the Company, Nick was a Head of Legal at ENGIE ANZ and before that worked in top tier law firms in Australia and London.
42
KAROON ANNUAL REPORT 2022 Meetings
The number of Directors’ meetings (including meetings of committees of Directors) and attendance by each Director of the
Company during the financial year were:
DIRECTOR
Mr Bruce Phillips
Dr Julian Fowles
Ms Luciana Rachid
Mr Clark Davey
Mr Peter Turnbull
Mr Peter Botten
BOARD MEETINGS
A
11
B
11
11
11
11
11
11
10
11
11
11
10
AUDIT AND RISK
COMMITTEE MEETINGS
SUSTAINABILITY AND
OPERATIONAL RISK
COMMITTEE MEETINGS
PEOPLE, CULTURE
AND GOVERNANCE
COMMITTEE MEETINGS
A
–
–
–
6
6
6
B
–
–
–
6
5
5
A
–
–
4
–
4
4
B
–
–
4
–
4
4
A
5
–
–
5
5
–
B
5
–
–
5
5
–
A. The number of meetings held during the time the Director held office during the financial year.
B. The number of meetings attended during the time the Director held office during the financial year.
Directors’ Interests in the Company’s Shares, Share Options and Performance Rights
As at the date of this Directors’ Report, the Directors held the following number of ordinary shares and performance rights over
unissued ordinary shares (and did not hold any share options over unissued ordinary shares) in the Company:
DIRECTOR
Dr Julian Fowles
Mr Bruce Phillips
Ms Luciana Rachid
Mr Clark Davey
Mr Peter Turnbull
Mr Peter Botten
ORDINARY
SHARES, FULLY
PAID
107,659
UNLISTED
PERFORMANCE
RIGHTS
1,080,041
1,750,000
52,960
147,214
173,000
–
–
–
–
–
–
Principal Activities
Karoon is an international oil and gas exploration and production company with projects in Australia and Brazil.
Significant Changes in State of Affairs
There was no significant change in the state of affairs of the Company during the financial year.
Results
During the financial year, Karoon produced 4.64 MMbbl of oil at an average rate of 12,707 bopd, bringing total production to
7.78 MMbbl since taking operatorship of Baúna on 7 November 2020.
Nine cargoes were lifted during the financial year, which were ultimately sold to customers in Europe, Asia and North and
South America. Strong bids were received for the cargoes, demonstrating recognition in the market of the high quality of Baúna
crude. The Company realised an average oil price of $84.74/bbl, 44% higher than in the previous financial year due to stronger
global oil prices, which resulted in revenue of $385.1 million for the financial year.
Unit production costs for the period were $25.4/bbl, similar to unit production costs of $25.1/bbl in the previous financial year.
This resulted in cost of sales of $191.7 million (2021: $111.4 million) and a gross profit of $193.4 million (2021: $59.4 million). The cost
of sales includes depreciation associated with the right‑of‑use asset (the FPSO lease) but does not include finance charges on the
FPSO right‑of‑use lease of $16.8 million (2021: $12.4 million), which are disclosed as part of finance costs.
43
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Results Continued
The Company recognised an underlying net profit after income tax of $89.6 million (2021: $21.4 million) for the financial year with a
net loss after income tax of $64.5 million (2021: profit of $4.4 million). Other key items impacting the result during the financial year
were as follows:
• finance costs of $22.7 million (2021: $14.4 million) comprising finance charges on lease liabilities of $16.9 million (2021:
$12.5 million) including the FPSO lease in relation to the Baúna operations of $16.8 million, discount unwinding on net present
value of the provision for restoration of $2.4 million (2021: $0.9 million) and interest expense of $2.1 million (2021: $1.0m);
• corporate costs of $15.4 million (2021: $12.3 million) which include net employee benefits expense and employee restructure costs,
insurance and director fees;
•
realised losses on out of the money oil hedges and amortisation of hedge premiums of $11.8 million (2021: Nil); and
• share‑based payments expenses of $5.7 million (2021: $4.9 million).
The net loss included an expense of $227.1 million ($149.9 million net of deferred tax) relating to the movement in the fair value of
the contingent consideration payable to Petrobras. The contingent consideration is dependent on future oil prices each calendar
year from 2022 to 2026 inclusive and reflects the additional amount the Company expects to pay as consideration for Baúna in
accordance with the sale and purchase agreement with Petrobras.
The result included a significant income tax benefit of $25.4 million (2021: $32.3 million) including a deferred tax benefit of
$77.2 million (2021: $2.3m) relating to the contingent consideration expense; offset partly by utilisation of Brazilian tax losses and
temporary differences arising from foreign exchange movements in the US$/Brazilian Real exchange rate. The income tax benefit
was further offset by current income tax expense incurred predominantly in Brazil totalling $39.3 million (2021: $15.3 million).
Cash Flows
Net cash inflows from operations for the financial year were $154.2 million, compared to $29.8 million in the previous financial year.
The positive operating cash flows are attributable to oil sales proceeds of $362.9 million (2021: $137.0 million). Significant operating
cash payments for the financial year included payments to suppliers and employees, including production costs, of $117.0 million
(2021: $56.5 million), payment of income tax of $39.4 million (2021: $10.8 million), payment for out of the money oil hedges and
upfront hedge premiums of $20.8 million (2021: nil) and interest and other costs of finance paid of $18.9 million (2021: $13.2 million),
predominantly relating to finance charges on the FPSO lease.
Cash outflows from investing activities for the financial year were $113.0 million (2021: $169.2 million), which included CAPEX relating
to the Baúna intervention campaign, Patola development and ongoing field maintenance of $59.6 million (2021: $16.0 million),
deferred consideration paid to Petrobras for the Baúna acquisition of $43.6 million (2021: $150 million for the Baúna completion
payment) and $5.8 million (2021: $0.2 million) of capitalised borrowing costs for qualifying assets associated with the loan facility.
Cash outflows from financing activities for the financial year were $15.5 million (2021: $23.4 million outflow) which resulted from
payments for principal elements of lease payments of $44.6 million (2021: $23.4 million) and debt facility establishment costs of
$3.3 million not able to be capitalised to oil and gas assets as part of qualifying assets. These outflows were offset by proceeds
associated with the drawdown of the loan facility of $30.0 million (2021: Nil) and proceeds from the conversion of employee options
of $2.4 million.
Financial Position
At the end of June 2022, the Group had a cash and cash equivalents balance of $157.7 million (30 June 2021: $133.2 million) and
total liquidity (cash and undrawn debt facilities) of $337.7 million.
The Group’s current assets increased by $61.7m to $245.5 million largely due to improved cash and cash equivalent balances,
driven by strong operating cash flows and a drawdown of $30 million before costs from the loan facility. Investment in working
capital balances driven by commodity increases and higher production for the year, resulting from the first full financial year of
operations, also contributed to the increase. Current liabilities increased by $117.1 million to $247.4 million as at 30 June 2022,
resulting predominantly from the reclassification of the contingent consideration payable to Petrobras of $84.6m within 12 months
and the current component of hedge liabilities resulting from out of the money oil hedges at 30 June 2022.
During the financial year, total assets increased from $1,014 million to $1,164 million, total liabilities increased from $633.7 million
to $887.9 million and total equity reduced by $104.0 million to $276.2 million. The major changes in the consolidated statement
of financial position included:
• an increase in the contingent consideration payable to Petrobras of $227.1 million during the financial year, due to an upward
revision of Karoon’s current and forecast oil prices, resulting in a contingent consideration payable of $298.3 million at
30 June 2022;
44
KAROON ANNUAL REPORT 2022 • working capital movements discussed above;
•
recognition of borrowings in relation to the loan facility of $27.1 million;
• a reduction of oil and gas assets during the financial year resulting from depreciation of the Baúna asset, offset by CAPEX
additions in relation to the Baúna intervention campaign and Patola development; in addition to a reduction of lease liabilities
in relation to payments for the charter of the FPSO;
• an increase in deferred tax assets of $86.5 million resulting largely from temporary differences arising from the increase of
the contingent consideration expense for the financial year, partly offset by utilisation of Brazilian tax losses and reduction
of temporary differences arising from foreign exchange movements in the US$/Brazilian Real exchange rate; and
•
recognition of the fair value of hedge instruments.
Review of Operations
Information on the operations of the Group is set out in the Operations Review on pages 20 to 27 of this Annual Report.
Business Strategies and Prospects, Likely Developments and Expected Results of Operations
The Operations Review sets out information on the business strategies and prospects for future financial years, refers to likely
developments in operations and the expected results of those operations in future financial years. Information in the Operations
Review is provided to enable shareholders to make an informed assessment of the business strategies and prospects for future
financial years of the Group. Details that could give rise to likely material detriment to Karoon, for example, information that is
confidential, commercially sensitive or could give a third party a commercial advantage has not been included. Other than the
matters included in this Directors’ Report or elsewhere in the Annual Report, information about other likely developments
in the Group’s operations and the expected results of those operations have not been included.
Dividends
No dividend has been paid or declared by the Company to shareholders since the end of the previous financial year.
The Company will consider paying future dividends after the results of the Baúna intervention campaign and Patola development
are known.
Share Options and Performance Rights
As at the date of this Directors’ Report, there are no share options over unissued ordinary shares in the Company.
As at the date of this Directors’ Report, the details of performance rights over unissued ordinary shares in the Company
were as follows:
TYPE
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Total performance rights
GRANT DATE
12 November 2019
18 October 2019
25 September 2020
25 September 2020
26 November 2021
23 March 2022
6 May 2022
DATE OF EXPIRY
30 June 2023
30 June 2023
30 June 2023
30 June 2024
30 June 2024
30 June 2025
30 June 2025
EXERCISE
PRICE PER
PERFORMANCE
RIGHT
$–
NUMBER OF
PERFORMANCE
RIGHTS
685,621
$–
$–
$–
$–
$–
$–
1,011,958
1,773,277
4,172,267
502,989
1,123,593
1,246,439
10,516,144
45
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Share Options and Performance Rights Continued
For details of share options and performance rights issued to Directors and other key management personnel of the Group as
remuneration, refer to the Remuneration Report in this Directors’ Report.
3,129,151 fully paid ordinary shares have been issued since 1 July 2022 as a result of the vesting and conversion of performance
rights under the 2016 Performance Rights Plan and the 2019 Performance Rights Plan (each being a ‘PRP’).
Information relating to the Company’s PRP and share options, including details of performance rights and share options granted,
exercised, vested and converted, cancelled, cash‑settled, forfeited and expired during the financial year and performance rights
and share options outstanding at the end of the financial year, is set out in Note 31 of the consolidated financial statements.
No share option or performance right holder has any right under the share options or performance rights to participate in
any other share issue of the Company or any other entity.
Indemnification of Directors, Officers and External Auditor
An indemnity agreement has been entered into between the Company and the Directors of the Company named earlier in this
Directors’ Report and with the full‑time executive officers, directors and secretaries of the Company and all Australian subsidiaries.
Under this agreement, the Company has agreed to indemnify, to the extent permitted by law, these Directors, full‑time executive
officers, directors and secretaries against any claim or for any expenses or costs which may arise as a result of work performed in
their respective capacities. The Company has also entered into a contract of insurance in respect of any liability incurred by the
Directors, full‑time executive officers, directors and secretaries (referred to above) in such capacity. The contract of insurance
prohibits disclosure of the nature of the liability and the amount of the premium (which is paid by the Company).
As approved by shareholders at the 2009 Annual General Meeting, the Company will continue to pay those Director insurance
premiums for a period of ten years following termination of their directorships of the Company and will provide each Director
with access, upon ceasing for any reason to be a Director of the Company and for a period of ten years following cessation, to any
Company records which are either prepared or provided to the Director during the time period they were a Director of the Company.
The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified
or agreed to indemnify an officer or external auditor of the Company or of any related body corporate against a liability incurred
as such by an officer or external auditor.
Proceedings on Behalf of the Company
No person has applied to the Court under Section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the
Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf
of the Company for all or part of those proceedings.
The Company was not a party to any such proceeding during the financial year.
Corporate Governance
In recognising the need for the highest standards of corporate governance in order to drive performance and accountability,
the Directors support the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations.
The Company’s Corporate Governance Statement can be found under the Governance tab on the Company’s website
at www.karoonenergy.com.au.
Environmental Regulation
The Company and its subsidiaries are subject to a range of relevant Commonwealth, State and International environmental laws.
The Board of Directors believes the Company has adequate systems in place for managing its environmental obligations and
is not aware of any material breach of those environmental obligations as they apply to the Company and/or Group.
46
KAROON ANNUAL REPORT 2022 Greenhouse Gas Emissions and Reporting Requirements
Relevant entities are required to report greenhouse gas emissions, energy consumption and energy production under the National
Greenhouse and Energy Reporting Scheme. The Group was not required to register and report greenhouse gas emissions, energy
consumption, or energy production under the scheme for this financial year, as it did not meet the relevant Australian thresholds
for the reporting period. Notwithstanding this, details of our greenhouse gas emissions are as follows. The Group’s global carbon
footprint during the financial year was higher than recent previous years, approximately 78,878 tonnes of carbon dioxide equivalent
based on equity share and including scope 1 and scope 2 emissions (2021: 49,668 tonnes) predominantly due to fuel consumed in
the Baúna operations over a full year rather than part year. The Company’s Scope 2 emissions were approximately 65 tonnes of
carbon dioxide equivalent based on equity share, which is significantly lower than past years (2021: 143 tonnes) due to the purchase
of GreenPower in the Australian office.
The total Scope 1 and 2 emissions are higher than previous years due to the first full year of production and the beginning of
the workover activities at Baúna. It is anticipated that the FY2023 emissions will rise further as the workover activities, Patola
development and Neon drilling campaign are carried out. The Company is aware of the need to continue to seek cost‑effective,
reliable and environmentally efficient methods for addressing future greenhouse gas emissions and energy consumption and
during the FY2022 strategic refresh developed a new sustainability strategy with Scope 1 and 2 emissions targets that has seen the
Company become carbon neutral for FY2021 with a net zero 2035 target.
Further details of the Company’s approach to Climate Change risks and opportunities can be found in the Sustainability section,
contained within this Annual Report and in the separate 2022 Sustainability Report.
Non‑Audit Services
The Company may decide to engage its external auditor, PricewaterhouseCoopers, on assignments additional to its statutory
audit duties where the external auditor’s expertise and experience with the Company and/or Group are important.
Details of the amounts paid or payable to the external auditor for audit and non‑audit services provided during the financial year
are set out in Note 7 of the consolidated financial statements.
The Board of Directors has considered the position and, in accordance with written advice received from the Audit and Risk
Committee, is satisfied that the provision of non‑audit services is compatible with the general standard of independence for
external auditors imposed by the Corporations Act 2001. The Board of Directors is satisfied that the provision of non‑audit services
by the external auditor did not compromise the external auditor independence requirements of the Corporations Act 2001 for the
following reasons:
(a) all non‑audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and
objectivity of the external auditor; and
(b) none of the services undermine the general principles relating to external auditor independence as set out in APES 110
‘Code of Ethics for Professional Accountants’, including reviewing or auditing the external auditor’s own work, acting in
a management or a decision‑making capacity for the Group, acting as advocate for the Group or jointly sharing economic
risk and reward.
External Auditor’s Independence Declaration
A copy of the external Auditor’s Independence Declaration for the financial year, as required under Section 307C of the
Corporations Act 2001, is set out on page 70 of this Annual Report.
No officer of the Company has previously belonged to an audit practice auditing the Company during the financial year.
Matters Arising Subsequent to the End of the Financial Year
There have been no significant matters or circumstances that have arisen since 30 June 2022 that has significantly affected,
or may significantly affect:
(a) the Group’s operations in future financial years;
(b) the results of those operations in future financial years; or
(c) the Group’s state of affairs in future financial years.
47
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Remuneration Report (Audited)
Dear Shareholders,
On behalf of the Board of Directors I am pleased to present to you the Karoon Energy Ltd Remuneration Report for the financial
year ended 30 June 2022.
Overview
The 2021/2022 year has again been characterised by risks and uncertainties on many fronts globally. Notwithstanding global
economic turbulence caused by the war in Ukraine, rising interest rates, inflation, recessionary fears and currently strong crude
oil prices, it has been a year in which Karoon has continued to build its reputation as a safe and reliable operator.
Over the 2022 financial year, the following significant strategic and operational milestones have been achieved:
• Achieved production uptime of 99% (excluding scheduled outages) with no material safety or environmental incidents;
• Produced 4.64 million barrels of crude oil during the period for total revenue of $385 million;
COVID‑19 was effectively managed across our facilities with no COVID‑19 related production outages;
• Financial close was reached on a $160 million reserve based, non‑recourse, syndicated debt facility, later expanded by over
30% through a $50 million accordion facility;
• The restructure of our senior management team was completed with the appointment of Antonio Guimarães (as EVP and
President of Karoon Brazil) and Ray Church (as EVP and Chief Financial Officer);
• Completed a “strategic refresh” covering (among other things):
» Brazil strategy;
» operating and delivery excellence;
» growth, including organic (e.g. Neon project) and inorganic (e.g. Brazil & Australian M&A);
» sustainability; and
»
funding and capital priorities;
• Developed a “five pillar” sustainability strategy and commenced implementing it by:
» becoming carbon neutral on Baúna‑Patola emissions for FY2021;
» entering into an agreement with Shell Western Supply and Trading Limited to purchase sufficient verified emissions reductions,
between 2022 and 2030, to offset an estimated 60% of Baúna‑Patola scope 1 and scope 2 greenhouse gas emissions;
• Committed to drilling a control well and, subject to the results of that well, a second control well in the Neon oil discovery offshore
Brazil to further advance the understanding of the discovery;
• Executed contracts for the Baúna intervention campaign and the operations commenced within the announced window; and
• Whilst seeking to advance Karoon’s merger and acquisition strategy, a disciplined approach was adopted to end further
consideration of a potential transaction with Enauta in respect of the Atlanta oil field in the Santos Basin, offshore Brazil.
Karoon will continue to identify and evaluate appropriate merger and acquisition targets.
48
KAROON ANNUAL REPORT 2022 2022 Financial Year Remuneration Outcomes
In respect of FY2022, Karoon’s remuneration settings worked as they should to reward high performance outcomes in a responsible
manner. In this regard, it is noted that:
• Short Term Incentive (‘’STI’’) – based on the significant progress detailed above and achieving Karoon’s strategic targets set at the
beginning of the 2022 financial year (associated with production, opex, capex, Neon strategy, the Baúna intervention campaign,
the Patola development and ESG), 67.5% of the possible STI outcome was achieved. This STI is to be paid 50% in cash and 50% in
performance rights with such performance rights to be issued after the release of the Company’s FY2022 full year financial results
and subject to the satisfaction of a 12‑month employment retention period. For KMP other than the CEO and Managing Director,
a component of their STI was granted based on the satisfaction of role‑specific objectives.
• Long Term Incentive (‘’LTI’’) – a 100% LTI outcome was earned due to an absolute total shareholder return (‘TSR’) of 32.1% per annum
(in excess of the required threshold of 14% per annum), and the Company’s relative shareholder return positioning Karoon at the
100% percentile (as compared to a group of peer companies), over the prior 3‑year period.
• Base Board and committee fees remained unchanged for FY2022.
Remuneration Strategy and Guiding Principles
Karoon’s guiding principles for its remuneration framework are as follows:
• Safety, culture and ethics: ensuring that clear vesting gateways exist based on appropriate safety and ethical outcomes.
If outcomes do not meet the relevant standards, these gateways will block ‘’at‑risk’’ remuneration payments.
• Shareholder value is paramount:
»
remuneration outcomes (particularly incentive‑based outcomes) are designed to take account of share price movements
across the reporting period and therefore, the value delivered to shareholders;
» a close alignment is created between operational performance, reward and sustained growth in shareholder value; and
» as Karoon has now transitioned from explorer to producer, it is recognised that shorter term shareholder returns, such as
dividend payments, will also now be considered.
• People:
»
remuneration and people issues are considered by the People, Culture and Governance Committee of the Board
and environmental and social issues by the Sustainability and Operational Risk Committee of the Board. Nonetheless,
all relevant decision making and associated discussion remains the responsibility of the Board;
» our remuneration structures are designed to attract, motivate and retain the best people whilst remunerating them
reasonably and competitively; and
» we encourage our people to hold equity in Karoon which builds a culture of viewing management decisions as an owner,
thereby helping to further align executives’ and shareholders’ interests. In relation to this, during 2022, a new management
shareholding policy has been introduced under which KMP are now required to maintain a shareholding in the Company equal
to 50% of their first year, base salary (after‑tax) within the later of three years after their initial appointment as an executive
and 30 June 2024.
• Environment, Social and Governance (ESG): ESG considerations are integrated into our remuneration structures. In FY2022,
this involved, as an STI hurdle, management developing and commencing the implementation of a Board endorsed sustainability
strategy which covers HSE, climate (including carbon management), people and human rights, community (including social
programs) and environment.
• Transparency: remuneration measures, outcomes and reporting are as simple and transparent as possible for shareholders
and other stakeholders.
49
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Remuneration Report (Audited) continued
2023 Financial Year Remuneration Settings
Looking to the 2023 financial year, the remuneration structure for Australian and Brazilian staff members will be reviewed for
reasonableness and competitiveness.
The base Board and Committee fees paid to the Non‑Executive Chairman and Non‑Executive Directors will be increased by
5%, while the fees paid to the Chairs of Board committees will be increased by A$5,000 per annum. The increase in respect of
Non‑Executive Directors base Board fees is the first increase in over 10 years and, in respect of the Non‑Executive Chairman’s
base fee, is the first increase in 7 years.
Summary
Karoon’s strategy and remuneration structure is designed to link remuneration outcomes to shareholder value which we believe
it has done for FY2022 by rewarding the achievement of significant operational and strategic goals and through achieving relative
share price out‑performance compared to Karoon’s peer group.
As always, we will continue to engage with our shareholders, proxy advisors and our wider group of stakeholders to seek feedback
so we can continue to refine and improve our remuneration framework and the associated disclosures.
Yours sincerely
Mr Peter Turnbull AM
Chair, People, Culture and Governance Committee
25 August 2022
50
KAROON ANNUAL REPORT 2022 Section 1.
Section 2.
Section 3.
Section 4.
Section 5.
Introduction
Board and People, Culture and Governance Committee Oversight
Executive Remuneration
A. Executive Remuneration Framework for the Financial Year Ended 30 June 2022
B. Executive Remuneration Outcomes
C. Executive Agreements
Independent Non‑Executive Chairman and Non‑Executive Directors
Statutory and Share‑based Reporting
Page 51
Page 52
Page 52
Page 60
Page 61
Section 1. Introduction
The Board of Directors is pleased to provide Karoon’s Remuneration Report, which details the remuneration for its KMP, defined as
those persons having the authority and responsibility for planning, directing and controlling, directly or indirectly, the activities of
the Group.
For the financial year ended 30 June 2022, KMP disclosed in the Remuneration Report are as follows:
NAME
Executive Directors
Dr Julian Fowles
POSITION
Chief Executive Officer
and Managing Director
TERM AS KMP
Full financial year
Independent Non‑Executive Chairman
Full financial year
Independent Non‑Executive Director
Independent Non‑Executive Director
Independent Non‑Executive Director
Independent Non‑Executive Director
Full financial year
Full financial year
Full financial year
Full financial year
Non‑Executive Chairman
Mr Bruce Phillips
Non‑Executive Directors
Ms Luciana Rachid
Mr Clark Davey
Mr Peter Turnbull
Mr Peter Botten
Other KMP
Mr Ray Church
Mr Antonio Guimarães
Executive Vice President
and Chief Financial Officer
Executive Vice President
and President Karoon Brazil
Mr Edward Munks
Chief Operating Officer
Mr Scott Hosking
Chief Financial Officer (Group)
Mr Ricardo Abi Ramia
Senior VP Operations
For the purposes of the Remuneration Report:
Commenced as Executive Vice
President (EVP) and Chief Financial
Officer on 27 September 2021
Commenced as EVP and President
Karoon Brazil on 1 October 2021
Ceased as Chief Operating Officer
on 30 September 2021
Ceased as Chief Financial Officer
on 30 September 2021
Ceased as KMP on 1 October 2021
(i)
‘base salary’ means cash salary (exclusive of superannuation and before subtracting any salary sacrifice items);
(ii)
‘executive’ means the Chief Executive Officer and Managing Director and other KMP of the Group;
(iii)
‘fixed remuneration’ has the meaning given on page 53;
(iv)
‘other KMP’ means those KMP referred to above under the heading ‘Other KMP’;
(v)
‘total remuneration’ means fixed remuneration plus variable remuneration; and
(vi) ‘variable remuneration’ means STI and LTI.
The Remuneration Report for the financial year ended 30 June 2022 outlines the remuneration arrangements of KMP of the
Group in accordance with the requirements of the Corporations Act 2001 and its regulations. The information provided in this
Remuneration Report has been audited by Karoon’s external auditor, as required by Section 308(3C) of the Corporations Act 2001.
The Remuneration Report forms part of this Directors’ Report.
51
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Remuneration Report (Audited) Continued
Section 2. Board and People, Culture and Governance Committee Oversight
To assist in ensuring good remuneration governance at Karoon, the Board of Directors established a People, Culture and
Governance Committee that provides oversight and recommendations to the Board on all aspects of the remuneration
arrangements for sub‑CEO executives.
The People, Culture and Governance Committee currently consists of a majority of independent Non‑Executive Directors and
is responsible for reviewing and making recommendations to the Board of Directors regarding (among other things):
•
•
•
•
the quantum of sub‑CEO executive remuneration;
the sub‑CEO executive remuneration framework, including the operation of, and performance‑based outcomes under,
Karoon’s share‑based incentive schemes;
the recruitment, retention and termination policies and procedures for sub‑CEO executives; and
related party remuneration.
The Board of Directors, assisted by the People, Culture and Governance Committee, conducts annual remuneration reviews for
its Non‑Executive Chairman, Non‑Executive Directors, executives and all employees to ensure that remuneration remains market
competitive, fair and aligned with both market practice and the best interests of shareholders.
The Board is responsible for all aspects of the remuneration of the CEO and Managing Director.
Further information on the role and responsibilities of the People, Culture and Governance Committee is contained in the
People, Culture and Governance Committee Charter, which can be found under the Governance tab on Karoon’s website at
www.karoonenergy.com.au.
2021 Remuneration Report Vote
At the Company’s 2021 Annual General Meeting, Karoon’s 2021 Remuneration Report received a 99.48% vote FOR on a poll.
At the Annual General Meeting, no questions were asked in relation to the remuneration report.
Share Trading Policy
The trading of ordinary shares by Non‑Executive Directors and executives is subject to, and conditional upon, compliance with
Karoon’s Share Trading Policy.
Under Karoon’s Share Trading Policy, an individual may not limit his or her exposure to risk in relation to securities (including unlisted
share options and performance rights). Directors and executives are prohibited from entering into any hedging arrangements over
unvested share options or performance rights under Karoon’s share‑based remuneration schemes. To gain approval to trade and
ensure that trading restrictions are not in force any employee wishing to trade in Karoon securities must consult the Company
Secretary, whilst the Executive Vice President and President Karoon Brazil, the Company Secretary or any Director wishing to
trade in Karoon securities must consult the Chairman, whilst the Chairman must consult and seek approval of the Audit and
Risk Committee Chair. All trades by Directors and executives during the financial year ended 30 June 2022 were conducted in
compliance with Karoon’s Share Trading Policy.
Karoon’s Share Trading Policy can be found under the Governance tab on Karoon’s website at www.karoonenergy.com.au.
Section 3. Executive Remuneration
The Board of Directors has developed a remuneration policy that ensures executive remuneration supports the current business
strategy and needs of the business. In particular, the decision to use performance tested share‑based remuneration (in addition
to cash based incentive payments) for its incentive plans reflects the Board of Directors’ belief that this best aligns executive and
shareholder interests in the short and long‑term. Karoon’s success is measured by the delivery of its strategic objectives in the
short‑term and a clear demonstration of shareholder value creation in the long‑term.
Broadly, the objectives of Karoon’s executive remuneration framework are to ensure:
•
•
•
remuneration is reasonable and competitive in order to attract, retain and motivate talented and high calibre executives capable
of managing Karoon’s diverse international operations;
remuneration is set at a level acceptable to shareholders, having regard to Karoon’s performance, and rewards individual achievements;
remuneration structures create alignment between performance, reward and sustained growth in shareholder value;
52
KAROON ANNUAL REPORT 2022 •
•
remuneration outcomes provide recognition of contribution to overall long‑term growth in the value of Karoon’s asset portfolio
and are transparent to both participants and shareholders; and
remuneration incentivises the best possible outcomes for the broader stakeholder community, including sustainability
and safety, along with best practice in preventing bribery and/or corruption.
A. Executive Remuneration Framework for the Financial Year Ended 30 June 2022
The following table summarises the target remuneration mix for executives for the financial year ended 30 June 2022,
based on maximum achievement of incentive plan outcomes:
Remuneration Mix – financial year ended 30 June 2022 (as a percentage of total remuneration)
Other KMPs1
CEO and
Managing Director2
0%
20%
40%
60%
80%
100%
Base Salary
At ‘Risk’ STI
At ‘Risk’ LTI
1.
“Other KMPs” excludes the remuneration mix of Mr Ricardo Abi‑Ramia who ceased as a KMP on 1 October 2021. Mr Abi‑Ramia’s remuneration mix
comprises 50% ‘fixed’, 25% at ‘risk’ STI and 25% at ‘risk’ LTI. “Other KMPs” also excludes the remuneration mix of Mr Scott Hosking and Mr Edward
Munks who were not entitled to an ‘at risk’ STI or ‘at risk’ LTI but were paid a cash bonus for the period from 1 July 2021 to 30 September 2021
(being the date of the cessation of their employment). The percentage of the other KMPs’ at ‘risk’ STI is based on fixed remuneration and at ‘risk’ LTI
is based on base salary.
2. The percentage of the CEO and Managing Director’s at ‘risk’ STI and at ‘risk’ LTI is based on base salary.
Set out below is a summary of the STI and LTI opportunity available to the CEO and Managing Director, EVP and Chief Financial
Officer and EVP and President Karoon Brazil.
STI opportunity
CEO and Managing Director
50% of Base Salary
EVP and Chief Financial Officer
75% of Fixed Remuneration
EVP and President Karoon Brazil
75% of Fixed Remuneration
LTI opportunity
100% of Base Salary
75% of Base Salary
75% of Base Salary
See pages 54‑57 for additional information on the STI and LTI plans.
Fixed Remuneration
Fixed remuneration consists of base salary and superannuation contributions. It can also include any salary sacrifice items or
non‑monetary benefits including health insurance, motor vehicles, expatriate travel, certain membership and associated fringe
benefits tax, depending on each individual’s respective employment arrangements.
Fixed remuneration is reviewed annually by the Board. Broadly, fixed remuneration is positioned within a range that references the
median of the relevant market for each role. Base salary of the former Chief Financial Officer, former Chief Operating Officer, the
EVP and Chief Financial Officer and EVP and President Karoon Brazil did not increase during the financial year ended 30 June 2022.
The Chief Executive Officer and Managing Director’s base salary increased by 3.1% for the financial year ended 30 June 2022.
Superannuation
Other than the Chief Executive Officer and Managing Director who receives superannuation contributions equal to 9.5% of his
base salary, the Australian executives of the Company received statutory superannuation contributions of 10% of base salary
up to the maximum statutory contribution. Individuals may choose to sacrifice part of their salary to increase payments
towards superannuation.
Social Security and Indemnity Fund Contributions
Karoon’s Brazilian based executives are subject to specific Brazilian employment regulations, whereby the Group is required to
contribute 27.3% of Brazilian cash compensation as social security to fund Government pensions paid in retirement. However, the
executives upon retirement will only be entitled to a portion of this contribution. A further 8% of their base salary is required to be
contributed to a Federal Severance Indemnity Fund (‘FGTS’). In the situation of unfair dismissal without just cause, the Group would
have to pay a fine equivalent to 50% of the accumulated balance of the individual’s FGTS account.
In addition to the above, the Group pays an amount equal to 10% of the monthly salary paid to the EVP and President Karoon Brazil
into a private pension fund for the benefit of the EVP and President Karoon Brazil.
53
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Remuneration Report (Audited) Continued
Section 3. Executive Remuneration Continued
‘At Risk’ Remuneration
Karoon aims to align the interests of executives with those of shareholders by having a significant proportion of executive
remuneration ‘At Risk’. ‘At Risk’ remuneration represents the proportion of remuneration that requires pre‑determined performance
conditions to be met before the remuneration is vested to the executive. Annually, the Board reviews the financial and operational
goals and targets, looking broadly at where the building blocks for long‑term value exist, then sets performance conditions that
generate a link between operating performance, remuneration received and value created for shareholders.
All executives that received grants of performance rights during the financial year ended 30 June 2022 received performance
rights that were issued under the 2019 Performance Rights Plan (‘2019 PRP’).
STI Plan
The key features of the STI plan for the financial year ended 30 June 2022 (‘FY2022 award’) are outlined in the table below:
Participation
All executives.
Participation in the STI Plan is at the discretion of the Board of Directors on the recommendation
of the People, Culture and Governance Committee.
STI Opportunity
The STI opportunity level of each executive is a pre‑determined proportion of an executives’ total
remuneration payable 50% in cash and 50% via a grant of performance rights.
The quantum of performance rights received is to be determined by dividing 50% of the STI opportunity
(determined to be available based on the satisfaction of applicable performance conditions) for each
employee by Karoon’s weighted average share price in the 20‑trading day period after the date of the
release of the Company’s 2022 full year financial results.
The STI opportunity available to an executive is determined as a percentage of fixed remuneration or
base salary.
The Board calculates the incentive value and establishes a maximum number of performance rights
‘At Risk’.
In respect of the former Chief Financial Officer and Chief Operating Officer, it was decided, given their
cessation occurred part way through the 2022 financial year, that an at risk cash bonus (as opposed
to an STI payable 50% in cash and 50% via a grant of performance rights) would be available with no
deferral period.
Form of Incentive
Executives receive cash (50%) and performance rights (50%).
The cash component of the FY2022 STI opportunity is paid following the achievement of applicable
performance conditions.
The quantum of performance rights to be received is to be determined by dividing 50% of the STI
opportunity (determined to be available based on the satisfaction of applicable performance conditions)
for each executive by Karoon’s weighted average share price in the 20‑trading day period after the date
of the release of the Company’s 2022 full year financial results.
Any performance rights issued will remain ‘At Risk’ until the satisfaction of retention conditions to be
met on 1 July 2023.
Performance rights do not have a strike price. Each performance right provides the participant with
the right to receive one fully paid ordinary share in Karoon, or its equivalent value, for no consideration.
Under the rules of the PRP, ordinary shares issued or provided as a result of the exercise of vested and
converted performance rights may be issued as new ordinary shares or ordinary shares acquired
on market.
Performance Period
1 year.
54
KAROON ANNUAL REPORT 2022 Deferral Period
Performance rights which satisfy performance conditions are subject to a retention period of
12 months, being the continuation of employment, immediately following the satisfaction of
performance conditions.
Performance
Conditions
As part of the 2022 remuneration review, for the financial year ended 30 June 2022 the Board set
out the FY2022 award for short‑term incentives based on a mix of the following performance hurdles
CEO and Managing Director
Other KMP
Company‑wide Objectives
COMPANY-WIDE
OBJECTIVES
100%
ROLE-SPECIFIC
OBJECTIVES
Nil%
80%
20%
Company‑wide Objectives were set by the Board at the beginning of the performance period.
The Company‑wide Objectives included financial and operational objectives, project objectives
and strategic targets.
Role‑specific Objectives
Role‑specific Objectives were set at the beginning of the performance period and related directly
to individual/team specific responsibilities.
All short‑term performance outcomes are tempered by both a gateway for safety outcomes and a
clawback (negative discretion) provision in relation to any fatality and bribery and/or corruption issues.
Further details on the performance conditions, targets and outcomes for the FY2022 award are outlined
below in the STI outcomes within Section 3B on page 57.
Grant Date
In respect of performance rights, the grant date occurs following the offer and acceptance of
performance rights. However, any performance rights offered and accepted by the Chief Executive
Officer and Managing Director are subject to shareholder approval at the next Annual General Meeting
prior to issuance.
Termination
of Employment
Unvested performance rights will lapse upon cessation of employment with Karoon, subject to the
nature and circumstances of the termination and the discretion of the Board of Directors.
Change
of Control
Link Between
Performance
and Reward
Upon a change of control, the Board of Directors may determine that a portion of the individual’s
unvested performance rights will vest based on pro‑rata achievement of the performance conditions.
The STI framework is based on a set of challenging Company building goals, granted on a rolling
short‑term basis. Linking outcomes to operational performance develops an essential alignment
between Karoon’s year‑to‑year inherent value growth and rewards those who establish that value only
when the goals are met. The Board assess the goals for the performance period annually in light of the
long‑term strategic building blocks and upcoming key value drivers within Karoon’s operations, allowing
for transparent measurement of performance against these objectives.
The Board recognises the risks associated with offshore production and drilling and considers safety,
anti‑bribery and zero corruption paramount to its operations. Safety is used as a gateway for vesting
conditions, while any fatality and bribery and corruption can be utilised to clawback incentives.
55
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Remuneration Report (Audited) Continued
Section 3. Executive Remuneration Continued
LTI Plan
The key features of the LTI grant for the financial year ended 30 June 2022 are outlined in the table below:
Participation
All executives.
Participation in the LTI plan is at the discretion of the Board of Directors on the recommendation
of the People, Culture and Governance Committee.
LTI Opportunity
The LTI opportunity available to an executive is determined as a percentage of base salary.
Form of Incentive
The quantum of performance rights received was determined by dividing the LTI opportunity for each
executive by the value weighted average price of Karoon Energy ordinary shares for the 20 trading days
post 20 September 2021 (being the date on which Karoon’s 2021 full year financial results were released
to the market).
Performance rights do not have a strike price. Each performance right provides the participant with
the right to receive one fully paid ordinary share in Karoon, or its equivalent value, for no consideration.
Under the rules of the PRP, ordinary shares issued or provided as a result of the exercise of vested
and converted performance rights may be issued as new ordinary shares or ordinary shares acquired
on‑market.
Performance Period
3 years.
Performance
Conditions
The LTI performance hurdles for the period commencing 1 July 2021 and ending 30 June 2024 are split
50% relative to TSR performance as assessed against a list of closely comparable and representative
industry peer group companies, whose business models and/or regions of operations are similar to
those of Karoon; and 50% Absolute TSR (based on compound annual growth rate (CAGR)), which is
set at a range of 10% to 18%.
Vesting consideration details for the industry peer group companies is outlined below:
Performance Against Industry Peer Group
Less than 50th percentile
Proportion of Performance Rights Vesting
Nil%
At 50th percentile
50%
Between 50th and 75th percentile
50% plus 2% for each additional percentile
ranking above the 50th percentile
At or above 75th percentile
At 100% percentile
100%
100%
Vesting consideration details for the Absolute TSR measure are set out below:
Absolute TSR (CAGR)
Less than 10%
At 10%
Between 10.01% and 17.99%
At or above 18.00%
Proportion of Performance Rights Vesting
Nil%
50%
50% plus 6.25% for each additional percentage
point above the 10% threshold
100%
Grant Date
Grant date occurs following the offer and acceptance of performance rights. However, any performance
rights offered and accepted by the Chief Executive Officer and Managing Director are subject to
shareholder approval at the next Annual General Meeting prior to issue.
Exercise Period
Performance rights will remain exercisable for a period of 1 year following vesting.
Termination
of Employment
Change
of Control
Link Between
Performance
and Reward
Unvested (and unconverted) performance rights will lapse upon cessation of employment with Karoon,
subject to the nature and circumstances of the termination and the discretion of the Board of Directors.
Upon a change of control, the Board of Directors may determine that a portion of the individual’s
unvested performance rights will vest, based on pro‑rata achievement of the performance conditions.
The Board of Directors and People, Culture and Governance Committee consider it important to link
remuneration to share price performance relative to Karoon’s industry peer group companies and
overall share price performance over the long‑term. In the case where performance does not reach
the 50th percentile, no incentive will be paid.
56
KAROON ANNUAL REPORT 2022 B. Executive Remuneration Outcomes
Relationship between the Executive Remuneration Framework and Company Performance
Karoon has a transparent performance‑based remuneration structure in place that provides a direct link between Company
performance and remuneration in the short and long‑term. As part of this structure, executive rewards are directly linked to
operational, safety and financial performance metrics along with relative market and absolute performance. ‘At Risk’ remuneration
is only awarded if pre‑determined Company building milestones are achieved or the Company outperforms an industry peer group
of companies or achieves a minimum level of absolute return in the long term.
The tables below set out summary information about the Company’s earnings, net assets and movements in shareholder wealth
from 1 July 2017 to 30 June 2022.
FINANCIAL YEAR ENDED
Revenue
Profit (loss) before income tax
Profit (loss) for financial year
Net assets at end of financial year
30 JUNE 2022
US$’000
385,074
30 JUNE 2021
US$’000
170,809
30 JUNE 2020
US$’000
–
(89,838)
(64,451)
276,201
(27,873)
4,384
380,250
(86,772)
(86,138)
359,482
30 JUNE 2019A
US$’000
–
(11,351)
(13,316)
298,831
30 JUNE 2018A,B
US$’000
–
(142,699)
(140,932)
410,367
FINANCIAL YEAR ENDED
Share price at beginning of financial year
30 JUNE 2022
A$1.33
30 JUNE 2021
A$0.61
30 JUNE 2020
A$0.96
Share price at end of financial year
Basic profit (loss) per ordinary share (US$)
Diluted profit (loss) per ordinary share (US$)
A$1.74
(0.1159)
(0.1159)
A$1.33
0.0079
0.0077
A$0.61
(0.1936)
(0.1936)
30 JUNE 2019A 30 JUNE 2018A,B
A$1.13
A$0.96
(0.0550)
(0.0550)
A$1.28
A$1.13
(0.5740)
(0.5740)
A. The comparative financial information for the financial years ended 30 June 2019 and 30 June 2018 have been restated for the voluntary change
in presentation currency from A$ to US$ at the prevailing average exchange rates for the profit and loss and year‑end rate for the balance sheet
for each respective year.
B. The comparative financial information for the financial year ended 30 June 2018 has not been restated for the impact of the voluntary change
to successful efforts method of accounting for exploration and evaluation expenditure.
Performance Hurdles and STI Outcomes for the Financial Year Ended 30 June 2022
The table below outlines the Company‑wide Objectives for the financial year ended 30 June 2022:
CRITERIA
SUMMARY OF HURDLE
Safety (0% – gateway)
TRIR of < 2 required for any award to proceed.
FINANCIAL AND OPERATIONAL OBJECTIVES (40%)
Operational Performance
and Budgeting
PROJECT OBJECTIVES (30%)
Achieve the challenging Baúna approved cost budget and operational targets.
Neon Strategy
Progress the Company’s strategy in respect of the development of the Neon/Goia project.
Baúna interventions
Commence and progress the Baúna intervention campaign within approved budget and
programme window.
Patola development
Commence and progress the Patola development within approved budget and programme window.
Reach financial close under the US$160M Syndicated Facility Agreement.
STRATEGIC (30%)
M&A Strategy
Progress M&A strategy.
ESG
Develop and implement ESG strategy.
Anti‑bribery and Corruption/
No Fatality (0% – clawback)
Negative discretion will be applied, if necessary, by the Board of Directors should any fatality
occur in the Company’s workforce (including its Contractors) or any material event occurs which
constitutes a breach of Karoon’s Anti‑bribery and Corruption Policy.
Based on actual results, in respect of the current Chief Executive Officer and Managing Director, a total of 67.5% of the available STI
opportunity, payable 50% in cash and 50% via a grant of performance rights (with such performance rights subject to a one year
employment retention), satisfied the requisite STI performance targets outlined above. For other KMP, between 74% and 77.3% of
the available STI opportunity satisfied requisite performance targets (based on the results of role‑specific performance targets).
Performance rights (associated with the STI) that have satisfied requisite performance hurdles have a 1‑year retention period ending
30 June 2023 before they become exercisable and convertible into fully paid ordinary shares. These STI performance rights expire
on 30 June 2024.
57
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Remuneration Report (Audited) Continued
Section 3. Executive Remuneration Continued
LTI Outcomes
Karoon’s 2020 LTI performance conditions of achieving an absolute total shareholder return (‘TSR’) of 14% per annum and a
minimum 50th percentile against the Company’s Relative TSR when compared with a select group of peer companies over the
period from 1 July 2019 to 30 June 2022 was met. Karoon was at the 100th percentile when compared against the relevant industry
peer group and, accordingly, 100% of the 2020 LTI entitlement vested.
Voluntary Information: 2022 ‘Remuneration Received’
The amounts disclosed below reflect the actual benefits received by each executive during the financial year ended 30 June 2022
and have been translated into US$ from local currencies using the average exchange rate for the 2022 financial year. The average rate
used for A$/US$ was 0.7259 and BRL/US$ was 0.1909. The amounts disclosed below include the actual value of any equity‑settled
and/or cash‑settled award received from STI and/or LTI.
The amounts disclosed in the table below are not the same as the statutory remuneration expensed in relation to each executive
in accordance with Australian Accounting Standards shown in the statutory table in Section 5 of the Remuneration Report.
The remuneration values disclosed below have been determined as follows:
Fixed Remuneration
Fixed remuneration includes cash salary and fees, non‑monetary benefits, superannuation contributions and paid long service leave.
Fixed remuneration excludes any accruals of annual or long service leave.
Cash Bonus
Includes one‑off cash bonuses paid to executives who ceased employment and sign‑on cash bonuses paid to executives who
commenced during the period.
Short‑term Incentives
Includes cash bonuses and the equity‑settled and/or cash‑settled award received from STI by executives, subject to achievement
of performance conditions. The value of STI equity‑settled and cash‑settled awards received reflects the amounts disclosed to the
relevant tax authorities during the financial year ended 30 June 2022.
Long‑term Incentives
Includes the equity‑settled and/or cash‑settled award received from LTI by executives. The value of LTI equity‑settled awards
and cash‑settled awards received reflects the amounts disclosed to the relevant tax authorities during the financial year ended
30 June 2022.
FIXED
REMUNER-
ATION
US$
CASH BONUS
US$
SHORT-TERM
INCENTIVES
US$
LONG-TERM
INCENTIVES
US$
TERMINATION
BENEFIT
US$
Executive Directors
Dr Julian Fowles
Other KMP (Group)
Mr Ray Church
(commenced on 27 September 2021)
Mr Antonio Guimarães
(commenced on 1 October 2021)
Mr Scott Hosking
(ceased as Chief Financial Officer
on 30 September 2021)
Mr Edward Munks
(ceased as Chief Operating Officer
on 30 September 2021)
Mr Ricardo Abi‑Ramia
(ceased as KMP on 1 October 2021)
614,626
–
371,339
72,590
265,400
108,831
207,467
42,737
305,939
90,061
66,110
–
58
–
–
–
–
–
–
–
–
–
–
–
–
–
TOTAL
REMUNER-
ATION
RECEIVED
US$
614,626
443,929
374,231
–
–
–
151,713
401,917
284,462
680,462
–
66,110
KAROON ANNUAL REPORT 2022 The Board of Directors believes that ‘remuneration received’ is more relevant to shareholders for the following reasons:
•
the statutory remuneration expensed through as share‑based payments (ESOP options and/or performance rights) is based on
historic cost and does not reflect the value of equity‑settled and/or cash‑settled amounts when they are actually received;
•
the statutory remuneration shows benefits before they are actually received by executives;
• where ESOP options or performance rights do not vest because a market‑based performance condition is not satisfied (for
example, an increase in Karoon’s share price), Karoon must still recognise the full amount of the share‑based payments expense
even though the executives do not receive the benefit; and
• share‑based payment awards are treated differently under Australian Accounting Standards depending on whether the performance
conditions are market conditions (no reversal of share‑based payments expense) or non‑market conditions (reversal of share‑based
payments expense when ESOP options or performance rights fail to vest), even though the benefit received by the executive is the
same ($Nil where the ESOP option or performance right fail to vest).
The information in this section has been audited together with the rest of the Remuneration Report.
C. Executive Agreements
Remuneration and other terms of employment for the executives are formalised in employment agreements. Each of these
agreements provide for participation, when eligible, in the Company’s PRP. Other major provisions of the agreements relating
to remuneration are set out below.
Termination payments for executives, if any, are agreed by the Board and/or People, Culture and Governance Committee in advance
of employment and stated in the relevant employment agreements. Upon retirement, executives are paid employee benefit
entitlements accrued to the date of retirement.
Details of existing employment agreements between the Company and the Executive Director and other KMP are as follows:
NAME
Executive Directors
Dr Julian Fowles
Other KMP
Mr Ray Church
Mr Antonio Guimarães
TERM
From
27 November 2020,
ongoing
From
27 September 2021,
ongoing
From 1 October 2021,
ongoing
EXPIRY
Ongoing
NOTICE/
TERMINATION
PERIOD
In writing
six months
TERMINATION
PAYMENTS
PERFORMANCE
RIGHT ELIGIBLE
Not applicable.
Yes
Ongoing
In writing
six months
Not applicable.
Ongoing
In accordance with
Brazilian labour
legislation
Not applicable
(statutory entitlements).
Yes
Yes
Yes
Mr Ricardo Abi‑Ramia
Ongoing
Ongoing
In writing
one month
Not applicable
(statutory entitlements).
All termination payments for Australian employees are subject to the limits prescribed under Section 200B of the Corporations Act 2001.
The employment agreements of executives are on a continuing basis, the terms of which are not expected to change in the
immediate future.
59
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Remuneration Report (Audited) Continued
Section 4. Independent Non‑Executive Chairman and Non‑Executive Directors
Fees and payments to the independent Non‑Executive Chairman and other Non‑Executive Directors reflect the demands, which
are placed on, and the responsibilities of the Directors of Karoon. The Company reviews Independent Non‑Executive Chairman
and other Non‑Executive Director remuneration annually and assesses the change to the Company’s activities and overall
responsibilities of each Non‑Executive Director.
There have been no changes to Non‑Executive Directors’ base or individual committee fees during the course of the financial year
ending 30 June 2022. The table at the end of this section provides a summary of Karoon’s Non‑Executive Director fee policy for the
2022 financial year.
Non‑Executive Director fees are determined within an aggregate Directors’ fee pool limit, which is periodically approved by
shareholders. The maximum aggregate amount, including superannuation contribution, that may be paid to Non‑Executive Directors
of the Company as remuneration for their services per annum is A$1,200,000, as approved by shareholders at the Company’s 2015
Annual General Meeting. For the financial year ended 30 June 2022, the total fees paid to Non‑Executive Directors was A$835,000.
Superannuation contributions are paid, in accordance with Australian superannuation guarantee legislation, on Directors’ fees paid
to Australian resident Non‑Executive Directors.
Share‑based Remuneration
Non‑Executive Directors do not ordinarily receive performance‑related remuneration. The Company has determined that it will not
grant bonus or incentive related share‑based remuneration to Non‑Executive Directors. Non‑Executive Directors will continue to be
encouraged to purchase ordinary shares in the Company on‑market in accordance with the Director Minimum Shareholding Policy.
Retirement Allowance for Directors
Karoon does not provide any Non‑Executive Director with a retirement allowance.
Non‑Executive Director Fees for the Financial Year Ended 30 June 2022
Non‑Executive Directors’ fees for the financial year ended 30 June 2022 (excluding superannuation contribution) are outlined in the
following table:
Base fee
Non‑Executive Chairman*
Non‑Executive Directors
Committee member fees
Audit and Risk Committee
Chairman
Member
People, Culture and Governance Committee
Chairman
Member
Sustainability and Operational Risk Committee
Chairman
Member
*
Non‑Executive Chairman base fee includes compensation for the appointment to relevant Committees.
A$220,000
A$100,000
A$25,000
A$20,000
A$20,000
A$15,000
A$20,000
A$15,000
60
KAROON ANNUAL REPORT 2022
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KAROON ANNUAL REPORT 2022
DIRECTORS’ REPORT CONTINUED
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KAROON ANNUAL REPORT 2022
The amounts disclosed for the remuneration of Directors and other KMP include the assessed fair values of performance rights
granted during the financial year, at the date they were granted, with the exception of cash‑settled share‑based payments which
are revalued at year end and performance rights for the FY2022 award, where the fair value is equivalent to the STI opportunity
achieved based on a percentage of fixed remuneration or base salary. Performance rights for the FY2022 award will be granted
following the release of the Company’s 2022 full year results. The value attributable to share options and performance rights is
allocated to particular financial periods in accordance with AASB 2 ‘Share‑based Payment’, which requires the value of a share
option and performance right at grant date to be allocated equally over the period from grant date to vesting date, adjusted for
not meeting the vesting condition. For share options and performance rights that vest immediately, the value is disclosed as
remuneration immediately, in accordance with the accounting policy described in Note 1(s) of the consolidated financial statements.
In addition, acceleration of vesting occurs for share options and performance rights up to the end of an employee’s respective
service period, where the options and rights are retained post cessation of employment.
Fair value of share options is assessed under the Black‑Scholes option pricing model. The Black‑Scholes option pricing model
considers the exercise price, the term of the share option, the share price at grant date and expected price volatility of the
underlying share, the expected dividend yield and the risk‑free interest rate for the term of the share option. With the exception
of long‑term performance rights granted during the current financial year, the fair value of performance rights were based on the
Company’s closing share price at grant date. Long‑term performance rights granted during the current financial year, which are
subject to market‑based performance conditions, have been valued using a Monte Carlo simulation approach.
63
KAROON ANNUAL REPORT 2022 a
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1
KAROON ANNUAL REPORT 2022
Share‑based Remuneration
As at 30 June 2022, there were 13,645,295 performance rights issued under the 2016 PRP and 2019 PRP respectively, representing
approximately 2.45% of the Company’s total number of shares issued. Subsequent to year end, 3,129,151 performance rights have
vested and converted to ordinary shares as outlined on page 46.
The terms and conditions of each grant of performance rights over unissued ordinary shares in the Company affecting remuneration
in the current or a future financial year are as follows:
DATE
VESTED AND
EXERCISABLE
EXPIRY DATE
GRANT DATE
Performance rights
12 November 2019
1 July 2022
30 June 2023
18 October 2019
1 July 2022
30 June 2023
29 November 2019
1 July 2022
30 June 2023
25 September 2020 1 July 2022
30 June 2023
25 September 2020 1 July 2023
30 June 2024
27 November 2020
1 July 2023
30 June 2024
23 March 2022
1 July 2024
30 June 2025
6 May 2022
1 July 2024
30 June 2025
EXERCISE
PRICE
PER SHARE
OPTION OR
PERFORMANCE
RIGHT
FAIR VALUE
PER SHARE
OPTION OR
PERFORMANCE
RIGHT AT
GRANT DATE
%
VESTED
PERFORMANCE
CONDITION ACHIEVED
$–
$–
$–
$–
$–
$–
$–
$–
A$1.060
A$1.075
A$1.115
A$0.740
A$0.587
A$1.572
A$1.815
A$1.525
100
100
100
2022 Performance Condition
2022 Performance Condition
2022 Performance Condition
69
2021 Performance Condition
–
–
–
–
To be determined
To be determined
To be determined
To be determined
Performance rights are granted for no consideration. Performance rights granted carry no dividend or voting rights.
Number of Performance Rights Provided as Remuneration During the Financial Year
Details of performance rights over unissued ordinary shares in the Company provided as remuneration to each Director and each
of the other KMP, including their personally related parties, are set out below:
NUMBER OF
PERFORMANCE
RIGHTS
GRANTED
DURING
FINANCIAL
YEAR
FAIR
VALUE PER
PERFORMANCE
RIGHT AT
GRANT DATE*
VALUE OF
PERFORMANCE
RIGHTS AT
GRANT DATE*
NUMBER OF
PERFORMANCE
RIGHTS
VESTED
DURING
FINANCIAL
YEAR
NUMBER OF
PERFORMANCE
RIGHTS
FORFEITED
VALUE OF
PERFORMANCE
RIGHTS
FORFEITED**
NAME
Executive Directors
Dr Julian Fowles
– Performance rights (LTI)
577,052
A$1.525
A$880,004
Other key management personnel (Group)
Mr Ray Church
– Performance rights (LTI)
276,389
A$1.525
A$421,493
Mr Antonio Guimarães
– Performance rights (LTI)
152,660
A$1.525
A$232,807
–
–
–
–
–
–
–
–
–
Mr Ricardo Abi‑Ramia
– Performance rights (STI)
– Performance rights (LTI)
Total key management personnel
–
–
–
84,060
51,395
A$70,411
79,674
A$1.815
A$144,608
–
–
–
– Performance rights
1,085,775
A$1,678,912
84,060
51,395
A$70,411
*
The value at grant date, calculated in accordance with AASB 2, of share options and performance rights granted during the financial year
as part of their remuneration.
** The value of performance rights forfeited during the financial year because a vesting condition was not satisfied was determined at the time
of forfeit (7 July 2021), but assuming the condition was satisfied, based on the underlying value of the share options or performance rights
at that date.
No share options or performance rights over unissued ordinary shares in the Company, held by any Director or other KMP,
lapsed during the financial year, except for 51,395 performance rights that were forfeited by Directors and other KMP.
65
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Remuneration Report (Audited) Continued
Section 5. Statutory and Share‑based Reporting Continued
Shares Issued on the Exercise of Share Options Provided as Remuneration
No share options were exercised by any Director or other KMP, including their personally related parties, during the financial year.
Shares Issued on the Conversion of Performance Rights Provided as Remuneration
Details of fully paid ordinary shares in the Company issued, as a result of the exercise and conversion of remuneration performance
rights to each Director and other KMP, during the financial year, including their personally related parties, are set out below:
NAME
Other KMP (Group)
Mr Ricardo Abi‑Ramia
DATE OF CONVERSION
OF PERFORMANCE RIGHTS
7 September 2021
NUMBER OF
ORDINARY
SHARES ISSUED
VALUE AT
CONVERSION
DATE*
AMOUNT
PAID PER
PERFORMANCE
RIGHT
84,060
84,060
A$100,872
A$100,872
$–
*
The value at conversion date of performance rights that were granted as part of their remuneration and were converted during the financial
year has been determined as the underlying value of the performance rights at that date.
No amounts are unpaid on any ordinary shares issued on the conversion of the above remuneration performance rights.
Details of Remuneration – Share Options and Performance Rights
For each grant of share options or performance rights in current or previous financial years which resulted in a share‑based payment
expense to Directors and other KMP, the percentage of the grant that vested and percentage that was forfeited because the
individual did not meet the service and/or pre‑determined performance conditions is set out below:
NAME
Executive Director
Dr Julian Fowles
– Performance rights (LTI)
– Performance rights (LTI)
– Performance rights (STI)*
Other KMP (Group)
Mr Ray Church
– Performance rights (LTI)
– Performance rights (STI)*
Mr Antonio Guimarães
– Performance rights (LTI)
– Performance rights (STI)*
Mr Ricardo Abi‑Ramia
– Performance rights (LTI)
– Performance rights (STI)
– Performance rights (LTI)
– Performance rights (LTI)
– Performance rights (STI)*
Mr Edward Munks
– Performance rights (LTI)
– Performance rights (STI)
– Performance rights (LTI)
Mr Scott Hosking
– Performance rights (LTI)
– Performance rights (STI)
– Performance rights (LTI)
FINANCIAL
YEAR END
GRANTED
VESTED
%
FORFEITED
%
FINANCIAL YEARS
IN WHICH SHARE
OPTIONS OR
PERFORMANCE
RIGHTS MAY VEST
MAXIMUM
TOTAL VALUE
OF GRANT
YET TO VEST
US$
30 June 2021
30 June 2022
30 June 2023
30 June 2022
30 June 2023
30 June 2022
30 June 2023
30 June 2020
30 June 2021
30 June 2021
30 June 2022
30 June 2023
30 June 2020
30 June 2021
30 June 2021
30 June 2020
30 June 2021
30 June 2021
–
–
–
–
–
–
–
100
73.3
–
–
–
100
63.2
–
100
63.2
–
–
–
–
–
–
–
–
–
26.7
–
–
–
–
36.8
–
–
36.8
–
30 June 2024
30 June 2025
30 June 2024
30 June 2025
30 June 2024
30 June 2025
30 June 2024
30 June 2023
30 June 2023
30 June 2024
30 June 2025
30 June 2024
30 June 2023
30 June 2023
30 June 2024
30 June 2023
30 June 2023
30 June 2024
221,513
425,447
47,360
203,775
60,287
112,553
35,798
–
–
30,188
69,928
19,517
–
–
–
–
–
–
*
Performance rights for the deferred portion of the FY2022 award will be granted following the release of the Company’s 2022 full year results.
The number of performance rights will depend on the Company’s weighted average share price in the 20‑trading day period after the release
of the Company’s 2022 full year financial results.
No share options or performance rights will vest if the service and/or pre‑determined performance conditions are not met,
therefore the minimum value of the share option or performance right yet to vest is $Nil.
66
KAROON ANNUAL REPORT 2022 The maximum value of share options and performance rights yet to vest was determined as the amount of the grant date fair
value of the share options or performance rights that is yet to be expensed in the consolidated statement of profit or loss and other
comprehensive income. For the FY2022 award, the maximum value yet to vest is equivalent to the STI opportunity achieved, based
on a percentage of fixed remuneration or base salary, to be expensed over the remaining vesting period.
Share Options and Performance Rights over Unissued Ordinary Shares in the Company as at 30 June 2022
During the financial year 1,085,775 performance rights over unissued ordinary shares in the Company were issued to Directors
and other KMP, including their personally related parties.
The movement of share options and performance rights over unissued ordinary shares in the Company held by Directors and
other KMP, including their personally related parties, during the financial year was as follows:
EXERCISED
SHARE
OPTIONS/
VESTED AND
CONVERTED
PERFORM-
ANCE
RIGHTS
SHARE
OPTIONS OR
PERFORM-
ANCE
RIGHTS
FORFEITED
CASH-
SETTLED
BALANCE
AS AT
30 JUNE 2022
OTHER
TOTAL
VESTED AND
EXERCISABLE
AS AT
30 JUNE 2022
TOTAL
UNVESTED
AS AT
30 JUNE 2022
BALANCE
AS AT
1 JULY 2021
GRANTED AS
REMUNER-
ATION
Executive Director
Dr Julian Fowles
– Performance rights
502,989
577,052
Non‑Executive Directors
Mr Bruce Phillips
Ms Luciana Rachid
Mr Clark Davey
Mr Peter Turnbull
Mr Peter Botten
Other KMP
Mr Ray Church
– Performance rights
Mr Antonio Guimarães
– Performance rights
Mr Scott Hosking
–
–
–
–
–
–
–
–
–
–
–
–
276,389
152,660
– ESOP options
369,258
– Performance rights
1,447,130
Mr Edward Munks
– ESOP options
461,572
– Performance rights
1,808,916
Mr Ricardo Abi‑Ramia
– ESOP options
– Performance rights
258,138
692,353
Total key management personnel
–
–
–
–
–
79,674
(84,060)
– Share options
1,088,968
–
–
– Performance rights
4,451,388
1,085,775
(84,060)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,080,041
–
–
–
–
–
276,389
152,660
(369,258)1
(1,276,215)1
(170,915)
–
(213,645)
(461,572)1
(1,595,271)1
–
(51,395)
(258,138)2
(636,572)2
–
(1,088,968)
–
–
–
–
–
–
–
(435,955)
(3,508,058)
1,509,090
–
–
–
–
–
–
–
–
–
–
1,080,041
–
–
–
–
–
276,389
152,660
–
–
–
–
–
–
–
1,509,090
1. Reflects Scott Hosking’s and Ed Munks’ respective holdings, held both individual and by personally related parties, when they ceased to be
employees on 30 September 2021.
2. Reflects Ricardo Abi‑Ramia holdings when he ceased to be a KMP on 1 October 2021.
All performance rights granted during the financial year were issued under the 2019 PRP.
67
KAROON ANNUAL REPORT 2022 DIRECTORS’ REPORT CONTINUED
Remuneration Report (Audited) Continued
Section 5. Statutory and Share‑based Reporting Continued
The number of ordinary shares held by Directors and other KMP, including their personally related parties, as at 30 June 2022
was as follows:
EXERCISED
(SHARE
OPTIONS)/
VESTED AND
CONVERTED
(PERFORM-
ANCE
RIGHTS)
BALANCE
AS AT
1 JULY 2021
RECEIVED AS
REMUNER-
ATION
SHARES
PURCHASED
ORDINARY
SHARES
SOLD
BALANCE
AS AT
30 JUNE 2022
OTHER^
Executive Director
Dr Julian Fowles
Non‑Executive Directors
Mr Bruce Phillips
Mr Clark Davey
Mr Peter Turnbull
Ms Luciana Rachid
Mr Peter Botten
Other KMP
Mr Ray Church (commenced
as EVP and Chief Financial
Officer on 27 September 2021)
Mr Antonio Guimarães
(commenced as EVP and President
Karoon Brazil on 1 October 2021)
Mr Scott Hosking (ceased
as Chief Financial Officer
on 30 September 2021)
Mr Edward Munks (ceased
as Chief Operating Officer
on 30 September 2021)
Mr Ricardo Abi‑Ramia (ceased
as KMP on 1 October 2021)
Total KMP
107,659
1,750,000
147,214
146,269
52,960
–
–
–
614,634
1,114,932
173,402
4,107,070
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
84,060
84,060
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(19,204)
(595,430)
–
–
(1,114,932)
(257,462)
107,659
1,750,000
147,214
146,269
52,960
–
–
–
–
–
–
(19,204)
(1,967,824)
2,204,102
^ Other reflects the respective other KMP shareholdings (held both individually and by personally related parties) when they either commenced
or ceased their role as a KMP during the year.
None of the ordinary shares are held nominally by any Director or any of the other key management personnel. ‘Held nominally’
refers to the situation where the ordinary shares are in the name of the Director or other key management person, but he is not
the beneficial owner.
Other Transactions with Directors and Other KMP
A formal Related Party Protocol requires the approval by the People, Culture and Governance Committee and, thereafter,
the Board of Directors of all new related party transactions.
There were no related party transactions with Directors or other KMP during the financial year.
Loans to Directors and Other KMP
There were no loans to Directors or other KMP during the financial year.
68
KAROON ANNUAL REPORT 2022 Rounding
The amounts in the financial report are rounded to the nearest thousand dollars (US$’000) unless otherwise indicated, under
the option available to the Company under ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191.
The Company is an entity to which this legislative instrument applies.
This Directors’ Report, incorporating the Remuneration Report, is made in accordance with a resolution of the Directors.
On behalf of the Directors:
Mr Bruce Phillips
Independent Non‑Executive Chairman
Dr Julian Fowles
Chief Executive Officer and Managing Director
25 August 2022
69
KAROON ANNUAL REPORT 2022 AUDITOR’S INDEPENDENCE DECLARATION
Auditor’s Independence Declaration
As lead auditor for the audit of Karoon Energy Ltd for the year ended 30 June 2022, I declare that to
the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit, and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Karoon Energy Ltd and the entities it controlled during the period.
Anthony Hodge
Partner
PricewaterhouseCoopers
Melbourne
25 August 2022
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
70
KAROON ANNUAL REPORT 2022
CONSOLIDATED FINANCIAL STATEMENTS
For the Fina ncial Year Ende d 30 J une 2 02 2
Karoon Energy Ltd (the ‘Company’) is a public company limited by shares and is listed on the ASX. It is incorporated and
domiciled in Australia.
The registered office and principal place of business of Karoon Energy Ltd is Suite 3.02, Level 3, 6 Riverside Quay, Southbank VIC 3006.
The consolidated financial statements are for the consolidated entity consisting of the Company and its subsidiaries.
The consolidated financial statements are presented in United States dollars.
Note 22. Borrowings
Note 23. Other Financial Liabilities
104
105
Note 24. Contributed Equity and Reserves Within Equity 106
Note 25. Subsidiaries
Note 26. Segment Information
Note 27. Joint Operations
Note 28. Contingent Liabilities and Contingent Assets
Note 29. Commitments
Note 30. Reconciliation to the Consolidated
Statement of Cash Flows
Note 31. Share‑based Payments
Note 32. Related Party Transactions
Note 33. Parent Company Financial Information
Note 34. Subsequent Events
108
109
111
112
113
114
115
118
119
119
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Note 1. Significant Accounting Policies
Note 2.
Significant Accounting Estimates,
Assumptions and Judgements
Note 3. Financial Risk Management
Note 4. Revenue and Other Income
Note 5. Expenses
Note 6.
Income Tax
Note 7. Remuneration of External Auditors
Note 8. Dividends
Note 9. Earnings Per Share
Note 10. Cash and Cash Equivalents
Note 11. Receivables
Note 12.
Inventories
Note 13. Security Deposits
Note 14. Other Assets
Note 15. Oil and Gas Assets
Note 16. Property, Plant and Equipment
Note 17.
Intangible Assets
Note 18.
Exploration and Evaluation
Expenditure Carried Forward
Note 19. Trade and Other Payables
Note 20. Provisions
Note 21. Leases
72
73
74
75
76
76
86
88
95
95
96
98
98
99
99
99
100
100
101
101
102
102
102
103
103
104
71
KAROON ANNUAL REPORT 2022
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the Financial Ye ar Ended 3 0 Ju ne 2 022
Revenue
Cost of Sales
Gross Profit
Other income
Business development and transition costs
Exploration expenses
Finance costs
Net foreign currency gains/(losses)
Other expenses
Change in fair value of contingent consideration
Loss before income tax
Income tax benefit
NOTE
4(a)
5(a)
4(b)
5(b)
5(c)
5(d)
5(e)
23(ii)
6
Profit (Loss) for financial year attributable to equity holders of the Company
Other comprehensive income, net of income tax:
Items that may be reclassified subsequently to profit or loss
Exchange differences arising from the translation of financial statements
into presentation currency
Net change in fair value of cash flow hedges and cost of hedging
24(d)
Other comprehensive income (loss) for financial year, net of income tax
Total comprehensive income (loss) for financial year attributable
to equity holders of the Company, net of income tax
CONSOLIDATED
2022
US$’000
385,074
(191,704)
193,370
789
(3,362)
(3,196)
(22,709)
6,203
(33,814)
(227,119)
(89,838)
25,387
(64,451)
2021
US$’000
170,809
(111,375)
59,434
305
(17,564)
(3,416)
(14,401)
(17,053)
(28,546)
(6,632)
(27,873)
32,257
4,384
(4,332)
(41,274)
(45,606)
13,493
–
13,493
(110,057)
17,877
Profit (Loss) per share attributable to equity holders of the Company:
Basic profit (loss) per ordinary share
Diluted profit (loss) per ordinary share
9
9
(0.1159)
(0.1159)
0.0079
0.0077
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
72
KAROON ANNUAL REPORT 2022 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As a t 30 June 2 022
CONSOLIDATED
2022
US$’000
2021
US$’000
NOTE
Current assets
Cash and cash equivalents
Receivables
Inventories
Security deposits
Other assets
Total current assets
Non‑current assets
Deferred tax assets
Inventories
Oil and gas assets
Property, plant and equipment
Intangible assets
Exploration and evaluation expenditure carried forward
Security deposits
Other assets
Total non‑current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Other financial liabilities
Lease liabilities
Provisions
Total current liabilities
Non‑current liabilities
Trade and other payables
Borrowings
Other financial liabilities
Deferred tax liabilities
Lease liabilities
Provisions
Total non‑current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Accumulated losses
Reserves
Total equity
10
11
12
13
14
6
12
15
16
17
18
13
14
19
23
21
20
19
22
23
6
21
20
24
157,683
56,336
19,403
325
11,792
245,539
122,982
5,828
733,042
13,257
40
40,837
1,337
1,277
918,600
1,164,139
68,302
9,597
125,398
43,741
368
247,406
6,763
27,144
221,994
–
245,146
139,485
640,532
887,938
276,201
907,514
(478,816)
(152,497)
276,201
133,209
34,162
10,952
209
5,317
183,849
36,528
6,536
736,422
8,260
102
40,853
1,406
–
830,107
1,013,956
76,174
8,253
–
45,393
457
130,277
4,261
–
71,161
1,775
267,447
158,785
503,429
633,706
380,250
905,138
(414,365)
(110,523)
380,250
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
73
KAROON ANNUAL REPORT 2022 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Financial Ye ar Ended 3 0 Ju ne 2 022
Balance as at 1 July 2020
Profit for financial year
Other comprehensive income (loss)
Total comprehensive profit
for financial year
Transactions with owners
in their capacity as owners:
Deferred tax adjustment
on transaction costs arising
on ordinary shares issued
in prior period
Share‑based payments expense
NOTE
CONTRIBUTED
EQUITY
US$’000
905,281
–
–
–
CONSOLIDATED
SHARE-
BASED
PAYMENTS
RESERVE
US$’000
47,156
FOREIGN
CURRENCY
TRANSLATION
RESERVE
US$’000
(174,206)
–
–
–
–
13,493
13,493
ACCUM-
ULATED
LOSSES
US$’000
(418,749)
4,384
–
4,384
24(b)
31(e)
(143)
–
(143)
–
–
–
–
3,034
3,034
–
–
–
Balance as at 30 June 2021
905,138
(414,365)
50,190
(160,713)
HEDGING
RESERVES
US$’000
–
–
–
–
–
–
–
–
–
TOTAL
EQUITY
US$’000
359,482
4,384
13,493
17,877
(143)
3,034
2,891
380,250
(64,451)
Profit (loss) for financial year
Other comprehensive income (loss)
Total comprehensive loss
for financial year
Transactions with owners
in their capacity as owners:
Exercise of options
Share‑based payments expense
–
–
–
(64,451)
–
(64,451)
24(b)
31(e)
2,376
–
2,376
–
–
–
–
–
–
–
3,632
3,632
–
(4,332)
(41,274)
(45,606)
(4,332)
(41,274)
(110,057)
–
–
–
–
–
–
2,376
3,632
6,008
Balance as at 30 June 2022
907,514
(478,816)
53,822
(165,045)
(41,274)
276,201
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
74
KAROON ANNUAL REPORT 2022 CONSOLIDATED STATEMENT OF CASH FLOWS
For the Financial Yea r ended 30 Ju ne 20 22
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Net refunds for Peruvian VAT
Payments for exploration and evaluation expenditure expensed
Payments for Baúna transition expenditure
Payments for legal settlement
Payments for cash flow hedges
Interest received
Borrowing and other costs of finance paid
Income taxes paid
Net cash flows from operating activities
Cash flows from investing activities
Purchase of plant and equipment and computer software
Acquisition of oil and gas assets
Payments for oil and gas assets
Borrowing costs paid for qualifying assets
Payments for exploration and evaluation expenditure capitalised
Release/refund (payment) of security deposits
Proceeds from disposal of non‑current assets
Net cash flows used in investing activities
Cash flows from financing activities
Principal elements of lease payments
Proceeds from issue of ordinary shares
Proceeds from borrowings
Debt facility establishment costs
Net cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Effect of exchange rate changes on the balance of cash
and cash equivalents held in foreign currencies
Cash and cash equivalents at end of financial year
CONSOLIDATED
2022
US$’000
2021
US$’000
NOTE
362,926
(116,988)
519
(3,524)
–
(9,600)
(20,827)
25
(18,860)
(39,425)
154,246
(5,059)
(43,588)
(59,640)
(5,807)
–
(260)
1,403
136,978
(56,461)
4,247
(15,231)
(15,941)
–
–
263
(13,246)
(10,823)
29,786
(4,717)
(150,000)
(16,031)
(191)
(1,915)
3,621
20
(112,951)
(169,213)
(44,553)
2,376
30,000
(3,320)
(15,497)
25,798
133,209
(1,324)
157,683
(23,411)
–
–
–
(23,411)
(162,838)
296,420
(373)
133,209
30(a)
10
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
75
KAROON ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Financial Ye ar Ended 3 0 Ju ne 2 022
Note 1. Significant Accounting Policies
The consolidated financial statements are for the consolidated entity consisting of the Company and its subsidiaries (the ‘Group’).
Information on the nature of the operations and principal activities of the Group are described in the Directors’ Report.
The following is a summary of significant accounting policies adopted by the Group in the preparation of these consolidated
financial statements. The accounting policies have been consistently applied to all the financial years presented, unless
otherwise stated.
(a) Basis of Preparation
These general‑purpose financial statements have been prepared in accordance with Australian Accounting Standards
and Interpretations issued by the Australian Accounting Standards Board (the ‘AASB’) and the Corporations Act 2001 (Cth).
The Company is a for‑profit entity for the purpose of preparing financial statements.
Rounding
The amounts in the financial statements are rounded to the nearest thousand dollars (US$’000) unless otherwise indicated,
under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191.
The Company is an entity to which this legislative instrument applies.
Historical Cost Convention
The consolidated financial statements have been prepared on an accrual basis under the historical cost convention as modified,
when relevant, by the revaluation of selected financial assets and financial liabilities for which the fair value basis of accounting
has been applied.
Significant Accounting Estimates, Assumptions and Judgements
The preparation of financial statements requires the use of certain significant accounting estimates. It also requires management
to exercise its judgement in the process of applying Group accounting policies. The areas involving a high degree of judgement
or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed
in Note 2.
Compliance with International Financial Reporting Standards
Compliance with Australian Accounting Standards ensures that the consolidated financial statements comply with International
Financial Reporting Standards as issued by the International Accounting Standards Board.
Climate Change
In preparing the financial statements, the impact of climate change and current climate‑related legislation has been considered.
The impact of climate change is considered in the significant judgements in a number of areas in the financial statements not
limited to:
•
Impairment of oil and gas assets (refer Note 2(a)); and
• Provision for restoration (refer Note 2(c)).
The Group continues to monitor climate related policy and its impact on the financial statements.
76
KAROON ANNUAL REPORT 2022 New, Revised or Amended Australian Accounting Standards and Interpretations that are First Effective
in the Current Reporting Period
The Group has adopted all of the new, revised and/or amended Australian Accounting Standards and Interpretations issued
by the AASB that are relevant to its operations and effective for the financial year ended 30 June 2022.
New and revised Australian Accounting Standards and amendments thereof and Interpretations effective for the financial
year include:
(i) Amendments to AASB 4 ‘Insurance Contracts’, AASB 7 ‘Financial Instruments Disclosures’, AASB 9 ‘Financial Instruments’,
AASB 16 ‘Leases’ AASB 139 ‘Financial Instruments: Recognition and Measurement’: Interest rate benchmark reform and
Costs necessary to sell inventories, and
(ii) Amendments to AASB 16 ‘Leases’: COVID‑19 Related Rent Concessions.
The initial adoption of all of these new, revised and/or amended Australian Accounting Standards and Interpretations has not
resulted in any changes to the Group’s accounting policies and has had no effect on either the amounts reported for the current
or previous years.
Early Adoption of Australian Accounting Standards
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
(b) Basis of Consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June 2022
and the results of all subsidiaries for the financial year then ended.
Subsidiaries are all entities (including special purpose entities) over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect
those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are deconsolidated from the date that control ceases.
Interests in subsidiaries are set out in Note 25.
All subsidiaries have a financial year end of 30 June, with the exception of: Karoon Petróleo & Gas Ltda; Karoon Peru Pty Ltd,
Sucursal del Peru; and KEI (Peru Z38) Pty Ltd, Sucursal del Peru which have a financial year end of 31 December in accordance
with relevant Brazilian and Peruvian tax and accounting regulations respectively.
Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with the policies applied
by the Group.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated
on consolidation. Unrealised losses are also eliminated, unless the transaction provides evidence of the impairment of
the asset transferred.
(c) Segment Information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for assessing performance and in determining the allocation of resources
of the operating segments, has been identified as the Group’s Executive Management Team.
(d) Revenue
Revenue from contracts with customers is recognised when the performance obligations are considered met, which is when
control of the products or services provided are transferred to the customer. Revenue is recognised at an amount that reflects
the consideration the Group expects to be entitled to, net of goods and services tax or similar taxes.
Where part or all of the transaction is price variable, revenue is recognised only to the extent that it is highly probable that
a significant reversal of revenue will not occur.
Oil sales
Performance obligations are satisfied when the control of oil is transferred to the customer at the despatch point to the offtake
vessel. The transaction price for oil sales may not be finalised at the date the customer takes control of the product. In such cases,
a provisional transaction price is used until a final transaction price can be determined. The difference between the provisional
and the final transaction price is recognised at the point when the final price is determined.
Credit terms for crude cargoes are between 30 and 45 days.
77
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 1. Significant Accounting Policies Continued
Interest Income
Interest income on financial assets at amortised cost calculated using the effective interest method is recognised in the statement
of profit or loss and other comprehensive income as other income. Interest income is calculated by applying the effective interest
rate to the gross carrying amount of the relevant financial asset, except for financial assets that subsequently become credit
impaired. For credit‑impaired financial assets the effective interest rate is applied to the net carrying amount of the financial
asset (after deduction of the loss allowance).
(e) Foreign Currency Transactions and Balances
Functional and Presentation Currency
Items included in the financial statements of each of the Group’s subsidiaries are measured using the currency of the primary
economic environment in which the subsidiary or branch operates (the ‘functional currency’).
The functional currency of the Company is Australian dollars. The Group’s Brazilian & Peruvian Branches have a functional
currency of US$.
The presentation currency of the consolidated financial statements is US$.
Transactions and Balances
Foreign currency transactions are translated into the functional currency using the foreign exchange rates prevailing at the dates
of the transactions. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation
at financial year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the
consolidated statement of profit or loss and other comprehensive income, except when they are attributable to part of the net
investment in a foreign operation.
Non‑monetary items measured at historical cost continue to be carried at the foreign exchange rate at the date of the transaction.
Foreign exchange differences arising on the translation of non‑monetary items are recognised directly in equity to the extent
that the gain or loss is directly recognised in equity, otherwise foreign exchange differences are recognised in the consolidated
statement of profit or loss and other comprehensive income.
Foreign exchange gains and losses are presented in the consolidated statement of profit or loss and other comprehensive income
on a net basis within other income or expenses.
Group Companies
The results and financial position of entities within the Group that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
• assets and liabilities are translated at the foreign exchange rates prevailing at the end of each reporting period.
•
income and expenses are translated at the average foreign exchange rates for the financial period (unless this is not a reasonable
approximation of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates
of the transactions); and
• all resulting foreign exchange differences are recognised in other comprehensive income.
On consolidation, foreign exchange differences arising on translation of foreign currency financial statements are transferred
directly to the foreign currency translation reserve in the consolidated statement of financial position. The relevant differences
are recognised in the consolidated statement of profit or loss and other comprehensive income during the financial period when
the investment in the entity is disposed.
(f) Income Taxes and Other Taxes
Current Tax
Current tax (expense) income is calculated by reference to the amount of income taxes payable or recoverable in respect of the
taxable profit or loss for the financial period. It is calculated using income tax rates and tax laws that have been enacted or are
substantively enacted by the end of each reporting period in the countries where the Company’s subsidiaries operate and generate
taxable income. Current tax for current and previous financial periods is recognised as a liability (or asset) to the extent that it is
unpaid or refundable.
78
KAROON ANNUAL REPORT 2022 Deferred Tax
Deferred tax is accounted for using the statement of financial position liability method in respect of temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The tax base of an asset
or liability is the amount attributed to that asset or liability for income taxation purposes.
No deferred tax is recognised from the initial recognition of an asset or liability, excluding a business combination, where there
is no effect on accounting or taxable profit or loss.
Deferred tax is calculated at the tax rates that are enacted or substantively enacted by the end of the financial period and are
expected to apply to the financial period when the asset is realised, or liability is settled. Deferred tax is credited in the consolidated
statement of profit or loss and other comprehensive income except where it relates to items that may be credited directly to equity,
in which case the deferred tax is adjusted directly against equity.
Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against
which deductible temporary tax differences or unused tax losses and tax offsets can be utilised.
Deferred tax assets and tax liabilities are offset when there is a legally enforceable right to offset current tax assets and tax
liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset
where the Group has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle
the liability simultaneously.
The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse
change will occur in income taxation legislation and the anticipation that the Group will derive sufficient future assessable income
to enable the benefit to be realised and comply with the conditions of deductibility imposed by law.
Tax Consolidation
The Company and its wholly owned Australian subsidiaries are part of an income tax‑consolidated group under Australian taxation
law. The Company is the head entity in the income tax‑consolidated group. Tax income (expense), deferred tax liabilities and
deferred tax assets arising from temporary tax differences of the members of the income tax‑consolidated group are recognised
in the separate financial statements of the members of the income tax‑consolidated group using the ‘stand‑alone taxpayer’
approach, by reference to the carrying amounts in the separate financial statements of each company and the tax values applying
under tax consolidation. Current tax liabilities and tax assets and deferred tax assets arising from unused tax losses and tax
credits of members of the income tax‑consolidated group are recognised by the Parent Company (as head entity of the income
tax‑consolidated group).
Due to the existence of a tax funding agreement between the companies in the income tax‑consolidated group, each company
contributes to the income tax payable or receivable in proportion to their contribution to the income tax‑consolidated group’s
taxable income. Differences between the amounts of net tax assets and tax liabilities derecognised and the net amounts
recognised pursuant to the funding agreement are recognised as either a contribution by, or distribution to, the head entity.
Goods and Services Tax (‘GST’)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not
recoverable from the Australian Taxation Office (’ATO’). In these circumstances, the GST is recognised as part of the cost of
acquisition of the asset or equity or as part of an item of expense.
Receivables and payables in the consolidated statement of financial position are shown inclusive of GST.
The net amount of GST recoverable from, or payable to, the ATO, is included as current receivables or payables respectively
in the consolidated statement of financial position.
Cash flows are included on a gross basis in the consolidated statement of cash flows. The GST components of cash flows arising
from investing and financing activities, which are recoverable from, or payable to, the ATO, are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the ATO.
Petroleum Resource Rent Tax (‘PRRT’)
PRRT is accounted for as income tax under AASB 112 ‘Income Taxes’.
(g) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statement of financial position and for presentation in the consolidated statement
of cash flows comprise cash at bank and on hand (including share of joint operation cash balances) and short‑term bank deposits
that are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value.
79
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 1. Significant Accounting Policies Continued
(h) Receivables
Receivables, which normally have 30‑45 day terms, are generally non‑interest‑bearing amounts. They are recognised initially at the
amount of the consideration that is unconditional unless they contain significant financing components, when they are recognised
initially at fair value. The Group holds receivables with the objective to collect the contractual cash flows. They are presented
as current assets unless collection is not expected for more than 12 months after reporting date. For receivables expected to be
settled within 12 months, these are subsequently measured at amortised cost using the effective interest method, less any loss
allowance. For receivables expected to be settled later than 12 months, these are subsequently measured at amortised cost based
on discounted cash flows using an effective interest rate, less any loss allowance.
Cash flows relating to non‑current receivables are not discounted if the effect of discounting would be immaterial. Refer Note 3(c)
for a description of the Group’s receivable impairment policies.
(i) Inventories
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and selling expenses.
Cost for petroleum products, which comprise extracted crude oil stored in the FPSO, are valued using the absorption cost method.
Other inventories are represented by assets acquired from third parties, in the form of casing and other drilling inventory to be
consumed or used in exploration and evaluation activities or production activities. They are presented as current assets unless
inventories are not expected to be consumed or used in exploration and evaluation activities within 12 months. The cost of casing
and other drilling inventory includes direct materials, direct labour and transportation costs.
(j) Security Deposits
Certain financial assets have been pledged as security for performance guarantees, bank guarantees and bonds related to
exploration tenements and operating lease rental agreements. Their realisation may be restricted subject to terms and conditions
attached to the relevant exploration tenement agreements or operating lease rental agreements.
Security deposits are non‑derivative financial assets that are not quoted in an active market. Security deposits are initially
recognised at fair value. Such assets are subsequently carried at amortised cost using the effective interest method, less any
loss allowance. They are included in current assets, except for those with maturities greater than 12 months after the end of the
reporting period which are classified as non‑current assets.
Security deposits are derecognised when the terms and conditions attached to the relevant exploration tenement agreements
or lease rental agreements have expired or been transferred.
Refer Note 3(c) for a description of the Group’s security deposit impairment policies.
(k) Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost
includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly,
when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement
only if it is eligible for capitalisation. All other repairs and maintenance are recognised as an expense in the consolidated statement
of profit or loss and other comprehensive income as incurred.
Commencing from the time the plant and equipment is held ready for use, depreciation expense is calculated on a straight‑line
basis to allocate their cost amount, net of their residual values, over their estimated useful lives ranging from 2 to 10 years.
Plant and equipment residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at the end
of each reporting period.
Gains and losses on disposals are determined by comparing proceeds with the net carrying amount. These gains and losses are
included in the consolidated statement of profit or loss and other comprehensive income.
Property, plant and equipment are tested for impairment in accordance with the accounting policy described in Note 1(p).
(l) Oil and Gas Assets
Production assets
Production assets are stated at cost less accumulated amortisation and impairment charges. Production assets include the costs to
acquire, construct, install or complete production and infrastructure facilities, capitalised borrowing costs, transferred exploration
and evaluation assets, development wells and the estimated cost of dismantling and restoration. Subsequent capital costs,
including major maintenance, are included in the asset’s carrying amount only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item can be reliably measured.
80
KAROON ANNUAL REPORT 2022 Assets in development
When the technical and commercial feasibility of an undeveloped oil or gas field has been demonstrated and approval of
commercial development occurs, the field enters its development phase. The costs of oil and gas assets in development are
separately accounted for and include past exploration and evaluation costs, development drilling and other subsurface expenditure,
surface plant and equipment and any associated land and buildings. When the committed development expenditure programs are
completed and commercial production commences, these costs are subject to amortisation.
Amortisation of production assets
Amortisation is calculated using the units of production method for an asset or group of assets from the date of commencement
of production. Depletion charges are calculated using the units of production method over the life of the estimated proved plus
probable (‘2P’) reserves for an asset or group of assets.
(m) Intangibles
Computer Software
Computer software is stated at cost less accumulated amortisation and any accumulated impairment losses. Computer software
costs have a finite life.
Commencing from the time the computer software is held ready for use, amortisation expense is calculated on a straight‑line
basis to allocate their cost amount, net of their residual values, over their estimated useful lives ranging from 2 to 2.5 years.
The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at the end of each
reporting period. Computer software is tested for impairment in accordance with the accounting policy described in Note 1(p).
(n) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial
period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are
expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection
with the borrowing of funds.
(o) Exploration and Evaluation Expenditure
Exploration and evaluation activity involves the search for hydrocarbon resources, the determination of technical feasibility and the
assessment of commercial viability of an identified resource. Expenditure in respect of each area of interest is accounted for using
the ‘successful efforts’ method of accounting. The ‘successful efforts’ method requires all exploration and evaluation expenditure in
relation to an area of interest to be expensed in the period it is incurred, except the cost of successful wells, the costs of acquiring
interests in new exploration assets, and appraisal costs relating to determining development feasibility, which are capitalised as
intangible exploration and evaluation assets.
Exploration and evaluation assets are recognised in relation to an area of interest when the rights to tenure of the area of interest
are current and either:
•
•
it is expected to be recovered through sale or successful development and exploitation of the area of interest; or
relates to an exploratory discovery for which at balance date a reasonable assessment of the existence or otherwise
of economically recoverable reserves is not yet complete, or additional appraisal work is underway or planned.
All exploration expenditure in relation to directly attributable general administration costs, geological and geophysical costs, seismic
and pre‑tenure costs is expensed in the consolidated statement of profit or loss and other comprehensive income as incurred.
For exploration wells, costs directly associated with drilling the wells are initially capitalised on a well‑by‑well basis pending the
evaluation of whether potentially economic reserves of hydrocarbons have been discovered. If no recoverable hydrocarbons are
identified, or discoveries are deemed non‑commercial, then the capitalised costs are expensed.
As capitalised exploration and evaluation expenditure is not available for use, it is not amortised.
Cash flows associated with exploration and evaluation expenditure expensed are classified as operating activities in the
consolidated statement of cash flows. Whereas cash flows associated with capitalised exploration and evaluation expenditure
are classified as investing activities.
When the technical feasibility and commercial viability of extracting economically recoverable reserves have been demonstrated, any
related capitalised exploration and evaluation expenditure is reclassified as development expenditure in the consolidated statement
of financial position. Prior to reclassification, capitalised exploration and evaluation expenditure is assessed for impairment.
Petroleum tenement acquisition costs capitalised, along with licence costs paid in connection with a right to explore in an existing
exploration area.
81
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 1. Significant Accounting Policies Continued
Farm‑out
The Group does not record any exploration and evaluation expenditure made by a farmee, including any carries incurred
by the farmee to earn an ownership interest.
Any cash consideration received on sale or farm‑out of an area within an exploration area of interest is recognised as
revenue in the consolidated statement of profit or loss and other comprehensive income, unless any of the consideration
is attributable to capitalised exploration and evaluation expenditure. Cash consideration received in relation to capitalised
exploration and evaluation expenditure is offset against the carrying value of the capitalised exploration and evaluation
expenditure. Where the total carrying value has been recouped in this manner, the balance of the proceeds is brought
to account as income as a gain on disposal.
Impairment of Capitalised Exploration and Evaluation Expenditure
The carrying value of capitalised exploration and evaluation expenditure is assessed for impairment at the asset level whenever
facts and circumstances (as defined in AASB 6 ‘Exploration for and Evaluation of Mineral Resources’) suggest that the carrying
amount of the asset may exceed its recoverable amount. If any indication of impairment exists, an estimate of the asset’s
recoverable amount is calculated.
An impairment loss exists when the carrying amount of an asset or cash‑generating unit exceeds its estimated recoverable amount.
The asset or cash‑generating unit is then written‑down to its recoverable amount. Impairment losses are recognised as an expense
in the consolidated statement of profit or loss and other comprehensive income.
(p) Impairment of Assets (Other than Capitalised Exploration and Evaluation Expenditure)
All other current and non‑current assets (other than receivables, inventories, security deposits and deferred tax assets) are tested
for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
At the end of each reporting period, the Group conducts an internal review of asset values, which is used as a source of information
to assess for any indicators of impairment. External factors, such as changes in economic conditions, are also monitored to assess
for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated.
An impairment loss exists when the carrying amount of an asset or cash‑generating unit exceeds its estimated recoverable amount.
The asset is then written down to its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell
and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash‑generating units).
Impairment losses are recognised as an expense in the consolidated statement of profit or loss and other comprehensive income.
Assets that suffered impairment are tested for possible reversal of the impairment loss whenever events or changes in
circumstances indicate that the impairment may have reversed.
(q) Trade and Other Payables
Trade and other payables are initially recognised at their fair value and subsequently measured at amortised cost using the effective
interest method. These amounts represent liabilities for goods and services provided to the Group prior to the end of the reporting
period that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of goods
and services. The amounts are unsecured and are usually paid within 30 days of recognition. They are presented as current liabilities
unless payment is not due within twelve months from the reporting date.
(r) Financial liabilities
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. A derivative
embedded in a hybrid contract, with a financial liability or non‑financial host, is separated from the host and accounted for as a
separate derivative if the economic characteristics and risks are not closely related to the host, a separate instrument with the
same terms as the embedded derivative would meet the definition of a derivative, and the hybrid contract is not measured at fair
value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly
attributable transaction costs.
82
KAROON ANNUAL REPORT 2022 For purposes of subsequent measurement, financial liabilities are classified in two categories: financial liabilities at fair value
through profit or loss and financial liabilities at amortised cost (loans and borrowings).
The Group’s financial liabilities include trade and other payables, borrowings, derivative financial instruments designated
as cash flow hedges, and a derivative financial instrument relating to contingent consideration for the acquisition of an asset.
Derivatives designated as hedging instruments
The Group has entered into derivative financial instruments to hedge its exposure to cash flow risk from movements in oil
price (commodity price risk) arising from highly probable forecasted future oil sales.
At the inception of a hedge relationship, the Group documents the risk management objective and strategy for undertaking
the hedge transaction. The documentation includes identification of the hedging instrument, the hedged item, the nature of the
risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements
(including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies
for hedge accounting if it meets all of the following effectiveness requirements:
•
there is ‘an economic relationship’ between the hedged item and the hedging instrument.
• The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship.
• The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
Derivative financial instruments are presented as current assets or liabilities to the extent they are expected to be realised or
settled within twelve months after the end of the reporting period. Hedges that meet all the qualifying criteria for hedge accounting
are accounted for as described below.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the
derivative is recognised in other comprehensive income (‘OCI’) and accumulated in the hedging reserve. The effective portion of
changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged
item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the
derivative is recognised immediately in profit or loss. The Group designates only the change in fair value of the spot element of the
derivative transaction contracts (the intrinsic value of the option) as the hedging instrument in cash flow hedging relationships.
The change in fair value of the value of the option contract in time is separately accounted for as a cost of hedging and recognised
in a costs of hedging reserve within equity.
For all financial hedged derivative transaction contracts, the amount accumulated in the hedging reserve and the cost of hedging
reserve is reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affect
profit or loss. If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated
or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flows is discontinued, the
amount that has been accumulated in the hedging reserve remains in equity until it is reclassified to profit or loss in the same period
or periods as the hedged expected future cash flows affect profit or loss. If the hedged future cash flows are no longer expected
to occur, then the amounts that have been accumulated in the hedging reserve and the cost of hedging reserve are immediately
reclassified to profit or loss. Further details are disclosed in Note 23.
(s) Employee Benefits
Wages, Salaries, Annual Leave and Personal Leave
Liabilities for wages and salaries, including non‑monetary benefits and annual leave expected to be settled within 12 months after
the end of the reporting period in which the employees render the related services are recognised in respect of employees’ services
up to the end of the reporting period. They are measured at the amounts expected to be paid when the liabilities are settled plus
related on‑costs. Expenses for non‑vesting personal leave are recognised when the leave is taken and are measured at the rates
paid or payable.
The obligations are presented as current liabilities in the consolidated statement of financial position if the Group does not have an
unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement
is expected to occur.
83
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 1. Significant Accounting Policies Continued
Share‑based Payments
Share‑based remuneration benefits are provided to Executive Directors and employees via the Company’s PRP and ESOP
(refer Note 31). The Group issues equity‑settled and cash‑settled share‑based payments to certain employees.
The fair value of share options and performance rights granted is recognised as a share‑based payments expense in the
consolidated statement of profit or loss and other comprehensive income. The total amount to be expensed is determined by
reference to the fair value of the share options and performance rights granted, which includes any market performance conditions,
but excludes the impact of any service and non‑market performance vesting conditions. Non‑market performance vesting
conditions are included in assumptions about the number of share options or performance rights that are expected to vest.
The fair value is measured at grant date. For equity‑settled share‑based payments the corresponding credit is recognised directly
in the share‑based payments reserve in equity. For cash‑settled share‑based payments a liability is recognised based on fair value
of the payable earned by the end of the reporting period. The liability is re‑measured to fair value at each reporting date up to, and
including the vesting date, with changes in fair value recognised in share‑based payments expense. The total expense is recognised
over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each
reporting period, the Group revises its estimates of the number of share options and performance rights that are expected to vest
based on the non‑market performance vesting conditions. It recognises the impact of the revision to original estimates, if any,
in the consolidated statement of profit or loss and other comprehensive income.
The fair value of share options at grant date is determined using a Black‑Scholes option pricing model that takes into account the
exercise price, the term of the share option, the impact of dilution, the non‑tradeable nature of the share option, the share price at
grant date and expected price volatility of the underlying share, the expected dividend yield and the risk‑free interest rate for the
term of the share option.
The fair value of performance rights, granted for $Nil consideration, at grant date is based on the Company’s closing share price at
that date, with the exception of long‑term performance rights granted during the current financial year.
Long term performance rights granted during the current financial year, which are subject to market‑based performance conditions,
have been valued using a Monte Carlo simulation approach.
(t) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be
made of the amount of the obligation.
Restoration costs
A provision for restoration is provided by the Group where there is a present obligation as a result of exploration, development
or production activities having been undertaken, and it is probable that an outflow of economic benefits will be required to settle
the obligation. The estimated future obligations include the estimated costs of decommissioning and removing an asset and
restoring the site. These costs are capitalised within the cost of the associated assets and the provision is stated in the statement
of financial position at total estimated present value and amortised on the same basis as the associated asset. These costs are
based on judgements and assumptions regarding removal dates, technologies, industry practice and relevant legislation. Over time,
the liability is increased for the change in the present value based on a risk adjusted pre‑tax discount rate appropriate to the
risks inherent in the liability. The costs of restoration are brought to account in the statement of comprehensive income through
depletion of the associated assets over the economic life of the projects with which these costs are associated. The unwinding
of the discount is included as an accretion charge within finance costs.
Long Service Leave
A provision has been recognised for employee entitlements relating to long service leave measured at the discounted value of
estimated future cash outflows. In determining the provision, consideration is given to employee wage increases and the probability
that the employee may satisfy vesting requirements. The cash outflows are discounted using market yields with terms of maturity
that match the expect timing of cash outflows.
Employee entitlements relating to long service leave are presented as a current provision in the consolidated statement of financial
position if the Group does not have an unconditional right to defer settlement for at least twelve months after the reporting period,
regardless of when the actual settlement is expected to occur.
84
KAROON ANNUAL REPORT 2022 (u) Contributed Equity
Ordinary shares are classified as equity.
Transaction costs directly attributable to the issue of new ordinary shares, share options or performance rights are shown in
equity as a deduction, net of any related income tax, from the proceeds. Transaction costs are the costs that are incurred directly
in connection with the issue of new ordinary shares, and which would not have been incurred had those ordinary shares not
been issued. These directly attributable transaction costs include registration and other regulatory fees, amounts paid to legal,
accounting and other professional advisers, printing costs and marketing costs.
Where the Company acquires its own ordinary shares, as a result of a share buy‑back, those ordinary shares are cancelled.
No gain or loss is recognised, and the consideration paid to acquire the ordinary shares, including any transaction costs directly
attributable, net of any related income tax, is recognised directly as a reduction from equity.
(v) Interests in Joint Operations
A joint operation is a joint arrangement whereby the participants that have joint control of the arrangement (i.e. joint operators)
have rights to the assets, and obligations for the liabilities, relating to the arrangement.
The Group recognises assets, liabilities, revenues and expenses according to its share in the assets, liabilities, revenues and
expenses of a joint operation or similar as determined and specified in contractual arrangements (joint operating agreements).
These have been incorporated in the consolidated financial statements under the appropriate headings.
The Group’s share of assets, liabilities, revenues and expenses employed in joint operations is set out in Note 27.
(w) Leases
The Group has lease contracts for property, an FPSO vessel and other equipment used in its operations. The Group recognises
a right‑of‑use asset and a lease liability at the lease commencement date.
The lease liability is initially measured at the present value of the lease payments expected to be paid over the lease term,
discounted using the interest rate implicit in the lease or, if the rate cannot be readily determined, the Group’s estimated
incremental borrowing rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased
by lease payments made. The lease liability is further remeasured if the estimated future lease payments change as a result of index
or rate changes, residual value guarantees or likelihood of exercise of purchase, extension or termination options.
The Group has applied judgement to determine the lease term for lease contracts that include renewal options. The assessment
of whether the Group is reasonably certain to exercise such options impacts the lease term, which affects the measurement of
lease liabilities and right‑of‑use assets recognised.
Right‑of‑use assets
The right‑of‑use asset is initially measured at cost (present value of the lease liability plus deemed cost of acquiring the asset), and
subsequently at cost less any accumulated depreciation, impairment losses and adjustment for remeasurement of the lease liability.
Property leases generally have terms between 2 and 5 years. The FPSO vessel lease has a fixed term to February 2026 with renewal
options available.
(x) Earnings Per Share
Basic Earnings Per Share
Basic earnings per ordinary share is calculated by dividing the profit or loss attributable to owners of the Company, excluding any
costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the
financial year, adjusted for any bonus elements in ordinary shares issued during the financial year.
Diluted Earnings Per Share
Diluted earnings per ordinary share adjusts the figures used in the determination of basic earnings per ordinary share to take into
account the after‑income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the
weighted average number of ordinary shares that would have been outstanding assuming the conversion of all dilutive potential
ordinary shares.
85
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 1. Significant Accounting Policies Continued
(y) Parent Company Financial Information
The financial information for the Parent Company, Karoon Energy Ltd, disclosed in Note 33 has been prepared on the same basis as
the consolidated financial statements, except as set out below:
Investments in Subsidiaries
Investments in subsidiaries are accounted for at cost in the Parent Company’s financial statements.
The Parent Company does not designate any investments in subsidiaries as being subject to the requirements of Australian
Accounting Standards specifically applicable to financial instruments. They are held for strategic and not trading purposes.
Investments in subsidiaries and receivables from subsidiaries are tested for impairment in accordance with the accounting policy
described in Note 1(p).
Share‑based Payments
The grant by the Company of equity‑settled share options and performance rights over its ordinary shares to the employees
of subsidiary companies in the Group is treated as a capital contribution to that subsidiary company. The fair value of employee
services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to
investments in subsidiaries, with a corresponding credit to equity.
(z) New Australian Accounting Standards and Interpretations for Application in Future Financial Years
There are no relevant new Australian Accounting Standards or Interpretations that are not yet effective and that are expected
to have a material impact on the Group in the current or future financial years and on foreseeable future transactions.
(aa) Comparative figures
When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the
current period.
Note 2. Significant Accounting Estimates, Assumptions and Judgements
Revenues and expenses and the carrying amounts of certain assets and liabilities are often determined based on estimates and
assumptions of future events. In applying the Group’s significant accounting policies, the Board of Directors and management
evaluate estimates and judgements based on historical knowledge and best available current information. Estimates assume a
reasonable expectation of future events and are based on current trends and economic data obtained both externally and within
the Group.
Significant estimates, assumptions and/or judgements made by the Board of Directors and management in the preparation of the
consolidated financial statements were:
(a) Impairment of oil and gas assets
The Group assesses whether oil and gas assets are impaired at least on a semi‑annual basis. This requires review of the indicators
of impairment and/or an estimation of the recoverable amount of the cash‑generating unit to which the assets belong. For oil and
gas properties, expected future cash flow estimation is based on reserves, future production profiles, commodity prices and costs.
Current climate change legislation is also considered in relation to oil price forecasts and the cash generating unit’s useful life.
Future uncertainty around climate change risks continue to be monitored.
(b) Capitalised Exploration and Evaluation Expenditure
Capitalised exploration and evaluation expenditure is carried forward on the basis that exploration and evaluation operations in the
areas of interest have not at the end of the reporting period reached a stage that permits a reasonable assessment of the existence
or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the areas of interest
are continuing.
The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including
whether the Group decides to exploit the related exploration tenement itself or, if not, whether it successfully recovers the related
exploration and evaluation asset through sale. Factors that could affect the future recoverability include the level of economically
recoverable reserves, future technological changes which could impact the cost of development, future legal changes (including
changes to environmental and restoration obligations) and changes to commodity prices. To the extent that capitalised exploration
and evaluation expenditure is determined not to be recoverable in the future, the relevant capitalised amount will be impaired in the
consolidated statement of profit or loss and other comprehensive income and net assets will be reduced during the financial period
in which this determination is made.
86
KAROON ANNUAL REPORT 2022 Information on the reasonable existence or otherwise of economically recoverable reserves is progressively gained through
geological analysis and interpretation, drilling activity and prospect evaluation during a normal exploration tenement term.
A reasonable assessment of the existence or otherwise of economically recoverable reserves can generally only be made,
therefore, at the conclusion of those exploration and evaluation activities.
(c) Provision for Restoration
Restoration costs are a normal consequence of operating in the oil and gas industry. A provision has been recognised for the
Group’s restoration obligations for the Baúna field.
In determining an appropriate level of provision, consideration is given to the expected future costs to be incurred, the timing of
these expected future costs, the estimated future level of inflation and appropriate discount rate. The ultimate costs of restoration
are uncertain and cost estimates could be subject to revisions in subsequent years due to many factors including changes to
the relevant legal and legislative requirements, the emergence of new restoration techniques or experience at other fields.
Risks associated with climate change also continue to be monitored. Likewise, the appropriate future discount rates used in the
calculation are subject to change according to the risks inherent in the liability. The discount rate used to determine the restoration
obligation at 30 June 2022 was based on applicable government bond rates with a tenure aligned to the tenure of the liability.
Changes to any of the estimates could result in a significant change to the level of provisioning required, which would in turn impact
future financial results.
(d) Estimates of reserves quantities
The estimated quantities of Proved plus Probable (“2P’’) hydrocarbon reserves reported by the Group are integral to the calculation
of depletion and depreciation expense and to the assessment of impairment or impairment reversals.
Estimated reserves quantities are based upon management’s interpretations of geological and geophysical models, reservoir
engineering and production engineering analyses and models, and assessments of the technical feasibility and commercial viability
of producing the reserves, taking into consideration reviews by an independent third party. An external reserves assessment is
planned to be undertaken at least every 3 years.
Assessments require assumptions to be made regarding future development and production costs, commodity prices, exchange
rates and fiscal regimes. The Group prepares its reserves estimates in accordance with the Petroleum Resources Management
System (PRMS 2018) published by the Society of Petroleum Engineers and the Australian Securities Exchange Listing rules. All
estimates of reserves reported by the Group are prepared by, or under the supervision of a qualified petroleum reserves and
resources evaluator.
Estimates of reserves may change from period to period as the economic assumptions used to estimate the reserves can change
from period to period, and as additional geological data is generated during the course of operations. These changes may impact
depreciation, amortisation, asset carrying values, restoration provisions and deferred tax balances. If proved and probable reserves
estimates are revised downwards, earnings could be affected by a higher depreciation and/or amortisation charge or immediate
write‑down of the assets carrying value.
(e) Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured
based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash
flow model. The fair value of the contingent consideration (refer to Note 23) is based on the Group’s internal assessment of future
oil prices, which considers industry consensus and observable prices, inflation and an appropriate risk‑free rate. Changes in
assumptions relating to these factors could affect the reported fair value of the financial instrument.
(f) Share‑based Payments
Estimating fair value for share‑based payment transactions requires determination of the most appropriate valuation model,
which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs
to the valuation model including the expected life of the share option or performance right, volatility and dividend yield and making
assumptions about them at grant date. The fair value of share options is ascertained using the Black‑Scholes option pricing model
taking into account the terms and conditions upon which the share options were granted. The fair value of long‑term performance
rights issued during the current financial year are valued using a Monte Carlo simulation approach taking into account the terms
and conditions upon which the performance rights were granted. The cumulative share‑based payments expense recognised
reflects the extent, in the opinion of management, to which the vesting period has expired and the number of share options and
performance rights granted that will ultimately vest or be settled in cash. At the end of each reporting period, the unvested share
options, performance rights and cash‑settled share‑based payment liability are adjusted by the number forfeited during the
reporting period to reflect the actual number of share options and performance rights outstanding and cash liability to be settled.
In addition, the fair value of cash‑settled share‑based payments are remeasured, up to the date of settlement, to reflect the cash
liability at the end of each reporting period with changes in the fair value recognised in the profit or loss.
87
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 2. Significant Accounting Estimates, Assumptions and Judgements Continued
(g) Income Tax
The Group is subject to income taxes in Australia, Brazil and other jurisdictions where it has foreign operations. There are many
transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain.
The Group estimates its tax liabilities based on the Group’s understanding of the relevant tax laws. Where the final tax outcome of
these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax
balances in the financial period in which such determination is made.
Assessing the future utilisation of tax losses and temporary tax differences requires the Group to make significant estimates related
to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and
the application of existing tax laws. To the extent that future utilisation of these tax losses and temporary tax differences becomes
probable, this could result in significant changes to deferred tax assets recognised, which would in turn impact future financial results.
(h) Joint Arrangements
Exploration and evaluation activities of the Group are conducted primarily through arrangements with other participants. Each
arrangement has a contractual agreement (joint operating agreement) that provides the participants with rights to the assets
and obligations for the liabilities of the arrangement. Under certain agreements, more than one combination of participants can
make decisions about the relevant activities and therefore joint control does not exist. Where the arrangement has the same legal
form as a joint operation, but is not subject to joint control, the Group accounts for its interest in accordance with the contractual
agreement by recognising its share of jointly held assets, liabilities, revenues and expenses of the arrangement.
(i) Determining the lease term of contracts with renewal options
The Group determines the lease term as the non‑cancellable term of the lease, together with any periods covered by an option
to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group has several lease contracts that include renewal options. The Group applies judgement in evaluating whether it is
reasonably certain whether or not to exercise the option to renew the lease. That is, it considers all relevant factors that create an
economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a
significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option
to renew or to terminate. The Group included the renewal periods as part of the lease term for the FPSO right‑of‑use asset as there
will be a significant negative effect on production if a replacement asset is not readily available.
Note 3. Financial Risk Management
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate
risk); commodity price risk; credit risk; and liquidity risk. The Group’s overall financial risk management program focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group.
The Group uses different methods to measure the different types of financial risk to which it is exposed. These methods include
sensitivity analysis in the case of foreign exchange, interest rates and commodity prices.
The overall financial risk management strategy of the Group is governed by the Board of Directors through the Audit and Risk
Committee and is primarily focused on ensuring that the Group is able to finance its business plans, while minimising potential
adverse effects on financial performance. The Board of Directors provides written principles for overall financial risk management,
as well as written policies covering specific areas, such as mitigating foreign exchange, interest rate, commodity price and credit
risks, use of derivative financial instruments and investment of excess cash. Financial risk management is carried out by the
Company’s finance function under policies approved by the Board of Directors. The finance function identifies, evaluates
and if necessary, hedges financial risks in close co‑operation with the Chief Executive Officer and Managing Director.
Risk management policies and systems are reviewed regularly to reflect changes in market conditions and Group activities.
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement
and the basis on which income and expenses are recognised in respect of each class of financial asset and financial liability are
disclosed in Note 1.
The Group’s financial instruments consist of cash and cash equivalents, receivables, security deposits, trade and other payables,
lease liabilities, borrowings, derivative financial instruments designated as cash flow hedges, and embedded derivatives.
88
KAROON ANNUAL REPORT 2022 The totals for each category of financial instruments in the consolidated statement of financial position are as follows:
Financial assets
Cash and cash equivalents
Receivables
Security deposits
Total financial assets
Financial liabilities
Trade and other payables (refer note (i) below)
Borrowings (refer note (ii) below)
Other financial liabilities (refer note (iii) below)
Lease liabilities
Total financial liabilities
CONSOLIDATED
2022
US$’000
2021
US$’000
NOTE
10
11
13
22
23
21
157,683
56,336
1,662
215,681
73,614
30,000
347,392
288,887
739,893
133,209
34,162
1,615
168,986
79,066
–
71,161
312,840
463,067
(i) Trade and other payables above exclude amounts relating to annual leave liabilities, which are not considered a financial instrument.
(ii) Borrowings exclude transaction costs which are not considered a financial instrument.
(iii) Other financial liabilities relate to the contingent consideration payable to Petrobras as part of the acquisition of Baúna and derivative financial
liabilities designated as cash flow hedges (refer Note 23).
(a) Market Risk
(i) Foreign Exchange Risk
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in foreign exchange rates. Foreign exchange risk arises when future commercial transactions and recognised financial assets and
financial liabilities are denominated in a currency that is not the Company’s functional currency.
The Group’s revenue, significant operating expenditure including the FPSO charter lease and a large component of capital
obligations are predominantly denominated in US$.
The Group’s remaining foreign exchange risk exposures relate to administrative and business development expenditures incurred
at the corporate level in A$; and operating and capital expenditures incurred by the Group in relation to operating the Baúna
production asset in Brazil in Brazilian REAL. These items are restated to US$ equivalents at each period end, and the associated
gain or loss is taken to the Statement of Profit and Loss and Other Comprehensive Income.
The Group manages foreign exchange risk at the corporate level by monitoring forecast cash flows in currencies other than US$
and ensuring that adequate Brazilian REAL and A$ cash balances are maintained.
Foreign currencies are bought on the spot market in excess of immediate requirements. Where currencies are purchased in advance
of requirements, these balances do not usually exceed 3 months’ requirements. The appropriateness of A$ and Brazilian REAL
holdings are reviewed regularly against future commitments and current $A and Brazil REAL market expectations.
Periodically, sensitivity analysis is conducted to evaluate the potential impact of unfavourable exchange rates on the Group’s
future financial position. The results of this evaluation are used to determine the most appropriate risk mitigation tool to be used.
The Group will hedge when it is deemed the most appropriate risk mitigation tool to be used. Foreign currency hedging transactions
were not entered into during the financial year or previous financial year.
The Group is not exposed to material translation exposures at the end of the current financial year as the majority of its financial
assets and liabilities are denominated in US$ and as such, no foreign currency sensitivity analysis has been disclosed.
89
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 3. Financial Risk Management Continued
(ii) Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows of financial assets and financial liabilities will fluctuate because
of changes in market interest rates. Interest rate risk is managed on a Group basis at the corporate level. This risk is managed
through the use of cash flow forecasts supplemented by sensitivity analysis.
As at 30 June 2022 and 30 June 2021, there was no interest rate hedging in place.
The Group’s interest rate risk arises from long‑term borrowings at floating rates and cash and cash equivalent and security deposits
which earn interest at floating rates. As long‑term borrowings and the majority of cash and cash equivalents are held in US$’s, the
primary exposure is to US$ interest rates.
An analysis of the Group’s exposure to interest rate risk for financial assets and financial liabilities at the end of the financial year
is set out below:
2022
Financial assets
Cash and cash equivalents
Receivables
Security deposits
Total financial assets
Financial liabilities
Trade and other payables
Borrowings
Other financial liabilities
Lease liabilities
Total financial liabilities
2021
Financial assets
Cash and cash equivalents
Receivables
Security deposits
Total financial assets
Financial liabilities
Trade and other payables
Other financial liabilities
Lease liabilities
Total financial liabilities
CONSOLIDATED
WEIGHTED
AVERAGE
INTEREST
RATE
% P.A.
FLOATING
INTEREST
RATE
US$’000
FIXED
INTEREST
RATE
US$’000
NON-
INTEREST
BEARING
US$’000
FAIR
VALUE
US$’000
CARRYING
AMOUNT
US$’000
0.00
–
7.09
–
5.95
2.00
–
WEIGHTED
AVERAGE
INTEREST
RATE
% P.A.
0.11
–
3.27
3.10
2.00
–
47,028
–
1,496
48,524
–
30,000
–
–
30,000
–
–
155
155
–
–
298,280
–
298,280
110,655
56,336
11
167,002
73,614
–
49,112
288,887
411,613
CONSOLIDATED
157,683
56,336
1,662
215,681
73,614
30,000
347,392
288,887
739,893
157,683
56,336
1,662
215,681
73,614
30,000
347,392
288,887
739,893
FLOATING
INTEREST
RATE
US$’000
FIXED
INTEREST
RATE
US$’000
NON-
INTEREST
BEARING
US$’000
FAIR
VALUE
US$’000
CARRYING
AMOUNT
US$’000
71,487
–
1,372
72,859
42,422
–
–
42,422
–
–
169
169
–
71,161
–
71,161
61,722
34,162
73
95,957
36,643
–
312,840
349,483
133,209
34,162
1,615
168,986
79,066
71,161
312,840
463,067
133,209
34,162
1,615
168,986
79,066
71,161
312,840
463,067
Interest Rate Sensitivity Analysis
The following table details the Group’s sensitivity to a 1% p.a. increase or decrease in interest rates, with all other variables held
constant. The sensitivity analysis is based on the balance of floating interest rate amounts held at the end of the financial year.
The sensitivity analysis is not fully representative of the inherent interest rate risk, as the financial year end exposure does not
necessarily reflect the exposure during the course of a financial year. These sensitivities should not be used to forecast the
future effect of movements in interest rates on future cash flows.
90
KAROON ANNUAL REPORT 2022 Change in profit (loss) before income tax
–
Increase of interest rate by 1% p.a.
– Decrease of interest rate by 1% p.a.
Change in financial instruments
–
Increase of interest rate by 1% p.a.
– Decrease of interest rate by 1% p.a.
CONSOLIDATED
2022
US$’000
2021
US$’000
365
(95)
365
(95)
304
(43)
304
(43)
(b) Commodity Price Risk
The Group is exposed to commodity price fluctuations associated with the production and sale of oil. Commodity price risk is
managed on a Group basis at the corporate level. To mitigate commodity price risk, during the period, the Group entered into Brent
oil price cash flow hedges, via a collar structure consisting of bought put and sold call options covering the period from December
2021 to March 2024. From December 2021 until June 2022, approximately 39% of actual production volume was hedged. At reporting
date, the Group held hedging financial instruments with a net liability carrying value of $49.1m (refer Note 23)
Commodity Price Sensitivity Analysis – Cash Flow Hedges
The following table details the Group’s sensitivity to a 10% increase or decrease in the Brent oil price, with all other variables
held constant.
Change in cash flow hedge reserves (in accordance with hedge accounting application)
–
Increase of oil price by 10%
– Decrease of oil price by 10%
Change in financial liabilities
–
Increase of oil price by 10%
– Decrease of oil price by 10%
CONSOLIDATED
2022
US$’000
2021
US$’000
(47,814)
47,814
(47,814)
47,814
–
–
–
–
Commodity Price Sensitivity Analysis – Contingent Consideration
As part of the acquisition of Baúna, the Group agreed to pay Petrobras contingent consideration of up to $285 million plus interest
of 2% per annum accruing from 1 January 2019. The fair value of the contingent consideration has been accounted for as an
embedded derivative and estimated calculating the present value of the future expected cash out flows. The estimates are based
on the Group’s internal assessment of future oil prices. A discount rate of 2.38% and 2% inflation factor has also been applied.
Refer to Note 23 for more details.
The following table details the Group’s sensitivity to a 10% increase or decrease in its internal assessment of future oil prices on the
contingent consideration payable to Petrobras. At 30 June 2022, with the US$70 per barrel threshold triggered over calendar years
2022‑2026, the maximum contingent consideration payable has been recognised and as such a 10% increase in the oil price would
have no impact on the financial statements.
Change in profit (loss) before income tax
–
Increase of oil price by 10%
– Decrease of oil price by 10%
Change in financial liabilities
–
Increase of oil price by 10%
– Decrease of oil price by 10%
91
CONSOLIDATED
2022
US$’000
2021
US$’000
–
43,081
–
(43,081)
(77,791)
54,696
77,791
(54,696)
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 3. Financial Risk Management Continued
(c) Credit Risk
The maximum exposure to credit risk at the end of the financial year is the carrying amount of the financial assets as disclosed
in the consolidated statement of financial position and notes to the consolidated financial statements.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
Credit risk arises from cash and cash equivalents and security deposits held with banks, financial institutions and joint operators,
as well as credit exposures to customers, including outstanding receivables and refundable tax credits.
Credit risk is managed on a Group basis at the corporate level. To minimise credit risk, the Group has adopted a policy of only dealing
with recognised and creditworthy third parties. Receivable balances are monitored on an ongoing basis with the result being the
Group’s exposure to bad debts is minimised. The Group does not currently hold collateral, nor does it securitise its receivables.
The Group has policies in place to ensure that services are made to customers with an appropriate credit history.
Cash and cash equivalents and security deposit counterparties are limited to credit quality banks and financial institutions.
For banks and financial institutions in Australia, only independently rated counterparties with a minimum rating of Aa3/A2 are
accepted. For banks and financial institutions in Brazil, only independently rated counterparties with a minimum rating of Baa1 are
accepted. For banks and financial institutions in Brazil, with independently rated counterparty ratings below Baa1, exposure cannot
exceed the short‑term country specific cash requirements unless they are associated banks of an International Bank with a higher
credit rating. Cash and cash equivalents are held offshore by the Group’s Brazilian subsidiary out of London with an International
Bank with a rating of Aa3. The Group’s credit exposure and external credit ratings of its counterparties are monitored on a periodic
basis. Where commercially practical, the Group seeks to limit the amount of credit exposure to any one bank or financial institution.
(i) Impairment of Financial Assets
The Group has 2 types of financial assets that are subject to AASB 9’s ‘expected credit loss’ model: receivables and security deposits.
The Group has applied the AASB 9 general model approach to measuring expected credit losses for all receivables and security deposits.
While cash and cash equivalents are also subject to the impairment requirements of AASB 9, the identified impairment loss was
considered not significant given the counterparties and/or the short maturity.
Expected Credit Loss
When required, the carrying amount of the relevant financial asset is reduced through the use of a loss allowance account and the
amount of any loss is recognised in the statement of profit or loss and other comprehensive income. When measuring expected
credit losses, balances are reviewed based on available external credit ratings, historical loss rates and the days past due.
Security Deposits
The Group’s security deposits held in Australia are considered to have low credit risk on the basis that there is a low risk of default
with the relevant bank counterparty. Management considers ‘low credit risk’ for security deposits with banks and financial
institutions to be an investment grade credit rating with at least 1 major rating agency.
The Group is exposed to credit risk in relation to a security deposit of $1,182k (30 June 2021: $1,237k) held with Itau Unibanco SA in
Brazil. The Group provided the ANP (the Brazilian oil and gas regulator) a letter of credit to carry out the minimum work program in
relation to exploration in Santos Basin Block S‑M‑1537. The letter of credit is fully funded by way of payment of a security deposit
(refer Note 13(b)), which will be released once the work program is met. The credit rating of Itau Unibanco SA is Ba2 (30 June 2021:
Ba2), which is a non‑investment grade rating that carries substantial credit risk. The credit rating of Itau Unibanco SA in Brazil is
monitored on a periodic basis for credit deterioration. In addition, Management continually monitors Brazilian macro‑economic
factors for any deterioration which directly impacts the credit ratings of Brazilian financial institutions. As there has not been a
significant increase in credit risk since initial recognition of this security deposit, which is predominantly impacted by negative
macro‑economic factors in Brazil, any impairment test uses a 12‑month expected credit loss model measure.
As at 30 June 2022, there were $Nil (30 June 2021: $Nil) security deposits past due. The loss allowance recognised during the
financial year for security deposits was $Nil. Accordingly, interest income revenue has been calculated on the gross carrying
amount during the financial year (30 June 2021: $Nil).
Receivables
The Group’s receivables relating to Brazil and Australia are considered to have low credit risk on the basis that there is a low risk
of default and the debtor has a strong (robust) capacity to meet its obligations in the short‑term. Accordingly, for receivables any
impairment test uses a 12‑month expected credit loss model measure.
The Group is exposed to credit risk in relation to an interest receivable of $318k (30 June 2021: $121k) predominantly related to
the security deposit held with Itau Unibanco SA in Brazil. As there has not been a significant increase in credit risk since initial
recognition of the security deposit, which is predominantly impacted by negative macro‑economic factors in Brazil, any impairment
test uses a 12‑month expected credit loss model measure.
As at 30 June 2022, there were $Nil (30 June 2021: $Nil) receivables past due. The loss allowance for receivables recognised during
the financial year was considered to be $Nil (30 June 2021: $Nil).
92
KAROON ANNUAL REPORT 2022 (d) Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities.
The Group manages liquidity risk by ensuring that there are sufficient funds available to meet financial obligations on a day‑to‑day
basis and to meet unexpected liquidity needs in the normal course of business. Emphasis is placed on ensuring there is sufficient
funding in place to meet the ongoing operational requirements of the Group’s production activities, exploration, evaluation and
development expenditure, and other corporate initiatives.
The following mechanisms are utilised to manage liquidity risk:
• preparing and maintaining rolling forecast cash flows in relation to operational, investing and financing activities;
• comparing the maturity profile of financial liabilities with the realisation profile of financial assets;
• managing credit risk related to financial assets;
• when necessary, utilising short‑term and long‑term loan facilities;
•
investing surplus cash only in credit quality banks and financial institutions; and
• maintaining a reputable credit profile.
At the end of the financial year, the Group held cash and cash equivalents at call of $157,683k (30 June 2021: $133,209k) that are expected
to readily generate cash inflows for managing liquidity risk. The Group had external borrowings of $30,000k (30 June 2021: $Nil).
The Group had access to the following undrawn borrowing facilities at the end of the reporting period:
Floating rate
– Expiring beyond one year (syndicated loan facility and accordion facility)
180,000
–
An analysis of the Group’s financial liabilities contractual maturities at the end of the financial year is set out in the tables below.
The amounts disclosed in the table are the contractual undiscounted cash flows comprising principal and interest repayments.
2022
US$’000
2021
US$’000
LESS THAN 6
MONTHS
US$’000
6-12
MONTHS
US$’000
CONSOLIDATED
1-3
YEARS
US$’000
3-5
YEARS
US$’000
OVER 5
YEARS
US$’000
TOTAL
US$’000
2022
Financial liabilities
Non‑derivative financial liabilities
Trade and other payables
Borrowings
Lease liabilities
Derivative financial liabilities
Derivative financial instruments
– cash flow hedges
Contingent consideration
– embedded derivative
Total financial liabilities
2021
Financial liabilities
Non‑derivative financial liabilities
Trade and other payables
Lease liabilities
Derivative financial liabilities
Contingent consideration
– embedded derivative
Total financial liabilities
69,295
–
3,306
–
29,774
29,396
7,985
30,000
119,044
–
–
–
–
118,395
43,113
20,585
20,182
8,345
–
–
119,654
84,631
137,515
174,422
339,796
59,103
177,498
–
–
43,113
80,586
30,000
339,722
49,112
318,156
817,576
32,382
32,596
42,422
29,513
4,262
110,269
–
–
109,518
94,563
79,066
376,459
–
–
64,978
71,935
37,263
151,794
28,414
137,932
7,052
101,615
72,729
528,254
93
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 3. Financial Risk Management Continued
(e) Fair Value Estimation
For disclosure purposes only, the fair values of financial assets and financial liabilities as at 30 June 2022 and 30 June 2021
are presented in the table under Note 3(a)(ii) and can be compared to their carrying values as presented in the consolidated
statement of financial position. Fair values are those amounts at which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction. Fair values estimated for disclosure purposes are based on
information that is subject to judgement, where changes in assumptions may have a material impact on the amounts estimated.
The following summarises the significant methods and assumptions used in estimating fair values of financial assets and financial
liabilities for disclosure purposes:
Cash and Cash Equivalents
The carrying amount is fair value due to the liquid nature of these assets.
Receivables
The carrying amounts of current receivables are assumed to approximate their fair values due to their short‑term nature.
Security Deposits
The carrying amounts of security deposits are assumed to represent their fair values based on their likely realisability profile.
Trade and Other Payables
Due to the nature of these financial liabilities, their carrying amounts are a reasonable approximation of their fair values.
Lease Liabilities
Fair value is calculated based on the present value of the lease payments expected to be paid over the lease term, discounted using
the interest rate implicit in the lease or, if the rate cannot be readily determined, the Group’s estimated incremental borrowing rate.
Derivative Financial Instruments – Cash Flow Hedges
The fair value of derivative financial instruments designated as cash flow hedges are obtained from third party valuations. The fair
value is determined using valuation techniques which maximise the use of observable market data.
Other Financial Liabilities – Embedded Derivative
The fair value of the contingent consideration was estimated calculating the present value of the future expected cash outflows.
The estimates are based on the Group’s internal assessment of future oil prices, which considers industry consensus and
observable oil price forecasts. A discount rate of 2.38% and 2% inflation factor has also been applied.
Fair value measurement
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
• Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 which are
observable for the asset or liability, either directly or indirectly; and
• Level 3: fair value measurements are those derived from valuation techniques which include inputs for the asset or liability that
are not based on observable market data.
All of the Group’s financial instruments were valued using the Level 2 valuation technique.
94
KAROON ANNUAL REPORT 2022 Note 4. Revenue and Other Income
(a) Revenue
Crude oil sales
Total revenue from contracts with customers
(b) Other Income
Interest income
Net gain on disposal of non‑current assets
Total other income
Note 5. Expenses
(a) Cost of sales
Operating costs
Royalties
Depreciation and amortisation – oil and gas assets
Change in inventories
Total cost of sales
(b) Business development and transition costs
Baúna transaction costs (refer (i) below)
Business development and other project costs
Total business development and transition costs
CONSOLIDATED
2022
US$’000
385,074
385,074
150
639
789
2021
US$’000
170,809
170,809
286
19
305
CONSOLIDATED
2022
US$’000
2021
US$’000
57,184
41,521
99,355
(6,356)
191,704
–
3,362
3,362
38,393
18,972
64,962
(10,952)
111,375
15,748
1,816
17,564
(i) Prior year represents costs incurred on transition, development initiatives and other project activities associated with Baúna prior to the acquisition.
(c) Exploration expenses
Exploration and evaluation expenditure expensed
Exploration and evaluation expenditure impaired
Total exploration and evaluation expenditure expensed or impaired
(d) Finance costs
Finance charges on lease liabilities
Discount unwinding on net present value of provision for restoration
Interest expense
Other finance costs
Total finance costs
(e) Other Expenses
Corporate
Realised losses on cash flow hedges
Legal settlement (refer (i) below)
Depreciation and amortisation – non‑oil and gas assets
Share‑based payments expense
Loss on disposal of non‑current assets
Write‑down of inventory to net realisable value
Other expenses
Total other expenses
3,196
–
3,196
16,859
2,366
2,138
1,346
22,709
15,352
11,819
–
728
5,691
38
–
186
33,814
3,326
90
3,416
12,501
942
958
–
14,401
12,250
–
9,600
744
4,906
9
577
460
28,546
(i) Relates to the Company’s wholly owned branch, KEI (Peru Z‑38) Pty Ltd, Sucursal del Peru, without any admission of liability, entering into a deed
of settlement and release in respect of its dispute with Pitkin Petroleum Peru Z‑38 SRL (Pitkin) relating to Block Z‑38, offshore Peru. Under the
deed of settlement and release, Pitkin has agreed to full and final settlement of all claims of Pitkin and its associates in connection with Block Z‑38
with settlement paid in the year ended 30 June 2022.
95
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 6. Income Tax
(a) Income Tax Recognised in the Consolidated Statement
of Profit or Loss and Other Comprehensive Income
Tax income (expense) comprises:
Current income tax
Current income tax under/(over)
Deferred income tax
Total income benefit
The prima facie tax on loss before income tax is reconciled
to tax income as follows:
Prima facie tax benefit on loss before income tax,
calculated at the Australian tax rate of 30%
(Add)/subtract the tax effect of:
Share‑based payments expense (non‑cash)
Non‑deductible legal settlement
Other non‑deductible items
Tax losses and temporary tax differences not recognised
Adjustment for current tax of previous financial years
Difference in overseas tax rates
Recognition of temporary differences and tax losses not
previously brought to account
Foreign exchange differences
Non‑assessable income
Total income tax benefit
(b) Amounts Recognised Directly in Equity
Aggregate current and deferred tax arising during the financial
year and not recognised in net profit or loss, but directly debited
or credited in equity:
Deferred tax – credited directly in contributed equity
Deferred tax – credited directly in hedging reserves
CONSOLIDATED
2022
US$’000
2021
US$’000
NOTE
(39,299)
19
64,667
25,387
(15,321)
(88)
47,666
32,257
26,951
8,362
(1,089)
–
(2,756)
(184)
19
2,747
–
(301)
–
25,387
(910)
(2,880)
(3,582)
(961)
(88)
(665)
20,701
11,952
328
32,257
24(b)
24(d)(iii)
–
21,217
143
–
96
KAROON ANNUAL REPORT 2022 CONSOLIDATED
BALANCE
AS AT
1 JULY 2021
US$’000
CHARGED
(CREDITED)
TO PROFIT
OR LOSS
US$’000
CHARGED
(CREDITED)
DIRECTLY TO
EQUITY
US$’000
NET FOREIGN
CURRENCY
DIFFERENCE ON
TRANSLATION
OF FINANCIAL
STATEMENTS TO
PRESENTATION
CURRENCY
US$’000
BALANCE
AS AT
30 JUNE 2022
US$’000
(c) Deferred Tax Balances
Temporary differences
Provisions and accruals
Equity raising transaction costs
Unrealised foreign currency
(gains)/losses/translation adjustment
Fair value movement of financial liabilities
Farm‑out expenditures
Right‑of‑use assets
Lease liabilities
Hedge premium
Net changes of cash flow hedges
Other
8,317
249
5,870
2,255
97
(105,172)
106,710
–
–
3
11,374
(80)
(4,491)
77,220
–
9,812
(8,518)
(4,519)
–
275
Total temporary differences
18,329
81,073
Unused tax losses
Tax losses
Total unused tax losses
Net deferred tax assets/ (liabilities)
16,424
16,424
34,753
(14,085)
(14,085)
66,988
Presented in the consolidated statement
of financial position as follows:
Deferred tax assets
Deferred tax liabilities
36,528
(1,775)
(d) Unrecognised Deferred Tax Assets
A deferred tax asset has not been recognised in the consolidated statement
of financial position as the benefits of which will only be realised if the conditions
for deductibility set out in Note 1(f) occur:
Unrecognised temporary tax differences relating to deferred tax assets at a tax rate of 34%
Tax losses: Peruvian operating losses at a tax rate of 32%
Potential tax income
–
–
–
–
–
–
–
–
21,217
–
21,217
–
–
21,217
(78)
(17)
253
–
(8)
13
(20)
–
–
–
19,613
152
1,632
79,475
89
(95,347)
98,172
(4,519)
21,217
278
143
120,762
(119)
(119)
24
2,220
2,220
122,982
122,982
–
CONSOLIDATED
2022
US$’000
2021
US$’000
18,031
6,335
24,366
16,982
6,168
23,150
97
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 6. Income Tax Continued
PRRT
PRRT applies to all the Group’s Australian petroleum projects in offshore areas under the Petroleum Resource Rent Tax Assessment
Act 1987, other than some specific production licences. PRRT is assessed on a project basis or production licence area and will be
levied on the taxable profits of a relevant petroleum project at a rate of 40%. Certain specified undeducted expenditures are eligible
for compounding. The expenditures can be compounded annually at set rates and the compounded amount can be deducted
against assessable receipts in future financial years.
An application for consent to surrender petroleum exploration permit WA‑482‑P, the sole Australian permit held by the Group,
was submitted to the National Offshore Petroleum Titles Administrator during the financial year. As a result of this, the Group
estimates that it has incurred compounded carried forward undeducted PRRT expenditure in excess of accounting carrying values
as at 30 June 2022 of $Nil (2021: $29,143k). The resulting deferred tax asset that has not been recognised in the consolidated
statement of financial position was $Nil (2021: 8,160k).
Note 7. Remuneration of External Auditors
Remuneration received or due and receivable by the external auditor
of the Company for:
(a) PricewaterhouseCoopers Australia
(i) Audit and other assurance services
Audit and review of financial statements
Other assurance services
Total remuneration for audit and other assurance services
(ii) Other services
All other services
Total remuneration of PricewaterhouseCoopers Australia
(b) Related Practices of PricewaterhouseCoopers Australia
(i) Audit and other assurance services
Audit and review of financial statements
Total remuneration for audit and other assurance services of related
practices of PricewaterhouseCoopers Australia
Total remuneration of external auditors
Note 8. Dividends
There were no ordinary dividends declared or paid during the financial year by the Group (2021: $Nil).
Balance of franking account available for subsequent reporting periods
CONSOLIDATED
2022
US$’000
2021
US$’000
181
36
217
–
–
130
130
347
195
–
195
30
225
118
118
343
CONSOLIDATED
2022
US$’000
12,436
2021
US$’000
12,927
The above amount is calculated from the balance of the Company’s franking account as at the end of the financial year.
Franking credits are based on the Australian tax rate of 30%.
98
KAROON ANNUAL REPORT 2022
Note 9. Earnings Per Share
Profit (loss) for the financial year used to calculate basic and diluted earnings
per ordinary share:
(a) Basic profit (loss) per ordinary share
(b) Diluted profit (loss) per ordinary share*
* Diluted loss per ordinary share equates to basic loss per ordinary share in the current financial year
because a loss per ordinary share is not considered dilutive for the purposes of calculating earnings
per share pursuant to AASB 133 ‘Earnings per Share’
CONSOLIDATED
2022
US$’000
2021
US$’000
(64,451)
(0.1159)
(0.1159)
4,384
0.0079
0.0077
Weighted average number of ordinary shares on issue during the financial year used
in calculating basic earnings per ordinary share:
Weighted average number of potential ordinary shares:
Weighted average number of ordinary shares and potential ordinary shares used
in calculating diluted earnings per ordinary share (excluding anti‑dilutive share
options outstanding):
Weighted average number of anti‑dilutive share options:
555,904,067
553,552,881
12,154,223
13,525,080
568,058,290
567,077,961
–
4,750,911
Potential ordinary shares
Share options and performance rights over unissued ordinary shares of the Company outstanding at the end of the financial year
are considered to be potential ordinary shares and have been included in the determination of diluted earnings per ordinary share
to the extent to which they are dilutive. The potential ordinary shares have not been included in the determination of basic earnings
per ordinary share.
Note 10. Cash and Cash Equivalents
Cash at bank and on hand
Total cash and cash equivalents
Note 11. Receivables
Trade debtors – crude oil sales
Other receivables
Total current receivables
(a) Financial Risk Management
Information concerning the Group’s exposure to financial risks on receivables is set out in Note 3.
CONSOLIDATED
2022
US$’000
157,683
157,683
2021
US$’000
133,209
133,209
CONSOLIDATED
2022
US$’000
55,979
357
56,336
2021
US$’000
33,831
331
34,162
99
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 12. Inventories
Current
Petroleum inventories
Casing and other drilling inventory
Total current inventories
Non‑current
Casing and other drilling inventory
Total non‑current inventories
Note 13. Security Deposits
Current
Karoon Peru Pty Ltd, Sucursal del Peru
Karoon Petróleo & Gas Ltda (refer note (a) below)
Total current security deposits
Non‑current
Karoon Petróleo & Gas Ltda (refer note (b) below)
Karoon Energy Ltd (refer note (c) below)
Total non‑current security deposits
CONSOLIDATED
2022
US$’000
2021
US$’000
17,308
2,095
19,403
5,828
5,828
10,952
–
10,952
6,536
6,536
CONSOLIDATED
2022
US$’000
2021
US$’000
–
325
325
1,182
155
1,337
62
147
209
1,237
169
1,406
(a) Bonds
Cash deposits are held as bonds predominately for the Group’s compliance with its obligations in respect of agreements for the
guarantee (refer Note 28) of payment obligations for various accommodation in Brazil.
(b) Guarantee Bond
The Group has provided the ANP a letter of credit (refer Note 28) to carry out the minimum work program in relation to exploration
in Santos Basin Block S‑M‑1537. The letter of credit is fully funded by way of payment of a security deposit, which will be released
once the work program is met.
(c) Bank Guarantees
Cash deposits are held as security against bank guarantee facilities for bank guarantees (refer Note 28) given to lessors for the
Group’s compliance with its obligations in respect of lease rental agreements for office premises.
(d) Financial Risk Management
Information concerning the Group’s exposure to financial risks on security deposits is set out in Note 3.
100
KAROON ANNUAL REPORT 2022 Note 14. Other Assets
Current
Prepayments
Sundry assets
Total current other assets
Non‑current
Prepayments
Total non‑current other assets
Note 15. Oil and Gas Assets
At 30 June 2021
At cost
Accumulated depreciation
Carrying amount at end of financial year
Financial year ended 30 June 2022
Balance at beginning of financial period
Additions
Borrowing costs capitalised
Depreciation expense
Impact of increase in discount rate on
provision for restoration at year‑end
Carrying amount at end of financial year
At 30 June 2022
At cost
Accumulated depreciation
Carrying amount at end of financial year
CONSOLIDATED
2022
US$’000
2021
US$’000
9,312
2,480
11,792
1,277
1,277
2,890
2,427
5,317
–
–
PRODUCTION
ASSET
US$’000
DEVELOPMENT
ASSET
US$’000
RIGHT-OF-USE
ASSETS
US$’000
CONSOLIDATED
TOTAL
US$’000
NOTE
26(c)
20(b)
448,492
(36,827)
411,665
411,665
69,277
–
(54,950)
(21,595)
404,397
496,174
(91,777)
404,397
19,020
–
19,020
19,020
22,739
4,755
–
–
46,514
46,514
–
46,514
333,872
(28,135)
305,737
305,737
20,799
–
(44,405)
–
282,131
354,671
(72,540)
282,131
801,384
(64,962)
736,422
736,422
112,815
4,755
(99,355)
(21,595)
733,042
897,359
(164,317)
733,042
(i) The capitalised borrowing costs relate to an apportionment of the fees incurred in connection with the syndicated loan facility (refer Note 22)
relating to the Patola development, which meets the definition of a qualifying asset.
101
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 16. Property, Plant and Equipment
PLANT AND
EQUIPMENT
US$’000
RIGHT-OF-USE
ASSETS
US$’000
CONSOLIDATED
TOTAL
US$’000
NOTE
At 30 June 2021
At cost
Accumulated depreciation
Carrying amount at end of financial year
Financial year ended 30 June 2022
Balance at beginning of financial year
Additions
Disposals
Depreciation expense
Net foreign currency differences
Carrying amount at end of financial year
At 30 June 2022
At cost
Accumulated depreciation
Carrying amount at end of financial year
Note 17. Intangible Assets
The reconciliation of the carrying amounts for computer
software is set out below:
Balance at beginning of financial year
Additions
Disposal
Amortisation expense
Net foreign currency differences
Carrying amount at end of financial year
26(c)
8,722
(1,549)
7,173
7,173
5,005
(52)
(234)
(37)
11,855
13,638
(1,783)
11,855
NOTE
26(c)
Note 18. Exploration and Evaluation Expenditure Carried Forward
The reconciliation of exploration and evaluation expenditure
carried forward is set out below:
Balance at beginning of financial year
Additions
Transfer to development assets (refer note (a) below)
Exploration and evaluation expenditure impaired
Net foreign currency differences
Total exploration and evaluation expenditure carried forward
NOTE
26(c)
26(c)
5(c)
1,681
(594)
1,087
1,087
943
(127)
(447)
(54)
1,402
2,443
(1,041)
1,402
10,403
(2,143)
8,260
8,260
5,948
(179)
(681)
(91)
13,257
16,081
(2,824)
13,257
CONSOLIDATED
2022
US$’000
2021
US$’000
102
23
(35)
(47)
(3)
40
211
34
(39)
(106)
2
102
CONSOLIDATED
2022
US$’000
2021
US$’000
40,853
1,389
(1,405)
–
–
40,837
41,204
1,932
(1,553)
(90)
(640)
40,853
(a) Exploration and evaluation expenditure relating to the Patola discovery, which has been transferred to development assets following declaring
of a FID during the current financial year.
The expenditure is carried forward on the basis that exploration and evaluation activities in the areas of interest have not reached
a stage that permits reasonable assessment of the existence or otherwise of economically recoverable reserves and active and
significant operations in, or in relation, to the areas is continuing. The future recoverability of the carrying amount of capitalised
exploration and evaluation expenditure is dependent on successful development and commercial exploitation or, alternatively,
the sale of the respective areas of interest.
102
KAROON ANNUAL REPORT 2022 Note 19. Trade and Other Payables
Trade payables
Petrobras deferred consideration
Sundry payables and accruals
Cash‑settled share‑based payments
Total current trade and other payables
Non‑current (unsecured)
Sundry payables and accruals
Cash‑settled share‑based payments
Total non‑current trade and other payables
CONSOLIDATED
2022
US$’000
60,879
–
5,328
2,095
68,302
5,690
1,073
6,763
2021
US$’000
30,286
42,422
2,933
533
76,174
2,761
1,500
4,261
(a) Financial Risk Management
Information concerning the Group’s exposure to financial risks on trade and other payables is set out in Note 3.
Note 20. Provisions
Current
Provision for long service leave (refer note (a) below)
Total current provision
Non‑current
Provision for long service leave (refer note (a) below)
Provision for restoration (refer note (b) below)
Total non‑current provisions
CONSOLIDATED
2022
US$’000
2021
US$’000
368
368
11
139,474
139,485
457
457
82
158,703
158,785
(a) Provision for Long Service Leave
A provision was recognised for employee entitlements relating to long service leave. The measurement and recognition criteria
relating to long service leave entitlements are as described in Note 1(t).
The current portion of this provision includes all the unconditional entitlements to long service leave where employees have completed
the required period of service and also those where employees are entitled to pro‑rata payments in certain circumstances.
(b) Reconciliation of provision for restoration
Balance at beginning of financial period
Additions (refer note (i) below)
Discount unwinding on provision for restoration
Impact of increase in discount rate at year‑end
Total provision for restoration
CONSOLIDATED
2022
US$’000
158,703
–
2,366
(21,595)
139,474
2021
US$’000
–
169,384
942
(11,623)
158,703
(i) A provision was recognised in the prior period for a Brazilian restoration obligation relating to the acquisition of Baúna. The measurement and
recognition criteria relating to restoration obligations are as described in Note 1(t).
103
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 21. Leases
Current
Non‑current
Total lease liabilities
Reconciliation
Balance at beginning of financial year
Acquisitions (refer note (i) below)
Remeasurements
Additions
Disposals
Adjustment to fixed lease payments
Accretion of interest
Payments
Net foreign currency differences
Total lease liabilities
CONSOLIDATED
2022
US$’000
43,741
245,146
288,887
312,840
–
20,799
924
(201)
(766)
16,859
(61,455)
(113)
288,887
2021
US$’000
45,393
267,447
312,840
1,516
329,815
4,109
–
(45)
(1,107)
12,501
(34,090)
141
312,840
(i) A right‑of‑use asset was recognised as part of the oil and gas assets acquired during the prior period in relation to an FPSO Charter agreement.
Note 22. Borrowings
Non‑Current
Syndicated loan facility – secured
Less transaction costs (i)
Total non‑current borrowings
CONSOLIDATED
2022
US$’000
2021
US$’000
30,000
(2,856)
27,144
–
–
–
(i)
Includes remaining unamortised transaction costs associated with the syndicated loan facility and excludes costs that have been capitalised as
part of Oil and Gas Assets in relation to qualifying assets.
During November 2021, Karoon Energy Ltd’s wholly owned subsidiary, Karoon Petróleo & Gás Ltda, reached financial close on a
new reserve‑based, non‑recourse, syndicated loan facility with Deutsche Bank AG, ING Belgium SA/NV, Macquarie Bank Limited
and Shell Western Supply and Trading Limited. In April 2022, an additional accordion facility, contemplated by the syndicated
loan facility, was established.
The facility is available to fund permitted expenditure in connection with the Patola field development and the Baúna intervention
campaign, facility and treasury costs and deferred consideration payable to Petrobras of up to $44.5m.
The facility is secured over the shares in and assets of Karoon Petróleo & Gás Ltda, including its interest in the Baúna BM‑S‑40
concession.
The total available amount under the facility, including the accordion, is $210 million. At 30 June 2022, $30 million has been drawn
down, with $180m remaining undrawn.
Interest is charged at a 4.25% margin over SOFR per annum and a commitment fee is charged on undrawn but committed and
available amounts at 1.7% per annum and an additional 0.85% per annum on any committed but unavailable amounts. The facility
has a final maturity date of the earlier of 31 March 2025 or the quarter where the remaining reserves are forecast to be ≤ 25%
of the initial approved reserves. Semi‑annual repayments of $40m under the facility (excluding the accordion) commence on
30 September 2023 to the final maturity date.
Karoon is also required to enter into oil hedging to ensure forecasted oil production is within a minimum and maximum hedge ratio.
The Group has complied with all loan covenants throughout the reporting period.
104
KAROON ANNUAL REPORT 2022 Note 23. Other Financial Liabilities
Current
Derivative financial instruments – cash flow hedges (i)
Embedded derivative – contingent consideration payable (ii)
Total current other financial liabilities
Non‑Current
Derivative financial instruments – cash flow hedges (i)
Embedded derivative – contingent consideration payable (ii)
Total non‑current other financial liabilities
Total other financial liabilities
CONSOLIDATED
2022
US$’000
2021
US$’000
40,767
84,631
125,398
8,345
213,649
221,994
347,392
–
–
–
–
71,161
71,161
71,161
(i) During the period, the Group entered into Brent oil price derivative hedges, via a collar structure consisting of bought put and sold call options
covering the period from December 2021 to March 2024. The purpose of the hedges is to protect operating cash flows from a portion of crude oil
sales against the risk of lower oil prices while retaining significant exposure to oil price upside. The hedges are also a requirement of the syndicated
loan facility entered into during the period (refer Note 22).
The bought put and sold call options have been designated as cash flow hedges, and in the current period, changes in the fair value
of the options and costs of hedging of $62,491k pre‑tax ($41,274k net of tax) have been recognised in the hedging reserves within
equity (refer Note 24), which includes $1,520k pre‑tax that has been reclassified to profit and loss. No losses were recognised in
profit and loss for hedge ineffectiveness during the period.
At 30 June 2022, the Group had the following outstanding hedges:
2023
2024
BOUGHT PUT
STRIKE
(US$/BBL)
65
65
PUT VOLUME
(‘000 BBL)
2,586
2,040
4,626
(ii) Reconciliation of contingent consideration payable
Balance at beginning of financial year
Additions (refer note (a) below)
Unrealised fair value changes recognised in profit or loss during the period
Total contingent consideration payable at fair value
SOLD CALL
AVERAGE
STRIKE
(US$/BBL)
84.5
91.8
CALL VOLUME
(‘000 BBL)
2,497
1,578
4,075
CONSOLIDATED
2022
US$’000
2021
US$’000
71,161
–
227,119
298,280
–
64,529
6,632
71,161
(a) The contingent consideration arrangement for the acquisition of Baúna requires Karoon’s wholly owned subsidiary, Karoon Petróleo & Gás Ltda.,
to pay Petrobras contingent consideration of up to US$285 million.
The contingent consideration accrues interest at 2% per annum from 1 January 2019 with any amounts payable by 31 January after
the completion of the relevant testing period. The relevant testing periods are each calendar year from 2022 to 2026 inclusive and
are based on the achievement of annual average Platts Dated Brent oil prices thresholds commencing at ≥US$50 and ending at
≥US$70 a barrel.
105
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 23. Other Financial Liabilities Continued
After the testing of each year, any amount deemed not payable is cancelled and not carried forward. The amount payable each
calendar year excluding interest depending on achievement of certain oil prices is disclosed below:
AVERAGE BRENT PRICE (IN US$ UNITS)
B < 50
CY2022
–
CY2023
–
CY2024
–
CY2025
–
CY2026
–
TOTAL
–
50 <= B < 55
55 <= B < 60
60 <= B < 65
65 <= B < 70
B >= 70
3
17
34
53
78
3
17
34
53
78
3
17
34
53
78
2
8
15
24
36
2
4
6
10
15
13
63
123
193
285
As at 30 June 2022, based on higher current oil prices and industry consensus, the internal Brent oil forecast was revised with
the US$70 per barrel threshold triggered over calendar years 2022‑2026 and the fair value of the contingent consideration payable
to Petrobras revalued upwards by $227.1 million to $298.3 million (30 June 2021: $71 million). $84.6m, the amount payable in respect
of the 2022 calendar year, and due for payment in January 2023, has been recognised as a current liability.
A discount rate of 2.38% and 2% interest per annum has been applied in the calculation of the present value at 30 June 2022.
The fair value of the contingent consideration is estimated calculating the present value of the future expected cash outflows.
The estimates are based on the Group’s internal assessment of future oil prices, which considers industry consensus and
observable oil price forecasts.
Note 24. Contributed Equity and Reserves Within Equity
(a) Contributed Equity
Ordinary shares, fully paid
Total contributed equity
CONSOLIDATED
CONSOLIDATED
2022
NUMBER
558,085,352
2021
NUMBER
553,770,529
558,085,352
553,770,529
2022
US$’000
907,514
907,514
2021
US$’000
905,138
905,138
Ordinary shares have no par value, and the Company does not have a limited amount of authorised capital.
Voting rights of shareholders are governed by the Company’s Constitution. In summary, on a show of hands every holder of ordinary
shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll each such attending shareholder is entitled
to one vote for every fully paid ordinary share held.
Ordinary shares participate in dividends as declared from time to time and the proceeds on winding up of the Company in
proportion to the number of fully paid ordinary shares held.
(b) Movement in Ordinary Shares
DATE
1 July 2020
DETAILS
Opening balance in previous financial year
NOTE
Deferred tax credit recognised directly in equity
Performance rights conversion
30 June 2021
Balance at end of financial year
Exercise of options
Performance rights conversion
NUMBER OF
ORDINARY
SHARES
552,984,693
–
31(c)
785,836
553,770,529
2,383,899
1,930,924
31(c)
US$’000
905,281
(143)
–
905,138
2,376
–
30 June 2022
Balance at end of financial year
558,085,352
907,514
106
KAROON ANNUAL REPORT 2022 (c) Capital Management
The Board of Directors controls the capital of the Company in order to ensure that the Group can fund its operations and
continue as a going concern. The aim is to maintain a capital structure that ensures the lowest cost of capital to the Company.
The Chief Executive Officer and Managing Director manages the Company’s capital by monitoring future rolling cash flows
and adjusting its capital structure, as required, in consultation with the Board of Directors to meet Group business objectives.
As required, the Group will balance its overall capital structure through the issue of new ordinary shares, share buy‑backs and
utilising short‑term and long‑term loan facilities when necessary.
There were no externally imposed capital management restrictions on the Group during the financial year.
(d) Reserves Within Equity
(i) Share‑based Payments Reserve
The share‑based payments reserve is used to recognise the grant date fair value of equity‑settled share‑based payments to
Executive Directors, other key management personnel and employees as part of their remuneration, as described in Note 1(s).
(ii) Foreign Currency Translation Reserve
The foreign currency translation reserve is used to recognise exchange differences arising from the translation of financial
statements into the presentation currency as described in Note 1(e). The relevant amounts included in the foreign currency
translation reserve will be recognised in the consolidated statement of profit or loss and other comprehensive income when
each relevant investment in the entity is disposed.
(iii) Hedging Reserves
During the period, the Group entered into Brent oil price derivative hedges. Refer to Note 23(i) for more details.
The Group designates only the change in fair value of the spot element of the derivative transaction contracts (the intrinsic value
of the option) as the hedging instrument in cash flow hedging relationships. The change in fair value of the value of the option
contract in time is separately accounted for as a cost of hedging and recognised in a costs of hedging reserve within equity.
The following is a reconciliation of the movement of the hedging reserves:
Balance at beginning of financial year
Change in fair value of cash flow hedges and cost of hedging
recognised in OCI
Reclassified from OCI to profit or loss – included in other expenses
Deferred tax
Balance at end of financial year
COST OF
HEDGING
RESERVE
US$’000
–
58,313
1,520
(20,373)
39,460
INTRINSIC
VALUE OF
OPTIONS
US$’000
–
(122,324)
–
41,590
(80,734)
TOTAL
HEDGING
RESERVES
US$’000
–
(64,011)
1,520
21,217
(41,274)
107
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 25. Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with
the accounting policy described in Note 1(b):
NAME
Parent Company:
Karoon Energy Ltd
COUNTRY OF
INCORPORATION
OR REGISTRATION
PERCENTAGE OF EQUITY
AND VOTING INTERESTS
HELD BY THE GROUP
BUSINESS ACTIVITIES
CARRIED ON IN
2022
%
2021
%
Australia
Australia
Unlisted subsidiaries of Karoon Energy Ltd:
Karoon Energy International Pty Ltd
Karoon Gas Browse Basin Pty Ltd
Karoon Gas (FPSO) Pty Ltd
Unlisted subsidiaries of Karoon Energy
International Pty Ltd:
KEI (Brazil Santos) Pty Ltd
Karoon Peru Pty Ltd
KEI (Peru Z 38) Pty Ltd
Australia
Australia
Australia
Australia
Australia
Australia
Unlisted subsidiary of KEI (Brazil Santos) Pty Ltd:
Karoon Petróleo & Gás Ltda
Brazil
Branch of KEI Peru Pty Ltd:
Karoon Peru Pty Ltd, Sucursal del Peru (in liq)
Branch of KEI (Peru Z 38) Pty Ltd:
KEI (Peru Z‑38) Pty Ltd, Sucursal del Peru
Peru
Peru
Australia
Australia
Australia
Australia
Australia
Australia
Brazil
Peru
Peru
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
108
KAROON ANNUAL REPORT 2022 Note 26. Segment Information
(a) Description of Segments
The Group has identified its operating segments based on the internal reports that are reviewed and used by the Group’s Executive
Management Team (identified as the ‘chief operating decision maker’) in assessing performance and in determining the allocation
of resources.
The operating segments are based on the Group’s geographical location of its operations.
The Group has identified operating segments based on the following two geographic locations:
• Australia – in which the Group was involved in the exploration and evaluation of hydrocarbons in an offshore exploration permit
area: WA‑482‑P; and
• Brazil – in which the Group is currently involved in the exploration, development and production of hydrocarbons in four offshore
blocks: Block BM‑S‑40, Block S‑M‑1037, Block S‑M‑1101, and Block S‑M‑1537;
At 30 June 2021, the Group identified operating segments based on three geographical locations, Australia, Peru & Brazil.
The Peru segment effectively ceased operations from 1 July 2021, when the Group decided to relinquish its explorations interests
in Peru.
‘All other segments’ include amounts of a corporate nature not specifically attributable to an operating segment, including costs
associated with closure of the Group’s Peruvian Branches as noted above.
The accounting policies of the reportable operating segments are the same as the Group’s accounting policies.
Segment revenues and results do not include transfers between segments as intercompany balances are eliminated on
consolidation.
Employee benefits expense and other expenses, which are associated with exploration and evaluation activities and specifically
relate to an area of interest, are allocated to the area of interest and are either expensed or capitalised using the successful efforts
method of accounting.
The amounts provided to the chief operating decision maker with respect to total assets and total liabilities are measured in
a manner consistent with that of the consolidated financial statements. Reportable segment assets and segment liabilities are
equal to consolidated total assets and total liabilities respectively. These assets and liabilities are allocated in accordance with
the operations of the segment.
(b) Operating Segments
SEGMENT PERFORMANCE
Result for financial year ended 30 June 2022
Revenue
Other income
Total segment revenue
Expenses
Business development and transition costs
Cost of sales
Depreciation and amortisation expense
– non‑oil and gas assets
Exploration expenses
Finance costs
Realised losses on cash flow hedges
Corporate expenses
Net foreign currency gains (losses)
Change in fair value of contingent consideration
Share‑based payments expense
Other
Profit/ (loss) before income tax
Income tax benefit
Profit/ (loss) for financial year
BRAZIL
US$’000
385,074
222
385,296
(3,013)
(191,704)
(411)
(2,789)
(22,657)
(11,819)
(3,607)
2,083
(227,119)
(1,945)
(109)
(77,794)
22,958
(54,836)
ALL OTHER
SEGMENTS
US$’000
CONSOLIDATED
US$’000
–
505
505
(1)
–
(14)
(103)
–
–
(883)
(440)
–
–
(115)
(1,051)
–
(1,051)
385,074
789
385,863
(3,362)
(191,704)
(728)
(3,196)
(22,709)
(11,819)
(15,352)
6,203
(227,119)
(5,691)
(224)
(89,838)
25,387
(64,451)
AUSTRALIA
US$’000
–
62
62
(348)
–
(303)
(304)
(52)
–
(10,862)
4,560
–
(3,746)
–
(10,993)
2,429
(8,564)
109
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 26. Segment Information Continued
SEGMENT PERFORMANCE
Result for financial year ended 30 June 2021
Revenue
Other income
Total segment revenue
Expenses
Business development and transition costs
Cost of sales
Depreciation and amortisation expense
– non‑oil and gas assets
Exploration expenses
Finance costs
Corporate expenses
Inventory write‑down
Net foreign currency losses
Change in fair value of contingent
consideration
Legal settlement
Share‑based payments expense
Other
Profit/ (loss) before income tax
Income tax benefit
Profit/ (loss) for financial year
AUSTRALIA
US$’000
BRAZIL
US$’000
PERU
US$’000
ALL OTHER
SEGMENTS
US$’000
CONSOLIDATED
US$’000
–
93
93
(81)
–
(287)
254
(66)
(7,519)
–
(16,839)
–
–
(2,873)
–
(27,318)
7,816
(19,502)
170,809
206
171,015
(17,386)
(111,375)
(271)
(2,580)
(14,331)
(3,707)
(577)
154
(6,632)
–
(2,033)
(158)
12,119
24,441
36,560
–
6
6
(97)
–
(186)
(1,090)
(4)
(1,024)
–
(368)
–
(9,600)
–
(311)
(12,674)
–
(12,674)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
170,809
305
171,114
(17,564)
(111,375)
(744)
(3,416)
(14,401)
(12,250)
(577)
(17,053)
(6,632)
(9,600)
(4,906)
(469)
(27,873)
32,257
4,384
FINANCIAL YEAR ENDED 30 JUNE 2022
Total segment assets
Total segment liabilities
AUSTRALIA
US$’000
49,293
4,817
FINANCIAL YEAR ENDED 30 JUNE 2021
Total segment assets
Total segment liabilities
AUSTRALIA
US$’000
64,560
6,267
BRAZIL
US$’000
947,806
617,632
BRAZIL
US$’000
1,114,675
883,118
PERU
US$’000
1,590
9,807
ALL OTHER
SEGMENTS
US$’000
171
CONSOLIDATED
US$’000
1,164,139
3
887,938
ALL OTHER
SEGMENTS
US$’000
–
CONSOLIDATED
US$’000
1,013,956
–
633,706
110
KAROON ANNUAL REPORT 2022 (c) Other Segment Information
Additions to non‑current assets, other than financial assets (refer Note 3), during the reporting periods were:
FINANCIAL YEAR ENDED 30 JUNE 2022
Property, plant and equipment^
Oil and gas assets^
Intangible assets
Exploration and evaluation expenditure carried forward
^
Includes right‑of‑use assets.
FINANCIAL YEAR
ENDED 30 JUNE 2021
Property, plant and equipment^
AUSTRALIA
US$’000
43
Oil & gas assets^
Intangible assets
Exploration and evaluation
expenditure carried forward
^
Includes right‑of‑use assets.
–
34
–
AUSTRALIA
US$’000
231
–
22
–
BRAZIL
US$’000
6,039
813,006
–
379
BRAZIL
US$’000
5,717
112,815
1
–
ALL OTHER
SEGMENTS
US$’000
–
CONSOLIDATED
US$’000
5,948
–
–
–
112,815
23
–
PERU
US$’000
–
ALL OTHER
SEGMENTS
US$’000
–
–
–
–
–
–
–
CONSOLIDATED
US$’000
6,082
813,006
34
379
Note 27. Joint Operations
The Group has an equity interest in the following joint operations as at 30 June 2022 as follows:
UNINCORPORATED
EQUITY INTEREST (%)
PETROLEUM
TENEMENT
WA‑482‑P
BUSINESS ACTIVITIES
CARRIED ON IN
Northern Carnarvon
Basin, Australia
Block Z‑38
Tumbes Basin, Peru
2022
%
50
–
2021
%
50
PRINCIPAL
ACTIVITIES
Exploration and evaluation Santos WA Energy Limited
OPERATOR OF
JOINT OPERATION
75
Exploration and evaluation KEI (Peru Z‑38) Pty Ltd,
Sucursal del Peru
An application for consent to surrender Petroleum Exploration Permit WA‑482‑P was submitted to the National Offshore Petroleum
Titles Administrator (NOPTA) during the financial year. As at year end, the application had been screened, assessed and was with
the Joint Authority for a decision.
The following amounts represented the Group’s share of assets, liabilities, revenues and expenses employed in joint operations.
The amounts are included in the consolidated financial statements, in accordance with the accounting policy described in Note 1(v),
under the following classifications:
Cash and cash equivalents
Inventory
Trade and other payables (current)
Share of net assets employed in joint operations
Other expenses
Exploration and evaluation expenditure expensed or impaired
There are no contingent liabilities in respect of joint operations as at year end.
111
CONSOLIDATED
2022
US$’000
–
2021
US$’000
303
–
(2)
(2)
–
(302)
135
(233)
205
(1)
(1,133)
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 28. Contingent Liabilities and Contingent Assets
(a) Contingent Liabilities
The Group has contingent liabilities as at 30 June 2022 that may become payable in respect of:
(i)
A Parent Company guarantee totalling BRL117.7 million provided to the ANP in respect
of existing decommissioning obligations relating to the Baúna field.
(ii) Performance guarantee (via a letter of credit) provided to Perupetro SA for Area 73 by
the Group (refer Note 13). The performance guarantee was returned and released during
July 2021 having met all work commitments and submission of relevant reports to
Perupetro SA.
(iii) The Group has provided the ANP a letter of credit (refer Note 13) to carry out the minimum
work program in relation to exploration in Santos Basin Block S‑M‑1537. The Directors are
of the opinion that the work program commitments will be satisfied. The letter of credit
is fully funded by way of payment of a security deposit, which will be released once the
work program is met.
(iv) Bank guarantees were provided in respect of rental agreements for office premises of the
Group. These guarantees may give rise to liabilities in the Group if obligations are not met
under these guarantees. The bank guarantees given to lessors are fully funded by way of
payment of security deposits (refer Note 13).
(v) Cash deposits (refer Note 13) are held as bonds for the Group’s compliance with its
obligations in respect of agreements for the guarantee of payment obligations for various
accommodation in Brazil and Peru.
CONSOLIDATED
2022
US$’000
2021
US$’000
22,480
20,866
–
62
1,181
1,237
155
325
304
–
(vi) Block Acquisition
As part of the acquisition of Pacific Exploration and Production Corp’s equity interest of Santos Basin Blocks S‑M‑1037, S‑M‑1101,
S‑M‑1102, S‑M‑1165 and S‑M‑1166 during the 2017 financial year, the Group agreed to pay Pacific Exploration and Production Corp.
a deferred contingent consideration of $5.0 million payable upon first production reaching a minimum of 1 million barrels of oil
equivalent from the Blocks. The deferred contingent obligation has not been provided for as at 30 June 2022, as it is dependent
upon uncertain future events.
(vii) Brazilian Local Content
The Concession Contracts for Santos Basin Blocks S‑M‑1037, S‑M‑1101, S‑M‑1102, S‑M‑1165, S‑M‑1537 and S‑M‑1166 require
Karoon Petróleo & Gas Ltda to acquire a minimum proportion of goods and services from Brazilian suppliers, with the objective to
stimulate industrial development, promote and diversify the Brazilian economy, encourage advanced technology and develop local
capabilities. The minimum Brazilian local content requirement under the Concession Contracts during the exploration and appraisal
phase is up to 55%. If Karoon Petróleo & Gas Ltda fails to comply with this minimum requirement, Karoon Petróleo & Gas Ltda may be
subject to a fine by the ANP.
(viii) Joint Operations
In accordance with normal industry practice, the Group has entered into joint operations with other parties for the purpose of
exploring and evaluating its exploration tenements. If a participant to a joint operation defaults and does not contribute its share
of joint operation obligations, then the remaining joint operation participants are jointly and severally liable to meet the obligations
of the defaulting participant. In this event, the equity interest in the exploration tenements held by the defaulting participant may
be redistributed to the remaining joint operation participants.
In the event of a default, a contingent liability exists in respect of expenditure commitments due to be met by the Group in respect
of the defaulting joint operation participant.
(ix) Other Matters
There are also legal claims and exposures, which arise from the Group’s ordinary course of business. No material loss to the Group
is expected to result.
(b) Contingent Assets
The Group has no contingent assets as at 30 June 2022 (30 June 2021: $Nil).
112
KAROON ANNUAL REPORT 2022 Note 29. Commitments
(a) Capital and Service Expenditure Commitments
Contracts for capital and service expenditure in relation to assets not provided for in
the consolidated financial statements and payable. Note the service commitments as at
30 June 2022 include the provision of services related to the charter of the FPSO acquired as
part of the Baúna acquisition.
Capital commitments for Baúna workovers and Patola Development
Not later than one year
Later than one year but not later than five years
Total capital commitments
Service commitments
Not later than one year
Later than one year but not later than five years
Total service commitments
Total capital and service expenditure commitments
CONSOLIDATED
2022
US$’000
2021
US$’000
75,945
–
75,945
11,509
31,883
43,392
119,337
79,269
26,691
105,960
11,990
42,504
54,494
160,454
(b) Exploration Expenditure Commitments
The Group has guaranteed commitments for exploration expenditure arising from obligations
to governments to perform minimum exploration and evaluation work and expend minimum
amounts of money pursuant to the award of exploration tenements Block S‑M‑1537
(30 June 2021: WA‑482‑P and Block S‑M‑1537) not provided for in the consolidated financial
statements and payable.
Not later than one year
Later than one year but not later than five years
Total guaranteed exploration expenditure commitments
–
3,500
3,500
102
3,500
3,602
The Group does not have any non‑guaranteed government work commitments in relation
to these exploration tenements due later than one year but not later than five years
(30 June 2021: $15,224k).
Exploration expenditure commitments, including farm‑in, obligations in respect of joint
operations are set‑out below:
Not later than one year
Total joint operation guaranteed exploration expenditure commitments
–
–
102
102
Note, the figures above do not include any commitments in relation to Exploration Blocks S‑M‑1037 and S‑M‑1101 relating to the
Neon and Goiá light oil discoveries. In accordance with Brazilian regulatory requirements, during January 2019 Karoon submitted
both a Final Discovery Evaluation Report and Declaration of Commerciality for the discoveries. This transitioned the Blocks for
Brazilian regulatory requirements, from the exploration phase to the development phase, akin to receiving a Retention Licence over
the oil discoveries. However, it does not mean that Karoon has reached, nor is compelled to reach, a final investment decision (‘FID’)
to proceed into a Development of the discoveries. Prior to an FID being reached, in April 2022 Karoon committed to drilling a ‘control
well(s)’ to assist with delineating the Neon discovery, confirming reservoir quality and assisting with the planning and design of both
development wells and infrastructure. These control well(s) are planned to be drilled in the first half of CY2023 (subject to receipt
of relevant approvals), after completion of the Patola development.
Estimates for future exploration expenditure commitments to government are based on estimated well and seismic costs,
which will change as actual drilling locations and seismic surveys are completed and are calculated in current dollars on an
undiscounted basis. The exploration and evaluation obligations may vary significantly as a result of renegotiations with relevant
parties. The commitments may also be reduced by the Group entering into farm‑out agreements, which are typical of the normal
operating activities of the Group, or by relinquishing exploration tenements.
113
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 30. Reconciliation to the Consolidated Statement of Cash Flows
(a) Reconciliation of Loss for Financial Year to Net Cash Flows Used in Operating Activities
CONSOLIDATED
2022
US$’000
(64,451)
2021
US$’000
4,384
100,083
464
(62,491)
227,119
2,366
3,632
(75)
(3,019)
1,166
(526)
(466)
–
–
(22,174)
(6,356)
(86,454)
(6,863)
51
2,502
(89)
(71)
1,344
19,442
49,112
154,246
65,706
–
–
6,632
1,797
3,034
(1)
17,092
–
(10)
(151)
90
577
(24,783)
(10,952)
(36,528)
(3,673)
7,003
4,078
48
(1)
5,532
(10,088)
–
29,786
Profit (loss) for financial year
Add (subtract)
Non‑cash items included in loss for financial year:
Depreciation and amortisation
Amortisation of finance costs
Change in fair value of derivative financial instruments
Change in fair value of contingent consideration
Discount unwinding on provision for restoration and deferred consideration
Share‑based payments expense
Gain on disposal of right‑of‑use asset
Net foreign currency losses (gains)
Items classified as investing/ financing activities:
Interest paid on deferred consideration
Net (gain) loss on disposal of non‑current assets
Net foreign currency gains (losses)
Exploration and evaluation expenditure impaired or written‑off
Write‑down of inventory to net realisable value
Change in operating assets and liabilities:
(Increase) decrease in assets
Receivables – current
Oil inventories
Deferred tax assets
Other assets
Increase (decrease) in liabilities
Trade and other payables – current
Trade and other payables – non‑current
Provisions – current
Provisions – non‑current
Current tax liabilities
Deferred tax liabilities
Derivative financial instruments – cash flow hedges
Net cash flows provided by (used in) operating activities
114
KAROON ANNUAL REPORT 2022 Note 31. Share‑based Payments
The share‑based payment plans are described below. There has been no cancellation to a plan during the financial year.
(a) Employee Share Option Plan (‘ESOP’)
The Company currently only has the 2016 ESOP in place. ESOP options expire up to 4 years after they are granted. The exercise
price of ESOP options is based on the volume weighted average price at which the Company’s ordinary shares are traded on the
ASX during the 20 days of trading before the ESOP options were offered plus a premium to the market price.
Each ESOP option provides eligible employees with the right to acquire one fully paid ordinary share of the Company at the exercise
price determined upon grant, or its equivalent value, subject to the achievement of the relevant performance conditions.
Share options granted under the ESOP carry no dividend or voting rights.
If there is a change of control of the Company, for all unexercised ESOP options, a percentage amount of unvested ESOP options
may vest on the basis of the pro‑rata achievement of pre‑determined performance conditions.
During the financial year, the Group did not grant any ESOP options (2021: $Nil) over unissued ordinary shares in the Company
to Executive Directors.
The following summary reconciles the outstanding ESOP options over unissued ordinary shares in the Company at the beginning
and end of the financial year:
Balance at beginning of financial year
Granted during financial year
Exercised during financial year
Cancelled during financial year
Cash‑settled during financial year
Expired during financial year
Forfeited during financial year
Balance at end of financial year
Exercisable at end of financial year
CONSOLIDATED
2022
2021
WEIGHTED
AVERAGE
EXERCISE PRICE
A$
$1.40
WEIGHTED
AVERAGE
EXERCISE PRICE
A$
$1.54
NUMBER
7,230,019
–
$1.40
$1.40
$1.40
–
–
–
–
–
–
–
–
–
(3,163,896)
4,066,123
–
–
–
–
–
–
$1.73
$1.40
–
NUMBER
4,066,123
–
(2,383,899)
(906,031)
(776,193)
–
–
–
–
There were no ESOP options outstanding as at 30 June 2022 (30 June 2021: exercise price of A$1.40 with a weighted average
remaining contractual life of 365 days).
(b) Fair Value of Share Options
The fair value of each share option issued during previous financial years was estimated on grant date using the Black‑Scholes
option pricing model. The Black‑Scholes option pricing model takes into account the exercise price, the term of the share option,
the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk‑free
interest rate for the term of the share option. The last grant of share options was during the year ended 30 June 2019.
115
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 31. Share‑based Payments Continued
(c) Performance Rights Plan (‘PRP’)
The Company currently has two PRPs in place, the 2016 PRP and 2019 PRP. The 2019 PRP was approved by shareholders at the 2019
Annual General Meeting.
Under the PRP, eligible employees are given performance rights to be issued and allotted fully paid ordinary shares in the Company,
or equivalent cash value, for no consideration provided certain conditions have been met. Vesting of STI performance rights
is conditional on the achievement of performance measures, over a one‑year performance period, and provided the employee
remains employed by the Company for an additional year. Vesting of LTI performance rights is conditional on the achievement
of performance measures over a three‑year performance period. In each case, the Board, on advice from People, Culture and
Governance Committee, will be responsible for assessing whether the performance measures have been achieved. When vested,
each performance right is convertible into one ordinary share of the Company.
Performance rights granted carry no dividend or voting rights.
If there is a change of control of the Company, for all unexercised performance rights issued pursuant to the Company’s PRP,
a percentage amount of unvested performance rights may vest on the basis of the pro‑rata achievement of pre‑determined
performance conditions.
During the financial year, the Group granted 577,052 performance rights (2021: 502,989) over unissued ordinary shares in the
Company to Executive Directors. The performance rights were provided to the Chief Executive Officer and Managing Director and
were subject to approval by shareholders at the 2021 Annual General Meeting. Performance rights issued to Directors are approved
on a case‑by‑case basis by shareholders at relevant general meetings.
The following summary reconciles the outstanding performance rights over unissued ordinary shares in the Company at the
beginning and end of the financial year:
Balance at beginning of financial year
Granted during financial year
Vested and converted during financial year
Cancelled during financial year
Cash‑settled during financial year
Forfeited during financial year
Balance at end of financial year
CONSOLIDATED
2022
NUMBER
14,861,486
2,370,032
(1,930,924)
–
(363,452)
(1,291,847)
13,645,295
2021
NUMBER
10,935,950
8,847,523
(785,836)
–
(96,741)
(4,039,410)
14,861,486
Performance rights issued during the financial year were issued under the 2019 PRP.
The weighted average fair value of performance rights granted during the financial year was A$1.66 (2021: A$0.69). Fair values of STI
performance rights were based on the Company’s closing share price at grant date whereas LTI performance rights were based on a
Monte Carlo simulation valuation at grant date. Refer to details at Note 31(d) below.
Performance rights outstanding as at 30 June 2022 had a weighted average remaining contractual life of 617 days (30 June 2021:
789 days). Details of performance rights outstanding at the end of the financial year are:
GRANT DATE
12 November 2019
18 October 2019
29 November 2019
25 September 2020
25 September 2020
26 November 2021
23 March 2022
6 May 2022
Total performance rights
DATE OF EXPIRY
30 June 2023
30 June 2023
30 June 2023
30 June 2023
30 June 2024
30 June 2024
30 June 2025
30 June 2025
116
NUMBER
685,621
2,367,643
666,323
2,880,420
4,172,267
502,989
1,123,593
1,246,439
13,645,295
KAROON ANNUAL REPORT 2022 (d) Fair Value of Performance Rights
The fair value of each LTI performance right issued during the financial year was estimated on grant date using the Monte Carlo
valuation methodology. The Monte Carlo valuation methodology takes into account the exercise price, the term of the performance
right, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk‑free
interest rate for the term of the performance right. The fair value of STI performance rights issued during the current or previous
financial years were based on the Company’s closing share price at grant date. The fair value of all performance rights issued prior
to 1 July 2020 were based on the Company’s closing share price at grant date.
The Group applied the following assumptions and inputs in estimating the weighted average fair value for LTI performance rights:
Weighted average exercise price
Weighted average life of performance rights
Weighted average share price
Expected share price volatility
Risk free interest rate
Weighted average performance rights value
2022
$A Nil
2021
$A Nil
1,172 days
1,383 days
A$2.12
60.00%
2.17%
A$1.66
A$0.80
60.00%
0.17%
A$0.65
Historical volatility was the basis for determining expected share price volatility as it is assumed that this is indicative of future
trends, which may not eventuate.
(e) Share‑based Payments Expense
Total expenses arising from share‑based payment transactions recognised during the financial year, included as part of other
expenses in the consolidated statement of profit or loss and other comprehensive income, were as follows:
Share options issued under ESOP
Performance rights issued under PRP
Share‑based payments expense (non‑cash)
Share‑based payments expense (cash‑settled)
Total share‑based payments expense
CONSOLIDATED
2022
US$’000
–
3,632
3,632
2,059
5,691
2021
US$’000
190
2,844
3,034
1,872
4,906
117
KAROON ANNUAL REPORT 2022 NOTES TO THE C ONSOLIDATED FINANCIAL S TATEMENTS CONTINUED
Note 32. Related Party Transactions
Transactions between related parties are on normal commercial terms and conditions, no more favourable than those available
to other parties, unless otherwise stated.
(a) Subsidiaries
Interests in subsidiaries are set out in Note 25.
During the financial year, the Parent Company provided accounting, administrative and technical services to subsidiaries at cost or
at cost plus a mark‑up where required under relevant tax transfer pricing legislation. This allocation was based on costs recharged
on a relevant time allocation of employees and consultants and associated office charges.
Other transactions that occurred were provision of funding by the Parent Company to its overseas subsidiaries via an increase in
contributed equity and intercompany loans to the Australian subsidiaries. The intercompany loans provided are at a Nil% interest
rate (2021: Nil%) and no fixed term for repayment and therefore will not be repaid within 12 months. Loans are unsecured and are
repayable in cash.
Where equity‑settled share options and performance rights are issued to employees of subsidiaries within the Group, the transaction
is recognised as an investment in the subsidiary by the Parent Company and in the subsidiary, a share‑based payments expense
and an equity contribution by the Parent Company.
The above transactions are eliminated on consolidation.
(b) Remuneration of Key Management Personnel
Directors and other key management personnel remuneration is summarised as follows:
Short‑term employee benefits
Post‑employment benefits
Long‑term employee benefits (non‑cash)
Termination benefits
Share‑based payments expense
Total key management personnel remuneration
CONSOLIDATED
2022
US$’000
2,771
221
4
436
2,307
5,739
2021
US$’000
2,390
175
18
470
2,764
5,817
Detailed remuneration disclosures for the Directors and other key management personnel are provided in Section 5 of the
audited Remuneration Report on pages 61 to 68. Termination of the Executive Director’s and other key management personnel’s
employment is subject to a minimum notice period as disclosed on page 59 of the audited Remuneration Report.
Apart from the details disclosed in this note, no Director or other key management personnel has entered into a material contract
with the Group since the end of the previous financial year and there were no material contracts involving Directors’ or other key
management personnel interests subsisting as at 30 June 2022.
118
KAROON ANNUAL REPORT 2022 Note 33. Parent Company Financial Information
(a) Summary Financial Information
The individual financial statements for the Parent Company show the following aggregate amounts:
Statement of financial position
Current assets
Non‑current assets
Total assets
Current liabilities
Non‑current liabilities
Total liabilities
Net assets
Contributed equity
Accumulated losses
Share‑based payments reserve
Foreign currency translation reserve
Total equity
Loss for financial year
Total comprehensive loss for financial year
(b) Contingent Liabilities of Parent Company
(i)
Bank guarantees were provided in respect of operating lease rental agreements.
These guarantees may give rise to liabilities in the Parent Company if obligations
are not met under these guarantees. The bank guarantees given to lessors are fully
funded by way of payment of security deposits (refer Note 13).
(ii) The Company’s present intention is to provide the necessary financial support for
all Australian incorporated subsidiaries, whilst they remain wholly owned subsidiaries,
as is necessary for each company to pay all debts as and when they become due.
COMPANY
2022
US$’000
2021
US$’000
47,625
169,761
217,386
3,925
920
4,845
212,541
907,514
(653,433)
53,822
(95,362)
212,541
63,387
253,939
317,326
3,234
3,111
6,345
310,981
905,138
(574,852)
50,190
(69,495)
310,981
(78,581)
(16,982)
(104,449)
11,244
155
169
(c) Guarantees Entered into by Parent Company
A Parent Company guarantee was provided to Petrobras for payment of all amounts that may become payable under the SPA.
A Parent Company guarantee totalling Brazilian REALS 117.7 million (US$22.5 million equivalent as at 30 June 2022) was provided to
the ANP in respect of existing decommissioning obligations relating to the Baúna field. In addition, the Parent has provided deeds of
guarantee to, respectively, OOG‑TKP FPSO GMBH & CO KG (the FPSO operator) and OOG‑TKP Produção de Petróleo Ltda (the FPSO
service provider) in relation to satisfying Karoon Petróleo & Gás Ltda’s payment obligations in respect of the charter of an FPSO for
Baúna and the provision of related services.
Parent Company guarantees have been provided to the ANP guaranteeing a subsidiary’s obligations under Concession Agreements
covering Santos Basin Blocks S‑M‑1037, S‑M‑1101, S‑M‑1102 and S‑M‑1537 in Brazil.
Note 34. Subsequent Events
This Annual Report was authorised for issue by the Board of Directors on 25 August 2022. The Board of Directors has the power
to amend and reissue the consolidated financial statements and notes.
Since 30 June 2022, there have been no material events that have occurred.
119
KAROON ANNUAL REPORT 2022 DIRECTORS’ DECLARATION
The Directors’ declare that:
(a) in the Directors’ opinion, the consolidated financial statements and notes, set out on pages 72 to 119, are in accordance
with the Corporations Act 2001, including:
(i) complying with relevant Australian Accounting Standards and the Corporations Regulations 2001; and
(ii) giving a true and fair view of the Group’s financial position as at 30 June 2022 and of its performance for the financial
year ended on that date; and
(b) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
Note 1(a) confirms that the consolidated financial statements also comply with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
The Directors have been given the declarations by the Chief Executive Officer and Managing Director, and Executive Vice President
and Chief Financial Officer required by Section 295A of the Corporations Act 2001.
This Directors’ Declaration is made in accordance with a resolution of the Directors.
On behalf of the Directors:
Mr Bruce Phillips
Independent Non‑Executive Chairman
Dr Julian Fowles
Chief Executive Officer and Managing Director
25 August 2022
120
KAROON ANNUAL REPORT 2022 INDEPENDENT AUDITOR’S REPORT
Independent auditor’s report
To the members of Karoon Energy Ltd
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Karoon Energy Ltd (the Company) and its controlled entities
(together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 30 June 2022 and of its
financial performance for the year then ended, and
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
the consolidated statement of financial position as at 30 June 2022
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the consolidated statement of profit or loss and other comprehensive income for the year then
ended
the notes to the consolidated financial statements, which include significant accounting policies
and other explanatory information, and
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence
Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999
Liability limited by a scheme approved under Professional Standards Legislation.
121
KAROON ANNUAL REPORT 2022
INDEPENDENT AUDITOR’S REPORT CONTINUED
122
Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. Materiality • For the purpose of our audit we used overall Group materiality of US$11.6 million, which represents approximately 1% of the Group’s total assets. • We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. • We chose the Group's total assets as it is an appropriate benchmark that reflects the Group’s interests in oil and gas assets. • We utilised a 1% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. Audit Scope • Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. • The Group has two operating segments in Australia and Brazil. In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us, as the Group engagement team, and by component auditors under our instruction. KAROON ANNUAL REPORT 2022 Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context. We communicated the key audit matters to the Audit
and Risk Committee.
Key audit matter
Assessing the carrying value of oil and gas assets
(Refer to note 15)
As at 30 June 2022 the Group’s consolidated
statement of financial position includes oil and gas
assets of US$733 million.
Group policy is to assess for indicators of impairment
annually or more frequently if indicators of impairment
exist.
Assessing the carrying value of oil and gas assets
was a key audit matter because of the judgement
involved in the Group assessing impairment indicators
and the financial significance of oil and gas assets.
Assessing the valuation of the contingent
consideration payable
(Refer to note 23)
As described within Note 23, as part of the Group’s
acquisition of the Bauna production asset in the prior
year, a tiered contingent consideration is payable of
up to US$285 million (plus interest at 2% per annum).
This contingent consideration was initially recognised
as an embedded derivative and it is measured at fair
valued at each reporting date. The fair value of the
contingent consideration is determined by the
Group’s estimate of the present value of future
expected cash outflows. Estimates are based on the
Group’s internal assessment of future oil prices,
which considers industry consensus and observable
oil price forecasts.
The valuation of this liability was increased to US$298
million at 30 June 2022, an increase of US$227
million since 30 June 2021.
How our audit addressed the key audit matter
To assess the carrying value of oil and gas assets we
performed the following procedures, amongst others:
•
•
Evaluated the Group’s assessment of
whether there were any indicators of asset
impairment, including consideration of
movement in oil prices, reserves and
resources and asset performance over the
period.
Compared the value of the net assets of the
Group at year end to the market
capitalisation.
To assess the valuation of the contingent
consideration we performed the following procedures,
amongst others:
•
•
Evaluated the Group’s accounting policy
against the requirements of Australian
Accounting Standards.
Assessed the appropriateness of methods,
assumptions and inputs to the calculation of
the fair value of contingent consideration.
• We utilised an auditor’s expert to assess the
reasonableness of the Group’s forecast of
future oil prices.
123
KAROON ANNUAL REPORT 2022 INDEPENDENT AUDITOR’S REPORT CONTINUED
Key audit matter
How our audit addressed the key audit matter
Assessing the valuation of the contingent
consideration payable was a key audit matter
because of the judgement involved in the Group’s
forecast of future oil prices and the financial
significance of this estimate on the Group’s financial
performance and financial position.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 30 June 2022 but does not include the
financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
124
KAROON ANNUAL REPORT 2022
A further description of our responsibilities for the audit of the financial report is located at the Auditing
and Assurance Standards Board website at:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our
auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 48 to 68 of the directors’ report for the
year ended 30 June 2022.
In our opinion, the remuneration report of Karoon Energy Ltd for the year ended 30 June 2022
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the remuneration report, based on our audit conducted in accordance with
Australian Auditing Standards.
PricewaterhouseCoopers
Anthony Hodge
Partner
Melbourne
25 August 2022
125
KAROON ANNUAL REPORT 2022
ADDITIONAL SECURITIES EXCHANGE INFORMATION
Additional information required by the ASX Listing Rules and not disclosed elsewhere in the Annual Report is set out below.
The information was applicable for the Company as at 28 July 2022.
Distribution of Shareholding
The number of shareholders ranked by size of holding is set out below:
SIZE OF HOLDING
Less than 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
More than 100,000
Total
NUMBER OF
HOLDERS
2,828
3,310
1,484
2,029
242
9,893
NUMBER OF
ORDINARY
SHARES ON
ISSUE
1,307,764
9,233,710
11,386,009
58,621,109
479,063,243
559,611,835
There were 999 shareholders holding less than a marketable parcel of ordinary shares to the value of A$500.
Substantial Shareholders
The number of ordinary shares held by substantial shareholders and their associates (who held 5% or more of total fully paid
ordinary shares on issue), as disclosed in substantial holder notices given to the Company, is set out below:
SHAREHOLDER
Mitsubishi UFJ Financial Group, Inc
Total
FULLY PAID ORDINARY SHARES
NUMBER HELD
29,778,588
29,778,588
% OF ISSUED
ORDINARY
SHARES
5.32
5.32
Twenty Largest Shareholders
The names of the twenty largest shareholders of the Company’s ordinary shares are listed below:
SHAREHOLDER
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited – A/C 2
BNP Paribas Noms Pty Ltd
HSBC Custody Nominees (Australia) Limited
BNP Paribas Nominees Pty Ltd
Ropat Nominees Pty Ltd
Sandhurst Trustees Ltd
BNP Paribas Noms Pty Ltd
Mr Kenneth Joseph Hall
Mr Leendert Hoeksema + Mrs Aaltje Hoeksema
UBS Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Merrill Lynch (Australia) Nominees Pty Limited
Citicorp Nominees Pty Limited
Netwealth Investments Limited
Ms Emilie Kristiane Julie West
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20 Mrs Mara Spong
Total
FULLY PAID ORDINARY SHARES
NUMBER HELD
147,910,311
% OF ISSUED
ORDINARY
SHARES
26.43
78,468,659
71,321,911
45,092,370
25,357,635
20,859,116
6,349,076
4,711,107
4,230,137
2,328,504
2,318,685
2,050,000
1,720,000
1,677,750
1,492,594
1,474,186
1,334,384
1,177,738
1,172,500
1,127,888
14.02
12.74
8.06
4.53
3.73
1.13
0.84
0.76
0.42
0.41
0.37
0.31
0.30
0.27
0.26
0.24
0.21
0.21
0.20
422,174,551
75.44
126
KAROON ANNUAL REPORT 2022 Unlisted Equity Securities: Performance Rights
The following performance rights over unissued ordinary shares of the Company are not quoted:
SIZE OF HOLDING
Performance rights issued pursuant to Company’s Performance Rights Plans
Total
NUMBER OF
UNLISTED
PERFORMANCE
RIGHTS ON
ISSUE
12,118,812
NUMBER OF
HOLDERS
45
45
12,118,812
Voting Rights
(a) Ordinary Shares, Fully Paid
Voting rights of shareholders are governed by the Company’s Constitution. In summary, on a show of hands every holder of ordinary
shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll each such attending shareholder is entitled
to one vote for every fully paid ordinary share held.
(b) Unlisted Performance Rights
No voting rights.
Other Information
The Company was incorporated as a public company on 11 November 2003.
On 30 November 2018 the Company changed its name from Karoon Gas Australia Ltd to Karoon Energy Ltd.
The Company was admitted to the ASX official list during June 2004 and quotation of its ordinary shares commenced
on 8 June 2004.
The register of securities is held at Computershare Investor Services Pty Limited, GPO Box 2975 Melbourne VIC 3001 Australia.
Investor enquiries can be made via telephone on 1300 850 505 (within Australia).
Schedule of Interests in Petroleum Tenements
EXPLORATION PERMIT/BLOCK
WA‑482‑P
BASIN
Northern Carnarvon, Australia
OPERATOR
Santos
Concession BM‑S‑40
Block S‑M‑1037
Block S‑M‑1101
Block S‑M‑1537
Santos, Brazil
Santos, Brazil
Santos, Brazil
Santos, Brazil
Karoon
Karoon
Karoon
Karoon
% EQUITY
INTEREST HELD
50^
100
100
100
100
^
Liberty Petroleum Corporation is entitled to certain milestone cash bonuses and an overriding royalty in the event of production.
Phoenix Oil and Gas Limited is entitled to an overriding royalty in the event of production.
127
KAROON ANNUAL REPORT 2022 GLOSSARY OF TERMS
DEFINITION
Three‑dimensional seismic.
Australian Dollars.
Australian Accounting Standards Board.
Agência Nacional do Petróleo, Gás Natural e Biocombustíveis.
The American Petroleum Institute gravity, or API gravity, is a measure of how heavy or light a petroleum
liquid is compared to water.
ASX Limited (ACN 008 624 691), trading as Australian Securities Exchange.
Australian Taxation Office.
TERM
3D seismic
A$ or AUD
AASB
ANP
API
ASX
ATO
barrel or bbl
Barrel of oil, inclusive of condensate. A quantity of 42 United States gallons; equivalent to approximately
159 litres.
basin
Baúna
block
bopd
Company or Parent
Company
contingent resources
A natural depression on the earth’s surface in which sediments, eroded from higher surrounding
ground levels, accumulated and were preserved.
Concession BM‑S‑40 containing the producing Baúna and Piracaba light oil fields and the undeveloped
Patola oil discovery, Brazil.
A licence or concession area. It may be almost any size or shape, although usually part of a grid pattern.
Barrels of oil per day.
Karoon Energy Ltd.
Those quantities of hydrocarbons estimated, as of a given date, to be potentially recoverable
from known accumulations by application of development projects, but which are not currently
considered to be commercially recoverable (as evaluation of the accumulation is insufficient to
clearly assess commerciality).
•
1C – Denotes low estimate scenario of contingent resources.
• 2C – Denotes best estimate scenario of contingent resources.
• 3C – Denotes high estimate scenario of contingent resources.
CO2e
Director
Carbon dioxide equivalent.
A Director of Karoon Energy Ltd.
discovery well
The first successful well on a new prospect.
E&P
ESP
exploration
FID
field
Exploration and production.
Electric submersible pump (downhole equipment).
The process of identifying, discovering and testing prospective hydrocarbon regions and structures,
mainly by interpreting regional and specific geochemical, geological, geophysical survey data and drilling.
Final Investment Decision.
An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same
individual geological structural feature or stratigraphic condition. The field name refers to the surface
area although it may refer to both the surface and underground productive formation.
FY or financial year
Financial Year
FPSO
GHG
GST
HSSE
Floating production, storage and off‑loading facility.
Greenhouse gas.
Goods and Services Tax in Australia.
Health, safety, security and environment.
Karoon or Group
Karoon Energy Ltd and its subsidiaries.
KMP
LTI
Key Management Personnel.
Lost time incident.
128
KAROON ANNUAL REPORT 2022 TERM
LTIR
LTI
m
DEFINITION
Lost time incident rate.
Long‑term incentive.
Million.
market capitalisation
The product of a company’s share price multiplied by the total number of ordinary shares issued
by the company.
MMbbl
NPAT
NOPTA
OMS
Operator
Millions of barrels (1,000,000 barrels).
Net Profit After Tax.
National Offshore Petroleum Titles Administrator.
Operating Management System.
One joint operation participant that has been appointed to carry out all operations on behalf of all the
joint operation participants.
performance rights
Performance rights issued under the PRP.
permit
Petrobras
play
A hydrocarbon tenement, lease, licence, concession or block.
Petróleo Brasileiro SA.
A trend within a prospective basin that has common geologic elements containing one or more fields,
prospects or leads with common characteristics.
previous financial year
Financial year ended 30 June 2021.
prospect
REAL
reserves
A geological or geophysical anomaly that has been surveyed and defined to the degree that its
configuration is fairly well established, and on which further exploration such as drilling can be
recommended.
Brazilian currency.
Those quantities of petroleum anticipated to be commercially recoverable by application of
development projects to known accumulations from a given date forward under defined conditions.
•
1P – Denotes low estimate of Reserves (Proved Reserves).
• 2P – Denotes best estimate of Reserves (the sum of Proved plus Probable Reserves).
• 3P – Denotes high estimate of Reserves (the sum of Proved plus Probable plus Possible Reserves).
reservoir
A porous and permeable rock formation to store and transmit fluids such as hydrocarbons and water.
rig
risk
seismic survey
SOFR
STI
TRIR
tCO2e
The equipment needed for drilling a well. It includes the onshore and offshore vehicles, mobile platforms
or vessel on which the equipment is stored.
Prospect risk or geologic risk is the assessed chance that the drilling of the prospect will be successful
in finding significant volumes of hydrocarbons. The risk is calculated by multiplying the chance of
success of each of the petroleum system elements involved in the prospect.
A type of geophysical survey where the travel times of artificially created seismic waves are measured
as they are reflected in a near vertical plane back to the surface from subsurface boundaries. This data
is typically used to determine the depths and form of stratigraphic units and in making subsurface
structural contour maps and ultimately in delineating prospective structures.
Secured Overnight Financing Rate.
Short‑term incentive.
Total Recordable Incident Rate.
Tonnes of carbon dioxide equivalent.
USD or US$
United States dollars.
129
KAROON ANNUAL REPORT 2022 CORPORATE DIRECTORY
Board of Directors
Mr Bruce Phillips – Independent Non‑Executive Chairman
Dr Julian Fowles – Chief Executive Officer and Managing Director
Mr Peter Turnbull – Independent Non‑Executive Director
Ms Luciana Rachid – Independent Non‑Executive Director
Mr Clark Davey – Independent Non‑Executive Director
Mr Peter Botten – Independent Non‑Executive Director
Company Secretary
Mr Nick Kennedy
Audit and Risk Committee Members
Mr Clark Davey (Chairman of Committee)
Mr Peter Botten
Mr Peter Turnbull
People, Culture and Governance
Committee Members
Mr Peter Turnbull (Chairman of Committee)
Mr Bruce Phillips
Mr Clark Davey
Sustainability and Operational
Risk Committee Members
Ms Luciana Rachid (Chair of Committee)
Mr Peter Botten
Mr Peter Turnbull
Registered Office
Suite 3.02
Level 3, 6 Riverside Quay
Southbank VIC 3006 Australia
ACN
ABN
107 001 338
53 107 001 338
Telephone + 613 9616 7500
Website www.karoonenergy.com.au
info@karoonenergy.com.au
Email
External Auditor
PricewaterhouseCoopers Australia
2 Riverside Quay
Southbank VIC 3006
Australia
Telephone + 61 3 8603 1000
Facsimile + 61 3 8603 1999
External Legal Adviser
Arnold Bloch Leibler
Level 21, 333 Collins Street
Melbourne VIC 3000 Australia
Telephone + 61 3 9229 9999
Facsimile + 61 3 9229 9900
Share Registrar
Computershare Investor Services Pty Limited
GPO Box 2975
Melbourne VIC 3001 Australia
Telephone 1300 555 159 (within Australia)
+ 61 3 9415 4062 (outside Australia)
Website www.computershare.com.au
Securities Exchange Listing
The Company’s ordinary shares are listed on the ASX.
The home exchange is Melbourne VIC.
ASX code KAR
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KAROON ANNUAL REPORT 2022