KAR Auction Services
Annual Report 2023

Plain-text annual report

2023 ANNUAL REPORTDELIVERING RESULTS1Karoon is an in�erna�ional oil and gas explora�ion and produc�ion company, lis�ed on �he ASX, wi�h asse�s in Brazil and Aus�ralia. Our vision is �o be a leading, independen� in�erna�ional energy company �ha� adap�s �o a dynamic world in an en�repreneurial and innova�ive way. Our purpose is �o provide energy sa�ely, reliably and responsibly, crea�ing las�ing bene��s �or all s�akeholders.In FY23, Karoon delivered a 52% increase in produc�ion and 70% higher underlying ne� pro�� a�er �ax. Toge�her wi�h progress on organic and inorganic grow�h oppor�uni�ies, �he Company is advancing i�s s�ra�egic priori�ies o� ensuring sa�e and reliable opera�ions and building scale, cos�-efec�ively and sus�ainably. ADVANCING STRATEGYFY23 a� a Glance Reserves and Resources Consolida�ed Financial S�a�emen� S�a�emen�s Leter �rom Our Chair & CEO / MD S�reng�hs Direc�ors’ Declara�ion and Risks Financial Overview Independen� Audi�or’s Direc�ors’ Repor� Repor� Produc�ion and Developmen� Remunera�ion Repor� Addi�ional Securi�ies Exchange In�orma�ion Grow�h Oppor�uni�ies Audi�or’s Independence Declara�ion Glossary o� Terms Sus�ainabili�y Corpora�e Direc�ory 103268121163616381171847121226712326IBC2FROM DECISION3During FY23, Karoon continued its major investment in Brazil, with the completion of the Baúna intervention campaign and the Patola development. These projects were delivered on time and within the original budgets, with initial production rates higher than expectations. Most importantly, both programs were conducted safely and with no material environmental issues. As a result, oil production was 52% higher than in FY22, at 7.04 million barrels (MMbbl), despite a six week unplanned shut down of tphe roduction facility. Personal safety performance improved, with the Total Recordable Injury Rate down 47% compared to FY22, despite managing materially higher levels of activity during the yea.roil producedper 200,000 hoursTO PRODUCTION GROWTH7.04 TRIR 0.41MMbbl4FROM EVALUATION5Karoon made progress in FY23 on its aim to build near and medium-term production through value-accretive, organic and inorganic growth opportunities. The Company drilled two success�ul control wells in the Neon oil feld. In�ormation �rom these wells has added signifcantly to the feld knowledge base and has led to a 9% increase in Neon 2C Contingent Resource estimates. The new data is being incorporated into technical and commercial �easibility studies underway on a potential Neon development. The next decision point will be whether to enter Concept Select. In addition, a range o� inorganic growth opportunities were evaluated, with a �ocus on assets in Brazil and/or the US Gul� o� Mexicothat can add material value to shareholders.in Neon 2C Contingent ResourcesTO FUTURE OPTIONS Two Neon 9% increasewells drilled6FROM PLAN7Karoon entered FY23 in a strong fnancial position, in preparation �or the Company’s frst major capital investment projects in Brazil.Over the year, the Baúna interventions, Patola development and Neon drilling program were success�ully completed within the original budgets, re�lecting sound contracting and project delivery discipline. These projects,as well as the frst Petrobras contingent payment, were �unded �rom cash �low �rom operations and existing cash, with no �urther drawdowns �rom debt �acilities. Karoon completed the year with a balance sheet that is well positioned to �und potential organic and inorganic growth as well as returns to shareholders.cash and cash equivalents�acility, US$30m drawnTO FINANCIAL READINESSUS$74.8mmUS$2108FROM PLEDGE9TO PROGRESS US$1.9mCarbon NeutralKaroon made progress in FY23 on i�s Carbon Managemen� Ac�ion Plan, which is designed �o s�rike a balance be�ween �he Company helping �he world mee� global oil demand while minimising and ofseting i�s carbon �oo�prin�. In FY23, Karoon screened a number o� ARR and REDD+ Na�ure Based Solu�ion projec�s, signed a �erm shee� wi�h one par�y and advanced several o�hers. In addi�ion, work is ongoing �o iden�i�y oppor�uni�ies �o reduce emissions (Scope 1 and 2) �rom i�s opera�ions. Karoon con�ribu�ed approxima�ely US$150 million �o �he Brazilian and Aus�ralian economies in FY23 in employee bene��s and paymen�s �o governmen�s. This included US$1.9 million in communi�y and environmen�al inves�men�s in Brazil, �o help empower people and crea�e a posi�ive impac� on �heir �u�ure.Expec� �o beinves�ed in Brazilian in FY23social and environmen�al programs1. Carbon Neu�ral re�ers �o �rs�ly, reducing or avoiding opera�ional Scope 1 and 2 greenhouse gas (GHG) emissions and, secondly, acquiring carbon ofse�s �o balance �he remaining Scope 1 and Scope 2 emissions. 110FY23 AT A GLANCE7.04 MMbblPatola TRIR 0.41 200%and Baúna interventionsUS$80.20/bblUS$145.9mUS$271.8mUS$254.8m142,074 tCoe20.2 kgCOe 22~US$150mper bbl22Production per 200,000 Reserves up 52% on FY22hours down Replacement 47% on FY22Ratio in FY23Completed on time and within original budgetsRealised oil priceUnderlying net Cash�low Total liquidity pro�t afer tax generated up at 30 June 2023up 70% on FY22148% on FY22Absolute emissions New community Employee bene�ts, (Scope 1 & 2) investment government take Emissions in FY23and community intensity projectsand environmental (Scope 1 & 2)investments in FY23121 Reserves replacement is de�ned as 2P Reserves additions during the period �rom 30 June 2022 to 30 June 2023 divided by production over the same period. 2 Cash�low generated re�lects net cash�low �rom operations and includes principal elements o� lease payments.1112LETTER FROM OURCHAIR & CEO/MDDELIVERING OUR STRONG FINANCIAL STRATEGIC OBJECTIVESRESULTS, ROBUST BALANCE SHEET POSITIONSAFE AND RELIABLE OPERATIONS PROVIDE PLATFORM FOR GROWTH ChairmanCEO and MDProduc�ion peaked a� more �han 40,000 barrels o� oil per day (bopd) in early CY23, ahead o� FY23 was one o� Karoon’s busies� expec�a�ions. Shor�ly afer �he opera�ional periods since �he Pa�ola �eld came ons�ream, a leak Company was �ormed. As well as in �he gas �lare sys�em o� �he FPSO Underlying ne� pro�� afer �ax delivering s�rong opera�ing and resul�ed in Al�era&Ocyan (A&O), �or FY23 was US$145.9 million, �nancial resul�s, signi�can� �he FPSO opera�or, and Karoon compared wi�h US$85.6 million progress was made on our s�ra�egy shuting down opera�ions. While in FY22, re�lec�ing �he sharp rise �o s�reng�hen, build scale and �he leak was repaired swifly, in in sales revenue. The s�a�u�ory diversi�y Karoon’s business. �he in�eres�s o� sa�e�y, we decided NPAT was US$163.0 million, �o under�ake a comprehensive compared �o a s�a�u�ory ne� loss The Board and managemen� �ocus inspec�ion o� �he FPSO’s ppiework. afer �ax o� US$64.4 million in FY22. during �he year was on advancing All iden�i�ed repairs, main�enance or Wi�h a largely �xed cos� base, uni� our key s�ra�egic objec�ives, replacemen�s were conduc�ed over produc�ion cos�s �ell, �rom US$25.36/which include:a six week unplanned shu�down. bbl �o US$15.75/bbl. Produc�ion recommenced in May and Achieving opera�ional excellence by �he end o� FY23 had been res�ored �hrough sa�e, reliable, responsible �o 33,000 – 35,000 bopd, �rom where and cos�-e�ec�ive opera�ions.we an�icipa�e i� will now commence Pursuing organic and inorganic a more gradual na�ural decline. grow�h oppor�uni�ies.Ensuring �he in�egri�y o� �he Main�aining a s�rong �nancial produc�ion �acili�y is o� key posi�ion �o suppor� expansion.impor�ance �o Karoon, wi�h sa�e and reliable oil produc�ion underpinning Implemen�ing a ��-�or-purpose our corpora�e grow�h s�ra�egy. sus�ainabili�y s�ra�egy �ha� The recen� unplanned shu�down has recognises Karoon’s clima�e, highligh�ed �ha� wi�h produc�ion social, environmen� and ra�es reaching close �o �he �acili�y’s governance commi�men�s.capaci�y, �ur�her work is required on Over FY23, Karoon spen� US$19�he FPSO. We are planning addi�ional 1 million on comple�ing�he value inspec�ions and main�enance work, accre�ive Baúna in�erven�ion and ahead o� �he nex� planned shu�down Pa�ola developmen� projec�s, in scheduled �or March 2024.line wi�h our original budge�s. During FY23, Baúna Projec� Despi�e �he in�errup�ion �o Con�inued high oil prices and largely produc�ion increased ma�erially �xed opera�ing cos�s enabled produc�ion, FY23 oil produc�ion �ollowing �he comple�ion o� �he increased 52% on FY22, �o 7.04 �hese inves�men�s and �he Neon Baúna in�erven�ion campaign million barrels (MMbbl). 7.06 MMbbl drilling �o be �unded �rom cash in la�e CY22 and �he Pa�ola �eld o� oil was sold over �he year, realising on hand and cash �low, wi�h no developmen� in March 2023. The an average oil price o� US$80.20/�ur�her drawdowns required �rom success�ul delivery o� �hese �wo bbl, which was sligh�ly lower �han �he Company’s US$210 million deb� projec�s, wi�h no major sa�e�y in FY22 due �o weaker oil demand in �acili�y. Karoon ended �he year wi�h inciden�s and wi�hin �he original early 2023 re�lec�ing slowing global US$74.8 million in cash and cash budge�s (despi�e �he prevailing economic grow�h. The increased equivalen�s and US$30 million o� in�la�ionary environmen�), sa�is�ed drawn deb�. produc�ion and sales volumes drove a key componen� o� our s�ra�egic sales revenue �o a record level o� plan �o ex�rac� maximum value US$566.5 million, 47% higher �han �rom Baúna by accelera�ing �he in FY22. recovery o� Baúna oil Reserves.• • • • During FY23, Baúna production increased materially �ollowing the completion o� the Baúna intervention campaign in late CY22 and the Patola feld development in March 2023. Bruce PhillipsJulian Fowles13This strong balance sheet position represents a good �nancial �oundation �or growth, as Karoon enters a period with more modest ongoing sustaining capital requirements and with good support �rom its �nancial partners.During FY23, Karoon �ocused on maximising efciency and �lexibility in capital management and �unding. This includes optimising access to operating earnings in Brazil, to ensure that capital can be readily redeployed across the Group to support potential growth investments and returns to shareholders.Given the signi�cant production outage �rom 29 March to 9 May and its impact on Karoon’s cash position at 30 June 2023, as well as the �act that Karoon has only recently achieved stabilised production rates �rom the interventions and Patola, the Board has decided not to pay a dividend in respect o� FY23. Capital management options will be closely monitored and reassessed over the next six months.which would involve the tieback o� the existing Baúna development to a new standalone Neon FPSO. Karoon continued to assess inorganic oil opportunities in o�shore Brazil The objectives o� Karoon’s phased and the US Gul� o� Mexico, with project maturation process, used several advancing to the detailed to assess potential new projects Following the completion o� the evaluation phase during FY23. such as Neon, are to ensure any Patola drilling, two control wells The Company believes that these development will maximise value were drilled on the Neon �eld two jurisdictions provide the best while minimising risk, with a located 65 kilometres northeast opportunity �or Karoon to leverage �ocus on de-risking projects prior o� Baúna. Results �rom both wells the experience and knowledge o� to spending material capital. were encouraging, and met all key its technical and commercial teams Subject to a potential Neon subsur�ace objectives.to add value �or shareholders. development exceeding internal Karoon remains highly disciplined technical and commercial hurdles The data gathered �rom these wells in assessing potential opportunities, at each assessment gate, Karoon’s was used to update Karoon’s estimate appyglin strict criteria to any preliminary timetable is targeting o� Contingent Resources while potential acquisition and with entry into the Concept Select phase �urther technical, engineering and any investment ranked against the in late �rst quarter o� CY24; entering commercial studies also commenced. return o� capital to shareholders.the De�ne phase, including Front These studies will assess the End Engineering and Design, in commercial �easibility o� the current early CY25; and a Final Investment potential development concepts. Decision in late CY25. The concepts include Neon being developed through subsea wells tied Progress on a potential Neon back to a standalone FPSO or tied development remains subject to back to the existing FPSO at Karoon’s strategic capital allocation, as well producing Baúna oil �eld. A third as supply chain and prevailing oil concept is also being considered, market conditions. CAPITAL MANAGEMENTADVANCING ORGANIC AND INORGANIC GROWTH OPPORTUNITIESEvaluation of M&A opportunities ongoingDe-risking the potential Neon development14GROWTH IN RESERVES AND RESOURCES Karoon booked increases in both Reserves and Contingent Resources in FY23 following a reassessment of the BM-S-40 license and the Neon field. In addition, Prospective Resources at Neon West were booked for the first time. (See Reserves and Resources on page 32 for full details and notes).Baúna and Patola Reserves increaseA better than expected performance from the existing producing wells and information from the Baúna well interventions and Patola drilling have been incorporated into Karoon’s Baúna reservoir modelling. After FY23 production of 7.0 MMbbl, 2P Reserves have increased 16%, to 51.8 MMbbl at 30 June 2023, compared to 44.8 MMbbl at 30 June 2022. Neon Contingent Resource increaseThe two control wells drilled at the Neon field have helped reduce subsurface uncertainty, resulting in improved definition of the Neon oil resource. The Neon 2C Contingent Resource estimate has increased by 9% to 60.1 MMbbl and the range of Resource estimates, from 1C to 3C, has narrowed. Karoon’s assessment has been reviewed and supported by independent expert, RISC. Maiden Neon West Prospective Resource bookedThe recent Neon 2 well has reduced the risk of the Neon West prospect that lies two kilometres west of Neon 2. Karoon has assessed that the 2U Prospective Resources are 14.8 MMbbl, with a geological chance of success estimated at 41%. PROGRESSING KAROON’S SUSTAINABILITY STRATEGYA key component of Karoon’s strategy is to ensure that its approach to managing Environmental, Social and Governance (ESG) factors mitigates risks and drives long-term success. Over FY23, Karoon continued to build its ESG team, adding senior internal capabilities to assess carbon sequestration opportunities and community commitments, as the ESG landscape continues to evolve.Health and safetySafe and reliable operations remain Karoon’s highest priority as the Company continues to focus on maintaining a safe and healthy work environment. During FY23, one lost time injury (an injury to a contractor’s finger requiring surgery) was recorded and the total recordable injury rate fell to 0.41 per 200,000 hours worked, down from 0.77 in FY22. The improved safety performance was achieved despite a significant increase in activity levels, with multiple complex operations ongoing in parallel. The trend is positive and reflects Karoon’s high expectations of its employees and contractors in maintaining safety and integrity in all operations. Nonetheless, Karoon believes all incidents are preventable and conducted investigations on each recordable incident, to establish lessons learned and to avoid recurrences.Climate changeAs an oil producer, Karoon recognises its responsibility to contribute towards the global energy transition and pathway to Net Zero. The Company remains committed to its short- and long-term targets to be Carbon Neutral from FY21 onward for the Baúna Project and Net Zero by 2035 for Scope 1 and 2 Greenhouse Gas (GHG) emissions. Karoon’s strategy to meet these targets is unchanged:• First, reduce emissions from existing operations, where possible. • Second, invest directly in high quality projects to offset and remove emissions.• For any remaining emissions, purchase carbon offsets. As in FY21, Karoon has acquired sufficient carbon offsets and emission reduction certificates to remain Carbon Neutral for Karoon’s FY22 Scope 1 and 2 carbon footprint. During FY23, a range of carbon sequestration projects in Brazil were assessed and a binding term sheet was signed to participate in a REDD+ project, to help Karoon achieve its carbon neutrality. The Company continues to seek carbon removals-based projects in which to participate.Scope 1 and 2 GHG emissions will increase over the next twelve months, due to higher production from Baúna. In line with its commitments, Karoon will seek to ensure it remains Carbon Neutral. More details of Karoon’s emission targets, including Karoon’s strategy to achieve Net Zero by 2035, are in the FY23 Sustainability Report on the Karoon website, www.karoonenergy.com.au. Community ProgramsDuring FY23, Karoon expanded its support to the communities in which it operates by committing to 22 new social projects. These projects were selected in line with the Company’s new Community Investment Guidelines. They include providing access to programs for vulnerable people, equipment in local hospitals treating cancer patients, education for young adults entering the music industry, and music and theatre education opportunities for children and young people.Karoon’s approach to investing in local communities is aligned with the UN Sustainable Development Goals 4, 8 and 17 which focus on education and employment. Contribution to Brazilian and Australian economiesKaroon’s strong financial performance in FY23 resulted in a substantial increase in the Company’s contribution to the Brazilian and Australian economies. In Brazil, R$671.5 million (US$130.9 million) was paid via royalties, levies and taxes, with R$47.6 million (US$9.2 million) paid in wages and R$10.0 million (US$1.9 million) committed to social and community projects. In addition, in Australia, Karoon paid approximately US$8.5 million in employee benefits and taxes.LETTER FROM OUR CHAIR & CEO/MD CONTINUED2P Reserves increased 16% (at 30 June 2023)51.8 MMbblNeon 2C Contingent Resources increased 9% (at 30 June 2023)60.1 MMbbl15CybersecurityThe Karoon Board has decided to change the Company’s �nancial year end �rom 30 June to 31 December. This aligns Karoon’s �nancial year with Brazil’s tax year, which will ease considerably the current administrative burden o� preparing �ull accounts twice each year. In addition, it will �acilitate comparisons with other Australian and global oil and gas industry peers, the majority o� which have a December year end.A�er completing the current 12-month �nancial year on 30 June 2023, Karoon’s next �nancial year will be a six-month Transitional Financial on several other late li�e oil and gas Year (TY) beginning on 1 July 2023 �elds onshore and o�shore Brazil, The growing prevalence o� cyberand ending on 31 December 2023. designed to encourage investment threats and data breaches globally Therea�er, the Company’s �nancial in mature oil assets. has emphasised the importance year will commence on 1 January o� having robust cybersecurity to and end on 31 December. The royalty reduction was partially sa�eguard sensitive in�ormation o�set by Special Participation and and maintain trust with stakeholders. Research and Development levies, During FY23, Karoon appointed a which become applicable once senior Cyber Security and IT Manager, We would like to take this opportunity production exceeds speci�ed hurdles. to strengthen our capability, to thank our �ellow Board members These levies are part o� the well-conducted regular cybersecurity risk �or their wise counsel and support, established �scal regime that exists assessments and modernised its as well as our dedicated management in Brazil �or the oil and gas sector. security control �oundation, aligned and sta� in Australia and Brazil �or to the National Institute o� Standards their contributions over the year. The Company’s FY23 results were (NIST) Cybersecurity Framework, also impacted by a Temporary Export We would also like to thank everyone to sa�eguard Karoon’s digital assets. Tax, introduced in late February involved in the Baúna intervention No cybersecurity breaches were 2023 by the new Government to and Neon control well drilling experienced over the year.help meet the country’s �scal targets. programs, including the technical The export tax, which applied �rom and operational teams on the Noble 1 March 2023 to 30 June 2023, Developer rig, and the pipelaying resulted in an additional pre-tax cost and other support vessels, �or o� US$14.6 million �or Karoon. We delivering these important In November 2022, a new welcome the Government’s decision programs sa�ely and efciently.Government was elected in Brazil, to end this extra tax burden on the led by President Luiz Inácio Lula upstream oil industry in line with the Finally, we would like to thank you, da Silva. To date, the Government timetable indicated when it was �rst our shareholders, �or your continued has remained supportive o� the announced. loyalty and support o� our business oil and gas industry, including model and its strategic objectives.industry’s plans to increase Brazil’s Karoon has enjoyed a constructive oil production �rom approximately relationship with successive 3 million bopd to 5 million bopd governments and independent by 2027. regulatory bodies in Brazil �or over a decade. These entities have Notably �or Karoon, in October 2022, success�ully achieved the balance the Brazilian National Agency �or o� acting, �rst and �oremost, in the ChairmanPetroleum, Natural Gas and Bio�uels best interests o� the Brazilian people, (ANP) reduced the royalty rate but also recognising the need �or appygto icremental production lin nbusinesses, including Karoon, to �rom the Baúna, Piracaba and operate in a stable environment.Patola �elds resulting �rom the Baúna interventions and the Patola CEO and MDdevelopment. This reduction is in line with similar royalty concessions CHANGE IN FINANCIAL YEAR ENDTHANKS SUPPORTIVE BRAZILIAN GOVERNMENT Bruce PhillipsJulian Fowles16FINANCIAL OVERVIEWDELIVERING FINANCIAL STABILITYKaroon’s FY23 financial results reflected higher production from the Baúna interventions and Patola development, which offset weaker oil prices and drove revenue to a record high. Together with good cost control, this allowed Karoon to generate an underlying net profit after tax (NPAT) of US$145.9 million, up 70% from FY22. On a statutory basis, the Company reported a NPAT of US$163.0 million, compared to a statutory net loss after tax of US$64.4 million. Pleasingly, operating cash flow and existing cash on hand was sufficient to fund the Baúna intervention and Patola development, as well as the two control wells at Neon and the first contingent payment to Petrobras.CRUDE LIFTINGSThe number of oil cargoes lifted from the Baúna Project increased from nine (4.54 MMbbl) in FY22 to 15 (including one part-cargo) in FY23, totalling 7.06 MMbbl. The higher oil output reflected the Baúna intervention campaign, completed in late CY22, and the Patola development, which came online in March 2023, offset by a six-week unplanned shutdown in the second half of the year. The Company realised a weighted average oil price, net of selling expenses, of US$80.20/bbl in FY23, compared to US$84.74/bbl in FY22, due to weaker global oil demand reflecting slowing global economic growth. Nonetheless, demand for Karoon’s light sweet crude remained strong, with cargoes sold to various refineries in North and South America, Europe and Asia. PROFITABILITYIncreased crude oil liftings drove revenues up by 47%, to US$566.5 million. As a large proportion of Karoon’s production costs are fixed, FY23 unit production costs (comprising operating costs plus the FPSO charter lease costs) were 38% lower than in FY22, at US$15.75/bbl (FY22: US$25.36/bbl). Underlying EBITDA for the year increased to US$321.8 million (FY22: US$205.2 million), and underlying NPAT for the financial year was US$145.9 million (FY22: US$85.6 million). The Company reported a statutory net profit after tax of US$163.0 million (FY22: statutory net loss after tax US$64.4 million). See FY23 Financial Summary on page 42 for full details. CASH FLOWSOver FY23, operating activities generated net cash inflows of US$305.9 million (FY22: US$154.2 million). Significant operating cash payments for the year included the following:• Payments to suppliers and employees, including production costs and government take, of US$135.2 million (FY22: US$116.5 million). • Income tax of US$78.8 million (FY22: US$39.4 million). • Payments for cash flow hedges of US$13.4 million (FY22: US$20.8 million). • Finance-related interest and other costs, predominantly relating to finance charges on the FPSO lease, of US$19.8 million (FY22: US$18.9 million).Cash outflows from investing activities in FY23 were US$356.2 million (FY22: 113.0 million), largely due to: • Capital expenditure relating to the Baúna intervention campaign, Patola development and ongoing field maintenance of US$222.5 million (FY22: US$59.6 million). • Neon control well drilling of US$43.1 million.• The first contingent payment to Petrobras under the Baúna Sale and Purchase Agreement of US$84.5 million (FY22: nil). Cash flow from operations in FY23 was sufficient to fund the extensive capital expenditure program and pay the first contingent payment to Petrobras. FINANCIAL POSITIONKaroon’s total liquidity as at 30 June 2023 was US$254.8 million, comprising US$74.8 million in cash and cash equivalents and US$180 million in undrawn available debt. Karoon’s current debt facility remains unchanged from 30 June 2022 at US$210 million. To support the loan facilities, the Company has oil hedges covering 30-40% of production in place over the first two years of the loan life. The hedging program is designed to protect operating cashflows against the risk of lower oil prices, allowing for debt repayments, while retaining upside price exposure on the unhedged volumes. Given Karoon’s low level of drawn debt and modest debt service requirements, the minimum hedge volume obligation under the debt facility was temporarily waived in the March and June quarters of CY23. Karoon is currently in discussions with existing and potential new lenders regarding refinancing the existing debt facility, to support Karoon’s organic and inorganic growth strategy.Refer to the Directors’ Report on page 42 for further discussion of the results, cash flows and changes to the Group’s financial position.17Sales volumes (MMbbl)8642FY21FY22FY230Unit production costs(US$/bbl)30252015510FY21FY22FY230Weighted average net realised oil price (US$/bbl)10080604020FY21FY22FY230Sales revenue(US$m)600500400300200100FY21FY22FY230Capital expenditure(US$m)30025020015050100FY21FY22FY2301601208040Net cash and cash equivalents(US$m)FY21FY22FY2307.180.2566.5385.1170.884.759.04.52.925.1024.797.0238.4Underlying net profit after tax1(US$m)1601208040FY21FY22FY23021.485.6145.9133.2127.744.825.3615.75Underlying EBITDA1(US$m)400300200100FY21FY22FY23061.1205.2321.8Operating cashflows(US$m)35030025020015010050FY21FY22FY23029.8154.2305.91. Underlying EBITDA (earnings before interest, tax, depreciation, depletion, and amortisation) and underlying net profit after tax are non-IFRS measures that are unaudited but are derived from figures within the audited financial statements.18PRODUCTION ANDDEVELOPMENT DELIVERING PRODUCTION GROWTHPRODUCTION AND SALESThe Baúna and Patola well gas �lare system. While the leak was campaigns were delivered within rapidly isolated and repaired, Karoon, the original budgets, on schedule together with the FPSO operator, During FY23, Karoon success�ully and without any material sa�ety A&O, decided to undertake a more completed interventions in three or environmental incidents.comprehensive inspection o� the Baúna wells and developed the FPSO’s hydrocarbon processing The average production �acility Patola �eld as a subsea tieback. system pipework. A total o� 783 uptime was 97% over the �rst nine These activities lifed oil production pipes and valves were inspected months o� FY23 (excluding eight through the FPSO, Cidade de Itajaí, and more than 120 parts repaired days o� scheduled maintenance), �rom approximately 13,000 bopd or replaced during the 42 day at the beginning o� FY23 to a peak prior to the unscheduled shutdown shutdown. The ANP (Brazilian in late March 2023. This strong o� more than 40,000 bopd, be�ore Petroleum Agency) was noti�ed o� stabilising at 33,000 per�ormance was in part enabled by – 35,000 bopd the gas leak, kept �ully in�ormed several activities undertaken during by year end. throughout the inspection and repair FY22 to improve �acility reliability.campaign, and supported the restart Despite a six-week shut-in o� the o� production on 9 May 2023. production �acility �ollowing a leak in the gas �lare system shortly afer Production on the FPSO, Cidade de the Patola �eld came onstream, Itajaí, was shut down on 28 March the well interventions and Patola 2023, afer a hydrocarbon leak �rom development resulted in a 51% pipework located within the FPSO’s increase in Baúna Project production, �rom 4.64 MMbbl in FY22 to 7.04 MMbbl. FY23 oil production �rom the Baúna, Piracaba and Patola �elds in the BM-S-40 license (collectively known as the Baúna Project), located approximately 220 kilometres o�shore Brazil in the southern Santos Basin, was 7.04 MMbbl. The production increase re�lected the success�ul completion o� two major work programs – the three well Baúna intervention campaign and the development o� the Patola �eld. Both the interventions and the Patola development delivered incremental production above expectations, resulting in a peak rate o� more than 40,000 bopd, be�ore output through the FPSO stabilised at 33,000 – 35,000 bopd by year end. This stabilised rate compares to the preliminary �orecast o� approximately 30,000bopd. Unplanned production shutdownFY23 production performance50,00045,00040,00035,00030,00025,00020,00015,00010,0005,0000Aug 22Oct 22Dec 22Feb 23Apr 23Jun 23Baúna Facility Oil Production (bopd)19During �his period, Karoon and A&O �ook �he oppor�uni�y �o comple�e several o�her work scopes �ha� were previously scheduled �or a main�enance shu�down in July 2023. Wi�h �he FPSO now producing a� signi�can�ly higher ra�es �han in �he recen� pas� and close �o capaci�y, �he recen� unplanned shu�down has highligh�ed some areas o� in�egri�y, �ha� require �ur�her work �o suppor� �he �acili�y’s con�inued long �erm reliable per�ormance. Karoon plans �o under�ake addi�ional inspec�ions and main�enance work, ahead o� �he nex� planned main�enance shu�down scheduled �or March 2024.Karoon is commited �o main�aining a sa�e working environmen� �or i�s s�af and con�rac�ors, as well as minimising dischargesandenvironmen�al impac�s, and �ully mee�ing all regula�ory requiremen�s and commi�men�s a� each o� i�s onshore and ofshore opera�ional si�es. During FY23, personal sa�e�y per�ormance improved and �here were no ma�erial environmen�al inciden�s. In �erms o� process sa�e�y, �he leak �rom �he FPSO gas �lare sys�em in March 2023 was classi�ed as a Tier 3 even� (‘Challenges �o Sa�e�y Sys�ems’). The inciden� was �he subjec� o� a de�ailed and �horough inves�iga�ion, and a number o� improvemen� Recordable Injury Ra�e (TRIR) was oppor�uni�ies are being considered.0.41 per 200,000 hours, compared During FY23, �he �o�al number o� �o 0.77 per 200,000 hours in FY22. Los� Time Injuries reduced �rom �our While �he lower number o� inciden�s �o one, comprising an injury �o a is pleasing, Karoon believes all con�rac�or’s �nger, which required inciden�s are preven�able and each surgery. There was a �o�al o� �our inciden� underwen� a �horough recordable injuries during �he year, inves�iga�ion process �o avoid �he same as in FY22. The FY23 To�al any recurrence.Safety and environmental performance SAFETY AND ENVIRONMENTAL PERFORMANCEFY21FY22FY231211,947,0000.4102Los� Time Injuries14Medical Trea�men� Cases10Res�ric�ed Work Cases00Work Exposure Hours625,9281,027,000To�al Recordable Injury Ra�e 0.640.77(per 200,000 hours)High Po�en�ial Inciden�s12Tier 1 or 2 Process Sa�e�y Even�sNA0Repor�able Environmen�al Inciden�s20120FY23 oil salesBaúna intervention campaignThe production uplif �rom the three interventions was above expectations, adding initially more than 11,000 bopd to production, compared to the target o� 5,000 – 10,000 bopd. In light o� the strong results achieved �rom the �rst three 15 oil cargoes were lifed �rom Baúna interventions, Karoon de�erred the over FY23, totalling 7.06 MMbbl. Net planned re-opening o� a previously Karoon completed the Baúna well o� selling expenses, the average producing oil zone in BAN-1 intervention campaign, utilising the realised oil price was US$80.20/bbl, (expected to contribute 200-400 Noble Developer rig (�ormerly known compared to US$84.74/bbl in FY22, bopd), to optimise rig utilisation by as the Maersk Developer), re�lecting weaker oil demand due to accelerating the Patola development in the �rst hal� o� FY23. The slowing global economic growth.drilling.campaign consisted o�:The cargoes, marketed by Shell While the intervention campaign Western Supply and Trading Limited The installation o� new electric took only 4-5 months to execute, submersible pumps in the PRA-2 (a member o� the Royal Dutch Shell it involved comprehensive planning Plc group), were sold to a range o� and SPS-92 wells. by the Karoon teams in Australia customers in South America, North The installation o� gas lif and Brazil over an 18-month period.America, Europe and Asia.equipment in SPS-56. DEVELOPMENT• • PRODUCTION AND DEVELOPMENT CONTINUEDFY23 OIL SEPTEMBER DECEMBER MARCH JUNE PRODUCTION QUARTER QUARTER QUARTER QUARTER AND SALES DATA2022202220232023FY237.04157.0680.20Production MMbbl1.292.081.981.68Number o� cargoes#3444Sales volumesMMbbl1.461.951.981.68Weighted average US$/bbl96.0281.7472.9373.10realised oil priceNote: Numbers may not add due to rounding.The cargoes, marketed by Shell Western Suppyl 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. Map areaRio de JaneiroSão PauloItajaíShorebaseFlorianópolisSANTOS BASIN125 kmBRAZILLEGENDProduction wellInjection wellTemp. abandoned oil producerTemp. abandoned oil discoveryFPSOFlowlinesProducing oil fieldKaroon blockBM-S-40PiracabaBaúnaPatolaPRA-1SPS-57SPS-93SPS-92PRA-2PRA-3PAT-1PAT-2SPS-56SPS-91BAN-1SPS-87DSPS-88SPS-892 kmGoiáNeonBaúnaClorita21Patola developmentin January 2023. This was �ollowed by laying subsea �lowlines and The Pa�ola �eld is loca�ed wi�hin umbilicals connec�ing �he wells �he BM-S-40 license, adjacen� �o �he �o �he FPSO and comple�ing well Baúna and Piracaba �elds. The Pa�ola and in�ras�ruc�ure commissioning developmen� comprised drilling �wo ac�ivi�ies. Firs� oil was achieved �rom subsea produc�ion wells, ins�alling �he PAT-2 well on 15 March 2023 and subsea in�ras�ruc�ure and �ying back �rom PAT-1 on 27 March 2023. �he wells �o exis�ing spare riser slo�s on �he Baúna FPSO. Ini�ial produc�ion ra�es were more �han 12,000 bopd �rom each well, The Noble Developer rig commenced compared �o expec�a�ions o� drilling �he Pa�ola wells in November a combined produc�ion ra�e o� 2022, �ollowing �he comple�ion approxima�ely 10,000 bpod. Due �o o� �he Baúna in�erven�ions. Bo�h �he FPSO shu�-down shor�ly afer �he wells encoun�ered beter �han second well came ons�ream, bo�h expec�ed reservoir proper�ies and PAT-1 and PAT-2 were shu� in in la�e demons�ra�ed excellen� produc�ivi�y March, prior �o being brough� back �rom ini�ial produc�ion da�a. online success�ully in May 2023. Wellheads and Chris�mas �rees on �he �wo Pa�ola wells were ins�alled OUTLOOKPlanned activities over the next twelve months include the �ollowing:Undertake work related to asset integrity, operational efciency and emissions reduction, with the objective o� increasing operational per�ormance, reliability, sa�ety, sustainability and overall integrity o� the FPSO operations.Increase produced water treatment capacity.Explore opportunities to extend the Baúna �eld li�e �rom 2032 to 2038 and commercialise the Baúna Contingent Resources. 22GROWTH OPPORTUNITIESDELIVERING GROWTH OPTIONALITYEXPLORATION AND EVALUATION ACTIVITIES 60 kilometres north-east o� Baúna, and 2C Contingent Resources, was success�ully completed using to 37.7 MMbbl and 60.1 MMbbl, the Noble Developer rig. respectively. 3C Contingent During FY23, Karoon continued Resources estimates reduced 3% The control well campaign was to investigate potential value-to 89.5 MMbbl designed to address key subsur�ace accretive organic and inorganic uncertainties, to enable an updated growth opportunities to build . resources assessment, and help scale and relevance. mature a value-optimised Following the success�ul two development plan �or the Neon feld. well Neon drilling campaign, a Neon-1 (9-NEO-1-SPS) is located reassessment o� the 100% owned 2.1 kilometres south o� the Neon Neon feld resulted in increases oil feld discovery well, Echidna-1. in the 1C and 2C Contingent This position was selected to test Resource estimates. The improved reservoir and �luid properties, and resource defnition will �acilitate reduce the range o� uncertainty on a �ull technical and commercial the oil-water contact, in a down-dip �easibility study o� potential Neon location on the southern �lank o� the development concepts. Prospective feld. The well confrmed 39 degree resources were also booked �or API oil and an oil:water contact the nearby undrilled Neon West consistent with seismic predictions prospect, highlighting the potential �or that area o� the feld. o� the Neon area. Neon-2 (9-NEO-2D-SPS) is positioned A signifcant number o� inorganic The improved Contingent Resource 1.2 kilometres north o� Echidna-1 growth options, primarily oil assets defnition �or the Neon feld will and was designed to test reservoir in Brazil and the US, were screened �eed into technical and commercial continuity and quality in an area during FY23, with several high-graded �easibility studies �or a potential o� the feld known to be impacted opportunities progressing to detailed Neon development, which are by �aulting. The well confrmed evaluation stage. currently underway. This work will thickened reservoir sections and be progressed and refned as the 33 degree API oil in that location. dataset is augmented by results Reservoir pressure measurements �rom ongoing laboratory and seismic in the Paleocene primary targets o� reprocessing study programs. both Neon 1 and Neon 2 were similar.Updates to subsur�ace geotechnical Drilling operations were completed evaluations will be incorporated sa�ely and within budget during into the engineering and commercial the frst quarter o� CY23 and met study workstreams as they become all key subsur�ace objectives. available. Concepts being evaluated In FY23, �ollowing extensive include a standalone development An updated Contingent Resource planning by Karoon’s technical utilising a redeployed FPSO, a tie-assessment �or Neon was back connection �rom Neon to the and operational teams, atwo well subsequently completed, resulting FPSO at Baúna, and a Neon hub-style control drilling campaign on the in a 26% and 9% increase in 1C development which would involve Neon discovery in block S-M-1037, the tieback o� the existing Baúna development, Neon and other potential nearby accumulations to an FPSO at Neon.BrazilSantos Basin, Blocks S-M-1037, S-M-1101, 100% Equyit Interest, Operator(see Reserves and Resources on page 32 for full details and notes)Following the success�ul two well Neon drilling campaign, a reassessment o� the 100% owned Neon feld resulted in increases in the 1C and 2C Contingent Resource estimates.23I� the results o� these studies are encouraging, entry to the Concept Select phase is targeted �or late frst quarter o� CY24, sujbect to strategic capital allocation, and the prevailing suppyl chain and oil market conditions. Under the Company’s provisional Neon timetable, the next milestones would be a decision to enter the Defne stage, which would include undertaking FEED activities, which couldpotentially be made in early CY25, and a Final Investment Decision in late CY25. These decisions are dependent on the potential Neon development achieving Karoon’s internal hurdles at each decision gate.In addition to progressing the Neon �oundation development opportunity, work took place on maturing the Neon West prospect, located two kilometres west o� the Neon feld. The Neon West prospect is structurally and stratigraphically analogous to Neon and exhibits direct hydrocarbon indicators on seismic. As a result o� the work on Neon West, Karoon booked 14.8 MMbbl o� 2U Prospective Resources �or the prospect Seismic reprocessing studies, due region. These opportunities will be to be completed over the next twelve evaluated to assess the �ull resource months, will be key to de-risking Neon potential o� the area and �easibility West. Together with the nearby Goiá o� a Neon hub-style development feld and other nearby opportunities, plan, which could bring signifcant there is potential �or signifcant additional production to Karoon.incremental resources in the Neon (see Reserves and Resources on page 32 for full details and notes). 9% Increase in Neon 2C Contingent Resources2U Prospective Resources booked �or Neon West prospect60.1 MMbbl14.8 MMbbl24Santos Basin, Block S-M-1537, 100% Equity Interest,Operator Other activities in BrazilWA-315-P and WA-398-P contingent payments Geological and geophysical s�udies con�inued over �he year on �he S-M-1537 block, loca�ed 50 kilome�res sou�h o� Baúna. Ac�ivi�ies were �ocused on de-risking �he Clori�a Prospec�, which is �arge�ing �he same high-quali�y Oligocene �urbidi�e reservoirs seen in �he Baúna feld �o �he nor�h. To da�e, no ma�erial drillable leads or prospec�s have been iden�ifed wi�hin �he block.Over �he year, Karoon con�inued �o moni�or and evalua�e acreage acquisi�ion oppor�uni�ies po�en�ially available �hrough Brazilian regula�ory release cycles. All po�en�ial new acreage acquisi�ions are screened agains� s�ric� cri�eria and �es�s.A� �he end o� FY23, ou�s�anding de�erred miles�one paymen�s rela�ing �o Karoon’s sale o� a 40% in�eres� in permi�s WA-315-P and WA-398-P in �he Browse Basin, including �he Poseidon gas discovery, �o Origin Energy Browse P�y L�d in June 2014, remained on �oo�. These con�ingen� paymen�s comprise US$75 million due a� FID, US$75 million due a� frs� produc�ion and a resource s�ep-up paymen� o� up �o US$50 million payable on frs� produc�ion.Karoon’s New Ven�ures �eam con�inued �o seek high-quali�y, inorganic grow�h oppor�uni�ies during FY23. A large number o� asse�s were screened, which led �o several being evalua�ed in de�ail. The Company is �arge�ing value-accre�ive asse�s �ha� can add scale, as well as asse� and geographical diversifca�ion. Any acquisi�ion oppor�uni�y is assessed rela�ive �o �he value o� re�urning capi�al �o shareholders. Karoon is commited �o being highly disciplined and rigorous in i�s evalua�ion process.AustraliaNew Ventures activityGROWTH OPPORTUNITIES CONTINUED25Karoon’s key asset selection priorities The Company’s geographical are as �ollows:�ocus areas are ofshore Brazil and in the US Gul� o� Mexico, which are Producing or close to production, in a similar time zone and where providing immediate cash �low.Karoon’s technical and commercial staf have considerable experience Existing expansion and/or and knowledge.near-�eld exploration opportunities, supporting potential production upside. Competitive cost structure and low break-even.Fundable. In a jurisdiction with a stable governance and regulatory �ramework.Ability to leverage existing capabilities.Can be accommodated within Karoon’s carbon management objectives. • • • • • • • Planned activities over the next twelve months include the �ollowing:Continued maturation o� the Neon �eld and the integration o� additional well data into the technical and commercial �easibility studies.Evaluation o� whether to enter the next stage o� the Neon project maturation process, Concept Select, with a decision aimed �or late �rst quarter o� CY24, in the event o� a positive outcome o� current studies.Evaluation o� strategic merger and acquisition opportunities.Assessment o� organic growth opportunities presented by the regular bid rounds and Permanent Ofer processes in Brazil.OUTLOOKKaroon is targeting value-Neon accretive assets that can add scale as well as asset and geographical diversi�cation.26SUSTAINABILITYDELIVERING SUSTAINABLE OPERATIONSHEALTH AND SAFETY COMMITMENT TO SUSTAINABILITYDuring �he year Karoon also con�inued �o improve i�s sus�ainabili�y repor�ing. The Sus�ainabili�y Repor� con�ains �he Sus�ainabili�y is a core elemen� 2023 TCFD-aligned Clima�e Repor� o� Karoon’s business s�ra�egy and and re�erences �he Global Repor�ing underpins �he Company’s vision �o Ini�ia�ive (GRI) S�andards index �o deliver energy �hrough sa�e, reliable, enhance repor�ing �ransparency.and responsible opera�ions. Karoon’s fve core pillars o� sus�ainabili�y are:Heal�h, Sa�e�y and Securi�yClima�ePeople and Cul�ureRecognising �he challenges posed Communi�yby �he increasing prevalence o� cyber securi�y �hrea�s in �oday’s Karoon’s success is buil� on �he Environmen�digi�al age, Karoon has implemen�ed �ounda�ion o� a s�rong ‘sa�e�y frs�’ Execu�ive remunera�ion is linked �o changes �o bo�h �he governance cul�ure. The Company’s sa�e�y specifc ou�comes wi�hin �he sa�e�y and oversigh� o� i�s cyber securi�y me�rics improved in FY23, despi�e and clima�e pillars, which re�lec� risk and s�reng�hened i�s da�a �he signifcan� increase in �he �he Company’s core ESG priori�ies managemen� �ramework. During complexi�y o� work under�aken FY23, Karoon employed a dedica�ed and �he number o� hours worked in . Cyber Securi�y and IT Manager, Karoon’s opera�ions �or �he Baúna conduc�ed cybersecuri�y risk in�erven�ions, Pa�ola developmen� assessmen�s and modernised i�s and Neon con�rol wells. Only one securi�y con�rol �ounda�ion, aligned Los� Time Injury was repor�ed during �o �he Na�ional Ins�i�u�e o� S�andards FY23 compared �o �our in FY22. (NIST) Cybersecuri�y Framework. During FY23, Karoon demons�ra�ed No cybersecuri�y breaches were i�s commi�men� �o sus�ainabili�y . experienced over �he year. �hrough: Making progress on i�s Carbon Managemen� Ac�ion Plan.Con�inuing �o embed a ‘sa�e�y frs�’ cul�ure.Inves�ing in addi�ional social projec�s in Brazil. Building a sus�ainabili�y �eam in Brazil and Aus�ralia.Rein�orcing �he role o� �he Board and i�s Sus�ainabili�y and Opera�ional Risk Commitee in overseeing sus�ainabili�y risks and oppor�uni�ies �hrough a review o� �he Board and Commitee char�ers.(0.77 in FY22)(0.77 in FY22)• • • • • • • • • • Full details under each o� the fve pillars, including Karoon’s governance �ramework and approach to risk management, can be �ound in the 2023 Sustainability Report. (re�er to Remuneration Report on page 47)For �urther details, re�er to the Production and Development section on page 19Re�er to Karoon’s Sustainability Report �or more detail regarding Karoon’s cybersecurity strategy. Cybersecurity SafetyLTIR 0.10TRIR 0.41*** Per 200,000 work hours.27CLIMATECLIMATE STRATEGY As an oil producer, Karoon recognises �he challenge o� helpgpin rovide energy securi�y while con�ribu�ing �owards a global decarbonisa�ion pa�hway. The Company is commited �o remaining Carbon Neu�ral on Scope 1 and 2 emissions �rom �he Baúna Projec� and is �arge�ing Ne� Zero on Scope 1 and 2 emissions by 2035.Karoon comple�ed a review o� i�s Clima�e S�ra�egy during FY23, engaging an in�erna�ional consul�an� Karoon is commited �o �ransparen� �o advise on Karoon’s clima�e �arge�s repor�ing and s�rives �o con�inue and Carbon Managemen� Ac�ion �o improve i�s alignmen� �o key Plan. The review suppor�ed Karoon’s repor�ing �rameworks, especially curren� approach and con�rmed �ha� TCFD. Several improvemen�s have Karoon’s �arge�s re�lec� a s�rong and been made in �he 2023 Clima�e ambi�ious commi�men� �o mi�iga�ing Repor� (included in �he Sus�ainabili�y clima�e risks �or a company o� Repor�), including �he use o� NGFS Karoon’s size.scenario da�a and �he REMIND-Karoon’s Carbon Managemen� Ac�ionMAgPIE model in Karoon’s TCFD Plan priori�ises reducing oravoiding scenario analysis, �he use o� loca�ion-speci�c (I�ajaí, home o� Karoon’s emissions where viable. Given �he shorebase) physical clima�e risk limi�a�ions o� Karoon’s exis�ing in�orma�ion in assessing risk and �acili�ies, �he inclusion o� ofseting oppor�uni�ies and �he disclosure in Karoon’s s�ra�egy is curren�ly o� Karoon’s in�ernal carbon price.necessary. The Company recognises �he impor�ance o� ensuring ofse�s While �he 2023 Sus�ainabili�y Repor� are o� a high quali�y and is �here�ore seeks �o align �o bo�h �he TCFD and commited �o inves�ing in carbon �he Global Repor�ing Ini�ia�ive (GRI) seques�ra�ion projec�s where possible s�andards, �he Company plans �o and only purchasing addi�ional ofse�s review i�s sus�ainabili�y repor�ing as required. Karoon has a pre�erence �ramework �o ensure compliance �o use removals-based ofse�s wi�h �u�ure manda�ory repor�ing as �hey become available. From requiremen�s. This will include 2035 onwards, Karoon is aiming working �oward �ull alignmen� �o �o inves� in, and where necessary �he In�erna�ional Sus�ainabili�y purchase addi�ional, removals- S�andards Board (ISSB) s�andards based ofse�s only.S1 and S2 �ha� were released in June 2023. ().Climate StrategyStrategy ReviewCarbon Management Action PlanImprovements to climate reportingRefer to Karoon’s Sustainability ReportAvoid and reduceAssess investments in high quality ofsetsPurchase additional i� neededInternal carbon pricingFirst priority is to avoid or reduce emissions within existing operationsAssessing investment in high quality projects to ofset residual emissionsUntil generating own ofsets, will purchase only high quality carbon ofsetsInternal carbon pricing incorporated into �uture investment decisionsCarbon Neutral FY23Scope 1 & 2 GHG EmissionsNet Zero 2035Scope 1 & 2 GHG EmissionsCarbon Neutral on Internal carbon pricing Baúna Project expected to new assets within �ve �or new investment remain Carbon Neutralyears o� purchasedecisions2825,0004020,0003215,0002410,000165,000800Jul 20Jan 21Jul 21Jan 22Jul 22Jan 23Jun 23Scope 1 & 2 emissions (tCO�e)Emission intensity (kgCO�e/bbl)l)bb/e�Ogk ()e�OCt (snsismE Citysnetn iniossimEioFY23 Scope 1 & 2 emissions and intensitySUSTAINABILITY CONTINUEDKaroon’s climate related per�ormanceAvoid and reduceBaúna-Patola emissions �ully ofsetScope 149,52582,805In FY23, Karoon’s Scope 1 and 2 emissions were 142,074 tCOe. This Scope 214365is signi�cantly higher than in FY22 due to materially higher activity levels �rom the Baúna intervention Scope 3*N/A2,055,229program, Patola development and Neon control well drilling, using the Emissions intensity 15.817.9Noble Developer rig. The majority o� Scope 1 & 2 (kgCOe per bbl)Scope 3 emissions related to the oil Karoon produces and sells lies within Category 11 – Use o� Sold Products, which accounts �or approximately 93% o� Karoon’s Scope 3 emissions and 89% o� Karoon’s total Scope 1, 2 and 3 emissions. The Scope 1 and 2 emissions intensity o� Karoon’s operations also increased relative to previous years due to the additional activities. However, on completion o� these activities the emissions intensity o� Karoon’s operations decreased and was less than 10 kg COe/bbl in June 2023. Karoon will continue to look �or opportunities to reduce emissions in its operations �or any asset in its port�olio. While production remains high, the intensity is anticipated to be relatively low, but as production declines the emissions intensity will increase. Karoon avoided 2,864 tCOe o� Scope 1 emissions during FY23 �rom the installation o� a mooring buoy in FY22, reducing 1,054,000 litres o� diesel consumption. In addition, a project to optimise vessel scheduling resulted in a 2,429 tCOe reduction in Scope 1 emissions, the majority o� which were achieved during the Noble Developer rig campaign.The Company has commenced a study to identi�y additional opportunities to improve operational efciencies. In FY23, Karoon acquired 93,000 veri�ed emission reduction (VER) units �rom Shell Western Supply and Trading (Shell) under a long term The rest o� Karoon’s FY23 emissions equity directly in a REDD+ project. agreement. The VERs �ully o�set will be o�set during FY24.Karoon expects the project will Karoon’s Scope 1 emissions �rom �acilitate exclusive access to the FY22, with the remainder to be Karoon is working closely with veri�ed carbon units (VCUs or used to partially o�set Scope 1 several large nature-based solutions ‘carbon credits’) generated by the emissions �rom FY23. project developers in Brazil and has project, located in the Amazon region executed a term sheet to acquire in Brazil, �or up to 10 years. 22222tCOeFY21FY22FY23142,025493,102,33120.22* Scope 3 includes total Scope3 emissions i.e. both material and non-mat erial emissions.REDD+ Tambopata Project in the Tambopata-Bahuaja Biodiversity Reserve, Peru29PEOPLE AND CULTUREEvery�hing Karoon does is guided by i�s values o�Sa�e�y, In�egri�y, Collabora�ion, Commi�men� and Respec�. Karoon believes �ha�, �o succeed, i� is cri�ical �ha� �he Company has �he righ� capabili�ies �o opera�e sa�ely, reliably, and responsibly. Karoon developed a comprehensive People Capabili�y and Cul�ure Plan during FY23 as �he Company looks �or oppor�uni�ies �o improve collabora�ion and �eam per�ormance �o achieve Karoon’s shared ambi�ions.Karoon believes a diverse work�orce, and �he diversi�y o� �hough� �hey bring, enables grea�er innova�ion and collabora�ion, and beter business ou�comes. A� 30 June 2023, Karoon had 109 permanen� employees, o� which 41% were women, exceeding �he �arge� o� 30%. A� year-end, 11% o� Senior Leaders were women (previously 17%), while �he par�icipa�ion ra�e o� women on �he Board was 14% �ollowing �he addi�ion o� a male Non-Execu�ive Direc�or in Augus� 2022. Karoon’s gender �arge�s o� 30% �emale par�icipa�ion a� Board and Senior Leadership levels remain an area o� �ocus.in accordance wi�h i�s obliga�ions Board171730under �he (C�h). Modern slavery ques�ionnaires were dis�ribu�ed Senior Leaders261730�o new suppliers mee�ing �he engagemen� �hreshold during FY23. Group wide504630A digi�al pla��orm was developed in FY23 �o improve how modern slavery risks are assessed, which enabled �ur�her veri�ca�ion o� Modern Slavery ques�ionnaire responses. Karoon mo�iva�e and encourage s�af �o is curren�ly also working wi�h i�s con�inue developing �heir �alen�s suppliers �o improve how modern Karoon is commited �o being an and exper�ise. In addi�ion,�he slavery risks are iden�i�ed in i�s employer o� choice. The Company Company main�ains an Employee suppyl chain. Karoon’s FY23 Modern s�rives �o crea�e an inclusive Assis�ance Program (EAP), ensuring Slavery S�a�emen� will be submited workplace �ha� can atrac� and �ha� Karoon’s employees and �heir in December 2023.re�ain �alen�ed s�af wi�h diferen� �amilies are suppor�ed wi�h services backgrounds, skills and experience. All suppliers and employees have ranging �rom men�al heal�h �o During FY23, Karoonconduc�ed access �o grievance mechanisms �nancial advice.a s�af engagemen� survey and �hrough a Whis�leblower repor�ing worked wi�h employees across service �ha� �acili�a�es bo�h named Aus�ralia and Brazil �o develop and anonymous repor�ing. Karoon submited i�s second Modern an ac�ion plan. Various programs Slavery S�a�emen� in January 2023were also implemen�ed �o DiversityEmployee engagementOperating with IntegrityFY25 % Female ParticipationFY21FY22FY23(Target)14114111. The �erm ‘senior leaders’ is de�ned �or �he purposes o� �he diversi�y analysis by re�erence �o Karoon’s in�ernal organisa�ion s�ruc�ure.Karoon developed a comprehensive People Capability and Culture Plan during FY23 as the Company looks for opportunities to improve collaboration and team performance to achieve Karoon’s shared ambitions. Australian Modern Slavery Act 201830ENVIRONMENT Karoon continued to implement its There were no signifcant oil spills or Baúna Pollution Control Plan, which environmental incidents recorded in aims to outper�orm the regulatory Karoon’s operations in FY23. There environmental targets and monitors was a gas leak recorded in March air emissions, water use, and waste 2023 that resulted in a shutdown o� Flaringminimisation and disposal. Karoon production (also aims to minimise �laring in ).operations and prevent any oil Details o� the measures taken to spills to sea. protect the local environment around Karoon’s operations, Produced water OIWthe Company’s per�ormance Gas produced �rom operations is against environmental regulatory used to power the FPSO inthe frst requirements and targets, and instance or is reinjected back into Karoon’s economic contributions the oil reservoir to minimise �laring to state and �ederal environmental Signifcant environmental incidentsin operations. However, there are compensation programs in Brazil can still instances where �laring is be �ound in the Environment section required �or sa�ety reasons. Karoon o� the Sustainability Report.recorded an overall rate o� �laring o� 1.5% in FY23. Baúna Pollution Control PlanSUSTAINABILITY CONTINUEDrefer to Production and Development section on page 18 1.5%8ppmZero11. OIW refers to annual average oil in water concentration31COMMUNITIESKaroon has been presen� in Brazil The Company con�ribu�ed �o 22 The communi�y projec�s also �or more �han 15 yearsand is proud social projec�s in Brazil during FY23, considered UN Sus�ainable increasing i�s communi�y inves�men� o� i�s con�ribu�ion �o �he local Developmen� Goals 3, 5, 7, 10 and 14. in FY23 �o US$1.9 million (FY22: communi�ies in which i� opera�es Nil). This included �hree volun�ary and �o �he local economy in Brazil. Karoon seeks �o empower people social projec�s loca�ed in San�a �o crea�e a posi�ive impac� on Ca�arina, �he home o� Karoon’s �heir �u�ures. Baúna opera�ions shore base and �wo in Rio de Janeiro, �he loca�ion o� Karoon con�ribu�ed approxima�ely Karoon’s ofce in Brazil, and 17 new US$142 million in FY23 in employee �ax incen�ivised projec�s �hrough bene��s, paymen�s �o governmen�s Brazilian governmen� programs and social projec�s in Brazil. In suppor�ing cul�ural projec�s, addi�ion, approxima�ely US$8 million spor�ing projec�s, projec�s �or was paid in employee bene��s and children and projec�s �or �he elderly. �axes in Aus�ralia.In addi�ion �o volun�ary inves�men�s, During FY23, Karoon developed Karoon con�inues �o suppor� several guidelines �o priori�ise communi�y social projec�s in compliance wi�h inves�men� based on speci�c cri�eria. �he requiremen�s o� i�s licence �o opera�e. The mos� no�able o� �hese The �ocus areas o� Karoon’s is Projec� RUMO, which has been communi�y inves�men� are goals running �or more �han �wo years and 4, 8 and 17 o� �he UN Sus�ainable has made a signi�can� con�ribu�ion Developmen� Goals, which �ocus �o �he knowledge and unders�anding on educa�ion and employmen�. o� �he coas�al environmen� and use o� �he I�ajaí River (which services Karoon’s I�ajaí shorebase).R$1.1m R$8.9m (US$0.2m)(US$1.7m)Volun�ary social inves�men� in Brazil Tax incen�ivised social inves�men� projec�s in BrazilScholarships �o enable s�uden�s in I�ajaí �o comple�e �heir secondary educa�ion.Training �or ar�isanal �shermen in I�ajaí �o enable �hem �o ob�ain employmen� and opera�e sa�ely �o crea�e a sus�ainable income.Al�erna�ive energypj roec� using basic ma�erials and solar panels �o provide ligh�ing in a major �avella (underprivileged neighbourhood) in Rio. The projec� provides employmen� �or �hose ins�alling �he equipmen�. The ligh�s are ac�ually made �rom reused 1 li�re botles, hence �he projec� is ap�ly named ‘Li�re o� Ligh�’.Further information regarding Karoon’s commitment to communities in Brazil can be found in Karoon’s Sustainability Report.32RESERVES ANDRESOURCES STATEMENTDELIVERING RESERVES AND RESOURCES GROWTHFollowing the completion of the Baúna intervention campaign, Patola development and Neon control well drilling in FY23, Karoon has reviewed its Reserves and Resources estimates as at 30 June 2023. After adjusting for FY23 production of 7.0 MMbbl, 2P Reserves have increased 16% to 51.8 MMbbl compared to 30 June 2022. Based on these revisions, Karoon has achieved a 2P Reserves Replacement Ratio in FY23 of 200%1. In addition, 2C Contingent Resources at Baúna, Neon and Goiá are 14% higher than previously assessed, at 98.2 MMbbl, and unrisked Prospective Resources for the Neon West prospect, located two kilometres west of the Neon field, have been estimated for the first time, at 14.8 MMbbl.RESERVESKaroon’s internal assessment of 2P Reserves at 30 June 2023 is 51.8 MMbbl. The revised Reserves assessment takes into account a range of technical and commercial parameters, including the following:• Recent production data confirming better than expected performance from the existing producing wells. This follows the successful conclusion of interventions in SPS-92, PRA-2 and SPS-56.• Revised subsurface modelling of Patola capturing reservoir properties at the PAT-1 and PAT-2 wells which were better than pre-drill predictions and recent production data confirming better than expected performance.• An extension of the assessed economic field life, with reserves now including production up to 2032. Production beyond 2032 has not been classified as Reserves, due to the greater uncertainty on the FPSO maintenance requirements after this date.• Production between 1 July 2022 and 30 June 2023 of 7.0 MMbbl. CONTINGENT RESOURCES2C Contingent Resources at 30 June 2023 are assessed at 98.2 MMbbl oil. Over FY23, studies took place on the possible extension of the Baúna field life from 2032 to 2038. As a result, 1C, 2C and 3C Contingent Resources of 10.5 MMbbl, 11.1 MMbbl and 14.9 MMbbl, respectively, have been booked associated with a potential FPSO life extension. Offsetting these additions, Baúna Contingent Resources relating to the potential hook-up of the SPS-57 well have been reassessed. Given the uncertainty in resource potential and possible timing of this intervention, 1C, 2C and 3C Contingent Resources of 1.9 MMbbl, 4.2 MMbbl and 8.3 MMbbl, respectively, have been removed from the Contingent Resources estimates. In respect of the Baúna Contingent Resource estimates:• The estimates reflect Karoon’s 100% operated interest in BM-S-40 (as at 30 June 2023).• A combination of deterministic and probabilistic methods have been used. • The Contingent Resource figures above reflect the estimated recoverable resource associated with a life extension project.• There is no identified requirement for the development of new technology.Following the completion of drilling two control wells on the Neon field, Neon Contingent Resources have been reassessed. 1C and 2C Contingent Resource estimates have increased by 7.7 MMbbl and 5.1 MMbbl respectively, while 3C Contingent Resources have been revised down by 2.5 MMbbl. The revised estimates take into account the following:• The estimates reflect Karoon’s 100% operated interest in S-M-1037 (as at 30 June 2023). • Probabilistic methods benchmarked against deterministic scenarios have been used to estimate the Contingent Resource.1. Reserves replacement is defined as 2P Reserves additions during the period from 30 June 2022 to 30 June 2023 divided by production over the same period. For FY23, the annual Reserves replacement arises from revisions to the Baúna, Piracaba and Patola Reserves estimates, due to updated technical studies and commercial assessments.• The Contingent Resource figures reflect recoverable resource for the whole field. However, any finalised development plan may not recover all these resources. • Contingent Resources are assessed within the Development Unclarified subclass and have not been subject to commerciality determination. • In respect of revisions to Resource estimates, the following technical data and interpretation updates were considered: ‒Additional well to seismic calibration points and updated mapping of key seismic events describing reservoir package thickness and areal extent. ‒Revised well to well correlation and updated estimations of reservoir quality at the Neon-1 and Neon-2 well locations. ‒Revised field oil-water contacts based on petrophysical analyses of wireline log, pressure and sample data from Neon-1 and Neon-2. ‒Revised environment of depositional and predictive models for reservoir quality distribution based on sedimentological interpretation of Neon-1 core samples. ‒Updated assumptions for fault properties and potential for infield compartmentalisation. ‒Updated 3D geocellular field modelling and uncertainty analysis determining a revised in-place volume (STOIIP) range for the field. ‒Updated assumptions for reservoir performance and drainage efficiency (recovery factor).No changes have been made in the Goiá contingent resources assessment from the Karoon 2022 Annual Report statement. 33Net Oil Reserves at 30 June 2023 (MMbbl)Movement in Net Oil Reserves (MMbbl)Net Contingent Oil Resources at 30 June 2023 (MMbbl)Movement in Net Contingent Oil Resources (MMbbl)Prospective Oil Resources at 30 June 2023 (MMbbl)BM-S-40 (Baúna)1P2P3PBM-S-40 (Baúna)1P2P3P1C2C3C1C2C3C1U2U3UDeveloped Baúna, Piracaba & Patola39.851.861.3Total39.851.861.3Reserves at 30 June 202236.544.861.5Production Baúna, Piracaba & Patola-7.0-7.0-7.0Revisions10.314.06.8Reserves at 30 June 202339.851.861.3BM-S-40 (Baúna, Piracaba & Patola)10.511.114.9S-M-1037 (Neon)37.760.189.5S-M-1101 (Goiá)16.027.046.0Total64.298.2150.4Contingent Resources at 30 June 202247.986.2146.3Removal of SPS-57 hook-up-1.9-4.2-8.3Baúna Life Extension Project10.511.114.9Neon post control well drilling7.75.1-2.5Contingent Resources at 30 June 202364.298.2150.41. Disclosed in Karoon 2022 Annual Report.S-M-1037 (Neon West)6.114.832.9Total6.114.832.911111. Producing.1. Disclosed in Karoon 2022 Annual Report.1. Geological probability of success is estimated to be 41%.Afer adjusting �or FY23 production o� 7.0 MMbbl, 2P Reserves have increased 16% to 51.8 MMbbl.34PROSPECTIVE RESOURCESNOTES ON CALCULATION OF RESERVES AND RESOURCESAll s�a�emen�s are ne� �o Karoon’s wi�h ASX lis�ing rule 5.41, beign a in�eres�s as o� 30 June 2023 and use member o� �he Socie�y o� Pe�roleum Karoon holds a number o� in�eres�s/a combina�ion o� de�erminis�ic and Engineers (SPE) and wi�h over licenses wi�h Prospec�ive Resources probabilis�ic me�hods.15 years’ experience, has consen�ed o� varying ma�uri�y levels. Unrisked in wri�ing �o �he inclusion o� Reserves Prospec�ive Resources �or �he Neon Resource volume�ric es�ima�es in and Resources in �he �orma� and Wes� prospec� have been es�ima�ed MMbbl have been rounded �o one con�ex� in which �hey appear.and repor�ed due �o �he prospec�’s decimal place.close proximi�y �o �he Neon discovery The re�erence poin� �or reserves and i�s higher probabili�y o� �echnical calcula�ion is a� �he fscal me�er Pe�roleum explora�ion and and commercial viabili�y in �he si�ua�ed on �he FPSO Cidade de I�ajaí.even� o� resource confrma�ion. produc�ion opera�ions rely on �he in�erpre�a�ion o� complex and The Neon Wes� Prospec�ive Resource uncer�ain da�a and in�orma�ion which has been es�ima�ed primarily using canno� be relied upon �o lead �o a probabilis�ic me�hods. Members o� �he Karoon Reserves success�ul ou�come in any par�icular Commitee considered and assessed case. Pe�roleum explora�ion and all proposed changes and addi�ions produc�ion opera�ions are inheren�ly �o �he Company’s Reserves and uncer�ain and involve signifcan� risk Resources (as se� ou� in �his repor�), o� �ailure. All in�orma�ion regarding considering advice and con�ribu�ions reserve and con�ingen� resource Reserves and resources es�ima�es �rom subjec� mater exper�s and es�ima�es and o�her in�orma�ion in are prepared in accordance wi�h ex�ernal consul�an�s.rela�ion �o Karoon’s asse�s is given �he guidelines o� �he Pe�roleum in ligh� o� �his cau�ion.Resources Managemen� Sys�em All Reserves s�a�emen�s in �his (SPE-PRMS) 2018 join�ly published repor� are based on, and �airly This Annual Repor� may con�ain by �he Socie�y o� Pe�roleum represen�, in�orma�ion and cer�ain ‘�orward-looking s�a�emen�s’ Engineers (SPE), World Pe�roleum suppor�ing documen�s prepared wi�h respec� �o �he fnancial Council (WPC), and American by, or under �he supervision o�, condi�ion, resul�s o� opera�ions and Associa�ion o� Pe�roleum Geologis�s Mar�in Aus�gule,business o� Karoon and cer�ain plans n VP New Business, (AAPG) and Socie�y o� Pe�roleum Karoon Energyand objec�ives o� �he managemen� o� Limi�ed. Mar�in Evalua�ion Engineers (SPEE).Aus�gulen is qualifed in accordance Forward Looking StatementsGovernance and Competent Persons StatementRESERVES AND RESOURCES STATEMENT CONTINUED35Karoon. Forward-looking s�a�emen�s imprecise reserve and resource can generally be iden�i�ed by words es�ima�es, changes in projec� such as ‘may’, ‘could’‘schedules, opera�ing and reservoir , believes’, ‘plan’, ‘will’, ‘likely’,‘ es�ima�es’, ‘�arge�s’, per�ormance, �he efec�s o� wea�her ‘expec�s’, or ‘in�ends’ and o�her and clima�e change, �he resul�s similar words �ha� involve risks o� explora�ion and developmen� and uncer�ain�ies, which may drilling, demand �or oil, commercial include, bu� are no� limi�ed �o, �he nego�ia�ions and o�her �echnical ou�come and efec�s o� �he subjec� and economic �ac�ors) many o� which mater o� �his Annual Repor�.are ou�side �he con�rol o� Karoon.Indica�ions o�, and guidance on, Such s�a�emen�s may cause �he �u�ure earnings and �nancial ac�ual resul�s or per�ormance o� posi�ion and per�ormance, well Karoon �o be ma�erially diferen� �rom drilling programs and drilling plans, any �u�ure resul�s or per�ormance es�ima�es o� Reserves and Con�ingen� expressed or implied by such �orward-Resources and in�orma�ion on �u�ure looking s�a�emen�s. Forward-looking produc�ion are also �orward-looking s�a�emen�s including, wi�hou� s�a�emen�s.limi�a�ion, guidance on �u�ure plans, are provided as a general guide only You are cau�ioned no� �o place and should no� be relied upon asan undue reliance on �orward-indica�ion or guaran�ee o� �u�ure looking s�a�emen�s as ac�ual per�ormance. Such �orward-looking ou�comes may difer ma�erially s�a�emen�s speak only as o� �he �rom �orward-looking s�a�emen�s. da�e o� �his Annual Repor�.Any �orward-looking s�a�emen�s, opinionsand es�ima�es provided Karoon disclaims any in�en� or in �his Annual Repor� necessarily obliga�ion �o upda�e publicly any involve uncer�ain�ies, assump�ions, �orward-looking s�a�emen�s, whe�her con�ingencies and o�her �ac�ors, and as a resul� o� new in�orma�ion, �u�ure unknown risks may arise (including, even�s or resul�s or o�herwise.wi�hou� limi�a�ion, in respec� o� 36STRENGTHS AND RISKS100% owner and Clear corpora�e Opera�es in Brazil, Po�en�ial �or Robus� fnancial opera�or o� quali�y s�ra�egy, including an atrac�ive oil and organic grow�h posi�ion and produc�ion asse�, sus�ainabili�y gas jurisdic�ion.via �he Neon feld.balance shee� wi�h producing 33–38° �arge�s.demons�ra�ed API crude oil wi�h no abili�y �o access ma�erial impuri�ies.deb� fnancing.• Lower than expecteddemand �easibility and commercial • Changes in �oreign exchange rates �or oil or low oil prices may viability o� producing the reserves. and interest rates may negatively negatively impact revenues, Estimates that are valid at a impact the Company’s liquidity.available liquidity or access certain point in time may alter • Suppyoaailability o� required l r vto capital markets, resulting in signi�cantly or become uncertain in�rastructure (including drilling �unding short�all and/or inability when new reservoir in�ormation rigs when required), equipment, to service debt. Declines in becomes available through goods or services could be the price o� oil and continuing additional drilling or subsur�ace subject to interruptions, delays price volatility may also lead technical analysis over the li�e or increases in cost, which may to revisions o� the medium and o� the �eld. As Reserves and impact production, the cost longer-term price assumptions Contingent Resource estimates o� running Karoon’s operations �or oil �rom �uture production, change, development and and the economics o� �uture which, in turn, may lead to a production plans may be altered development projects, revision o� the value o� the in a way that may adversely a�ect including Neon.Company’s assets. the Company’s �nancial results. • Cyber incidents could result • Oil production and recovery • Geographic, geopolitical in interruptions to, or �ailure volumes may di�er �rom Karoon’s and social risks resulting o�, the Company’s operations assumptions and �orecasts.�rom production located in and business.a single jurisdiction (Brazil) • Unplanned interruptions to and production concentration • Regulatory approvals or production arising �rom reliance risk resulting �rom single required licences, including on third party assets and asset production.the Company’s social licence to operators may result in inability operate may not be �orthcoming to meet production �orecasts • Changes to the rate o� taxes or may be delayed.and generate revenue to support imposed on Karoon, changes delivery o� base business and in tax legislation or changing • Insufcient cash�low could result to �und growth.interpretations en�orced by in inability to meet contingent taxation authorities, whether payment obligations to Petrobras • Estimated quantities o� Reserves in Australia, Brazil or other that might arise under the Baúna and Contingent Resources �oreign jurisdictions in which acquisition oil-linked contingent are based on interpretations Karoon operates, could result consideration regime.o� geological, geophysical in immediate impacts on the and engineering models and Company’s �orecast revenues assessment o� the technical and �nancial position.STRENGTHSMATERIAL BUSINESS RISKS37O�take certainty Hedge position Knowledgeable One o� the �ew via leading market signifcantly and experienced companies participant. reduces exposure sta� inall �unctions with pure oil to downside o� the business.exposure listed oil price risk.on the ASX.• Insurance coverage may be • Developmen� work has inheren� Each o� �he key risks i� �hey insufcien� �o cover all risks risks and is subjec� �o various were �o ma�erialise, could have associa�ed wi�h oil and gas hazards including unexpec�ed a ma�erial and adverse impac� produc�ion, developmen�, geological condi�ions, equipmen� on (among o�her aspec�s) Karoon’s explora�ion and evalua�ion.�ailures, environmen�al inciden�s business, repu�a�ion, grow�h, and risks �o �he heal�h and sa�e�y �nancial posi�ion and/or �nancial • Karoon may be required, bu� o� personnel and o�her inciden�s.per�ormance.unable, �o raise or atrac� deb� or equi�y issuance �o �und • Oil and gas explora�ion, Karoon has an es�ablished risk ongoing opera�ions.developmen� and produc�ion managemen� �ramework in place ac�ivi�ies may damage �he �o iden�i�y, assess and mi�iga�e risks • Policies rela�ed �o clima�e and �he environmen�. I� Karoon is in accordance wi�h �he ma�eriali�y energy �ransi�ion may adversely responsible, i� will be required and risk �olerance parame�ers se� a�ec� oil demand, oil prices and �o remedia�e such damage by �he Board o� Direc�ors. Corpora�e, oil indus�ry inves�men� and which may involve subs�an�ial Coun�ry and opera�ional asse� risk �unding behaviour.expendi�ure and adversely regis�ers are main�ained by senior • Wea�her even�s (including a�ec� Karoon’s repu�a�ion.managemen� wi�h oversigh� �rom �hose rela�ed �o clima�e change) �he execu�ive leadership �eam. • Karoon has en�ered in�o a deb� may resul� in physical damage �acili�y agreemen�. In cer�ain The execu�ive leadership �eam �o asse�s or in�errup�ion circums�ances, �he �acili�y repor�s regularly �o �he Board �hrough �o opera�ions.may be �ermina�ed, �unding �he Audi�, Risk and Governance • Changes in regula�ions or unavailable or wi�hdrawn Commitee (in respec� o� corpora�e inves�or sen�imen� regarding and/or repaymen�s accelera�ed.risks) and �he Sus�ainabili�y and measures �aken by Karoon �o Opera�ional Risk Commitee • Liabili�ies rela�ing �o �he Baúna neu�ralise i�s carbon emissions.(in respec� o� opera�ional risks), concession (in respec� o� periods including mi�iga�ion and moni�oring • Abili�y �o atrac�, mo�iva�e and prior �o Karoon’s ownership) plans �or all key risks.re�ain �alen�.may arise which Karoon is no� curren�ly aware o� bu� liable �or.38DIRECTORS’ REPORTBOARD OF DIRECTORS MS LUCIANA BASTOS DE FREITAS RACHID DR JULIAN FOWLES MR BRUCE PHILLIPSUnder �he Company’s Cons�i�u�ion, �he minimum number o� Direc�ors �ha� may comprise �he Board o� Direc�ors is curren�ly �hree and �he maximum number o� Direc�ors is 10. Direc�ors are elec�ed and re‑elec�ed a� annual general mee�ings o� �he Company.The names o� �he Direc�ors o� �he Company during �he �nancial year and up �o �he da�e o� �his Direc�ors’ Repor� are se� ou� below: B. Chem Eng. Post Grad Degree Corporate FinanceBSc. (Hons), PhD, Grad Dip App Fin Inv, GAICDBSc. (Hons), (Geology)Independent Non‑Executive Director (Appointed 26 August 2016)Chie� Executive Ofcer and Managing Director (Appointed 27 November 2020)Independent Non‑Executive Chairman (Appointed 1 January 2019)Curren� direc�orships o� o�her lis�ed companies include: Chair, ALS Limi�ed.Member o� �he People and Cul�ure Commitee.Chairman o� �he Board o� Direc�ors. Mr Phillips was las� re‑elec�ed �o �he Board on 26 November 2021.Ms Rachid has over 40 years’ experience in �he oil and gas indus�ry in bo�h �echnical and senior leadership roles in Brazil, including 20 years in �he Explora�ion and Produc�ion Division o� Pe�robras.Ms Rachid’s �echnical experience covers a varie�y o� projec� evalua�ion, developmen� and managemen� roles, �he design o� �he �rs� o�shore pla��orms in �he Campos Basin, �he Dr Fowles s�ar�ed his career wi�h Shell produc�ion, handling and processing In�erna�ional where he spen� 17 years o� na�ural gas onshore and o�shore working across �he ups�ream sec�or and �he coordina�ion o� �he Pe�robras Mr Phillips has approxima�ely 45 years in Europe, Wes� A�rica, Aus�ralasia, E&P Deepwa�er S�ra�egic Projec�.o� �echnical, �nancial and commercial Sou�h Asia and La�in America, experience in �he global energy Ms Rachid has also held posi�ions including �ve years as �he Explora�ion indus�ry, encompassing a number in �he Pe�robras �nancial �eam and New Ven�ures Manager in Shell o� corpora�e en�i�ies. Bruce has including Execu�ive Manager o� Brazil. Following Shell, he held senior ex�ensive experience in ups�ream oil Inves�or Rela�ions and Execu�ive execu�ive posi�ions wi�h Cairn India, and gas explora�ion and produc�ion via Manager o� Financial Planning and Pe�ra Energia, and mos� recen�ly Oil involvemen� in projec�s in Aus�ralasia, Risk Managemen�. In addi�ion, she Search, where he �rs�ly led explora�ion A�rica, Europe and �he Americas. He served as Chie� Execu�ive Ofcer o� and new business and �hen �he PNG also has considerable experience in Transpor�adora Brasileira Gasodu�o opera�ed and non‑opera�ed oil and governing publicly lis�ed companies, Bolivia‑Brasil SA (TBG) and Chie� LNG produc�ion and developmen� including �he chairmanship o� �our Execu�ive Ofcer o� Transpor�adora businesses. Leaving Oil Search in la�e companies lis�ed on �he ASX.Associada de Gás SA (TAG), each o� 2018, Dr Fowles joined �he boards o� which is a subsidiary o� Pe�robras.During Mr Phillips’ execu�ive career Cen�ral Pe�roleum and FAR Limi�ed in he held varied posi�ions wi�hin �he 2019 as an independen� non‑execu�ive Ms Rachid also has served on several indus�ry ini�ially as a geophysicis� direc�or, roles he relinquished prior �o boards in Brazil. She has represen�ed �or AMAX and Esso, gradua�ing �o joining Karoon in November 2020.Pe�robras as Chairperson o� TBG a business developmen� role a� and GásBrasiliano Dis�ribuidora Dr Fowles speaks Por�uguese and is Command Pe�roleum Limi�ed and SA as well as a Direc�or o� TAG, a Gradua�e o� �he Aus�ralian Ins�i�u�e General Manager o� Pe�roleum Companhia de Gásde Minas Gerais and o� Company Direc�ors. He holds a BSc Securi�ies Aus�ralia Limi�ed. In 1997, Companhia Paranaense de Gás.Chair (Hons) degree in Geology �rom �he Mr Phillips �ounded AWE Limi�ed and o� �he Sus�ainabili�y and Opera�ional Universi�y o� Edinburgh and a PhD held posi�ions as CEO, Chairman and Risk Commitee. Ms Rachid was �rom �he Universi�y o� Cambridge. Non‑Execu�ive Direc�or.las� re‑elec�ed �o �he Board on 26 Dr Fowles also holds a Gradua�e November 2021. He is curren�ly �he Chairman o� ALS Diploma in Applied Finance and Limi�ed (ASX: ALQ), is �he �ormer Inves�men� �rom �he Aus�ralian Chairman o� Pla�inum Capi�al and Securi�ies Ins�i�u�e.AWE Limi�ed (now par� o� Mi�sui Corpora�ion), and a �ormer Non‑Execu�ive Direc�or o� AGL Energy Limi�ed (ASX: AGL) and Sunshine Gas Limi�ed (ASX: �ormerly SHG pre‑merger wi�h QGC). He is a member o� �he Pe�roleum Socie�y o� Aus�ralia and �he Aus�ralian Socie�y o� Explora�ion Geophysicis�s. 39 MR PETER BOTTEN MR TADEU FRAGAAC, CBE MR CLARK DAVEYB. EngBSc. (Hons), (Geology)B. Commerce, FTIA, MAICDIndependent Non‑Executive Director Independent Non‑Executive Director (Appointed 26 August 2022)(Appointed 1 October 2020)Independent Non‑Executive Director (Appointed 1 October 2010)Member o� �he Audi�, Risk and Governance and Sus�ainabili�y and Opera�ional Risk Commitees. He was elec�ed �o �he Board on 27 November 2020.Mr Boten is a highly experienced and Mr Fraga has over 40 years o� success�ul �ormer Chie� Execu�ive and experience in �he oil and gas sec�or, in�erna�ionally recognised business including 23 years as an execu�ive leader wi�h over 40 years’ experience a� Pe�robras. Mr Fraga held various in �he in�erna�ional resources sec�or. posi�ions a� Pe�robras over his career, His execu�ive career was domina�ed by including as Campos Basin Produc�ion his 26‑year �enure as CEO o� Oil Search, General Manager, Gul� o� Mexico E&P Mr Davey is an independen� Company where he was ins�rumen�al in driving i�s Opera�ions Manager, Board Member Direc�or wi�h long experience in grow�h �rom a marke� capi�alisa�ion o� Pe�robras Argen�ina SA, General �he na�ural resources indus�ry as a A$200 million �o a peak o� A$15 billion.Manager – Domes�ic Oil and Gas �axa�ion and s�ra�egy advisor. Clark Produc�ion, Execu�ive Manager – E&P Pe�er’s execu�ive experience spanned was a par�ner a� Price Wa�erhouse and Brazil – Sou�h and Sou�heas� Regions, all aspec�s o� �he ups�ream pe�roleum Pricewa�erhouseCoopers �or several Execu�ive Manager – Research and sec�or, including in ups�ream oil years wi�h an oil and gas and na�ural Developmen� and E&P Execu�ive and gas explora�ion, developmen� resources special�y holding indus�ry Manager – Pre‑Sal� Developmen�s. and produc�ion opera�ions �hrough leadership roles in bo�h �rms. Clark is During his career a� Pe�robras, his involvemen� in projec�s in PNGa member o� �he Aus�ralian Ins�i�u�e o� , Mr Fraga led�he �eam involved Aus�ralia, A�rica, �he Middle Eas� and Company Direc�ors.in �he developmen� o� various Nor�h America.The weal�h o� �axa�ion and business �echnologies applied on pre‑sal� Pe�er also has considerable experience advisory experience Clark brings �o �elds and played a vi�al role in in governing and growing ASX lis�ed Karoon includes inpu� on in�erna�ional �he developmen� o� pre‑sal� companies and o�her business en�i�ies.company �ax, Aus�ralian and overseas discoveries, being responsible �or �he resource and indirec� �axa�ion and implemen�a�ion o� several projec�s, Pe�er holds a Bachelor o� Science oversigh� o� accoun�ing, governance �rom concep�ual design �o �rs� oil.(Geology) �rom �he Imperial College and capi�al managemen� procedures. o� Science and Technology, London Mr Fraga is a �ormer CEO o� Prumo Clark has advised many companies Universi�y and �he Royal School o� wi�h bo�h �ax and managemen� o� join� Logis�ic and o� �he Por�o do Açu, a Mines. In recogni�ion o� building ven�ure in�eres�s as well as merger �ormer Chie� Technology O�cer a� rela�ions be�ween Aus�ralia and and acquisi�ion �ransac�ions. He has Gran Energia, as well as a �ormer Board PNG, along wi�h services �o business also assis�ed bo�h lis�ed and unlis�ed member o� Gran Bio, GranIHC, Ul�rapar, and communi�ies in PNG, Pe�er was companies expand �heir resource MRO Logis�ics, Ferropor�, Gás Na�ural awarded Companion o� �he Order o� indus�ry in�eres�s in�erna�ionally.do Açu and Por�o do Açu (being �he Aus�ralia (AC) along wi�h Commander Chairman in �he las� �hree). Mr Fraga o� �he Bri�ish Empire (CBE).Chair o� �he Audi�, Risk and has also served as a board member Governance Commitee and member o� several �echnology ins�i�u�ions Curren� direc�orships o� o�her lis�ed o� �he People and Cul�ure Commitee. in Brazil, where he made subs�an�ial companies include: Chair, Aurelia Mr Davey was las� re‑elec�ed �o �he con�ribu�ions �o �echnological Me�als L�d (ASX: AMI) and Chair, Board on 24 November 2022. developmen� a� universi�ies and Conrad Asia Energy (ASX: CRD)research ins�i�u�es.Previous direc�orships in �he las� �hree Mr Fraga curren�ly serves as a board years include: Chair, AGL Energy Limi�ed (ASX: AGL), ceased Sep�ember 2022 member o� Radix Engenhaira e and Managing Direc�or o� Oil Search Sofware, Vas� In�raes�ru�ura (�ormerly Açu Pe�róleo) and �he Brazilian (ASX: OSH), ceased February 2020.Ins�i�u�e �or Pe�roleum, Na�ural Gas In March 2023 Mr Boten was and Bio�uels (IBP). Mr Fraga is also an appoin�ed Depu�y Chairman o� Karoon advisor �o bo�h Serviços de Pe�róleo �ollowing Bruce Phillips’ decision �o Cons�ella�ion and Prumo Logis�ica.re�ire �rom �he Karoon Board a� �he conclusion o� �he 2023 AGM. I� is During his career, Mr Fraga has received in�ended �ha� Mr Boten will succeed recogni�ion �rom various ins�i�u�ions, Mr Phillips as �he Chair o� Karoon Board including “BrazilianOil Indus�ry a� �he conclusion o� �he 2023 AGM.Personali�y o� �he Year” (2008) �rom �he Socie�y o� Pe�roleum Engineers (SPE), “Commander Degree” (2010) 40DIRECTORS’ REPORT CONTINUED�rom �he Brazilian Na�ional Order o� Hong Kong and roles wi�h ASIC. Over Scien�i�c Meri�, “Indus�ry Achievemen� �ime, Pe�er has held roles as a direc�or Award” (2012) �rom �he American or senior ofcer o� several global Socie�y o� Mechanical Engineers organisa�ions which promo�e bes� prac�ice governance and is a regular (ASME), “Personali�y o� �he Year �or Innova�ion” (2017) �rom �he Brazilian con�ribu�or and speaker in Aus�ralia Na�ional Agency o� Oil, Gas and and overseas on corpora�e governance Bio�uels and “Dis�inguished Individual issues. Pe�er is a �ormer Presiden� and Award” (2019) �rom �he O�shore curren� Li�e Member o� �he Governance Technology Con�erence (OTC).Ins�i�u�e o� Aus�ralia and is �he immedia�e pas� Presiden� o� �he global Mr Fraga holds a Bachelor o� Char�ered Governance Ins�i�u�e.Engineering �rom �he Universidade Federal do Rio de Janeiro and Pe�er’s senior execu�ive roles is a pos�‑gradua�e in Pe�roleum over 30 years involved signi�can� experience in very large publicly lis�ed Engineering �rom Universidade organisa�ions wi�h global opera�ions, Pe�robras. He has also atended par�icularly Sou�h Eas� Asia, Europe execu�ive educa�ion programs a� and �he USA. This experience included Universi�y o� Alber�a (Managemen� over a decade in energy marke�s and Regula�ion in �he Pe�roleum and �he resources sec�or including Indus�ry), Columbia Universi�y as Company Secre�ary o� Newcres� (Execu�ive Educa�ion in Business Mining Limi�ed, Compayn Secre�ary Adminis�ra�ion), INSEAD (Technology and General Counsel o� BTR Nylex Managemen�), London School o� Limi�ed and General Manager, Economics (S�ra�egic Leadership), Legal and Corpora�e A�airs wi�h and Brazilian Ins�i�u�e �or Corpora�e Energex Limi�ed.Governance – IBGC (Board Member).In June 2020, Pe�er was made a Member o� �he Sus�ainabili�y and member o� �he Order o� Aus�ralia �or Opera�ional Risk Commitee. services �o business and corpora�e governance ins�i�u�es.Curren� direc�orships o� o�her lis�ed companies include: Chair, Calix Limi�ed (ASX: CXL), since i�s ASX lis�ing on 20 July 2018. He is also �he Chair o� Auxi�a P�y L�d.Chair o� �he People and Cul�ure Commitee.Member o� �he Audi�, Risk and Governance and �he Sus�ainabili�y and Opera�ional Risk Commitees. Mr Turnbull was las� re‑elec�ed �o �he Board on 24 November 2022.Pe�er Turnbull is an experienced ASX independen� non‑execu�ive direc�or and chair wi�h signi�can� exposure �o �he global mining, energy and �echnology sec�ors.Pe�er brings �o �he board signi�can� commercial, legal and governance experience gained �rom working wi�h boards and managemen� �o build company value �or shareholders bo�h organically and �hrough mergers, acquisi�ions and o�her corpora�e rou�es. Pe�er also has exper�ise in �he commercialisa�ion and scaling o� new �echnologies and building new companies �o �ake new �echnologies �o marke�.In addi�ion, Pe�er hassigni�can� regula�ory and public policy experience �rom prior execu�ive roles including as a Direc�or o� �he Securi�ies & Fu�ures Commission o� MR DANIEL MURNANE MR PETER TURNBULL AMBA.LLBB. Commerce, LLB, FGIA (Life), FAICDAppointed on 8 December 2022Independent Non‑Executive Director (Appointed 6 June 2014)Company SecretaryDaniel has more �han 16 years’ experience gained in Aus�ralia and in�erna�ionally, including over 12 years advising resources companies. He has worked as a senior associa�e in priva�e legal prac�ice predominan�ly �or energy companies on mergers and acquisi�ions, major projec�s, capi�al raisings and commercial dispu�es.In addi�ion, Daniel has held various in‑house roles spanning legal and corpora�e governance environmen�s, including wi�h ASX and NYSE lis�ed oil and gas companies.Daniel is quali�ed as a solici�or in New Sou�h Wales and Papua New Guinea and holds a Bachelor o� Ar�s and a Bachelor o� Laws.41MEETINGSThe number of Directors’ meetings (including meetings of committees of Directors) and attendance by each Director of the Company during the financial year were:BOARD MEETINGSAUDIT, RISK AND GOVERNANCE COMMITTEE MEETINGSSUSTAINABILITY AND OPERATIONAL RISK COMMITTEE MEETINGSPEOPLE AND CULTURE COMMITTEE MEETINGSDIRECTORABABABABMR BRUCE PHILLIPS1716––––54DR JULIAN FOWLES1717––––––MS LUCIANA RACHID1717––44––MR CLARK DAVEY171766––55MR PETER TURNBULL1717664455MR PETER BOTTEN17166644––MR TADEU FRAGA1515––33––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 RIGHTSAs 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 ORDINARY SHARES, FULLY PAID UNLISTED PERFORMANCE RIGHTSDR JULIAN FOWLES673,5391,009,6291MR BRUCE PHILLIPS1,750,000–MS LUCIANA RACHID52,960–MR CLARK DAVEY147,214–MR PETER TURNBULL173,000–MR PETER BOTTEN––MR TADEU FRAGA––1 Subject to shareholder approval at the 2023 Annual General Meeting, the CEO/MD will be issued a further 12,649 performance rights associated with the 2023 Long Term Incentive.PRINCIPAL ACTIVITIESKaroon is an international oil and gas exploration and production company with operations in Brazil.SIGNIFICANT CHANGES IN STATE OF AFFAIRSThere was no significant change in the state of affairs of the Company during the financial year.42DIRECTORS’ REPORT CONTINUEDRESULTSFinancial results for FY23 are summarised below:FY23 FINANCIAL SUMMARYYEAR TO 30 JUNE20232022*Production volume (MMbbl)7.044.64Oil sales volume (MMbbl)7.064.54Unit production costs1 ($/bbl)15.7525.36Weighted average net realised price ($/bbl)80.2084.74US$ MILLIONUS$ MILLIONSales revenue566.5385.1Underlying EBITDA2,3,5321.8205.2EBITDA2,3308.5(28.4)Net interest and other finance costs6.05.7Depreciation and amortisation486.455.7Underlying net profit before income tax2,5229.5143.8Underlying net profit after income tax2,5145.985.6Net profit/(loss) after income tax163.0(64.4)Operating cash flows305.9154.2Net assets473.6276.2Investment Expenditure:– Baúna intervention and Patola capital expenditure6190.992.0– Exploration and evaluation capital expenditure744.8–– Other plant and equipment82.75.0* FY22 underlying NPAT has been restated from US$89.6m to $85.6m, to include the cumulative translation adjustment impact on deferred tax.1. Unit production costs are presented on a pre–AASB 16 basis and include operating costs and the FPSO Charter lease costs associated with Baúna production.2. EBITDA (earnings before interest, tax, depreciation, depletion, and amortisation), underlying EBITDA, underlying net profit before tax, and underlying net profit after tax are non‑IFRS measures that are unaudited but are derived from figures within the audited financial statements. These measures are presented to provide further insight into Karoon’s performance.3. Includes depreciation on FPSO charter lease right‑of‑use asset and finance charges on the FPSO right‑of‑use lease.4. Excludes depreciation on FPSO charter lease right‑of‑use asset.5. Underlying EBITDA, underlying net profit before tax (‘NPBT’) and underlying net profit after tax (‘NPAT’) have been adjusted for the following items:20232022YEAR TO 30 JUNENPAT US$ MILLIONEBITDA US$ MILLIONNPAT US$ MILLIONEBITDA US$ MILLIONStatutory results163.0308.5(64.4)(28.4)Change in fair value of contingent consideration3.45.2149.9227.1Realised losses on cash flow hedges4.87.17.811.8Foreign exchange losses/(gains)0.40.8(4.3)(6.2)Employee restructure cost--0.60.9Social investments/sponsorships-1.9‑‑Write‑back of inventory impairment(1.1)(1.6)‑‑Cumulative translation adjustment impact on deferred tax(24.6)-(4.0)‑Total adjustments(17.1)13.4150.0233.6Underlying results145.9321.885.6205.26. Excludes Baúna acquisition costs and capitalised borrowing costs associated with the Patola development.7. Includes exploration and evaluation capitalised.8. Excludes leased right‑of‑use asset additions.43During the financial year, Karoon produced 7.04 MMbbl of oil from the 100% owned and operated Baúna Project in BM‑S‑40 in Brazil, produced at an average rate of 19,278 bopd. This compares to total production of 4.64 MMbbl in the previous financial year (12,707 bopd). The 52% production increase included the first contributions from the successful Baúna intervention campaign and Patola development.Fifteen cargoes (including one part‑cargo) were lifted during the financial year, up from nine cargoes in the previous financial year. These cargoes were sold to end customers in Europe, Asia and North and South America. Revenue for the financial year was $566.5 million, 47% higher than in the previous financial year, as higher production offset the lower realised average oil price, down 5% from $84.74/bbl in FY22 to $80.20/bbl.Unit production costs (comprising operating costs plus the FPSO charter lease costs) for the financial year were $15.75/bbl, representing a 38% decrease from the previous financial year of $25.36/bbl. Cost of sales for the financial year was $283.2 million (2022: $191.7 million) and gross profit was $283.3 million (2022: $193.4 million). The increase in cost of sales was primarily due to higher depreciation and amortisation of oil and gas assets and includes depreciation associated with the right‑of‑use asset (the FPSO lease). Cost of sales does not include finance charges on the FPSO right‑of‑use lease of $15.3 million (2022: $16.8 million), which are disclosed as part of finance costs. The other driver of the increase in cost of sales was royalties and government take which included the one‑off impact of the temporary export tax levied from 1 March to 30 June 23, costing Karoon $14.6m.The Group recognised an underlying net profit after income tax of $145.9 million (2022: $85.6 million) for the financial year with a statutory net profit after income tax of $163.0 million (2022: loss of $64.4 million). Other key items impacting the result during the financial year were as follows:• Finance costs of $25.4 million (2022: $22.7 million) comprising finance charges on lease liabilities of $15.5 million (2022: $16.9 million) including the FPSO lease in relation to the Baúna operations of $15.3 million, discount unwinding on the net present value of the provision for restoration of $5.0 million (2022: $2.4 million), other finance costs of $2.8m (2022: $1.3m) and interest expense of $2.1 million (2022: $2.1m).• Corporate costs of $20.7 million (2022: $15.4 million) which include net employee benefits expense, insurance and director fees.• Realised losses on out of the money oil hedges and amortisation of hedge premiums of $7.1m (2022: $11.8m)• Share‑based payments expenses of $3.1 million (2022: $5.7 million).• Social investment/sponsorships of $1.9 million (2022: Nil). This is a scheme which under Brazilian tax law permits a company when paying tax to direct a portion of this payment to specific government approved projects. There is no net cost to the company as this amount replaces tax payable. It is classified as an expense in the financial statements rather than within income tax.• Exploration and evaluation expenditure expensed of $3.9 million (2022: $3.2 million)The result included income tax expense of $53.2 million (2022: 25.4 million benefit). Income tax is impacted each year by movements in deferred tax relating to temporary differences between the carrying amount of non‑monetary assets and liabilities and their tax base. This arises as the functional currency and reporting currency of the Company’s Brazilian branch is US dollars (US$), while tax is determined and settled in the local currency, Brazilian REAL R$. This will continue to move each reporting period in line with the variation in conversion rates between R$ and US$. During the financial year, due to the appreciation of the R$ against the US$, this movement generated a significant income tax benefit of $24.6 million (2022: $4.0 million). The calculation of underlying net profit after income tax has been adjusted for this non‑cash adjustment.CASH FLOWSCash inflows from operations for the financial year were $305.9 million, compared to $154.2 million in the previous financial year. The increase in operating cash flows reflected the higher oil sales proceeds of $552.9 million (2022: $362.9 million). Operating cash payments for the financial year included:• Payments to suppliers and employees, including production costs and royalties of $135.2 million (2022: $116.5 million).• Payment of income tax of $78.8 million (2022: $39.4 million), including social investments/sponsorships in lieu of tax of $1.9 million (2022: Nil).• Payments for cash flow hedges of $13.4 million (2022: $20.8 million) and interest and other costs of finance paid of $19.8 million (2022: $18.9 million), predominantly relating to finance charges on the FPSO lease.Cash outflows from investing activities for the financial year were $356.2 million (2022: $113 million). The larger cash outflow reflected:• Higher capital expenditure relating to the Baúna intervention campaign, Patola development and ongoing field maintenance of $222.5 million (2022: $59.6 million).• The first contingent consideration payment to Petrobras for the Baúna acquisition of $84.5 million (2022: $43.6 million for the Baúna deferred firm consideration payment).• Neon control wells of $43.1 million (2022: Nil).Net cash outflows from financing activities for the financial year were $34.2 million (2022: $15.5 million), representing the principal elements of lease payments. There was no cash inflow from the drawdown of debt facilities (2022: $30.0 million).44DIRECTORS’ REPORT CONTINUEDFINANCIAL POSITIONAt the end of June 2023, the Group had a cash and cash equivalents balance of $74.8 million (30 June 2022: $157.7 million) and total liquidity (cash and undrawn debt facilities) of $254.8 million.The Group’s current assets decreased by $78.4m to $167.2 million, largely due to the funding of capital expenditure (CAPEX) from cash balances. Current liabilities decreased by $51.2 million to $196.2 million as at 30 June 2023, resulting predominantly from fair value movements of hedge liabilities and a reduction in CAPEX‑related trade payables.During the financial year, total assets increased from $1,164.2 million to $1,190.4 million, total liabilities decreased from $888.0 million to $716.8 million and total equity increased from $276.2 million to $473.6 million. The major changes in the consolidated statement of financial position included:• Working capital movements discussed above.• An increase in oil and gas assets resulting from CAPEX on the Baúna intervention campaign and Patola development.• An increase in exploration and evaluation assets in relation to the drilling of the Neon control wells.• A reduction of lease liabilities in relation to payments for the charter of the FPSO.• A reduction in hedge liabilities resulting from fair value movements.• Positive cash flows generated from strong oil sales and profits.REVIEW OF OPERATIONSInformation on the operations of the Group is set out in the Operations Review on pages 18 to 35 of this Annual Report.BUSINESS STRATEGIES AND PROSPECTS, LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONSThe 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, have 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.DIVIDENDSNo dividend has been paid or declared by the Company to shareholders since the end of the previous financial year.45SHARE OPTIONS AND PERFORMANCE RIGHTSAs 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, there were 6,179,137 performance rights issued under the 2019 PRP and 2022 PRP respectively, representing approximately 1.09% of the Company’s total number of shares issued. The details of performance rights over unissued ordinary shares in the Company were as follows:TYPEGRANT DATEDATE OF EXPIRYEXERCISE PRICE PER PERFORMANCE RIGHTNUMBER OF PERFORMANCE RIGHTSPerformance rights25 September 202030 June 2024$–1,571,826Performance rights23 March 202230 June 2025$–928,327Performance rights6 May 202230 June 2025$–1,246,439Performance rights24 November 202230 June 2026$–432,577Performance rights16 December 202230 June 2024$–167,437Performance rights16 December 202230 June 2026$–1,726,970Performance rights31 March 202330 June 2026$–105,561Total performance rights6,179,137For details of performance rights issued to Directors and other key management personnel of the Company as remuneration, refer to the Remuneration Report in this Directors’ Report.2,434,214 fully paid ordinary shares have been issued since 1 July 2023 as a result of the vesting and conversion of performance rights under the 2019 Performance Rights Plan and the 2022 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 29 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 AUDITORAn 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 Directors’ insurance premiums for a period of ten years following termination of their directorships of the Company and will provide each Director with access, on 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 COMPANYNo 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 GOVERNANCEIn 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 REGULATIONThe Company and its subsidiaries are subject to a range of relevant Commonwealth, State and International environmental laws in the jurisdictions in which the Group operates.46DIRECTORS’ REPORT CONTINUEDThe 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.GREENHOUSE GAS EMISSIONS AND REPORTING REQUIREMENTSRelevant 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 Karoon’s greenhouse gas emissions and approach to climate change risks and opportunities can be found in the Sustainability section on page 27 and in the 2023 Sustainability Report.NON‑AUDIT SERVICESThe 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, Risk and Governance 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, Risk and Governance 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 DECLARATIONA 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 67 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 YEARThere have been no significant matters or circumstances that have arisen since 30 June 2023 that have significantly affected, or may significantly affect:• the Group’s operations in future financial years;• the results of those operations in future financial years; or• the Group’s state of affairs in future financial years.47REMUNERATION REPORTDear 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 2023.OverviewKaroon’s strategy and remuneration structure is designed to link remuneration outcomes to shareholder value. We believe it has achieved this for FY23 by rewarding the achievement of significant operational and strategic goals, while also accounting for the underperformance on production arising from the un‑scheduled FPSO shutdown in March – May 2023.In determining the remuneration outcomes for employees and executives, the Board has considered the overall performance of Karoon and individual executives having regard to the specific goals and objectives set at the beginning of FY23. A key aspect of the overall remuneration approach has been assessment against the measurable objectives set out in the Corporate Scorecard, which is disclosed within the Remuneration Report.Overview of 2023 Financial Year Remuneration OutcomesIn respect of FY23, Karoon’s key remuneration outcomes were:Total Remuneration of executivesINCREASED Total remuneration was increased for all executive KMP following an external benchmarking exercise undertaken in January 2023. Short Term Incentive (“STI”) STI PARTLY AWARDED60% of the Corporate Scorecard component of the STI was achieved. Individual STI outcomes for KMPs were as follows: 60% CEO/MD and 58% and 65% respectively for the other KMP.In respect of executives, the STI is to be paid 50% in cash and 50% in the form of a grant of performance rights with such rights to be (a) issued after the release of the Company’s FY2023 full year financial results and (b) subject to a retention period. Details of performance rights are set out on page 52. Long term Incentive (“LTI”) LTI AWARDED100% of the 2021 LTI was awarded in respect of the three‑year performance period from 1 July 2020 to 30 June 2023. In respect of the performance period, Karoon was at the 80th percentile, achieving a TSR of 49.1% when compared against the relevant industry peer group.Board and committee fees INCREASEDBoard and Committee fees paid to the Non‑Executive Chair and Non‑Executive Directors were increased by 5%, while the fees paid to the Chairs of Board committees was increased by A$5,000 per annum. This was exclusive of the 0.5% superannuation guarantee increase. 2022 AGM Remuneration Report ‘99.44%’ YES VOTEKaroon received more than 99.44% of ‘yes’ votes on a poll to adopt its Remuneration Report for the 2022 financial year. No specific feedback on Karoon’s remuneration practices was received at the 2022 Annual General Meeting.Detailed explanations in respect of the above are set out in the disclosures within the remuneration report.No board discretion was exercised in relation to FY23 remuneration outcomes. Remuneration Strategy and Guiding PrinciplesKaroon’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 performance period and therefore, the value delivered to shareholders; ‒a close alignment is created between operational performance, delivery of corporate objectives, rewards and sustained growth in shareholder value; and ‒as Karoon has now transitioned from explorer to producer, it is recognised that capital management initiatives should also now be considered.48REMUNERATION REPORT CONTINUED• People: ‒remuneration and people issues are considered by the People and Culture 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 while 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 2023, the new management shareholding policy was reviewed and reconfirmed. Under the policy, KMP are now required to maintain a shareholding in the Company equal to 50% of their first year, fixed remuneration (after‑tax) within three years of their initial appointment.• Environment, Social and Governance (ESG): ESG considerations are integrated into our remuneration structures. In FY23, several STI hurdles were included as part of the Corporate Scorecard. These goals related to our people, emissions reduction activities in our operations and pursuing carbon sequestration projects of scale as part of Karoon’s overall business strategy.• Transparency: remuneration measures, outcomes and reporting are as simple and transparent as possible for shareholders and other stakeholders.TY23 Financial Year Remuneration SettingsLooking ahead to the transitional financial year for the six months to 31 December 2023, the underlying remuneration structure and approach to setting incentives for Australian and Brazilian staff members will remain consistent, with the Board, aided by the People and Culture Committee, determining the appropriateness of the remuneration outcomes for TY23.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 sincerelyMr Peter Turnbull AM Chair, People and Culture Committee23 August 202349Section 1.IntroductionPage 49Section 2.Board and People and Culture Committee OversightPage 50Section 3.How does Karoon make decisions about remunerationA. Executive Remuneration Framework for the Financial Year Ended 30 June 2023B. Executive Remuneration OutcomesC. Executive AgreementsPage 50Section 4.Independent Non‑Executive Chair and Non‑Executive DirectorsPage 58Section 5.Statutory and Share‑based ReportingPage 60Section 1. IntroductionThe 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 2023, KMP disclosed in the Remuneration Report are as follows:NAMEPOSITIONTERM AS KMPExecutive DirectorsDr Julian FowlesChief Executive Officer and Managing DirectorFull financial yearNon-Executive ChairmanMr Bruce PhillipsIndependent Non‑Executive ChairmanFull financial yearNon-Executive Directors Ms Luciana RachidIndependent Non‑Executive DirectorFull financial yearMr Clark DaveyIndependent Non‑Executive DirectorFull financial yearMr Peter TurnbullIndependent Non‑Executive DirectorFull financial year Mr Peter Botten Independent Non‑Executive DirectorFull financial yearMr Tadeu FragaIndependent Non‑Executive DirectorCommenced 26 August 2022Other KMPMr Ray ChurchExecutive Vice President and Chief Financial OfficerFull financial year Mr Antonio Guimarães Executive Vice President and President Karoon BrazilFull financial yearFor the purposes of the Remuneration Report:(i) ‘executive’ means the Chief Executive Officer and Managing Director and other KMP of the Group;(ii) ‘fixed remuneration’ has the meaning given on page 51;(iii) ‘other KMP’ means those KMP referred to above under the heading ‘Other KMP’;(iv) ‘other benefits’ has the meaning given on page 51;(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 2023 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.50REMUNERATION REPORT CONTINUEDSection 2. Board and People and Culture Committee OversightTo assist in ensuring good remuneration governance at Karoon, the Board of Directors established a People and Culture Committee that provides oversight and recommendations to the Board on the remuneration arrangements for sub‑CEO executives.The People and Culture 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; and• the recruitment, retention and termination policies and procedures for sub‑CEO executives.The Board of Directors, assisted by the People and Culture Committee, conducts remuneration reviews for its Non‑Executive Chair, 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 and Culture Committee is contained in the People and Culture Committee Charter, which can be found under the Governance tab on Karoon’s website at www.karoonenergy.com.au.Share Trading PolicyThe trading of ordinary shares by Non‑Executive Directors and executives is subject to, and conditional on, 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 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.Karoon monitors compliance with its Share Trading Policy.To gain approval to trade and ensure that trading restrictions are not in force, any employee, contractor or other designated person wishing to trade in Karoon securities must consult the Company Secretary, while the Executive Vice President and President Karoon Brazil, the Company Secretary or any Director wishing to trade in Karoon securities must consult the Chair, and the Chair must consult and seek approval of the Audit, Risk and Governance Committee Chair. All trades by Directors and executives during the financial year ended 30 June 2023 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.Karoon has a minimum shareholding policy which applies to both Non‑Executive Directors and executives.Section 3. How does Karoon make decisions about remunerationThe 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 through share price growth.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;• 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 fostering best practice in preventing bribery and/or corruption, along with driving sustainability and safety outcomes.51A.  Executive Remuneration Framework for the Financial Year Ended 30 June 2023The following table summarises the target remuneration mix for executives for the financial year ended 30 June 2023, based on maximum achievement of incentive plan outcomes:Remuneration Mix – financial year ended 30 June 2023 (as a percentage of total remuneration, excluding Other Benefits)Other KMPs1CEO and Managing Director2100%80%60%40%20%0%Base SalaryAt ‘Risk’ STIAt ‘Risk’ LTI1. “Other KMPs” includes the remuneration mix of the EVP and Chief Financial Officer and EVP and President Karoon Brazil.2. The percentage of the CEO and Managing Director’s at ‘risk’ STI and at ‘risk’ LTI is based on fixed remuneration at the conclusion of the financial year.Set out below is a summary of the STI and LTI opportunity available to the CEO and Managing Director, Executive Vice President (EVP) and Chief Financial Officer (CFO) and EVP and President Karoon Brazil.CEO AND MANAGING DIRECTOREVP AND CHIEF FINANCIAL OFFICEREVP AND PRESIDENT KAROON BRAZILSTI OPPORTUNITY75% of fixed remuneration187.5% of fixed remuneration387.5% of fixed remuneration3LTI OPPORTUNITY100% of fixed remuneration275% of fixed remuneration475% of fixed remuneration41. CEO/MD base STI opportunity increased to 100% on and from 1 January 2023, see ASX release dated 8 March 2023 and ‘fixed remuneration’ below. Prior to that, the base STI opportunity for the balance of FY23 was 50%. The aggregate at risk opportunity is illustrated above.2. Participation in the LTI opportunity has been prorated from 1 January 2023, at the CEO/MDs revised fixed remuneration. The issuance of additional performance rights reflecting the increased LTI opportunity will be subject to shareholder approval at the 2023 Annual General Meeting.3. Base STI opportunity for each of the EVP and CFO and EVP and President Karoon Brazil increased to 100% on and from 1 January 2023. Prior to that the base STI opportunity for the balance of FY23 was 75%. The aggregate at risk opportunity is illustrated above.4. Participation for each of the EVP and CFO and EVP and President Karoon Brazil in the LTI opportunity has been prorated from 1 January 2023 based on the revised fixed remuneration for each KMP.See pages 52–55 for additional information on the STI and LTI plans.Fixed RemunerationWHAT IS FIXED REMUNERATION?Executives are entitled to fixed cash remuneration consisting of base salary and superannuation contributions/pension contributions. Fixed remuneration is not based on performance.Fixed remuneration excludes any accruals of annual or long service leave.Other benefits not included in fixed remuneration 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 (‘Other Benefits’). Details of other benefits paid to executives are set out in full on page 60.HOW IS FIXED REMUNERATION REVIEWED?Fixed remuneration is reviewed by the Board assisted by the People and Culture Committee. Broadly, fixed remuneration is positioned within a range that references the median of the relevant market for each role.FIXED REMUNERATION FOR FY2023Fixed remuneration of the executive KMP’s increased during the year ended 30 June 2023, following a review by the Board and the People and Culture Committee in January 2023.The review was supported by an independent third‑party expert who provided guidance on current trends in executive remuneration practices and undertook a detailed benchmarking review against a peer group of Australian and international companies.The fixed remuneration of KMP is set out in the table on page 60. 52REMUNERATION REPORT CONTINUEDSuperannuationThe Chief Executive Officer and Managing Director receives fixed remuneration inclusive of superannuation contributions, above the maximum contributions cap. Other Australian executives of the Company received statutory superannuation contributions of 10.5% of 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 ContributionsKaroon’s Brazilian based executives are subject to specific Brazilian employment regulations, whereby the Group is required to contribute 27.3% of salary to the Government’s social security fund. These contributions are subject to a cap on an annual, calendar year basis. However, the executives on retirement will only be entitled to a portion of the contributions made. A further 8% of executives 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.‘At Risk’ RemunerationKaroon 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. At the beginning of each financial year, 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 the value created for shareholders.All executives that received grants of performance rights during the financial year ended 30 June 2023 received performance rights that were issued under the 2022 Performance Rights Plan (‘2022 PRP’).STI PlanThe key features of the STI plan for the financial year ended 30 June 2023 (‘FY2023 award’) remain unchanged and are outlined in the table below:WHO PARTICIPATESAll executives.Participation in the STI Plan is at the discretion of the Board of Directors on the recommendation of the People and Culture Committee.WHAT IS THE CYCLE?The annual performance cycle is 1 year – 1 July to 30 June. The Corporate Scorecard and role specific objectives are set by the Board initially to reflect key priorities to build long term value. Details of the FY2023 award Corporate Scorecard are set out on page 56.WHAT IS THE LEVEL OF THE STI OPPORTUNITY?The STI opportunity level of each executive is a pre‑determined proportion of an executives’ fixed remuneration. In respect of the FY2023 award, the CEO/MD can earn up to 75% of their fixed remuneration. The EVP and CFO and EVP and President Karoon Brazil can each earn up to 87.5% of their fixed remuneration. Senior leaders outside of the KMP participate at 70% of their fixed remuneration.The calculation of the FY2023 Award can be illustrated as follows:Fixed Rem (at 1 July)1XSTI Opportunity Level %XOutcome of performance conditions2 (as at 30 June)=STI award (for FY)1. Please note that the Fixed Remuneration of the executives was subject to change during FY23, including the level of STI opportunity. See page 51. 2. Please note that for executives, excluding the CEO/MD, the outcome is a combination of the ‘Corporate Scorecard’ and individual role objectives, which is determined by the Board.53FORM OF INCENTIVE, IF AWARDEDSubject to the achievement of the performance conditions, the FY2023 award is delivered to senior executives in two parts, a cash element (50%) and a deferred element, represented by an offer and subsequent grant of performance rights (50%).The cash component of the FY2023 STI opportunity is paid following the achievement of applicable performance conditions.The quantum of performance rights to be granted is to be determined by dividing 50% of the total STI award (determined to be available based on the satisfaction of applicable corporate performance and (if appropriate) role specific objectives) 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 2023 full year financial results.Any performance rights granted will remain ‘At Risk’ until the satisfaction of retention conditions, which expire on 1 July 2024.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 2022 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 PERIOD1 year.DEFERRAL PERIODPerformance rights granted in respect of the FY2023 award are subject to a retention period of 12 months, being the continuation of employment, immediately following the satisfaction of performance conditions, at the conclusion of the performance period.WHAT ARE THE PERFORMANCE CONDITIONS?As part of the 2023 remuneration review, for the financial year ended 30 June 2023 the Board set out the FY2023 award for short‑term incentives based on a mix of the following performance hurdles:COMPANY-WIDE OBJECTIVESROLE-SPECIFIC OBJECTIVESCEO and Managing Director100%Nil%Other KMP80%20%Company-wide ObjectivesCompany‑wide Objectives were set by the Board at the beginning of the performance period.The Company‑wide Objectives, known as the ‘Corporate Scorecard’, includes financial and operational objectives, project objectives and strategic targets.Role-specific ObjectivesRole‑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 FY2023 award are outlined below in the STI outcomes within Section 3B on page 56.GRANT DATEIn 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.WHAT HAPPENS AT THE END OF EMPLOYMENT?Unvested performance rights will lapse on cessation of employment with Karoon, subject to the nature and circumstances of the termination and the discretion of the Board of Directors.IF THERE IS A CHANGE OF CONTROL?On 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. Adjustments to an individual’s unvested performance right may also occur in the event of a Company reconstruction and certain share issuances.HOW DO STI’S LINK TO KAROON’S OBJECTIVES?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 company objectives are met. The Board assesses the objectives 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 company performance against these objectives.The Board recognises the risks associated with offshore oil production and drilling and considers ensuring the safety of the workforce, and avoiding any instances of bribery and corruption as paramount to its operations. Achieving appropriate safety standards is used as a gateway for any vesting of the STI, while any fatality or instance of bribery and corruption can be utilised to claw back incentives should they have been previously paid.54REMUNERATION REPORT CONTINUEDLTI PlanThe key features of the LTI grant for the financial year ended 30 June 2023 are outlined in the table below:WHO PARTICIPATESAll executives.Participation in the LTI plan is at the discretion of the Board of Directors on the recommendation of the People and Culture Committee. The LTI is a relative total performance measure over several years to align employees to Karoon’s long term performance compared to others.Performance rights granted will not vest and have no value to the executives unless the performance conditions are achieved.LTI OPPORTUNITYThe LTI opportunity available to an executive is determined as a percentage of the executive’s fixed remuneration. In respect of the FY23 LTI grant, the CEO/MD can earn up to 100% of their fixed remuneration. The EVP CFO and EVP President Karoon Brazil can each earn up to 75% of their fixed remuneration.FORM OF INCENTIVEThe 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 25 August  2022 (being the date on which Karoon’s 2022 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 2022 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 PERIOD3 years.PERFORMANCE CONDITIONSThe LTI performance hurdles for the period commencing 1 July 2022 and ending 30 June 2025 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 (Industry Peer Group); and 50% Absolute TSR (based on compound annual growth rate (CAGR)), which is set at a range of 10% to 18%.INDUSTRY PEER GROUPAUSTRALIAN MARKET PEERS• Australis Oil & Gas Limited• Beach Energy Limited• Carnarvon Petroleum Limited• Horizon Oil Limited• Santos Limited• Woodside Petroleum Limited• Strike Energy Limited• Central Petroleum Limited• Cooper Energy LimitedGLOBAL PEERS• Cairn Energy plc• GeoPark Limited• Gran Tierra Energy Inc• Kosmos Energy Ltd• New Zealand Oil & Gas Ltd• Enauta Participações S.A.• Pharos Energy plc• Tullow Oil plc• Petro Rio• Jadestone Energy IncVesting consideration details for the industry peer group companies is outlined below:PERFORMANCE AGAINST INDUSTRY PEER GROUPPROPORTION OF PERFORMANCE RIGHTS VESTINGLess than 50th percentileNil%At 50th percentile50%Between 50th and 75th percentile50% plus 2% for each additional percentile ranking above the 50th percentileAt or above 75th percentile100%At 100% percentile100%Vesting consideration details for the Absolute TSR measure are set out below:ABSOLUTE TSR (CAGR)PROPORTION OF PERFORMANCE RIGHTS VESTINGLess than 10%Nil%At 10%50%Between 10.01% and 17.99%50% plus 6.25% for each additional percentage point above the 10% thresholdAt or above 18.00%100%Companies that are no longer part of the Industry Peer Group at the end of the performance period (for instance, due to acquisition or delisting) may be removed from the Peer Group calculation.55GRANT DATEGrant 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 PERIODPerformance rights will remain exercisable for a period of one year following vesting.WHAT HAPPENS AT THE END OF EMPLOYMENT?Unvested (and unconverted) performance rights will lapse on cessation of employment with Karoon, subject to the nature and circumstances of the termination and the discretion of the Board of Directors.IF THERE IS A CHANGE OF CONTROLOn 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. Adjustments to an individual’s unvested performance right may also occur in the event of a Company reconstruction and certain share issuances.LINK BETWEEN PERFORMANCE AND REWARDThe Board of Directors and People and Culture Committee considers 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.B. Executive Remuneration OutcomesRelationship between the Executive Remuneration Framework and Company PerformanceKaroon 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 2018 to 30 June 2023.FINANCIAL YEAR ENDED30 JUNE 202330 JUNE 202230 JUNE 202130 JUNE 202030 JUNE 2019AUS$MUS$MUS$MUS$MUS$MRevenue566.5385.1170.8––Profit/(loss) before income tax216.2(89.8)(27.9)(86.8)(11.4)Profit/(loss) for financial year163.0(64.4)4.4(86.2)(13.3)Net assets at end of financial year473.6276.2380.3359.5298.8FINANCIAL YEAR ENDED30 JUNE 202330 JUNE 202230 JUNE 202130 JUNE 202030 JUNE 2019AShare price at beginning of financial yearA$1.74A$1.33A$0.61A$0.96A$1.13Share price at end of financial yearA$1.97A$1.74A$1.33A$0.61A$0.96Basic earnings per ordinary share (US$)0.2899(0.1159)0.0079(0.1936)(0.0550)Diluted earnings per ordinary share (US$)0.2859(0.1159)0.0077(0.1936)(0.0550)A. The comparative financial information for the financial year ended 30 June 2019 has been restated for the voluntary change in presentation currency from A$ to US$ at the prevailing average exchange rates for the profit or loss and year‑end rate for the balance sheet for each respective year.56REMUNERATION REPORT CONTINUEDPerformance Hurdles and STI Outcomes for the Financial Year Ended 30 June 2023The table below outlines the Company‑wide Objectives, known as the Corporate Scorecard, for the financial year ended 30 June 2023:MEASURE, RATIONALE AND PERFORMANCEWEIGHTTARGETS AND OUTCOMESRESULT (% MAX)CONTRI-BUTIONTHRESHOLDTARGETSTRETCHFINANCIAL AND OPERATIONAL OBJECTIVES Oil Production (kbbl)17.5%2.0%0.4%Group operating expenses1 (US$m)5.0%100.0%5.0%Other controllable corporate costs2 (US$m)7.5%100.0%7.5%Baúna Capex (US$m)5.0%100.0%5.0%Achieve Baúna intervention & Patola development capex targets3 (US$m)14.0%100.0%14.0%Baúna intervention production (bopd) Achieve the target production rate over 30 continuous days3.0%100.0%3.0%Patola production (bopd) Achieve the target production rate over 30 continuous days3.0%0.0%0.0%Neon drilling (US$m)4 Neon‑1 and Neon‑2 Capex. Target values exclude contingencies This target was also subject to achieving minimum resource estimates.10.0%100.0%10.0%Neon evaluation studies result in an increase in resource estimated5 (MMbbl)4.0%100.0%4.0%Neon Drilling & Evaluation Complete Neon evaluation study as well as analysis of Neon well results and updated field development plan1.0%100.0%1.0%STRATEGIC OBJECTIVESGrowth Acquire a substantial second production asset15.0%0.0%0.0%ESG Limit group‑wide voluntary staff turnover to a level below FY22 (% of total 30 June workforce)2.5%0.0%0.0%ESG: Identify additional carbon reduction project in operations62.5%0.0%0.0%ESG: advance carbon sequestration project710.0%100.0%10.0%Overall Corporate Performance Outcome100.0%60%*1. Adjusted to exclude contingencies and adjust for fuel price inflation/deflation during FY23.2. Defined as ‘corporate other costs’ in monthly accounts adjusted for Board approved additional costs (e.g. D&O insurance & change to budget assumptions with regard to time writing on acquisitions).3. Capex spend adjusted for fuel price inflation/deflation during FY23. 4. This target was also subject to achieving minimum resource estimates.5. A third party supports Contingent Resource estimates.6. Identify and screen potential short term and long term emission reduction projects.7. Identify, screen and enter at least one carbon sequestration project in Brazil or elsewhere to: a) achieve carbon neutrality by offsetting our remaining current CO2e footprint; and b) to provide options to the Company for further CO2e mitigation.* Total may not add up due to rounding to zero decimal places.7,0008,1008,9107,037–>30,000–180.0135.2150.2134.9–>20,000>20,00023.821.422.620.964.754.448.09.48.67.83.31C min econ.506060.1CompleteCompleted1 Project1 ProjectAchieved600100AssetNo–––No> 325<32530157Based on actual results, in respect of the:• Current Chief Executive Officer and Managing Director, a total of 60% 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.• Other KMP, between 58% and 65% of the available STI opportunity satisfied requisite performance targets (based on the results of role‑specific performance targets).Performance rights (associated with the FY2023 STI award) once granted will have a 1‑year retention period ending 30 June 2024 before they become exercisable and convertible into fully paid ordinary shares. The 2023 STI performance rights expire on 30 June 2025.LTI OutcomesKaroon’s 2021 LTI performance conditions of achieving an absolute total shareholder return (‘TSR’) of 18% 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 2020 to 30 June 2023 was met. Karoon was at the 80th percentile when compared against the relevant industry peer group and, accordingly, 100% of the 2021 LTI entitlement vested.Voluntary Information: 2023 ‘Remuneration Received’ (Non-IFRS Information)The amounts disclosed below reflect the actual benefits received by each executive during the financial year ended 30 June 2023 and have been translated into US$ from local currencies using the average exchange rate for the 2023 financial year. The average rate used for A$/US$ was 0.6735 and R$/US$ was 0.1937. 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:Short-term IncentivesIncludes 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 2023.Long-term IncentivesIncludes the equity‑settled award received from LTI by executives. The value of LTI equity‑settled awards received reflects the amounts disclosed to the relevant tax authorities during the financial year ended 30 June 2023.FIXED REMUNERATION SHORT-TERM INCENTIVESLONG-TERM INCENTIVESTOTAL REMUNERATION RECEIVEDUS$US$US$US$Executive DirectorsDr Julian Fowles622,149178,489–800,638Other KMP (Group)–Mr Ray Church499,102105,823–604,925Mr Antonio Guimarães 476,37475,983–552,357The Board of Directors believes that ‘remuneration received’ is relevant to shareholders for the following reasons:• the statutory remuneration expensed through as share‑based payments (Performance rights) is based on fair value at grant date 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 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58REMUNERATION REPORT CONTINUED• 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 performance rights fail to vest), even though the benefit received by the executive is the same ($Nil where the performance right fail to vest).C. Executive AgreementsRemuneration 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 and Culture Committee in advance of employment and stated in the relevant employment agreements. On 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:NAMETERMEXPIRYNOTICE/TERMINATION PERIODTERMINATION PAYMENTSPERFORMANCE RIGHT ELIGIBLEExecutive DirectorsDr Julian FowlesFrom 27 November 2020, ongoingOngoingIn writing six monthsNot applicable.YesOther KMPMr Ray ChurchFrom 27 September 2021, ongoingOngoingIn writing six monthsNot applicable.YesMr Antonio GuimarãesFrom 1 October 2021, ongoingOngoingIn accordance with Brazilian labour legislationNot applicable (statutory entitlements).YesAll 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.Section 4. Independent Non-Executive Chair and Non-Executive DirectorsFees and payments to the independent Non‑Executive Chair 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 Chair and other Non‑Executive Director remuneration annually and assesses the change to the Company’s activities and overall responsibilities of each Non‑Executive Director.Following a review in July 2022, it was resolved to increase the fees paid to Non‑Executive Directors’ as follows:• a 5% fee increase be applied to the base fee of the non‑executive chair, increasing the fee by A$11,000 to A$231,000;• a 5% fee increase be applied to the base fee of the non‑executive directors, increasing the fee by A$5,000 to A$105,000;• a A$5,000 increase be applied to the committee fees payable to the chair of each Board committee, taking the fee from A$25,000 to A$30,000; and• a 5% increase be applied to committee member fees, increasing the fees payable: ‒to members of the Audit, Risk and Governance Committee by A$1,000 to A$21,000. ‒to members of the People and Culture Committee and the Sustainability and Operational Risk Committee by A$750 to A$15,750.The fee increases approved were based on market comparators, the length of time since the last fee increase, the existing fee pool limit and the potential impact on future director recruitment.59The table at the end of this section provides a summary of Karoon’s Non‑Executive Director fee schedule for the 2023 financial year.Superannuation contributions are paid, in accordance with Australian superannuation guarantee legislation, on Directors’ fees paid to Australian resident Non‑Executive Directors. An increase in fees consistent with the statutory increase in superannuation contributions of 0.5% was paid to Australian resident Non‑Executive Directors from 1 July 2022.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 contributions, 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 2023, the total fees paid to Non‑Executive Directors was A$995,336. Share‑based RemunerationNon‑Executive Directors do not 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 DirectorsKaroon does not provide any Non‑Executive Director with a retirement allowance.Non‑Executive Director Fees for the Financial Year Ended 30 June 2023Non‑Executive Directors’ fees for the financial year ended 30 June 2023 (excluding superannuation contribution) are outlined in the following table:FY2023FY2022Base feeNon‑Executive Chairman*A$231,000A$220,000Non‑Executive DirectorsA$105,000A$100,000Committee member feesAudit, Risk and Governance Committee ChairA$30,000A$25,000 MemberA$21,000A$20,000People and Culture Committee ChairA$25,000A$20,000 MemberA$15,750A$15,000Sustainability and Operational Risk Committee ChairA$25,000A$20,000 MemberA$15,750A$15,000* Non‑Executive Chairman base fee includes compensation for the appointment to relevant Committees.60REMUNERATION REPORT CONTINUEDSection 5. Statutory and Share-based ReportingDetails of the Remuneration of the Directors and Other Key Management PersonnelDetails of the remuneration of the Directors and other KMP of the Group for the financial year and previous financial year are set out in the following tables. For all remuneration reporting stated in US$, exchange rates of AU$/US$ 0.6735 (2022: 0.7259) and R$/US$ 0.1937 (2022: 0.1909) have been used.Financial Year Ended 30 June 2023Short-term BenefitsPost-employment BenefitsLeave Benefits*Share-based Payments ExpenseNAMECASH SALARY AND FEES US$OTHER US$CASH STI/BONUS US$SUPER-ANNUATION/PENSION CONTRIBUTIONS US$SOCIAL SECURITY & INDEMNITY FUND CONTRIBUTIONS US$LEAVE ENTITLEMENTS US$PERFORMANCE RIGHTS US$PERFORMANCE BASED REMUNERATION** %TOTAL REMUNERATION US$Executive DirectorsDr Julian Fowles 568,173–141,30953,976–42,387694,98355.71,500,828Non-Executive DirectorsMr Bruce Phillips155,578––16,336––––171,914Ms Luciana Rachid87,555–––––––87,555Mr Clark Davey101,530––10,661––––112,191Mr Peter Turnbull112,306––11,792––––124,098Mr Peter Botten 95,469––10,024––––105,493Mr Tadeu Fraga69,108–––––––69,108Total Directors’ remuneration1,189,719–141,309102,789–42,387694,9832,171,187Other KMP (Group)Mr Ray Church 441,48540,582131,60917,034–30,160299,52944.9960,399Mr Antonio Guimarães 323,39075,92086,91428,15348,9116,601198,60337.2768,492Total other KMP remuneration (Group)764,875116,502218,52345,18748,91136,761498,1321,728,291Total KMP remuneration (Group)1,954,594116,502359,832147,97648,91179,1481,193,1153,900,078* Leave benefits include annual leave and long service leave entitlements. The prior financial year included long service leave entitlements only.** The percentage of total remuneration consisting of performance rights, based on the value of performance rights expensed in the consolidated statement of profit or loss and other comprehensive income during the financial year.61Financial Year Ended 30 June 2022Short-term BenefitsPost-employment BenefitsLong-term BenefitsShare-based Payments ExpenseNAMECASH SALARY AND FEES US$OTHER US$CASH STI/BONUS US$SUPER-ANNUATION/PENSION CONTRIBUTIONS US$SOCIAL SECURITY & INDEMNITY FUND CONTRIBUTIONS US$LONG SERVICE LEAVE US$PERFORMANCE RIGHTS US$PERFORMANCE BASED REMUNERATION %TOTAL REMUNERATION US$Executive DirectorsDr Julian Fowles 561,302–156,17653,324–3,253513,53352.01,287,588Non-Executive DirectorsMr Bruce Phillips159,698––15,970––––175,668Ms Luciana Rachid87,108–––––––87,108Mr Clark Davey101,626––10,163––––111,789Mr Peter Turnbull112,515––11,251––––123,766Mr Peter Botten 97,997––9,800––––107,797Total Directors’ remuneration1,120,246–156,176100,508–3,253513,5331,893,716Other KMP (Group)Mr Ray Church (commenced 27 September 2021)327,49329,590193,16414,257–508162,45438.9727,466Mr Antonio Guimarães (commenced 1 October 2021)187,51813,879180,42822,90841,095–92,22930.5538,057Total other KMP remuneration (Group)515,01143,469373,59237,16541,095508254,6831,265,523Total KMP remuneration (Group)1,635,25743,469529,768137,67341,0953,761768,2163,159,239* The percentage of total remuneration consisting of performance rights, based on the value of performance rights expensed in the consolidated statement of profit or loss and other comprehensive income during the financial year.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 performance rights for the FY2023 STI award, where the fair value is equivalent to the STI opportunity achieved based on a percentage of fixed remuneration. Performance rights for the FY2023 award will be granted following the release of the Company’s 2023 full year results. The value attributable to performance rights is allocated to the relevant vesting period of the award in accordance with AASB 2 ‘Share-based Payment’, which requires the value of a performance right at grant date to be allocated equally over the vesting period, adjusted for not meeting the vesting condition. For 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 performance rights up to the end of an employee’s respective service period, where the rights are retained post cessation of employment.With the exception of long‑term performance rights granted during the current financial year, the fair value of performance rights was 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.62REMUNERATION REPORT CONTINUEDThe relative percentage proportions of remuneration that are linked to performance conditions, those that are not and those that are fixed are as follows:Not Related to Performance ConditionsRelated to Performance ConditionsFixed RemunerationCash BonusCash BonusSTI (Performance Rights)LTI (Performance Rights)NAME2023202220232022202320222023202220232022Executive DirectorDr Julian Fowles 44.3%48.0%––9.4%12.1%4.7%3.7%41.6%36.2%Non-Executive DirectorsMr Bruce Phillips100%100%––––––––Ms Luciana Rachid100%100%––––––––Mr Clark Davey100%100%––––––––Mr Peter Turnbull100%100%––––––––Mr Peter Botten100%100%––––––––Mr Tadeu Fraga100%100%––––––––Other KMP (Group)Mr Ray Church 55.1%51.1%–10.0%13.7%16.6%6.8%8.3%24.4%14.0%Mr Antonio Guimarães 62.8%49.3%–20.2%11.3%13.3%5.6%6.7%20.3%10.5%Further information on performance rights is set out in Note 29 of the consolidated financial statements.Amounts disclosed for remuneration of Directors and other KMP exclude insurance premiums paid by the Company in respect of Directors’ and officers’ liability insurance contracts, as the contracts do not specify premiums paid in respect of individual Directors and officers. Information relating to insurance contracts is set out in this Directors’ Report.Share‑based RemunerationAs at 30 June 2023, there were 9,063,068 performance rights issued under the 2019 PRP and 2022 PRP respectively, representing approximately 1.61% of the Company’s total number of shares issued. Subsequent to year end, 2,883,931 performance rights have been exercised as outlined on page 45.63The 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:GRANT DATEDATE VESTED AND EXERCISABLEEXPIRY DATEEXERCISE PRICE PER PERFORMANCE RIGHTFAIR VALUE PER PERFORMANCE RIGHT AT GRANT DATE% VESTEDPERFORMANCE CONDITION ACHIEVEDPerformance rights 25 September 20201 July 202330 June 2024$–A$0.5871002023 Performance Condition27 November 20201 July 202330 June 2024$–A$1.5721002023 Performance Condition23 March 20221 July 202430 June 2025$–A$1.815–To be determined6 May 20221 July 202430 June 2025$–A$1.525–To be determined24 November 20221 July 202530 June 2026$–A$1.707–To be determined24 November 20221 July 202330 June 2024$–A$2.3001002022 Performance Condition16 December 20221 July 202530 June 2026$–A$1.559–To be determined16 December 20221 July 202330 June 2024$–A$2.1601002022 Performance Condition31 March 20231 July 202530 June 2026$–A$1.508–To be determined30 June 2023*1 July 202530 June 2026$–A$1.332–To be determined* Performance rights associated with the 2023 Long Term incentive that are subject to shareholder approval at the 2023 Annual General Meeting.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 YearDetails 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:NAMENUMBER OF PERFORMANCE RIGHTS GRANTED DURING FINANCIAL YEARFAIR VALUE PER PERFORMANCE RIGHT AT GRANT DATE*VALUE OF PERFORMANCE RIGHTS AT GRANT DATE*NUMBER OF PERFORMANCE RIGHTS VESTED DURING FINANCIAL YEARNUMBER OF PERFORMANCE RIGHTS FORFEITEDVALUE OF PERFORMANCE RIGHTS FORFEITEDExecutive DirectorsDr Julian Fowles ‒Performance rights (LTI)432,577A$1.707A$738,409––– ‒Performance rights (LTI)**12,649A$1.332A$16,848––– ‒Performance rights (STI)62,891A$2.30A$144,649–––Other key management personnel (Group)Mr Ray Church ‒Performance rights (LTI)230,014A$1.559A$358,592––– ‒Performance rights (LTI)16,083A$1.508A$24,253––– ‒Performance rights (STI)75,730A$2.160A$163,577–––Mr Antonio Guimarães ‒Performance rights (LTI)160,788A$1.559A$250,668––– ‒Performance rights (LTI)18,720A$1.508A$28,230––– ‒Performance rights (STI)51,251A$2.160A$110,702–––Total key management personnel – Performance rights1,060,703A$1,835,928–––* The value at grant date, calculated in accordance with AASB 2, of performance rights granted during the financial year as part of their remuneration.** Performance rights associated with the 2023 Long Term incentive that are subject to shareholder approval at the 2023 Annual General Meeting.No performance rights over unissued ordinary shares in the Company, held by any Director or other KMP, lapsed during the financial year.64REMUNERATION REPORT CONTINUEDDetails of Remuneration – Performance RightsFor each grant of performance rights in the current or previous financial years which resulted in a share‑based payment expense to Directors and other KMP, the percentage of the grant that vested and percentage that was forfeited because the individual did not meet the service and/or pre‑determined performance conditions is set out below:NAMEFINANCIAL YEAR END GRANTEDVESTED %FORFEITED %FINANCIAL YEARS IN WHICH SHARE OPTIONS OR PERFORMANCE RIGHTS MAY VESTMAXIMUM TOTAL VALUE OF GRANT YET TO VEST US$Executive DirectorDr Julian Fowles ‒Performance rights (LTI)30 June 2022––30 June 2025198,089 ‒Performance rights (LTI)30 June 2023––30 June 2026339,631 ‒Performance rights (STI)*30 June 2024––30 June 202570,826Other KMP (Group)Mr Ray Church ‒Performance rights (LTI)30 June 2022––30 June 202594,878 ‒Performance rights (LTI)30 June 2023––30 June 2026172,156 ‒Performance rights (STI)*30 June 2024––30 June 202566,074Mr Antonio Guimarães ‒Performance rights (LTI)30 June 2022––30 June 202552,405 ‒Performance rights (LTI)30 June 2023––30 June 2026125,413 ‒Performance rights (STI)*30 June 2024––30 June 202543,243* Performance rights for the deferred portion of the FY2023 award will be granted following the release of the Company’s 2023 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 2023 full year financial results.No performance rights will vest if the service and/or pre‑determined performance conditions are not met, therefore the minimum value of the performance right yet to vest is $Nil.The maximum value of performance rights yet to vest was determined as the amount of the grant date fair value of the performance rights that is yet to be expensed in the consolidated statement of profit or loss and other comprehensive income. For the FY2023 award, the maximum value yet to vest is equivalent to the STI opportunity achieved, based on a percentage of fixed remuneration, to be expensed over the remaining vesting period.Performance Rights over Unissued Ordinary Shares in the Company as at 30 June 2023During the financial year 1,060,703 performance rights over unissued ordinary shares in the Company were issued to Directors and other KMP, including their personally related parties.65The movement of 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:BALANCE AS AT 1 JULY 2022GRANTED AS REMUNERATIONVESTED AND CONVERTED PERFORMANCE RIGHTSPERFORMANCE RIGHTS FORFEITEDOTHERBALANCE AS AT 30 JUNE 2023TOTAL VESTED AND EXERCISABLE AS AT 30 JUNE 2023TOTAL UNVESTED AS AT 30 JUNE 2023Executive DirectorDr Julian Fowles ‒Performance rights1,080,041508,117–––1,588,158–1,588,158Non-Executive DirectorsMr Bruce PhillipsMs Luciana Rachid––––––––Mr Clark Davey––––––––Mr Peter Turnbull––––––––Mr Peter Botten––––––––Mr Tadeu Fraga––––––––Other KMPMr Ray Church ‒Performance rights276,389321,827–––598,216–598,216Mr Antonio Guimarães ‒Performance rights152,660230,759–––383,419–383,419Total key management personnel – Performance rights1,509,0901,060,703–––2,569,793–2,569,793All performance rights granted during the financial year were issued under the 2022 PRP.The number of ordinary shares held by Directors and other KMP, including their personally related parties, as at 30 June 2023 was as follows:BALANCE AS AT 1 JULY 2022RECEIVED AS REMUNERATIONEXERCISED (SHARE OPTIONS)/VESTED AND CONVERTED (PERFORMANCE RIGHTS)SHARES PURCHASEDORDINARY SHARES SOLDBALANCE AS AT 30 JUNE 2023Executive DirectorDr Julian Fowles 107,659––––107,659Non-Executive DirectorsMr Bruce Phillips1,750,000––––1,750,000Mr Clark Davey147,214––––147,214Mr Peter Turnbull146,269––26,731–173,000Ms Luciana Rachid52,960––––52,960Mr Peter Botten––––––Mr Tadeu Fraga––––––Other KMPMr Ray Church ––––––Mr Antonio Guimarães––––––Total KMP2,204,102––26,731–2,230,83366REMUNERATION REPORT CONTINUEDNone o� �he ordinary shares are held nominally by any Direc�or or any o� �he o�her key managemen� personnel. ‘Held nominally’ re�ers �o �he si�ua�ion where �he ordinary shares are in �he name o� �he Direc�or or o�her key managemen� person, bu� �hey are no� �he bene�cial owner.A �ormal Rela�ed Par�y Pro�ocol requires �he approval by �he People and Cul�ure Commitee and, �hereafer, �he Board o� Direc�ors o� all new rela�ed par�y �ransac�ions.During �he �nancial year, Mr Tadeu Fraga, a Non‑Execu�ive Direc�or, had an in�eres� in Radix Engenharia e Sofware (Radix), �ha� provided engineering consul�ing services �o �he Group a� marke� prices. The con�rac� value �or �hese services �rom Mr Fraga’s appoin�men� on 26 Augus� 2022 �o 30 June 2023 was US$171,190. Mr Fraga’s in�eres� in Radix commenced on 1 March 2023, pos� �he execu�ion o� �he con�rac�.During �he �nancial year, Ms Carolina Fraga, a �amily member o� Mr Tadeu Fraga, a Non‑Execu�ive Direc�or, who was appoin�ed on 26 Augus� 2022, remained employed by �he Group as HR Co‑ordina�or in Brazil. The �o�al value o� her remunera�ion (including share‑based paymen�s expense) �rom 26 Augus� 2022 �o 30 June 2023 was US$89,841. Ms Fraga has been an employee o� �he Group since 2021. Ms Fraga’s employmen� wi�h �he Karoon group commenced prior �o �he appoin�men� o� �he relevan� Non‑Execu�ive Direc�or.There were no loans �o Direc�ors or o�her KMP during �he �nancial year.The amoun�s in �he �nancial repor� are rounded �o �he neares� hundred �housand dollars unless o�herwise indica�ed, under �he op�ion available �o �he Company under ASIC Corpora�ions (Rounding in Financial/Direc�ors Repor�s) Ins�rumen� 2016/191. The Company is an en�i�y �o which �his legisla�ive ins�rumen� applies.This Direc�ors’ Repor�, incorpora�ing �he Remunera�ion Repor�, is made in accordance wi�h a resolu�ion o� �he Direc�ors.On behal� o� �he Direc�ors: Independen� Non‑Execu�ive Chairman Chie� Execu�ive O�cer and Managing Direc�or23 Augus� 2023Other Transactions with Directors and Other KMPLoans to Directors and Other KMPRoundingMr Bruce Phillips Dr Julian Fowles 67AUDITOR’S INDEPENDENCE DECLARATION PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331 MELBOURNE VIC 3001 T: +61 38603 1000, F: +61 38603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Auditor’s Independence Declaration As lead auditor for the audit of Karoon Energy Ltd for the year ended 30 June 2023, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the 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. Graeme McKenna Melbourne Partner 23 August 2023 PricewaterhouseCoopers Corporations Act 200168Karoon 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.CONSOLIDATED FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 30 JUNE 2023CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 69CONSOLIDATED STATEMENT OF FINANCIAL POSITION 70CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 71CONSOLIDATED STATEMENT OF CASH FLOWS 72NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 73Note 1. Significant Accounting Policies 73Note 2. Significant Accounting Estimates, Assumptions and Judgements 81Note 3. Financial Risk Management 83Note 4. Revenue and Other Income 90Note 5. Expenses 91Note 6. Income Tax 92Note 7. Remuneration of External Auditors 94Note 8. Dividends 94Note 9. Earnings Per Share 94Note 10. Cash and Cash Equivalents 95Note 11. Receivables 95Note 12. Inventories 95Note 13. Security Deposits 96Note 14. Other Assets 96Note 15. Oil and Gas Assets 97Note 16. Property, Plant and Equipment 98Note 17. Exploration and Evaluation Assets 99Note 18. Trade and Other Payables 99Note 19. Provisions 100Note 20. Leases 101Note 21. Borrowings 101Note 22. Other Financial Assets and Liabilities 102Note 23. Contributed Equity and Reserves Within Equity 103Note 24. Subsidiaries 105Note 25. Segment Information 105Note 26. Contingent Liabilities and Contingent Assets 108Note 27. Commitments 109Note 28. Reconciliation to the Consolidated Statement of Cash Flows 110Note 29. Share‑based Payments 111Note 30. Related Party Transactions 113Note 31. Parent Company Financial Information 114Note 32. Subsequent Events 11569CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFor the Financial Year Ended 30 June 2023CONSOLIDATEDNOTE2023 US$M2022 US$MRevenue4(a)566.5385.1Cost of Sales5(a)(283.2)(191.7)Gross Profit283.3193.4Other income4(b)5.70.8Business development and transition costs 5(b)(3.7)(3.4)Exploration expenses5(c)(3.9)(3.2)Finance costs 5(d)(25.4)(22.7)Net foreign currency gains/(losses)(0.8)6.2Other expenses5(e)(33.8)(33.8)Change in fair value of contingent consideration22(ii)(5.2)(227.1)Profit/(Loss) before income tax216.2(89.8)Income tax (expense)/benefit 6(53.2)25.4Profit/(Loss) for financial year attributable to equity holders of the Company163.0(64.4)Other comprehensive income, net of income tax:Items that may be reclassified subsequently to profit or lossExchange differences arising from the translation of financial statements into presentation currency(1.5)(4.3)Net change in fair value of cash flow hedges and cost of hedging2333.3(41.3)Other comprehensive income/(loss) for financial year, net of income tax31.8(45.6)Total comprehensive income/(loss) for financial year attributable to equity holders of the Company, net of income tax194.8(110.0)Earnings per share attributable to equity holders of the Company:Basic earnings per ordinary share (cents per share)928.99(11.59)Diluted earnings per ordinary share (cents per share)928.59(11.59)The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.70CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDCONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 30 June 2023CONSOLIDATEDNOTE2023 US$M2022 US$MCurrent assetsCash and cash equivalents1074.8157.7Receivables1171.156.4Inventories128.719.4Security deposits130.40.3Other financial assets223.0–Other assets149.211.8Total current assets167.2245.6Non-current assetsDeferred tax assets6124.7123.0Inventories128.35.8Oil and gas assets15798.7733.0Property, plant and equipment162.713.3Intangible assets0.1–Exploration and evaluation assets1785.740.9Security deposits132.31.3Other assets140.71.3Total non-current assets1,023.2918.6Total assets1,190.41,164.2Current liabilitiesTrade and other payables1857.268.3Current tax liabilities5.69.6Other financial liabilities2286.0125.4Lease liabilities2047.243.7Provisions190.20.4Total current liabilities196.2247.4Non-current liabilitiesTrade and other payables185.86.8Borrowings2128.127.1Other financial liabilities22133.0222.0Lease liabilities20200.4245.2Provisions19153.3139.5Total non-current liabilities520.6640.6Total liabilities716.8888.0Net assets473.6276.2EquityContributed equity23907.5907.5Accumulated losses(315.8)(478.8)Reserves(118.1)(152.5)Total equity473.6276.2The above consolidated statement of financial position should be read in conjunction with the accompanying notes.71CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the Financial Year Ended 30 June 2023CONSOLIDATEDNOTECONTRIBUTED EQUITY US$MACCUMULATED LOSSES US$MSHARE- BASED PAYMENTS RESERVE US$MFOREIGN CURRENCY TRANSLATION RESERVE US$MHEDGING RESERVES US$MTOTAL EQUITY US$MBalance as at 1 July 2021905.1(414.4)50.2(160.7)–380.2Loss for financial year–(64.4)–––(64.4)Other comprehensive loss–––(4.3)(41.3)(45.6)Total comprehensive income/(loss) for financial year–(64.4)–(4.3)(41.3)(110.0)Transactions with owners in their capacity as owners:Exercise of options23(b)2.4––––2.4Share‑based payments expense29(c)––3.6––3.6Balance as at 30 June 2022907.5(478.8)53.8(165.0)(41.3)276.2Profit for financial year–163.0–––163.0Other comprehensive income (loss)–––(1.5)33.331.8Total comprehensive income/(loss) for financial year–163.0–(1.5)33.3194.8Transactions with owners in their capacity as owners:Share‑based payments expense29(c)––2.6––2.6––2.6––2.6Balance as at 30 June 2023907.5(315.8)56.4(166.5)(8.0)473.6The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.72CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDCONSOLIDATED STATEMENT OF CASH FLOWSFor the Financial Year ended 30 June 2023CONSOLIDATEDNOTE2023 US$M2022 US$MCash flows from operating activitiesReceipts from customers 552.9362.9Payments to suppliers and employees (135.2)(116.5)Payments for exploration and evaluation expenditure expensed(4.0)(3.5)Payments for legal settlement–(9.6)Payments for cash flow hedges (13.4)(20.8)Interest received4.2–Borrowing and other costs of finance paid(19.8)(18.9)Income taxes paid(78.8)(39.4)Net cash flows from operating activities28(a)305.9154.2Cash flows from investing activitiesPayments for plant and equipment and computer software(2.5)(5.1)Acquisition of oil and gas assets(84.5)(43.6)Payments for oil and gas assets(222.5)(59.6)Borrowing costs paid for qualifying assets(2.7)(5.8)Payments for exploration and evaluation expenditure capitalised(43.1)–Payment for security deposits(0.9)(0.3)Proceeds from disposal of non‑current assets–1.4Net cash flows used in investing activities(356.2)(113.0)Cash flows from financing activitiesPrincipal elements of lease payments(34.1)(44.6)Proceeds from issue of ordinary shares–2.4Proceeds from borrowings–30.0Debt facility costs(0.1)(3.3)Net cash flows used in financing activities(34.2) (15.5)Net increase/(decrease) in cash and cash equivalents(84.5)25.7Cash and cash equivalents at beginning of financial year157.7133.3Effect of exchange rate changes on cash and cash equivalents held in foreign currencies1.6(1.3)Cash and cash equivalents at end of financial year1074.8157.7The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.73NOTE 1. SIGNIFICANT ACCOUNTING POLICIESThe 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 PreparationThese 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.The financial statements have been prepared on a going concern basis. For further details please refer to the liquidity risk section in Note 3(d).RoundingThe amounts in the financial statements are rounded to the nearest hundred thousand dollars 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 ConventionThe 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 JudgementsThe 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 StandardsCompliance 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 ChangeIn 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.New, Revised or Amended Australian Accounting Standards and Interpretations that are First Effective in the Current Reporting PeriodThe 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 2023:New and revised Australian Accounting Standards and amendments thereof and Interpretations effective for the financial year include:• AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018-2020 and Other Amendments.The initial adoption of the amendments listed above 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.New standards and interpretations not yet adoptedThe Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.(b) Basis of ConsolidationThe consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June 2023 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 24.All subsidiaries have a financial year end of 30 June, with the exception of: Karoon Petróleo & Gás 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.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 30 JUNE 202374NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUEDAccounting 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 InformationOperating 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) RevenueRevenue 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 price is variable, revenue is recognised only to the extent that it is highly probable that a significant reversal of revenue will not occur.Oil salesPerformance 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.Interest IncomeInterest income on financial assets at amortised cost calculated using the effective interest method is recognised in the consolidated 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 BalancesFunctional and Presentation CurrencyItems 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 subsidiaries have a functional currency of US$.The presentation currency of the consolidated financial statements is US$.Transactions and BalancesForeign 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 CompaniesThe 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.75(f) Income Taxes and Other TaxesCurrent TaxCurrent tax (expense)/benefit 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.Deferred TaxDeferred 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 ConsolidationThe 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 (expense)/benefit, 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.(g) Cash and Cash EquivalentsCash 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.76NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED(h) ReceivablesReceivables, 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) InventoriesInventories 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 DepositsCertain 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 EquipmentProperty, 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 AssetsProduction assetsProduction 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.Assets in developmentWhen 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.77Amortisation of production assetsAmortisation is calculated using the units of production method for an asset or group of assets from the date of commencement of production. (m) IntangiblesComputer SoftwareComputer 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 CostsBorrowing 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 ExpenditureExploration 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 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 are capitalised, along with licence costs paid in connection with a right to explore in an existing exploration area.Farm‑outThe 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 ExpenditureThe 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.78NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUEDAn 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 or cash generating unit is then written down to its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal 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 PayablesTrade 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 LiabilitiesFinancial 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.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 instrumentsThe 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.79Derivative 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 hedgesWhen 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 relation to time value of money 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 22.(s) Employee BenefitsWages, Salaries, Annual Leave and Personal LeaveLiabilities 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.Share‑based PaymentsShare‑based remuneration benefits are provided to Executive Directors and employees via the Company’s PRP (refer Note 29). The Group issues equity‑settled and cash‑settled share‑based payments to certain employees.The fair value of 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 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 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 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 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) ProvisionsProvisions 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.80NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUEDRestoration CostsA 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 consolidated statement of financial position at total estimated present value. 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 consolidated statement of comprehensive income through amortisation 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 LeaveA 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 expected 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.(u) Contributed EquityOrdinary 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 OperationsA 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.(w) LeasesThe 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 assetsThe 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 ShareBasic Earnings Per ShareBasic 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.81Diluted Earnings Per ShareDiluted 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.(y) Parent Company Financial InformationThe financial information for the Parent Company, Karoon Energy Ltd, disclosed in Note 31 has been prepared on the same basis as the consolidated financial statements, except as set out below:Investments in SubsidiariesInvestments 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 PaymentsThe grant by the Company of equity‑settled 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 YearsThere 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 FiguresWhen 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 JUDGEMENTSRevenues 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 assetsThe 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 ExpenditureCapitalised 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.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.82NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 2. SIGNIFICANT ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS CONTINUED(c) Provision for RestorationRestoration 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 2023 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 quantitiesThe estimated quantities of Proved plus Probable (“2P’’) hydrocarbon reserves reported by the Group are integral to the calculation of amortisation expense and to the assessment of impairment or impairment reversals.Estimated reserves quantities are based on 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 instrumentsWhen the fair values of financial assets and financial liabilities recorded in the consolidated 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 22) 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 PaymentsEstimating 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 performance right, volatility and dividend yield and making assumptions about them at grant date. 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 on 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 and performance rights granted that will ultimately vest or be settled in cash. At the end of each reporting period, the unvested 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 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.83(g) Income TaxThe 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) Determining the lease term of contracts with renewal optionsThe 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 MANAGEMENTThe 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, Risk and Governance 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.84NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 3. FINANCIAL RISK MANAGEMENT CONTINUEDThe totals for each category of financial instruments in the consolidated statement of financial position are as follows:CONSOLIDATEDNOTE2023 US$M2022 US$MFinancial assetsCash and cash equivalents1074.8157.7Receivables1171.156.4Other financial assets223.0–Security deposits132.71.6Total financial assets151.6215.7Financial liabilitiesTrade and other payables (refer note (i) below)61.473.6Borrowings (refer note (ii) below)2130.030.0Other financial liabilities (refer note (iii) below)22219.0347.4Lease liabilities20247.6288.9Total financial liabilities558.0739.9(i) Trade and other payables above exclude amounts relating to annual leave liabilities, which are not considered a financial instrument.(ii) Borrowings exclude transaction costs which are not considered a financial instrument.(iii) Other financial liabilities relate to the contingent consideration payable to Petrobras as part of the acquisition of Baúna. (refer Note 22).(a) Market Risk(i) Foreign Exchange RiskForeign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign exchange risk arises when future commercial transactions and recognised financial assets and financial liabilities are denominated in a currency that is not the Company’s functional currency.The Group’s revenue, significant operating expenditure including the FPSO charter lease and a large component of capital obligations are predominantly denominated in US$.The Group’s remaining foreign exchange risk exposures relate to administrative and business development expenditures incurred at the corporate level in A$; and operating and capital expenditures incurred by the Group in relation to operating the Baúna production asset in Brazil in Brazilian REAL. These items are translated to US$ equivalents at each period end, and the associated gain or loss is taken to the Consolidated 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.85(ii) Interest Rate RiskInterest 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 2023 and 30 June 2022, 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 equivalents 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:CONSOLIDATED2023WEIGHTED AVERAGE INTEREST RATE % P.A.FLOATING INTEREST RATE US$MFIXED INTEREST RATE US$MNON-INTEREST BEARING US$MFAIR VALUE US$MCARRYING AMOUNT US$MFinancial assetsCash and cash equivalents1.3927.0–47.874.874.8Receivables–––71.171.171.1Other financial assets–––3.03.03.0Security deposits9.072.60.1–2.72.7Total financial assets29.60.1121.9151.6151.6Financial liabilitiesTrade and other payables–––61.461.461.4Borrowings8.2230.0––30.030.0Other financial liabilities2.00–219.0–219.0219.0Lease liabilities–––247.6247.6247.6Total financial liabilities30.0219.0309.0558.0558.0CONSOLIDATED2022WEIGHTED AVERAGE INTEREST RATE % P.A.FLOATING INTEREST RATE US$MFIXED INTEREST RATE US$MNON-INTEREST BEARING US$MFAIR VALUE US$MCARRYING AMOUNT US$MFinancial assetsCash and cash equivalents–47.0–110.7157.7157.7Receivables–––56.456.456.4Security deposits7.091.50.1–1.61.6Total financial assets48.50.1167.1215.7215.7Financial liabilitiesTrade and other payables–––73.673.673.6Borrowings5.9530.0––30.030.0Other financial liabilities2.00–298.349.1347.4347.4Lease liabilities–––288.9288.9288.9Total financial liabilities30.0298.3411.6739.9739.986NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 3. FINANCIAL RISK MANAGEMENT CONTINUEDInterest Rate Sensitivity AnalysisThe 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.CONSOLIDATED2023 US$M2022 US$MChange in profit(loss) before income tax ‒Increase of interest rate by 1% p.a.–0.4 ‒Decrease of interest rate by 1% p.a.–(0.1)Change in financial instruments ‒Increase of interest rate by 1% p.a.–0.4 ‒Decrease of interest rate by 1% p.a.–(0.1)(b) Commodity Price RiskThe 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 prior year, 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. During the financial year, approximately 37% of actual production volume was hedged. At reporting date, the Group held hedging financial instruments with a net asset carrying value of $3.0m (refer Note 22).Commodity Price Sensitivity Analysis – Cash Flow HedgesThe following table details the Group’s sensitivity to a 10% increase or decrease in the Brent oil price, with all other variables held constant.CONSOLIDATED2023 US$M2022 US$MChange in reserves (in accordance with hedge accounting application) ‒Increase of oil price by 10%–(47.8) ‒Decrease of oil price by 10%–47.8Change in financial liabilities ‒Increase of oil price by 10%–(47.8) ‒Decrease of oil price by 10%–47.8Commodity Price Sensitivity Analysis – Contingent ConsiderationAs 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 by calculating the present value of the future expected cash outflows. The estimates are based on the Group’s internal assessment of future oil prices. A discount rate of 3.42% and 2% inflation factor has also been applied. Refer to Note 22 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 2023, with the US$70 per barrel threshold triggered over calendar years 2022‑2026, the maximum contingent consideration payable has been recognised and as such a 10% increase in the oil price would have no impact on the financial statements.87CONSOLIDATED2023 US$M2022 US$MChange in profit/(loss) before income tax ‒Increase of oil price by 10%–– ‒Decrease of oil price by 10%30.443.1Change in financial liabilities ‒Increase of oil price by 10%–– ‒Decrease of oil price by 10%(30.4)(43.1)(c) Credit RiskThe 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 Baa1. 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 AssetsThe Group has two 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 LossWhen 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 consolidated 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 DepositsThe 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 $2.1m (30 June 2022: $1.2m) 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. 88NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 3. FINANCIAL RISK MANAGEMENT CONTINUEDThe credit rating of Itau Unibanco SA is Ba2 (30 June 2022: Ba2), which is a non‑investment grade rating that carries 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 bank credit ratings will be limited by the sovereign rating. 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 2023, there were $Nil (30 June 2022: $Nil) security deposits past due. The loss allowance recognised during the financial year for security deposits was $Nil. Accordingly, interest income has been calculated on the gross carrying amount during the financial year.ReceivablesThe 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 $165k (30 June 2022: $318k) 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 2023, there were $Nil (30 June 2022: $Nil) receivables past due. The loss allowance for receivables recognised during the financial year was $Nil (30 June 2022: $Nil).(d) Liquidity RiskLiquidity 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 $74.8m (30 June 2022: $157.7m) that are expected to readily generate cash inflows for managing liquidity risk. The Group had external borrowings of $30.0m (30 June 2022: $30.0m).The Group had access to the following undrawn borrowing facilities at the end of the reporting period:2023 US$M2022 US$MFloating rate ‒Expiring beyond one year (syndicated loan facility and accordion facility)180.0180.089An analysis of the Group’s financial liabilities contractual maturities at the end of the financial year is set out in the tables below. The amounts disclosed in the table are the contractual undiscounted cash flows comprising principal and interest repayments.CONSOLIDATED2023LESS THAN 6 MONTHS US$M6-12 MONTHS US$M1-3 YEARS US$M3-5 YEARS US$MOVER 5 YEARS US$MTOTAL US$MFinancial liabilitiesNon-derivative financial liabilitiesTrade and other payables58.43.010.4––71.8Borrowings––30.0––30.0Lease liabilities30.229.9119.8103.2–283.1Derivative financial liabilitiesContingent consideration – embedded derivative–86.0128.817.5–232.3Total financial liabilities88.6118.9289.0120.7–617.22022Financial liabilitiesNon-derivative financial liabilitiesTrade and other payables69.33.38.0––80.6Borrowings––30.0––30.0Lease liabilities29.829.4119.0118.443.1339.7Derivative financial liabilitiesDerivative financial instruments – cash flow hedges20.620.28.3––49.1Contingent consideration – embedded derivative–84.6174.459.1–318.1Total financial liabilities119.7137.5339.7177.543.1817.5(e) Fair Value EstimationFor disclosure purposes only, the fair values of financial assets and financial liabilities as at 30 June 2023 and 30 June 2022 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 EquivalentsThe carrying amount is fair value due to the liquid nature of these assets.ReceivablesThe carrying amounts of current receivables are assumed to approximate their fair values due to their short‑term nature.90NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 3. FINANCIAL RISK MANAGEMENT CONTINUEDSecurity DepositsThe carrying amounts of security deposits are assumed to represent their fair values based on their likely realisability profile.Trade and Other PayablesDue to the nature of these financial liabilities, their carrying amounts are a reasonable approximation of their fair values.Lease LiabilitiesFair 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 HedgesThe 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 DerivativeThe fair value of the contingent consideration was estimated by 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 3.42% and 2% inflation factor has also been applied.Fair value measurementThe 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.NOTE 4. REVENUE AND OTHER INCOMECONSOLIDATED2023 US$M2022 US$M(a) RevenueCrude oil sales 566.5385.1Total revenue from contracts with customers566.5385.1(b) Other IncomeInterest income4.00.2Write‑back of inventory impaired1.6–Sundry income0.10.6Total other income5.70.891NOTE 5. EXPENSESCONSOLIDATED2023 US$M2022 US$M(a) Cost of salesOperating costs62.057.2Royalties and other government take66.741.5Depreciation and amortisation – oil and gas assets143.099.4Change in inventories11.5(6.4)Total cost of sales283.2191.7(b) Business development and other project costsBusiness development and other project costs3.73.4Total Business development and other project costs3.73.4(c) Exploration expensesExploration and evaluation expenditure expensed3.93.2Total exploration and evaluation expenditure expensed 3.93.2(d) Finance costsFinance charges on lease liabilities15.516.9Discount unwinding on net present value of provision for restoration5.02.4Interest expense2.12.1Other finance costs2.81.3Total finance costs25.422.7(e) Other expensesCorporate20.715.4Realised losses on cash flow hedges7.111.8Depreciation and amortisation – non‑oil and gas assets0.90.7Share‑based payments expense3.15.7Social investments/sponsorships1.9–Loss on disposal of non‑current assets0.1–Other expenses–0.2Total other expenses33.833.892NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 6. INCOME TAXCONSOLIDATEDNOTE2023 US$M2022 US$M(a)  Income Tax Recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive IncomeTax income (expense) comprises: Current income tax(74.0)(39.3)Deferred income tax20.864.7Total income tax (expense)/benefit(53.2)25.4The prima facie tax on profit/(loss) before income tax is reconciled to tax (expense)/benefit as follows:Prima facie tax (expense)/benefit on profit/(loss) before income tax, calculated at the Brazilian tax rate of 34%(i)(73.5)30.5(Add)/subtract the tax effect of:Share‑based payments expense (non‑cash)(0.7)(0.9)Other non‑deductible items(1.4) (3.4)Social investments/sponsorships(ii)1.1–Tax losses and temporary tax differences not recognised–(0.2)Difference in overseas tax rates(0.4)(0.3)Foreign exchange differences21.7(0.3)Total income tax (expense)/benefit(53.2)25.4(b) Amounts Recognised Directly in EquityAggregate current and deferred tax arising during the financial year and not recognised in net profit or loss, but directly debited or credited in equity:Deferred tax – (debited)/credited directly in hedging reserves23(d)(iii)(16.9)21.2(i) In prior years, the reconciliation of prima facie tax (expense)/benefit on profit/(loss) before income tax to tax (expense)/benefit has been calculated at the Australian tax rate of 30%. Due to the current operations of the Company being predominantly located in Brazil, the Company has determined that the Brazilian tax rate of 34% provides the most meaningful information to users of the financial statements. The prior year comparatives in Note 6(a) have been restated.(ii) This is a scheme which under Brazilian tax law permits a company when paying tax to direct a portion of this payment to specific government approved projects. There is no net cost to the Company as this amount replaces tax payable. It is classified as an expense in the financial statements93BALANCE AS AT 1 JULY 2022 US$MCHARGED (CREDITED) TO PROFIT OR LOSS US$MCHARGED (CREDITED) DIRECTLY TO EQUITY US$MTAX LOSSES UTILISED US$MBALANCE AS AT 30 JUNE 2023 US$M(c) Deferred Tax BalancesTemporary differencesProvisions and accruals19.611.4––31.0Equity raising transaction costs0.2(0.1)––0.1Unrealised foreign currency (gains)/losses(12.7)(8.0)––(20.7)Translation adjustment14.224.6––38.8Fair value movement of financial liabilities79.6(18.2)––61.4Farm‑out expenditures0.1–––0.1Right‑of‑use assets(95.4)15.5––(79.9)Lease liabilities98.2(3.6)––94.6Hedge premium(4.5)(0.8)––(5.3)Net changes of cash flow hedges21.2–(16.9)–4.3Other0.3–––0.3Total temporary differences120.820.8(16.9)–124.7Unused tax lossesTax losses2.2––(2.2)–Total unused tax losses2.2––(2.2)–Net deferred tax assets/(liabilities)123.020.8(16.9)(2.2)124.7Presented in the consolidated statement of financial position as follows:Deferred tax assets123.0124.7CONSOLIDATED2023 US$M2022 US$M(d) Unrecognised Deferred Tax AssetsA 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%16.518.0Tax losses: Peruvian operating losses at a tax rate of 32%6.46.4Potential tax income22.924.494NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 7. REMUNERATION OF EXTERNAL AUDITORSCONSOLIDATED2023 US$’0002022 US$’000Remuneration received or due and receivable by the external auditor of the Company for:(a) PricewaterhouseCoopers Australia(i) Audit and other assurance servicesAudit and review of financial statements190181Other assurance services2736Total remuneration for audit and other assurance services217217(ii) Other servicesAll other services––Total remuneration of PricewaterhouseCoopers Australia217217(b) Related Practices of PricewaterhouseCoopers Australia(i) Audit and other assurance servicesAudit and review of financial statements151130Total remuneration for audit and other assurance services of related practices of PricewaterhouseCoopers Australia151130Total remuneration of external auditors368347NOTE 8. DIVIDENDSThere were no ordinary dividends declared or paid during the financial year by the Group (2022: $Nil).CONSOLIDATED2023 US$M2022 US$MBalance of franking account available for subsequent reporting periods14.412.4The above amount is calculated from the balance of the Company’s franking account as at the end of the financial year. Franking credits are based on the Australian tax rate of 30%.NOTE 9. EARNINGS PER SHARECONSOLIDATED2023 US$M2022 US$MProfit/(loss) for the financial year used to calculate basic and diluted earnings per ordinary share:163.0(64.4)(a) Basic earnings per ordinary share (cents per share)28.99(11.59)(b) Diluted earnings per ordinary share (cents per share)*28.59(11.59)Weighted average number of ordinary shares on issue during the financial year used in calculating basic earnings per ordinary share:562,290,221555,904,067Weighted average number of potential ordinary shares:7,816,43912,154,223Weighted average number of ordinary shares and potential ordinary shares used in calculating diluted earnings per ordinary share:570,106,660568,058,290* Diluted loss per ordinary share equates to basic loss per ordinary share in the prior financial year because a loss per ordinary share is not considered dilutive for the purposes of calculating earnings per share pursuant to AASB 133 ‘Earnings per Share’.95Potential ordinary sharesPerformance rights over unissued ordinary shares of the Company outstanding at the end of the financial year are considered to be potential ordinary shares and have been included in the determination of diluted earnings per ordinary share to the extent to which they are dilutive. The potential ordinary shares have not been included in the determination of basic earnings per ordinary share.NOTE 10. CASH AND CASH EQUIVALENTSCONSOLIDATED2023 US$M2022 US$MCash at bank and on hand 74.8157.7Total cash and cash equivalents74.8157.7NOTE 11. RECEIVABLESCONSOLIDATED2023 US$M2022 US$MTrade debtors – crude oil sales69.656.0Other receivables1.50.4Total current receivables71.156.4(a) Financial Risk ManagementInformation concerning the Group’s exposure to financial risks on receivables is set out in Note 3.NOTE 12. INVENTORIESCONSOLIDATED2023 US$M2022 US$MCurrentPetroleum inventories5.817.3Casing and other drilling inventory2.92.1Total current inventories8.719.4Non-currentCasing and other drilling inventory8.35.8Total non-current inventories8.35.896NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 13. SECURITY DEPOSITSCONSOLIDATED2023 US$M2022 US$MCurrentKaroon Petróleo & Gás Ltda (refer note (a) below)0. 40.3Total current security deposits0.40.3Non-currentKaroon Petróleo & Gás Ltda (refer note (b) below)2.11.2Karoon Energy Ltd (refer note (c) below)0.20.1Total non-current security deposits2.31.3(a) BondsCash deposits are held as bonds predominately for the Group’s compliance with its obligations in respect of agreements for the guarantee (refer Note 26) of payment obligations for office premises in Brazil.(b) Guarantee BondThe Group has provided the ANP a letter of credit (refer Note 26) to carry out the minimum work program in relation to exploration in Santos Basin Block S‑M‑1537. The letter of credit is fully funded by way of payment of a security deposit, which will be released once the work program is met.(c) Bank GuaranteesCash deposits are held as security against bank guarantee facilities for bank guarantees (refer Note 26) given to lessors for the Group’s compliance with its obligations in respect of lease rental agreements for office premises in Australia.(d) Financial Risk ManagementInformation concerning the Group’s exposure to financial risks on security deposits is set out in Note 3.NOTE 14. OTHER ASSETSCONSOLIDATED2023 US$M2022 US$MCurrentPrepayments 7.29.3Sundry assets2.02.5Total current other assets9.211.8Non-currentPrepayments0.71.3Total non-current other assets0.71.397NOTE 15. OIL AND GAS ASSETSNOTEPRODUCTION ASSET US$MDEVELOPMENT ASSET US$MRIGHT OF USE ASSETS US$MCONSOLIDATED TOTAL US$MFinancial year ended 30 June 2022Balance at beginning of financial year411.719.0305.7736.4Additions25(c)69.322.7–92.0Remeasurement of lease arrangements––20.820.8Borrowing costs capitalised(i)–4.8–4.8Depreciation expense(55.0)–(44.4)(99.4)Impact of increase in discount rate on provision for restoration at year end19(b)(21.6)––(21.6)Carrying amount at end of financial year404.446.5282.1733.0At 30 June 2022At cost496.246.5354.7897.4Accumulated depreciation(91.8)–(72.6)(164.4)Carrying amount at end of financial year404.446.5282.1733.0Financial year ended 30 June 2023Balance at beginning of financial year404.446.5282.1733.0Additions25(c)63.0127.9–190.9Transfers from property, plant and equipment12.0––12.0Remeasurement of lease arrangements––(5.7)(5.7)Borrowing costs capitalised(i)–2.7–2.7Depreciation expense(85.5)–(57.5)(143.0)Net increase in provision for restoration(ii)19(b)8.8––8.8Completions and transfers177.1(177.1)––Carrying amount at end of financial year579.8–218.9798.7At 30 June 2023At cost757.1–349.01,106.1Accumulated depreciation(177.3)–(130.1)(307.4)Carrying amount at end of financial year579.8–218.9798.7(i) The capitalised borrowing costs relate to an apportionment of the fees incurred in connection with the syndicated loan facility (refer Note 21) relating to the Patola development, which met the definition of a qualifying asset.(ii) Includes the addition of restoration obligations relating to the Patola wells, offset by an increase in the discount rate on total restoration provisions (refer Note 19).98NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 16. PROPERTY, PLANT AND EQUIPMENTNOTEPLANT AND EQUIPMENT US$MRIGHT OF USE ASSETS US$MCONSOLIDATED TOTAL US$MAt 30 June 2022At cost13.72.416.1Accumulated depreciation(1.8)(1.0)(2.8)Carrying amount at end of financial year11.91.413.3Financial year ended 30 June 2023Balance at beginning of financial year11.91.413.3Additions25(c)2.7–2.7Disposals(0.5)–(0.5)Transfer to Oil and Gas Assets(12.0)–(12.0)Depreciation expense(0.4)(0.4)(0.8)Carrying amount at end of financial year1.71.02.7At 30 June 2023At cost3.92.46.3Accumulated depreciation(2.2)(1.4)(3.6)Carrying amount at end of financial year1.71.02.799NOTE 17. EXPLORATION AND EVALUATION ASSETSCONSOLIDATEDNOTE2023 US$M2022 US$MThe reconciliation of exploration and evaluation expenditure carried forward is set out below:Balance at beginning of financial year40.940.9Additions25(c)44.81.4Transfer to development assets –(1.4)Total exploration and evaluation expenditure carried forward85.740.9NOTE 18. TRADE AND OTHER PAYABLESCONSOLIDATED2023 US$M2022 US$MCurrentTrade payables47.860.9Sundry payables and accruals8.15.3Cash‑settled share‑based payments1.32.1Total current trade and other payables57.268.3Non-current (unsecured)Sundry payables and accruals5.85.7Cash‑settled share‑based payments–1.1Total non-current trade and other payables5.86.8Financial Risk ManagementInformation concerning the Group’s exposure to financial risks on trade and other payables is set out in Note 3.100NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 19. PROVISIONSCONSOLIDATED2023 US$M2022 US$MCurrentProvision for long service leave (refer note (a) below)0.20.4Total current provision0.20.4Non-currentProvision for restoration (refer note (b) below)153.3139.5Total non-current provisions153.3139.5(a) Provision for Long Service LeaveA 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 restorationCONSOLIDATED2023 US$M2022 US$MBalance at beginning of financial year139.5158.7Additions (refer note (i) below)23.8–Discount unwinding on provision for restoration5.02.4Impact of increase in discount rate at year‑end(15.0)(21.6)Total provision for restoration153.3139.5(i) A provision was recognised during the year for Brazilian restoration obligations relating to the Patola wells. The measurement and recognition criteria relating to restoration obligations are as described in Note 1(t).(ii) A Parent Company guarantee totalling Brazilian REALS 117.7 million (US$24.4 million equivalent as at 30 June 2023) was provided to the ANP in respect of existing decommissioning obligations relating to the Baúna field.101NOTE 20. LEASESCONSOLIDATED2023 US$M2022 US$MCurrent47.243.7Non‑current200.4245.2Total lease liabilities247.6288.9ReconciliationBalance at beginning of financial year288.9312.8Remeasurement of lease arrangements(5.7)20.8Additions–0.9Disposals–(0.2)Adjustment to fixed lease payments(1.6)(0.8)Accretion of interest15.516.9Payments(49.6)(61.4)Net foreign currency differences0.1(0.1)Total lease liabilities247.6288.9NOTE 21. BORROWINGSCONSOLIDATED2023 US$M2022 US$MNon-currentSyndicated loan facility – secured30.030.0Less transaction costs(i)(1.9)(2.9)Total non-current borrowings28.127.1(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 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 2023, $30 million has been drawn down, with $180m remaining undrawn.Interest on drawn amounts is charged at SOFR, including a credit adjustment spread of 0.26%, plus a margin of 4.25% p.a. A commitment fee is charged on undrawn available amounts at 1.7% p.a. The facility has a final maturity date of the earlier of 31 March 2025 or the quarter where the remaining reserves are forecast to be ≤ 25% of the initial approved reserves. The availability period is anticipated to continue into the September quarter, but not longer than 30 September 2023, after which the unutilised commitments shall be cancelled. Contractual repayments are based on the total outstanding reduction schedule with the facility amortising semi‑annually on a straight‑line basis from 30 September 2023 to maturity.Karoon is also required to enter into oil hedging to ensure forecasted oil production is within a minimum and maximum hedge ratio.The Group has complied with all loan covenants throughout the reporting period.102NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 22. OTHER FINANCIAL ASSETS AND LIABILITIESCONSOLIDATED2023 US$M2022 US$MAssetsCurrentDerivative financial instruments – cash flow hedges(i)3.0–Total assets3.0–LiabilitiesCurrentDerivative financial instruments – cash flow hedges(i)–40.8Embedded derivative – contingent consideration payable(ii)86.084.6Total current other financial liabilities86.0125.4Non-currentDerivative financial instruments – cash flow hedges(i)–8.3Embedded derivative – contingent consideration payable(ii)133.0213.7Total non-current other financial liabilities133.0222.0Total other financial liabilities219.0347.4(i) The Group has 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 (refer Note 21). 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 $52.2m pre‑tax ($33.3m net of tax) have been recognised in the hedging reserves within equity (refer Note 23), which includes $2.0m pre‑tax that has been reclassified to profit or loss. No losses were recognised in profit or loss for hedge ineffectiveness during the period. At 30 June 2023, the Group had the following outstanding hedges: FINANCIAL YEARBOUGHT PUT STRIKE (US$/BBL)PUT VOLUME (‘000 BBL)SOLD CALL AVERAGE STRIKE (US$/BBL)CALL VOLUME (‘000 BBL)2024652,04091.81,5782,0401,578103(ii) Reconciliation of contingent consideration payableCONSOLIDATED2023 US$M2022 US$MBalance at beginning of financial year298.371.2Payments(84.5)–Unrealised fair value changes recognised in profit or loss during the period5.2227.1Total contingent consideration payable at fair value219.0298.3 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$70 a barrel. After the testing of each year, any amount deemed not payable is cancelled and not carried forward. The amount payable each calendar year excluding interest depending on achievement of certain oil prices is disclosed below:AVERAGE BRENT PRICE (IN US$ UNITS)CY2022CY2023CY2024CY2025CY2026TOTALB < 50––––––50 <= B < 55333221355 <= B < 60171717846360 <= B < 6534343415612365 <= B < 705353532410193B >= 707878783615285 As at 30 June 2022, based on the Group’s internal assessment of future oil prices and industry consensus, the Brent oil forecast was revised and it was assessed that the amount payable under the contingent consideration arrangement would be the maximum amount payable of $285m plus interest. At 30 June 2023, based on the Group’s internal assessment of future oil prices and industry consensus, the amount payable continues to accrue at the maximum amount payable plus interest. $84.5m, the amount payable in respect of the 2022 calendar year, was paid in January 2023. The fair value of the total amount payable has been revised upwards by $5.2m due to a revision in the discount rate. A discount rate of 3.42% and 2% interest per annum has been applied in the calculation of the present value at 30 June 2023. The fair value of the contingent consideration is estimated by calculating the present value of the future expected cash outflows.NOTE 23. CONTRIBUTED EQUITY AND RESERVES WITHIN EQUITY(a) Contributed EquityCONSOLIDATEDCONSOLIDATED2023 NUMBER2022 NUMBER2023 US$M2022 US$MOrdinary shares, fully paid563,359,327558,085,352907.5907.5Total contributed equity563,359,327558,085,352907.5907.5Ordinary shares have no par value, and the Company does not have a limited amount of authorised capital.Voting rights of shareholders are governed by the Company’s Constitution. In summary, on a show of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote, and on a poll each such attending shareholder is entitled to one vote for every fully paid ordinary share held.Ordinary shares participate in dividends as declared from time to time and the proceeds on winding up of the Company in proportion to the number of fully paid ordinary shares held.104NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 23. CONTRIBUTED EQUITY AND RESERVES WITHIN EQUITY CONTINUED(b) Movement in Ordinary Shares DATE DETAILS NOTENUMBER OF ORDINARY SHARESUS$M1 July 2021Opening balance in previous financial year553,770,529905.1Exercise of options2,383,8992.4Performance rights conversion29(a)1,930,924–30 June 2022Balance at end of financial year558,085,352907.5Performance rights conversion29(a)5,273,975–30 June 2023Balance at end of financial year563,359,327907.5(c) Capital ManagementThe 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 ReserveThe 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 ReserveThe 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 ReservesDuring the prior year, the Group entered into Brent oil price derivative hedges. Refer to Note 22(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 cost of hedging reserve within equity.The following is a reconciliation of the movement of the hedging reserves:COST OF HEDGING RESERVE US$MINTRINSIC VALUE OF OPTIONS US$MTOTAL HEDGING RESERVES US$MBalance at beginning of financial year39.4(80.7)(41.3)Change in fair value of cash flow hedges and cost of hedging recognised in OCI(70.0)122.252.2Reclassified from OCI to profit or loss – included in other expenses(2.0)–(2.0)Deferred tax24.6(41.5)(16.9)Balance at end of financial year(8.0)–(8.0)105NOTE 24. SUBSIDIARIESThe consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 1(b):COUNTRY OF INCORPORATION OR REGISTRATIONBUSINESS ACTIVITIES CARRIED ON INPERCENTAGE OF EQUITY AND VOTING INTERESTS HELD BY THE GROUPNAME2023 %2022 %Parent Company:Karoon Energy LtdAustraliaAustraliaUnlisted subsidiaries of Karoon Energy Ltd:Karoon Energy International Pty LtdAustraliaAustralia100100Karoon Gas Browse Basin Pty LtdAustraliaAustralia100100Karoon Gas (FPSO) Pty LtdAustraliaAustralia100100Unlisted subsidiaries of Karoon Energy International Pty Ltd:KEI (Brazil Santos) Pty LtdAustraliaAustralia100100Karoon Peru Pty LtdAustraliaAustralia100100KEI (Peru Z38) Pty LtdAustraliaAustralia100100Unlisted subsidiary of KEI (Brazil Santos) Pty Ltd:Karoon Petróleo & Gás LtdaBrazilBrazil100100Branch of KEI Peru Pty Ltd:Karoon Peru Pty Ltd, Sucursal del PeruPeruPeru100100Branch of KEI (Peru Z38) Pty Ltd:KEI (Peru Z38) Pty Ltd, Sucursal del PeruPeruPeru100100NOTE 25. SEGMENT INFORMATION(a) Description of SegmentsThe 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. This permit was surrendered in September 2022; 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.‘All other segments’ include amounts of a corporate nature not specifically attributable to an operating segment. The comparative period included costs associated with the closure of the Group’s Peruvian Branches.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.Segment revenue is derived from an external customer who markets to a range of end customers.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.106NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 25. SEGMENT INFORMATION CONTINUEDThe 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 PERFORMANCEAUSTRALIA US$MBRAZIL US$MALL OTHER SEGMENTS US$MCONSOLIDATED US$MResult for financial year ended 30 June 2023Revenue–566.5–566.5Other income0.45.3–5.7Total segment revenue0.4571.8–572.2ExpensesBusiness development and transition costs(1.5)(2.2)–(3.7)Cost of sales–(283.2)–(283.2)Depreciation and amortisation expense– non‑oil and gas assets(0.3)(0.6)–(0.9)Exploration expenses–(3.9)–(3.9)Finance costs–(25.4)–(25.4)Realised losses on cash flow hedges–(7.1)–(7.1)Social investments/sponsorships–(1.9)–(1.9)Corporate expenses(12.4)(8.2)(0.1)(20.7)Net foreign currency gains/(losses)1.4(2.2)–(0.8)Change in fair value of contingent consideration–(5.2)–(5.2)Share‑based payments expense(2.3)(0.8)–(3.1)Other–(0.1)–(0.1)Profit/(loss) before income tax(14.7)231.0(0.1)216.2Income tax (expense)/benefit3.3(56.5)–(53.2)Profit/(loss) for financial year(11.4)174.5(0.1)163.0107 SEGMENT PERFORMANCEAUSTRALIA US$MBRAZIL US$MALL OTHER SEGMENTS US$MCONSOLIDATED US$MResult for financial year ended 30 June 2022Revenue–385.1–385.1Other income0.10.20.50.8Total segment revenue0.1385.30.5385.9ExpensesBusiness development and transition costs(0.4)(3.0)–(3.4)Cost of sales–(191.7)–(191.7)Depreciation and amortisation expense– non‑oil and gas assets(0.3)(0.4)–(0.7)Exploration expenses(0.3)(2.8)(0.1)(3.2)Finance costs–(22.7)–(22.7)Realised losses on cash flow hedges–(11.8)–(11.8)Corporate expenses(10.9)(3.6)(0.9)(15.4)Net foreign currency gains/(losses)4.62.1(0.5)6.2Change in fair value of contingent consideration–(227.1)–(227.1)Share‑based payments expense(3.7)(2.0)–(5.7)Other–(0.1)(0.1)(0.2)Profit/(loss) before income tax(10.9)(77.8)(1.1)(89.8)Income tax benefit2.423.0–25.4Profit/(loss) for financial year(8.5)(54.8)(1.1)(64.4) FINANCIAL YEAR ENDED 30 JUNE 2023AUSTRALIA US$MBRAZIL US$MALL OTHER SEGMENTS US$MCONSOLIDATED US$MTotal segment assets29.31,161.1–1,190.4Total segment liabilities1.1715.7–716.8 FINANCIAL YEAR ENDED 30 JUNE 2022AUSTRALIA US$MBRAZIL US$MALL OTHER SEGMENTS US$MCONSOLIDATED US$MTotal segment assets49.31,114.70.21,164.2Total segment liabilities4.8883.10.1888.0108NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 25. SEGMENT INFORMATION CONTINUED(c) Other Segment InformationAdditions to non‑current assets, other than financial assets (refer Note 3), during the reporting periods were: FINANCIAL YEAR ENDED 30 JUNE 2023AUSTRALIA US$MBRAZIL US$MALL OTHER SEGMENTS US$MCONSOLIDATED US$MProperty, plant and equipment^0.22.5–2.7Exploration and evaluation assets–44.8–44.8Oil and gas assets–190.9–190.9^ Includes right‑of‑use assets. FINANCIAL YEAR ENDED 30 JUNE 2022AUSTRALIA US$MBRAZIL US$MALL OTHER SEGMENTS US$MCONSOLIDATED US$MProperty, plant and equipment^0.25.7–5.9Oil and gas assets–92.0–92.0^ Includes right‑of‑use assets.NOTE 26. CONTINGENT LIABILITIES AND CONTINGENT ASSETS(a) Contingent LiabilitiesThe Group has contingent liabilities as at 30 June 2023 that may become payable in respect of:CONSOLIDATED2023 US$M2022 US$M(i) 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.2.11.2(ii) 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).0.20. 1(iii) 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.0.40.3(iv) Block AcquisitionAs 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 on 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 2023, as it is dependent on uncertain future events.(v) Brazilian Local ContentThe 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 & Gás 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 & Gás Ltda fails to comply with this minimum requirement, Karoon Petróleo & Gás Ltda may be subject to a fine by the ANP.109(vi) Joint OperationsIn 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.(vii) Other MattersThere 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 AssetsThe Group has no contingent assets as at 30 June 2023 (30 June 2022: $Nil).NOTE 27. COMMITMENTSCONSOLIDATED2023 US$M2022 US$M(a) Capital and Service Expenditure CommitmentsContracts for capital and service expenditure in relation to assets not provided for in the consolidated financial statements and payable. Capital commitmentsNot later than one year4.475.9Later than one year but not later than five years––Total capital commitments4.475.9Service commitmentsNot later than one year14.111.5Later than one year but not later than five years22.231.9Total service commitments36.343.4Total capital and service expenditure commitments40.7119.3(b) Exploration Expenditure CommitmentsThe 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 tenement Block S‑M‑1537 (30 June 2022: Block S‑M‑1537) not provided for in the consolidated financial statements and payable.Later than one year but not later than five years3.53.5Total guaranteed exploration expenditure commitments3.53.5Note, 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. 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. 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.110NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 28. RECONCILIATION TO THE CONSOLIDATED STATEMENT OF CASH FLOWS(a) Reconciliation of Profit/(Loss) for Financial Year to Net Cash Flows Used in Operating ActivitiesCONSOLIDATED2023 US$M2022 US$MProfit/(loss) for financial year163.0(64.4)Add (subtract)Non-cash items included in profit/(loss) for financial year:Depreciation and amortisation143.8100.1Amortisation of finance costs1.10.5Change in fair value of derivative financial instruments50.2(62.5)Change in fair value of contingent consideration5.2227.1Discount unwinding on provision for restoration and deferred consideration5.02.4Share‑based payments expense2.63.6Gain on disposal of right‑of‑use asset–(0.1)Net foreign currency losses (gains)(3.0)(3.0)Loss on disposal of non‑current assets0.1Write‑back of inventory impaired(1.6)–Items classified as investing/financing activities:Interest paid on deferred consideration–1.2Net (gain) loss on disposal of non‑current assets–(0.5)Net foreign currency gains (losses)0.6(0.5)Change in operating assets and liabilities:(Increase)/decrease in assetsReceivables – current(14.7)(22.2)Oil Inventories11.5(6.4)Deferred tax assets(1.7)(86.5)Other financial assets – derivative financial instruments (3.0)–Other assets2.4(6.9)Increase/(decrease) in liabilitiesTrade and other payables – current15.60.1Trade and other payables – non‑current(1.0)2.5Provisions – current(0.2)(0.1)Current tax liabilities(4.0)1.3Deferred tax liabilities(16.9)19.4Other financial liabilities – derivative financial instruments(49.1)49.1Net cash flows provided by (used in) operating activities305.9154.2111NOTE 29. SHARE‑BASED PAYMENTSThe share‑based payment plans are described below. There has been no cancellation to a plan during the financial year.(a) Performance Rights Plan (‘PRP’)The Company currently has two PRPs in place, the 2019 PRP and 2022 PRP. The 2022 PRP was approved by shareholders at the 2022 Annual General Meeting.Under the PRP, eligible employees are offered performance rights, which subject to performance conditions, can on exercise be converted to 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 the People and Culture Committee, will be responsible for assessing whether the performance measures have been achieved. When vested, each performance right is, subject to exercise, 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 495,468 performance rights (2022: 577,052) over unissued ordinary shares in the Company to the Chief Executive Officer and Managing Director. The performance rights were provided to the Chief Executive Officer and Managing Director and were subject to approval by shareholders at the 2022 Annual General Meeting. An additional 12,649 performance rights associated with the 2023 Long Term Incentive are subject to shareholder approval at the 2023 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:CONSOLIDATED2023 NUMBER2022 NUMBERBalance at beginning of financial year13,645,29514,861,486Granted during financial year(i)2,813,9252,370,032Vested and converted during financial year(ii)(5,273,975)(1,930,924)Cash‑settled during financial year(1,326,032)(363,452)Forfeited during financial year(796,145)(1,291,847)Balance at end of financial year9,063,06813,645,295(i) The weighted average fair value of performance rights granted during the financial year was A$1.68 (2022: A$1.66). Fair values of STI performance rights were based on the Company’s closing share price at grant date whereas LTI performance rights were based on a Monte Carlo simulation valuation at grant date. Refer to details at Note 29(b) below.(ii) The weighted average exercise price of performance rights converted during the financial year was A$Nil (2022: A:$Nil).Performance rights issued during the financial year were issued under the 2022 PRP.112NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 29. SHARE‑BASED PAYMENTS CONTINUEDPerformance rights outstanding as at 30 June 2023 had a weighted average remaining contractual life of 635 days (30 June 2022: 617 days). Details of performance rights outstanding at the end of the financial year are:GRANT DATEDATE OF EXPIRYNUMBER25 September 202030 June 20243,677,95426 November 202130 June 2024502,98923 March 202230 June 2025928,3276 May 202230 June 20251,246,43924 November 202230 June 202462,89124 November 202230 June 2026432,57716 December 202230 June 2024379,36016 December 202230 June 20261,726,97031 March 202330 June 2026105,561Total performance rights9,063,068(b) Fair Value of Performance RightsThe fair value of each LTI performance right issued during the financial year was estimated on grant date using the Monte Carlo valuation methodology. The Monte Carlo valuation methodology takes into account the exercise price, the term of the performance right, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk‑free interest rate for the term of the performance right. The fair value of STI performance rights issued during the current or previous financial years were based on the Company’s closing share price at grant date.The Group applied the following assumptions and inputs in estimating the weighted average fair value for LTI performance rights:20232022Weighted average exercise price$A Nil$A NilWeighted average life of performance rights1,172 days1,172 daysWeighted average share priceA$2.18A$2.12Expected share price volatility48.40%60.00%Risk free interest rate3.70%2.17%Dividend yield1.39%–Weighted average performance rights valueA$1.58A$1.66Historical volatility was the basis for determining expected share price volatility as it is assumed that this is indicative of future trends, which may not eventuate.113(c) Share-based Payments ExpenseTotal expenses arising from share‑based payment transactions recognised during the financial year, included as part of other expenses in the consolidated statement of profit or loss and other comprehensive income, were as follows:CONSOLIDATED2023 US$M2022 US$MPerformance rights issued under PRP2.63.6Share‑based payments expense (non‑cash)2.63.6Share‑based payments expense (cash‑settled)0.52.1Total share-based payments expense3.15.7NOTE 30. RELATED PARTY TRANSACTIONSTransactions between related parties are on normal commercial terms and conditions, no more favourable than those available to other parties, unless otherwise stated.(a) SubsidiariesInterests in subsidiaries are set out in Note 24.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 (2022: 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 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 PersonnelDirectors and other key management personnel remuneration is summarised as follows:CONSOLIDATED2023 US$0002022 US$000Short‑term employee benefits2,3802,771Post‑employment benefits197221Long‑term employee benefits (non‑cash)594Termination benefits–436Share‑based payments expense1,1932,307Total key management personnel remuneration3,8295,739Detailed remuneration disclosures for the Directors and other key management personnel are provided in Section 5 of the audited Remuneration Report on pages 60 to 66. Termination of the Executive Director’s and other key management personnel’s employment is subject to a minimum notice period as disclosed on page 58 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 2023.114NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDNOTE 30. RELATED PARTY TRANSACTIONS CONTINUED(c) Other Transactions with Directors and Other KMPDuring the financial year, Mr Tadeu Fraga, a Non‑Executive Director, had an interest in Radix Engenharia e Software (Radix), that provided engineering consulting services to the Group at market prices. The contract value for these services from Mr Fraga’s appointment on 26 August 2022 to 30 June 2023 was US$171,190. Mr Fraga’s interest in Radix commenced on 1 March 2023, post the execution of the contract.During the financial year, Ms Carolina Fraga, a family member of Mr Tadeu Fraga, a Non‑Executive Director, who was appointed on 26 August 2022, remained employed by the Group as HR Co‑ordinator in Brazil. The total value of her remuneration (including share‑based payments expense) from 26 August 2022 to 30 June 2023 was US$89,841. Ms Fraga has been an employee of the Group since 2021. Ms Fraga’s employment with the Karoon group commenced prior to the appointment of the relevant Non‑Executive Director. NOTE 31. PARENT COMPANY FINANCIAL INFORMATION(a) Summary Financial InformationThe individual financial statements for the Parent Company show the following aggregate amounts:CONSOLIDATED2023 US$M2022 US$MStatement of financial positionCurrent assets32.847.6Non‑current assets168.9169.8Total assets201.7217.4Current liabilities4.73.9Non‑current liabilities0.21.0Total liabilities4.94.9Net assets196.8212.5Contributed equity907.5907.5Accumulated losses(663.9)(653.4)Share‑based payments reserve56.453.8Foreign currency translation reserve(103.2)(95.4)Total equity196.8212.5Profit/(Loss) for financial year(10.5)(78.6)Total comprehensive Income/(loss) for financial year(15.7)(100.8)(b) Contingent Liabilities of Parent Company(i) Bank guarantees were provided in respect of 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).0.20.1(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.115(c) Guarantees Entered into by Parent CompanyA 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$24.4 million equivalent as at 30 June 2023) 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 32. SUBSEQUENT EVENTSThis Annual Report was authorised for issue by the Board of Directors on 23 August 2023. The Board of Directors has the power to amend and reissue the consolidated financial statements and notes.Since 30 June 2023, there have been no material events that have occurred.116The Directors’ declare that:(a) in the Directors’ opinion, the consolidated �nancial statements and notes, set out on pages 69 to 115. are in accordance with the , including:(i) complying with relevant Australian Accounting Standards and the and(ii) giving a true and �air view o� the Group’s �nancial position as at 30 June 2023 and o� its per�ormance �or the �nancial 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) con�rms that the consolidated �nancial 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 Chie� Executive Ofcer and Managing Director, and Executive Vice President and Chie� Financial Ofcer required by Section 295A o� the .This Directors’ Declaration is made in accordance with a resolution o� the Directors.On behal� o� the Directors: Independent Non‑Executive Chairman Chie� Executive Ofcer and Managing Director23 August 2023Corporations Act 2001Corporations Regulations 2001;Corporations Act 2001Mr Bruce Phillips Dr Julian Fowles DIRECTORS’ DECLARATION117INDEPENDENT AUDITOR’S REPORT 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. Independent auditor’s report To the members of Karoon Energy Ltd 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 , including: (a) giving a true and fair view of the Group's financial position as at 30 June 2023 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the . The Group financial report comprises: the consolidated statement of financial position as at 30 June 2023 the consolidated statement of profit or loss and other comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information the directors’ declaration. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Group in accordance with the auditor independence requirements of the and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 (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. Report on the audit of the financial report Our opinion Basis for opinion Corporations Act 2001Corporations Regulations 2001Auditor’s responsibilities for the audit of the financial reportCorporations Act 2001Code of Ethics for Professional Accountants (including Independence Standards)What we have audited Independence ●●●●●●118INDEPENDENT AUDITOR’S REPORT CONTINUED Our audit approach Key audit matters 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 ancial repot asa whole, taking into account the geogapc ad manageent fin rhinmrstructure of the Group, its accounting processes and controls and the industry in which it operates. 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, Risk and Governance Committee. Materiality Audit Scope ●●●●●●For the purpose of our audit, we used overall Group materiality of US$10.8 million, which represents approximately 5% of the Group’s profit before tax.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 Group profit before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured.We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. Our audit focused on where the Group made subjective judgements, for example, significant accounting estimates involving assumptions and inherently uncertain future events.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 tea, and by componentauditors under our instruction. m119 Key audit matter How our audit addressed the key audit matter Assessing the carrying value of oil and gas assets (Refer to note 15) As at 30 June 2023, the Group’s consolidated To assess the carrying value of oil and gas assets, statement of financial position includes oil and gas we performed the following procedures, amongst assets of US$798.7 million. others: Group policy is to assess for indicators of impairment Evaluated the Group’s assessment of whether annually or more frequently if indicators of impairment there were any indicators of asset impairment, exist. including consideration of movement in oil prices, reserves and resources and asset Assessing the carrying value of oil and gas assets performance over the year. was a key audit matter because of the judgement involved in the Group assessing impairment Compared the value of the net assets of the indicators and the financial significance of oil and gas Group at year end to the market capitalisation. assets. ●●Other information Responsibilities of the directors for the financial report 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 2023, 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 through our opinion on the financial report. We have issued a separate opinion on the remuneration report and a limited assurance conclusion on selected sustainability information in page 28 of the annual report for the year ended 30 June 2023. 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 appmaterially misstated. ears to be 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. 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 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 appto going concern and using the licable, matters related 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. Corporations Act 2001120INDEPENDENT AUDITOR’S REPORT CONTINUED Auditor’s responsibilities for the audit of the financial report Our opinion on the remuneration report Responsibilities 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 agggreate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. 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.pdfpart of our . This description forms auditor's report. We have audited the remuneration report included in pages 47 to 66 of the directors’ report for the year ended 30 June 2023. In our opinion, the remuneration report of Karoon Energy Ltd for the year ended 30 June 2023 complies with section 300A of the The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of . Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Graeme McKenna Melbourne Partner 23 August 2023 Report on the remuneration report Corporations Act 2001.the Corporations Act 2001121ADDITIONAL SECURITIES EXCHANGE INFORMATIONAdditional 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 31 July 2023.DISTRIBUTION OF SHAREHOLDINGThe number of shareholders ranked by size of holding is set out below:SIZE OF HOLDINGNUMBER OF HOLDERSNUMBER OF ORDINARY SHARES ON ISSUELess than 1,0002,9011,348,8611,001 to 5,0003,4079,683,8495,001 to 10,0001,50911,692,09110,001 to 100,0002,08759,644,360More than 100,000256482,723,627Total10,160565,092,788There were 886 shareholders holding less than a marketable parcel of ordinary shares to the value of A$500.SUBSTANTIAL SHAREHOLDERSAs at 31 July 2023, no substantial shareholder notices had been received by the Company, which had not been subsequently revoked.TWENTY LARGEST SHAREHOLDERSThe names of the twenty largest shareholders of the Company’s ordinary shares are listed below:Fully Paid Ordinary SharesSHAREHOLDERNUMBER HELD% OF ISSUED ORDINARY SHARES1HSBC Custody Nominees (Australia) Limited160,644,86928.432J P Morgan Nominees Australia Pty Limited74,094,76313.113Citicorp Nominees Pty Limited66,865,68411.834National Nominees Limited54,524,5829.655BNP Paribas Noms Pty Ltd 15,647,3622.776HSBC Custody Nominees (Australia) Limited – A/C 29,456,4321.677HSBC Custody Nominees (Australia) Limited 8,915,4551.588BNP Paribas Nominees Pty Ltd 5,892,6451.049Ropat Nominees Pty Ltd3,655,1370.6510Citicorp Nominees Pty Limited 2,639,8840.4711Mr Kenneth Joseph Hall 2,050,0000.3612Sandhurst Trustees Ltd 1,796,2000.3213Netwealth Investments Limited 1,706,0090.3014UBS Nominees Pty Ltd1,535,6480.2715Neweconomy Com Au Nominees Pty Limited <900 Account>1,518,4620.2716Hsbc Custody Nominees (Australia) Limited1,478,5410.2617Mr Leendert Hoeksema1,400,0000.2518Greenhill Road Investments Pty Ltd1,350,0000.2419Palm Beach Nominees Pty Limited1,278,2440.2320BNP Paribas Nominees Pty Ltd Acf Clearstream1,265,0720.22Total417,714,98973.92122ADDITIONAL SECURITIES EXCHANGE INFORMATION CONTINUEDUNLISTED EQUITY SECURITIES: PERFORMANCE RIGHTSThe following performance rights over unissued ordinary shares of the Company are not quoted:SIZE OF HOLDINGNUMBER OF HOLDERSNUMBER OF UNLISTED PERFORMANCE RIGHTS ON ISSUEPerformance rights issued pursuant to Company’s Performance Rights Plans557,329,607Total557,329,607VOTING RIGHTS(a) Ordinary Shares, Fully PaidVoting 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 on a poll each such attending shareholder is entitled to one vote for every fully paid ordinary share held.(b) Unlisted Performance RightsNo voting rights.OTHER INFORMATIONThe Company was incorporated as a public company on 11 November 2003.The Company was admitted to the ASX official list during June 2004 and quotation of its ordinary shares commenced on 8 June 2004.On 30 November 2018, the Company changed its name from Karoon Gas Australia Ltd to Karoon Energy Ltd.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 TENEMENTSEXPLORATION PERMIT/BLOCKBASINOPERATOR% EQUITY INTEREST HELDConcession BM‑S‑40Santos, BrazilKaroon100Block S‑M‑1037Santos, BrazilKaroon100Block S‑M‑1101Santos, BrazilKaroon100Block S‑M‑1537Santos, BrazilKaroon100123GLOSSARY OF TERMSTERM DEFINITION3D seismicThree dimensional seismic.A$ or AUDAustralian Dollars.AASBAustralian Accounting Standards Board. ARRAfforestation, Reforestation and Revegetation. A nature‑based solution that results in carbon sequestration i.e. a carbon removals offset.ANPAgência Nacional do Petróleo, Gás Natural e Biocombustíveis.APIThe American Petroleum Institute gravity, or API gravity, is a measure of how heavy or light a petroleum liquid is compared to water.ASXASX Limited (ACN 008 624 691), trading as Australian Securities Exchange.ATOAustralian Taxation Office.barrel or bblBarrel of oil, inclusive of condensate. A quantity of 42 United States gallons; equivalent to approximately 159 litres.basinA natural depression on the earth’s surface in which sediments, eroded from higher surrounding ground levels, accumulated and were preserved.BaúnaConcession BM‑S‑40 containing the producing Baúna, Piracaba and Patola light oil fields in Brazil.blockA license or concession area. It may be almost any size or shape, although usually part of a grid pattern.bopdBarrels of oil per day.Carbon NeutralRefers to firstly, reducing or avoiding operational Scope 1 and 2 greenhouse gas (GHG) emissions and, secondly, acquiring carbon offsets to balance the remaining Scope 1 and Scope 2 emissions. Company or Parent CompanyKaroon Energy Ltd.Contingent Resources 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.CO2eCarbon dioxide equivalent.Current financial yearFinancial year ended 30 June 2023DirectorA Director of Karoon Energy Ltd.discovery wellThe first successful well on a new prospect.E&PExploration and production.ESPElectric submersible pump (downhole equipment).EVPExecutive Vice President.ExecutiveThe Chief Executive Officer and Managing Director and other KMP of the GroupexplorationThe process of identifying, discovering and testing prospective hydrocarbon regions and structures, mainly by interpreting regional and specific geochemical, geological, geophysical survey data and drilling.FIDFinal Investment Decision.fieldAn 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.Fixed remunerationRelates to fixed cash remuneration consisting of base salary and superannuation contributions/pension contributions.FY or financial yearFinancial YearFPSOFloating production, storage and off‑loading facility.GHGGreenhouse gas.GSTGoods and Services Tax in Australia.HSSEHealth, safety, security and environment.Karoon or GroupKaroon Energy Ltd and its subsidiaries.KMPKey Management Personnel.ltiLost time incident.LTIRLost time incident rate.124GLOSSARY OF TERMS CONTINUEDTERM DEFINITIONLTILong‑term incentive.mMillion.market capitalisationThe product of a company’s share price multiplied by the total number of ordinary shares issued by the company.MMbblMillions of barrels (1,000,000 barrels).Net ZeroRefers to reducing Scope 1 and 2 GHG emissions as far as practical and balancing the residual GHG emissions produced with GHG emissions removed from the atmosphere.NPATNet Profit After Tax.Other KMPMr Ray Church and Mr Antonio GuimarãesOther benefits Relates to benefits not included in the fixed remuneration which 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.OMSOperating Management System.OperatorOne joint operation participant that has been appointed to carry out all operations on behalf of all the joint operation participants.performance rightsPerformance rights issued under the PRP.permitA hydrocarbon tenement, lease, licence, concession or block.PetrobrasPetróleo Brasileiro SA.previous financial yearFinancial year ended 30 June 2022.prospectA 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.REAL or R$Brazilian currency.REDD+Reducing emissions from deforestation and forest degradation, as well as forest conservation, sustainable management of forests and enhancement of forest carbon stocks.reservesThose 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.• 2P – Denotes best estimate of Reserves.• 3P – Denotes high estimate of Reserves.reservoirA porous and permeable rock formation to store and transmit fluids such as hydrocarbons and water.rigThe equipment needed for drilling a well. It includes the onshore and offshore vehicles, mobile platforms or vessel on which the equipment is stored.riskProspect 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.Scope 1 EmissionsGHGs released directly from operations within Karoon’s control. This includes emissions from stationary combustion (for example in generator turbines onboard the FPSO), mobile combustion (for example in supply vessels and fleet cars), fugitive emissions (for example from general leaks) and process emissions (for example from flaring).Scope 2 EmissionsIndirect GHGs released from the energy purchased at offices and shorebases.Scope 3 Emissions Other indirect GHG emissions, accounting for emissions in Karoon`s upstream and downstream supply chains.seismic surveyA 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.SOFRSecured Overnight Financing Rate.STIShortterm incentive.Total remuneration Fixed remuneration plus variable remunerationTRIRTotal Recordable Incident Rate.tCO2eTonnes of carbon dioxide equivalent.US$United States dollars.Variable remuneration Short term incentive and long term incentiveVER Verified Emission Reduction. A type of traded carbon offset certificationCORPORATE DIRECTORYBOARD OF DIRECTORSMr Bruce Phillips Independent Non‑Executive ChairmanDr Julian Fowles Chief Executive Officer and Managing DirectorMr Peter Turnbull Independent Non‑Executive DirectorMs Luciana Rachid Independent Non‑Executive DirectorMr Clark Davey Independent Non‑Executive DirectorMr Peter Botten Independent Non‑Executive DirectorMr Tadeu Fraga Independent Non‑Executive DirectorCOMPANY SECRETARYMr Daniel MurnaneAUDIT, RISK AND GOVERNANCE COMMITTEE MEMBERSMr Clark Davey (Chair of Committee)Mr Peter BottenMr Peter TurnbullPEOPLE AND CULTURE COMMITTEE MEMBERSMr Peter Turnbull (Chair of Committee)Mr Bruce PhillipsMr Clark DaveySUSTAINABILITY AND OPERATIONAL RISK COMMITTEE MEMBERSMs Luciana Rachid (Chair of Committee)Mr Peter BottenMr Peter TurnbullMr Tadeu FragaREGISTERED OFFICESuite 3.02 Level 3, 6 Riverside Quay Southbank VIC 3006 AustraliaACN 107 001 338 ABN 53 107 001 338Telephone + 613 9616 7500 Website www.karoonenergy.com.au Email info@karoonenergy.comEXTERNAL AUDITORPricewaterhouseCoopers Australia 2 Riverside Quay Southbank VIC 3006 AustraliaTelephone + 61 3 8603 1000 Facsimile + 61 3 8603 1999EXTERNAL LEGAL ADVISERArnold Bloch Leibler Level 21, 333 Collins Street Melbourne VIC 3000 AustraliaTelephone + 61 3 9229 9999 Facsimile + 61 3 9229 9900SHARE REGISTRARComputershare Investor Services Pty Limited GPO Box 2975 Melbourne VIC 3001 AustraliaTelephone 1300 555 159 (within Australia) + 61 3 9415 4062 (outside Australia) Website www.computershare.com.auSECURITIES EXCHANGE LISTINGThe Company’s ordinary shares are listed on the ASX. The home exchange is Melbourne VIC.ASX code: KAR

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