Karoon Energy Limited (ASX: KAR) has announced its Transition Year 2023 results, revealing a significant increase in production and underlying net profit.
The company, which operates in the oil and gas sector, reported a record production volume of 5.5 million barrels of oil equivalent for the period from July 1, 2023, to December 31, 2023. This marks a 129% rise in underlying net profit after tax compared to the previous period.
Moreover, Karoon Energy has made strides in integrating its new asset, Who Dat, and is enhancing its presence in the U.S. market with a new office in Houston.
Key Takeaways
- Karoon Energy achieved a 129% increase in underlying net profit after tax during TY23.
- Record production volumes of 5.5 million barrels of oil equivalent were reported.
- The company has a strong balance sheet with net debt just over $100 million and low gearing at 10%.
- Free cash flow generated amounted to $276 million in TY23.
- Future plans include evaluating the Neon development and drilling in the U.S. Gulf of Mexico.
- Karoon is committed to emissions reduction and sustainability.
Company Outlook
- Production expectations for 2024 are set between 11.2 million to 13.5 million barrels.
- Unit production costs are projected to range from $10.5 to $15 per boe.
- Capital expenditure for 2024 is estimated to be between $50 to $57 million.
- The company plans to evaluate growth opportunities and may return capital to shareholders.
Bearish Highlights
- Regulatory timing and backlog at the environmental agency IBAMA are major uncertainties.
- The Baúna asset is expected to decline, potentially by 2032-2033.
Bullish Highlights
- Karoon's recent drilling results were in line with expectations.
- The company secured rights to produce from a new hydrocarbon reservoir.
- Reserve and resource estimates include 77.5 million boe of 2P reserves and over 100 million boe of 2C and 2U (NASDAQ:TWOU) resources.
Misses
- One well encountered a shallower hydrocarbon reservoir than expected.
- The company has not yet set specific metrics for capital management and dividends.
Q&A Highlights
- Karoon is focusing on integrating Who Dat and building a competitive picture of the Gulf of Mexico.
- The company is conducting a strategic review to determine future direction and opportunities.
- There are uncertainties around recoverable volume, production rates, and CapEx for the Neon project.
Karoon Energy's TY23 results reflect a robust period of growth for the company, characterized by a substantial increase in production and profitability. The company's strong financial position, underscored by a significant free cash flow and manageable debt levels, positions it well for future investments and potential shareholder returns. Karoon's operational updates, including the successful integration of the Who Dat asset and the positive drilling results, demonstrate its capability to execute its strategy effectively.
The company's commitment to sustainability and emissions reduction aligns with the broader industry trend towards more environmentally conscious operations. However, Karoon Energy is also mindful of the challenges ahead, such as regulatory uncertainties and the expected decline of the Baúna asset. The strategic review planned for later in the year will likely address these challenges and set a course for the company's long-term sustainability and growth.
Karoon Energy's outlook for 2024 is cautiously optimistic, with a focus on maintaining safe and reliable operations while exploring avenues for growth. As the company continues to navigate the complexities of the oil and gas market, its strategic decisions and ability to capitalize on new opportunities will be closely watched by investors and industry stakeholders alike.
Full transcript - None (KRNGF) Q1 2023:
Operator: Thank you for standing by. And welcome to the Karoon Energy Limited Transition Year 2023 Results. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Julian Fowles, CEO and Managing Director. Please go ahead.
Julian Fowles: Thank you very much, Ashley, and good morning everyone. Thank you for joining our transition year 2023 results webcast. My name is Julian Fowles and I'm the CEO at Karoon and I have with me this morning Ray Church, our CFO and Ann Diamant, our Head of IR. Earlier this morning, we released our TY23 annual report and presentation to the market, which we're now going to talk through. Noting the disclaimers on Slide 2, I'll start on Slide 3. Karoon has changed its reporting cycle from a June year end to a December year end and the second half of calendar 2023 was the period where we made this transition. So throughout this presentation, you'll hear us refer to TY23, which reflects the six month period from 1 July 2023 to 31 December 2023. Future annual reporting will be on a calendar year basis. Slide 4 provides an overview of the key metrics underpinning our operating performance and how this translated into our strong financial outcomes. In TY23, we achieved production volumes of 5.5 million barrels of oil equivalent, a record for Karoon. This includes 11 days of production from the Who Dat assets. The higher production underpinned the 129% increase in Karoon's underlying net profit after tax compared to the prior comparable period. We finished the year with a robust balance sheet with net debt of just over US$100 million and gearing at 10%. As you can see on Slide 5, we are well progressed in integrating our new asset into Karoon. We have completed the recent infill development program with gross production from Who Dat still ramping up, currently at 38,500 barrels of oil equivalent per day. We're building capabilities in our new U.S. office in Houston and have already appointed experienced staff into the key commercial, trading, financial and technical roles. Slide 6 summarizes our safety and environmental performance. Safe and reliable operations remains Karoon's highest priority and pleasingly, we had no recordable injuries in the last 12 months. Environmental performance has also been good with no significant spills reported in calendar year 2023. I'll come back to our operational performance a little later in the presentation, but now I'll hand over to Ray to talk in more detail about our financial results.
Ray Church: Thank you, Julian, and good morning everyone. I'll speak to the financial highlights in the next few slides and try not to cover things that Julian will cover in later slides. As Julian said, this is a six month transition year and we're using the first half of 2023 for comparison purposes. And just a reminder, we report in U.S. dollars. So all figures I talked to today are in that currency. Slide 8 shows that the business continues to deliver strong production and sales growth over a relatively fixed cost base. Underlying EBITDA has increased by 94% against the prior six months to $283 million. After interest, taxes and capitalized operating leases, our operations increased cash generation by 128% against the prior period to $284 million. Meanwhile, investing cash flow excluding M&A was $8.4 million. During TY23, we funded the acquisition of Who Dat with a new debt package, a well supported equity raising and the drawdown of available cash. After completing the transaction, the company's balance sheet remains robust for gearing at 10%, as Julian mentioned. Moving to Slide 9, I'll highlight just a few items on the income statement. $146 million of additional revenues were driven by higher production in Baúna, where we lifted 10 cargoes compared with eight liftings in the first half, and higher realized oil prices, which were driven by sentiment from the Middle East conflict and OPEC+ production cuts through the second half. Additionally, $7.7 million of revenue increase reflected the commencement of ship-to-ship transfers and liftings from the nearer port at Santos in Brazil. There was a corresponding increase in costs for the ship-to-ship transportation, which appears in production costs. Revenue increases were partially offset by variable costs such as royalties and depreciation, both increasing with production, while royalties were also affected by crude price. Note that royalties in the prior half also included $14.6 million associated with temporary export tax, which ended on 30 June. Reported production costs include AASB 16 noncash items related to the FPSO operating lease accounting. And on a pre-AASB 16 basis, production costs increased by about $16 million, aside from roughly $8 million of ship-to-ship transport costs that I mentioned earlier that were incurred in this period. Other operating costs also increased by about $8 million as TY23 reflected a full period of uninterrupted production as the extended shutdown in April and May 2023 impacted prior period costs. Other than these impacts, operating costs were broadly flat between periods. Finance and interest costs included $3.4 million of RBL facility costs, mostly related to establishment and facility fees, $2.5 million of interest costs and $3.2 million unwinding of discounts in the Baúna restoration provision. The underlying NPAT improved by $81.6 million, or 129% on the prior six months, and the reconciliation between underlying NPAT and EBITDA to our statutory result is in Appendix 2 on Slide 25. Moving on to cash flow on Slide 10. As you can see, Karoon generated $276 million of free cash in the period due to the relatively fixed operating cost base and light sustaining CapEx requirements. This was supplemented by $236 million drawn from the new revolving debt facility and the equity issue to fund the $720 million acquisition of the Who Dat assets in the Gulf of Mexico. At 31 December 2023, we had $170 million of cash to fund the $86 million contingent payment to Petrobras, which was paid in January, and our annual income tax payment in the first quarter, which is expected to be around $20 million. Slide 11 provides some color to our historical CapEx investments and guidance for CY24. Sustaining CapEx, including for the 30% owned, Who Dat floating production system and infrastructure is expected to remain modest at $15 million to $17 million in 2024. Neon Concept Select costs and the G2, G4 development wells at Who Dat bring committed CapEx to $50 million to $57 million of capital expenditure in 2024. There is also up to $100 million to $120 million of contingent CapEx relating to potential appraisal and exploration wells in the U.S. Gulf of Mexico, yet to be approved by the joint venture partners. Julian will provide more detail on these opportunities shortly. So moving to debt on Slide 12, this provides a summary of our refinance debt facility established in November, this facility was supported by increased commitments from all our lenders, Macquarie, Deutsche, ING and Shell (LON:SHEL). As we incorporate our Who Dat reserves into the borrowing base in coming weeks, it should allow us to access the additional $66 million of the undrawn limit if required. And moving to the application of cash, Slide 13 should be familiar and it reflects our priorities for capital allocation. Our highest priority will remain with ensuring safe, reliable and sustainable business operations and this includes meeting our emissions reduction commitments and funding our sustaining CapEx needs and existing commitments. This is followed by debt service and management of the balance sheet health, cash available after these priorities will then be allocated on economic merit. The Board will continue to regularly consider capital management in the context of this framework, which includes ranking potential value accretive, organic and inorganic growth investments with capital returns to shareholders. Thank you, everyone. I'll hand back to Julian for update on our assets.
Julian Fowles: That's great. Thank you, Ray. Turning now to Slide number 15, I want to provide some commentary on the operating performance of Baúna. Following the successful intervention program and the drilling and hookup of the Patola wells, Baúna production peaked at over 40,000 barrels of oil a day in March 2023, prior to the six week unplanned shutdown. Production returned in May and we had strong production performance in the September quarter. The December quarter was unfortunately impacted by topsides issues on the FPSO related to the gas lift dehydration unit, while remediation of the topsides and downhole hydrate issues was completed on the 20 January 2024. A deeper mechanical blockage was identified in the SPS-88 well, which will require a well intervention to replace the gas lift valve. It's good to say that we are making good progress identifying an appropriate vessel to perform the intervention and we have commenced discussions with the relevant regulatory authorities. We have assumed that this work will take place in Q4 2024 with SPS-88 back online before the end of the year. Now to Neon on Slide 16, where our technical and commercial feasibility studies for the potential Neon development are almost complete, we're on track to go through our first decision gate DG-1 in coming weeks. At this stage, we are evaluating two concepts, a standalone FPSO development or a subsea tieback. If we decide to progress into the next stage Concept Select, the aim will be to identify the optimal development concept to take forward into the next stage, which will be feed, subject of course, to it passing our technical and commercial hurdles. We're also considering how we might bring the currently undrilled Neon West into the potential Neon foundation project. Now turning to the U.S. on Slide 17, where the Who Dat asset is continuing to perform in line with our expectations in terms of high overall uptime. Over the last few months, the joint venture has completed the development campaign that began in Q3 2023. It involved installing a subsea pump as well as bringing four wells online. Pleasingly, the last two remaining wells in the development campaign, G2 and G4 have recently come online and the gross production rate is currently 38,500 barrels of oil equivalent per day, with further ramp up expected when the second zone in G2 is brought on stream and some production which is taken offline for the tie in of the G wells is also brought back on. The joint venture is currently reviewing opportunities to debottleneck the FPS and improve FPS reliability further. We expect this work to be ongoing for several months. We'll provide an update when these studies are finalized. On Slide 18, you can see a schematic depicting the reservoir intervals in Who Dat, including the four wells that were part of the recent campaign. The drilling results came in line with expectations, however, as well as the deeper target, the G2 sidetrack well encountered a shallower hydrocarbon bearing reservoir called the 4200 zone. The joint venture was required to and it has now negotiated rights to produce from this zone, which will be commingled with the original target 4600 zone, which is currently producing. Data from the recent wells will be incorporated into the dynamic model to optimize the development plan in order to drain the reservoirs efficiently. Slide 19 is the indicative of Who Dat exploration appraisal development plan for 2024. At this stage, we are going through the joint venture approvals process for an appraisal exploration well in Who Dat East, which we expect will spud in the second quarter of this calendar year. Who Dat East will target the Upper Miocene and will be drilled as a potential future producer. This will likely be followed by two exploration wells, one in Who Dat South and the other in Who Dat West, subject to final JV approvals. Total volumes targeted by these three wells on a gross basis are on the order of 142 million boe at the 2U level, with chance of success ranging from over 60% at Who Dat East to 25% in Who Dat South. Slide 20 shows our reserves and resources, which have been confirmed by NSAI and AGR. We now have 77.5 million boes of 2P reserves, of which 85% is oil and condensate. We have a significant portfolio of 2C contingent and 2U prospective resources with over 100 million boes in each category that we will look to derisk in 2024 and in the coming years. Slide 21 our approach to sustainability remains unchanged. We're continuing to pursue opportunities to remove emissions from our operations in the first instance and then look to offset the rest. Importantly, in projects where we can see social co-benefits. In TY23, we entered into a binding agreement with Brazilian firm Carbonext to purchase 340,000 verified carbon units over five years from the Hiwi REDD+ project. Through our activities, we contributed some US$84 million to the Brazilian and Australian economies in TY23. Full details of our ESG goals and our progress in achieving those is summarized in our TY23 Sustainability Report, which was released alongside our other announcements to the market this morning. Slide 22 outlines our guidance for CY24, which is unchanged from what was provided to the market last month. We’re expecting production for the full year of 11.2 million to 13.5 million barrels. Our unit production cost is expected to be between US$10.5 and US$15 per boe, which is largely dependent on where production ends up, with a majority of our costs fixed. This compares to US$11 per boe in TY23. Our CapEx for TY – for 2024, sorry, is expected to be $50 to $57 million. Neon will attract some capital as we progress the project through the concept evaluation stage, assuming success in DG-1. The $100 million to $120 million of contingent capital spend in Who Dat is related to the three exploration appraisal wells that we flagged at the time of the acquisition. This is a little higher than our expectations at that time due to additional costs related to a significantly longer well design at Who Dat East, where the well will target five separate potential reservoir zones rather than the two zones previously contemplated. In addition, we have included a well containment fee, which is in some ways a type of insurance, and that’s currently estimated at $8 million and that was not included in the original estimates. A summary of TY23 is provided on Slide 23, covering the items we’ve discussed in this presentation. Karoon remains committed to safe and reliable operations as our first priority. We are in an enviable position as a midcap oil and gas producer with well over 35,000 boes per day of net working interest production in two of the most prolific and prospective hydrocarbon basins in the world, a pipeline of new organic growth opportunities and a robust balance sheet with low net debt. The strong cash flows from our two assets should provide Karoon balance sheet capacity to evaluate growth opportunities at the right time and potential returns to shareholders. Finally, I would like to thank our team at Karoon and our contractor partners for their hard work and dedication in delivering our TY23 results and the work that continues in Karoon’s transformation and growth. And I should like to thank our shareholders for your continued support of the company as we enter this exciting next phase of production delivery for Karoon. Thank you for your attention. And I’ll now hand back to Ashley for any questions.
Operator: Thank you. [Operator Instructions] Your first question comes from Dale Koenders with Barrenjoey. Please go ahead.
Dale Koenders: Good morning, all. Firstly, I just wanted to know, Julian, how are you thinking about in the success case for these three exploration appraisal wells in the Gulf of Mexico? What would be the forward case in terms of number of wells incrementally drilled? Are these being drilled as production wells? What needs to happen and the timing effectively to bring production on if you find reserves?
Julian Fowles: Yes. Look, those are great questions, Dale. I don’t have firm joint venture approved plans at the moment for what will happen in the success case. We’ll tackle those questions once we have the well results. We do have some notional ideas of what might happen. And all three of the exploration targets that we have are within tieback distance, so we’d be confident that we can bring them back into the FPS. And in the base case scenarios, we believe that there is certainly plenty of capacity on the FPS to be able to bring those the production – the according production in. However, we will require to go through an FID process effectively in order to approve joint venture drilling of further wells. The pipelines that would be involved, and obviously there will be regulator approvals involved with those as well. So I hesitate to put a time frame on exactly when we would expect to see the first production from these areas. As soon as we have that, as soon as we have something that’s been discussed in more detail at the joint venture, we’ll be in a good position to bring that to the market.
Dale Koenders: Is there the potential to reuse the wells though, Julian, as production wells?
Julian Fowles: So the well that we’re drilling in Who Dat East is being drilled as a keeper. Who Dat South and Who Dat West, I suspect will be more pure exploration wells without a plan to drill those as keepers. And there’s a good reason for that. They’re slightly higher risk than Who Dat East. Who Dat East is really a very low risk appraisal well with some exploration targets as well, while the other wells are more out and out exploration. And generally, it doesn’t pass the economic hurdle to try and drill those as keepers. We will continue though to discuss that in the joint venture. But the Who Dat East well is being drilled as a potential keeper. Obviously, it depends on the well results.
Dale Koenders: Thanks. And then maybe just a final question. I don’t know if Julian, you want to take it, or Ray, but as you look forward, there’s a lot of exciting growth opportunity in the portfolio, how do you view what is the right sort of long-term level of debt or gearing or leverage when you think about when’s the potential to return capital to shareholders?
Julian Fowles: I’ll say a word or two about that, Dale, to start with, and then I’ll hand it to Ray to get down into the meat of the question. I think it’s important to recognize that Karoon is in many ways in a unique position from a debt perspective, in that at least currently the asset we have just purchased is unlevered. We will bring it into the borrowing base. But what that means is that we’re in a really strong position to be able to look at potential future acquisitions, for example, without necessarily needing to lever up those new assets that we would bring in. That’s quite an unusual position for an oil and gas company. I’ll hand over to Ray to answer the question properly.
Ray Church: Yes, Dale, thank you. Look, we have – I have a couple of perspectives on it. One is that our operating costs are lower relative to our peer group, so that gives us a lot of opportunity for minimal leverage. So for that cash generation, as Julian talks about, as a result of low operating costs, gives us quite a lot of power for investment. Then, as you know, the balance sheet’s relatively lightly geared. So given that we’re an upstream production company, when we invest, we’d expect to invest and then pretty quickly see a return. So there isn’t a maintained gearing on the balance sheet that we have as a I guess a target. But there is, I guess, some high water marks that we’d like to keep our leverage at something up to 1 times EBITDA, maybe .5 at a stretch. But I just don’t think we’ve got many things out there that could get us there, given the operating costs. That makes sense?
Dale Koenders: Thank you for that. And I hope you’re encouraged by Julian’s comment of more M&A. That sounds exciting.
Julian Fowles: At the moment, Dale, we’re super focused, obviously, on ensuring the integration of Who Dat goes well. And it’s been fantastic interaction so far in the joint venture. I anticipate that that will continue. That’s really a very strong focus at the moment. So I don’t want to move the team’s focus away from that until the right time.
Operator: Your next question comes from Adrian Prendergast with Morgan Financial. Please go ahead.
Adrian Prendergast: Yes. Well done on a good set of numbers, guys. And just a question on the FPS. Just interested in the debottlenecking work that is starting to be done by the joint venture. Is it more about creating room for future growth or is it simply unlocking greater efficiencies?
Julian Fowles: It’s a bit of both at the moment, Adrian, it’s a great question. It’s exactly the question we’ve been discussing in the joint venture itself. The performance of the FPS has been pretty good. I think there were some hiccups during November and December that we want to iron out and we’re working with the operator to understand how we can best do that. But yes, certainly we see potential. Should we get upside surprises, for example, in Who Dat East, in Who Dat South or even in Who Dat West, then we’ll want to be able to bring that into the FPS as efficiently as possible with an existing facility there. I want to make sure we can absolutely maximize the utilization of that facility. So we have a bit of time to do that work, given those wells are only being drilled this year and then there will obviously be a planning period and all the rest of it. But yes, that work is ongoing at the moment. In terms of opportunities to get higher performance and potentially more consistent performance, I mean the performance has been very good, of course at the FPS, but I think we can do better.
Adrian Prendergast: Yes. Perfect. And just a question on the joint venture itself and our LLOG and obviously early in that that relationship that going well from an active field perspective, but just in terms of long-term, when you talk about organic and inorganic and future growth, obviously you’re accumulating a lot of cash quickly in this business. And is it something where you see them commonly or regularly turning over bits of equity in different fields and maybe it becomes a long sort of multi-field sort of relationship? Or is it there’s plenty in here for a company of Karoon size and you probably just stay within Who Dat in this relationship.
Julian Fowles: Yes. So certainly the relationship is developing. As I said, I think we’ve had a great first few months in that relationship. I was down in Louisiana a couple of weeks ago, sat with the whole management team there. We spoke about Karoon strategy. We spoke about LLOG strategy as well. And yes, I got to know quite a few of that team. Interestingly, their senior team have all been with the company for 25 plus years in LLOG. So they’re super experienced and know exactly what they’re doing. Look, in terms of opportunities, without a doubt, LLOG likes to acquire and build and develop new assets and they do turn over parts of their portfolio. They sort of don’t like to grow or they don’t want to grow too large. They’ve been in business for 45 years. They do about 70,000 boes a day. I think that they don’t want to be much larger than that. So their owner has always been driving them to if they’re developing something new to sell down something from something old. But they also – they like to operate and they like to have positions that are sort of between 30% and 50% in their assets. It’s a great question because it has other implications for Karoon. Should we look to be, for example, an operator if we’re to look at another M&A transaction? I think ultimately we – in Karoon, we do like to operate. We’ve got a very strong operating team in Brazil and I’ve got to say, they’re hitting to get their hands on something in the Gulf of Mexico. Now, we’ve entered that jurisdiction, so it still lots of questions to ask around there, Adrian. We’re currently building, I think, a very nice desktop competitive picture of what’s happening in the Gulf of Mexico, who’s doing what, where and why. And I think that will help form the basis for future evaluations of opportunities in the Gulf of Mexico. But as I said before, we are super focused over this period and probably for a few more months at least, on ensuring that integration of the Who Dat asset goes really well and that we’re getting into the right relationship to [indiscernible] with the Joint Venture Partners.
Adrian Prendergast: That’s great color. Thanks, Julian, and well done again.
Julian Fowles: Thank you.
Operator: Your next question comes from Gordon Ramsay with RBC Capital Markets. Please go ahead.
Gordon Ramsay: Thank you very much. Julian, I just want to focus on Who Dat. I just got a couple of questions. The G2-ST2 and G4 well came on stream this month. You said in the release that negotiation to acquire the shallower zone rights delayed the production ramp up. My understanding was prior guidance had been that they would IP at around 9,000 to 12,000 barrels of oil equivalent per day gross prior to decline. Is that still your expectation and can you comment on what production is right now from those two wells?
Julian Fowles: I haven’t got on the fingertips exactly the production from those wells or the two separate zones in G2, I’m afraid at the moment. Gordon, the number you’re quoting sounds right. I’d have to go back and confirm that, but it does sound right. The G4 came in on expectations, and G, as I said, had that additional zone which can, I think once we commingle the two zones, which we now have approval from the regulator. Once we do that, we should see higher than the original perceived potential at the G2 well. Certainly that’s our expectation, but as you know, these things, they are often – it’s often not just one plus one equals two. So we – although, we’ve tested the production potential in both those zones, in the G2 and we haven’t yet brought them in together. And I expect that to take probably a number of weeks before we’re in a position to do that. We need to get the pressures stabilized and equalized in order to do that. So you don’t end up, obviously, with a cross flow situation.
Gordon Ramsay: Before I ask the second question, so your net revenue interest on that shallower zone is the same, then you’ve negotiated the same level of interest equity?
Julian Fowles: Look, the commercial outcome of the negotiation is somewhat confidential. But the joint venture has retained an interest in something above 80% of that zone. And we have 30% of that. And then if you take off the relevant royalties, you'll get to our net revenue interest.
Gordon Ramsay: Okay. And the second question just relates to the CapEx guidance. It sounds like you're clearly going to spend more than $50 million to $57 million, assuming joint venture approval. You've given guidance of $100 million to $120 million continued spend on the three appraisal wells. Should we assume it'll be at the higher end of that range? Just because you've talked about Who Dat now drilling a longer well with five potential reservoir zones. And also you mentioned containment fees of $8 million that you didn't anticipate before. So does 120 sound like a reasonable figure now?
Ray Church: Look, I would always go a little conservative on this, Gordon. It's drilling wells that are exploration appraisal that they have more levels of uncertainty with them than development wells, obviously. But I think the costing we've put in there is pretty good. If you're in the middle of that range, I think I would be reasonably comfortable with that. We've got, I think, a pretty good handle on what Who Dat East will cost. Who Dat South, we're going through the discussions at the moment. And Who Dat West, we've just seen very preliminary numbers for that. So – but I don't expect west and south to change that range in any way. I think the range is good. So but, yes, look, go on the conservative side. I'm also happy with that.
Gordon Ramsay: All right, just while I got you. Last one. Just timing then, what are we looking at best kind of timing at the moment?
Julian Fowles: So Who Dat – I think there's a slide and let me just see if I can get to it, so I don't lead you astray. Who Dat East, I think we're hoping to spud in April. And Who Dat South will be probably in June, I'm hoping that doesn't slip into July. And then Who Dat West will be probably in the second part of the third quarter. And it'll probably go into the fourth quarter. It depends on activities. There's two rigs that will do these. So it's not done with a single rig. There's two different rigs that will do this campaign. One of them is already on long-term contract with log. It's been on contract for ten years. It's currently off doing something else at the moment. So it depends on the finalization of that activity before it comes across and the same with the second rig, it depends on the finalization of its current activities.
Gordon Ramsay: Got it. Thank you very much, Julian.
Julian Fowles: That's right. Thanks, Gordon.
Operator: Your next question comes from Adam Martin with E&P. Please go ahead.
Adam Martin: Yes. Good morning, Julian, Ray. Just first question just around those three sort of appraisal exploration wells, are they sort of all independent? I mean, it sounds like the first one pretty decent probability of success. Just wondering if there was problems was that on a more bare case, would that impact the other two or are they all sort of independent and they're all going to basically happen?
Julian Fowles: I'll give you a flippant answer to start with, Adam. I really wish they were dependent because that would mean that they were all joined up. And there's about 60 kilometers between them. So that would be great news. But no, there – more seriously, they are independent of each other. Who Dat East sits about 25, 30 kilometers to the east. Who Dat South is about 5 to 10 kilometers to the south of the FPS. And Who Dat West is about half the distance that Who Dat East is, but obviously on the western side. So there's quite a big distance between them. And each one of them will be independent. They're all targeting proven Miocene plays. They all have very good amplitude support. And yes, I think we have a good chance with all of them. Obviously, that's why we're doing it. I think. Who Dat East, you're right. It's drilling something that's already discovered. So I think the question is, will it find the right extension of that discovery and will it find some additional zones?
Adam Martin: Perfect. Okay. And then just second question. Just the intervention vessel back on Baúna, what's the critical path there to get that done by fourth quarter? Is it the regulatory piece of work or is it the vessel? What’s the – where's the risk this doesn't happen in the fourth quarter?
Julian Fowles: So you've picked up the two elements, right, obviously the vessel. We do need to identify the right vessel and negotiate the timing and the terms. There are some suitable vessels available in Brazil, and the question is, when will those vessels – what's the timing of their availability? Obviously, they're with other operators, so that requires some discussions. I've got to say the groups, the companies that we're talking to are all – they all seem comfortable that Karoon, at some stage during 2024, could take on the units that they have and go off and do our well. So I think from that point of view, the timing is probably okay. A little more uncertain is regulatory timing. IBAMA – currently, some aspects of the environmental agency, IBAMA, they've got quite a lot of backlog of work to do for Petrobras and other operators. This goes through a slightly different route in the agency to conventional drilling campaigns. And obviously for Baúna, we already have a whole host of environmental approvals for previous work that's been done there. So there's quite a large range of uncertainty depending on what IBAMA requires us to do for them and to see. That probably is the biggest uncertainty that we've got at the moment. We need to identify the vessel. We need to be confident that that's the right one. Then we can submit all the documents about that vessel to IBAMA. We're in negotiations with them over the vessels that we've been looking at. And so that's already kicked off. But I can't promise that it will be any sooner than we've already outlined to the market. Is it likely be later? I'm really quite confident it will be done in 2024. Hopefully, that answers your question.
Adam Martin: That's good. And then just final quick question, just on the capital management, will the company get to a point where you might put some targets downright percentage of free cash or dividend as a percentage of profit, for example, or are you going to keep it pretty sort of broad the next couple of years while you're sort of thinking about other acquisitions or other growth opportunities?
Julian Fowles: So we – I think we've achieved with the acquisition of Who Dat, I think we've achieved quite a substantial amount of de risking from a portfolio perspective, we're not so vulnerable should one asset stop working for a period for example, and obviously in April and May last year, when we were shut down at Baúna that hurt us quite substantially. We were very fortunate and, of course, that we had seen tremendously strong cash flow from that asset in the prior period. So we were very robust at that stage. We're obviously much more robust now with two assets and two really good assets. The board hasn't really discussed setting down a table of metrics, if you like. I don't think that that's something we're likely to address in the immediate term. Perhaps, there's a further acquisition the board would like to see to give us further portfolio breadth and depth before they would be prepared to do that. You've already heard from Ray about some of the potential areas we might go with sort of net debt in terms of multiples. So as I said, we're still, I think, growing the portfolio at a rate that we could set a bunch of metrics out there and we'd probably have to revise them after 12 or 18 months. So I expect we'll hang off from that for a little while yet.
Adam Martin: That makes sense. Thank you. That's all for me.
Julian Fowles: No problem.
Operator: Your next question comes from Sarah Kerr with Morgan Stanley (NYSE:MS). Please go ahead.
Sarah Kerr: Hi Julian and Ray, congratulations on the results. Can I just start with production rates for Baúna and Who Dat? Are you still seeing 15% per annum decline at Baúna and post the infilling drilling at Who Dat? When do you anticipate peak production and what kind of decline rate do you think you'll see once that kind of comes off?
Julian Fowles: Yes. So they're really interesting questions. For Baúna, we see absolutely no change to what we've already said to the market in terms of how we anticipate Baúna production overall declining. And on a daily basis, you'll see numbers that go up and down, of course, and that obviously gets published at the ANP website with a bit of a lag. You'll see that stuff bounce up and down a little bit just with natural operations. So, yes, I don't see anything different from a reservoir point of view. Our big focus at Baúna is to ensure continued integrity, which obviously plays to both safety and production on our FPSO. And together with the operator there, Altera & Ocyan, we're working really well with them now to ensure that that continues. Obviously we had some tough discussions last April and May when we were shut down. And yes, it's great to see that that relationship is really back on track. So I think that's where we'll be focusing to ensure that through 2024, 2025, 2026 we have near-term to medium-term, the best integrity we can. And then looking to the longer term on that FPSO, we're likely to put in some form of life extension program that we've sort of touched upon with the market previously. In terms of Who Dat, it's much, much more complex at Who Dat, because if you go to that slide that shows the sort of schematic cross section. And don't take that slide too literally. I think it's Slide 18. It shows all the wells. It shows a bunch of green and red colors of obviously gas and oil. And it shows where the wells are completed. Of course, the reservoirs don't look anything like that really. And the configuration of the wells is a little bit different. But you can imagine with that many different zones and that many different wells, mapping the individual production performance on a zone by zone, well by well basis makes the overall picture look reasonably complicated. What I would say is, we've seen Who Dat now ramp up from where it was about 12 months ago, where I think it sat about maybe 20,000 to 25,000 boes a day to where it is today at close to 40 and with further ramp up to happen. I expect to see probably over the next six to eight weeks that we will see the 4,200 and 4,600 zones achieve pressures that will allow them to start being commingled. So I think that'll be a good, really positive indication. Also there's some other elements of Who Dat that you'll see come back on stream. There's some parts of production that we've ramped down in order to bring in the new production to make sure that we keep things stable and safe and reliable. We don’t want to – the operator doesn't want to stress too many parts of the facility at once. So yes, as I said, in a couple of months I expect we will have seen that ramp up to where the full potential can get us. And then it'll be a question of the two elements debottlenecking on the FPS, so that we've got the maximum capacity for future production to come in. And then obviously ensuring that we get the best reservoir management, which will involve obviously rebuilding those subsurface models, the 3D models that allow us to map what that looks like.
Sarah Kerr: Great, that all makes sense. And just quickly moving to Neon, when would you potentially drill Neon West and would it be possible to complete it as a producer? And maybe just a quick slide question for Ray. What funding options do you have for a Neon standalone FPSO or tieback development?
Julian Fowles: Let me tackle the first bit while Ray contemplates the second part. So for the first part, look, we haven't yet got through the DG-1 decision gate. Neon West, without a doubt, is something that we would see as being a low risk prospective resource. That doesn't mean that it's a slam dunk to go and drill a development well. First off in there, for example, but there's a number of potential options that I know the team has been looking at. One of those, for example, could be to drill an exploration well that you could potentially come back and reenter and sidetrack in the future for a development of that area. The question I think we need to address is will de-risking Neon West provide us with any additional information to move forward with confidence into the feed and obviously to FID ultimately. Are the thresholds that that will get us over in terms of volumes, production rates and obviously feeding into the economics. So that's work that is ongoing and that will continue should we get through the DG-1 gate. And – yes, so I can't really give you an answer to that at the moment, I'm afraid, Sarah. I'll hand over to Ray.
Ray Church: Just add a few things, Sarah. I won’t talk to the staging and the timing and the economic hurdles that will have to make competing with other investments, but assuming we get there, we probably have a few levers. We have obviously cash build up. We have a farm-out or farm-in depending on who you are. So we have a farm-out option that Julian’s talked about in the past that would materially carry a lot of our spend. And then of course, by then, depending on the shape of our assets there’s new debt facilities that we could put in place. There’s a few years between here and I guess, significant investment in that project. So depending on what we do with organic and non-organic in the meantime, potential returns to shareholders, I think it’s probable that we would look to a different debt facility in the meantime. So that’s probably the main levers we’d have to pull.
Sarah Kerr: Great. Thanks so much and congratulations on the results.
Ray Church: Thanks, Sarah.
Operator: Your next question comes from James Burns with Citi. Please go ahead.
James Burns: Right. Good morning. Good cash results. So, pretty extraordinary, stocks trading a bit over 2x operating cash flow. And look, obviously when I pick up the phones and talk to investors, there’s no doubt that it screens cheaply. Where people, I think get a little bit hung up is about buying the business that has a declining production profile from reserves life perspective. Perhaps to help placate some of those fears, do you want to talk to what you think Karoon is going to look like in five or 10 years? And the kind of guardrails that you have in place that ensure that any volume growth indeed comes with value growth as well.
Julian Fowles: Yes. Look, that’s obviously something that we spend quite a bit of time contemplating, James. And one of the attractions of the Who Dat asset was that it has a long-term production sustainability profile, if you like. Obviously, with these three things we’re drilling at the moment or hoping that we’ll drill this year. They bring quite a bit of potential into the facility and can certainly help sustain production longer-term. What we see that the Who Dat asset producing well into the 2030s and I’m even hopeful it will go longer than that. I think in terms of where we look at targeting the company over a long time period, such as five years, that’s going to be the topic of a strategic review that we will undertake this year. So probably coming into the third or maybe early fourth quarter, we’ll probably be in a position at that stage to talk to the market about that. At this moment, though, we’re super focused on where the strategy is taking us, which has always been in the near-term to achieve rates of around about 50,000 boes a day within that sort of four year period or so from when we bought the Baúna asset. And hence that’s been built around the intervention in Patola programs and then obviously more recently the Who Dat program. So we’re getting not far off achieving that in terms of a goal. So it’s the right time, I think to undertake that strategic review. But look, we see a lot of opportunities in the market for assets which have longer-term growth profiles, longer-term production sustaining profiles than the Baúna asset. The Baúna asset was a fantastic thing for us to buy because it was priced at a very attractive acquisition. We knew it had very attractive potential for increasing production in the near-term with some cost attached to that, of course. But we had a lot of confidence around how to do that. But we recognized that it would be a declining asset and potentially by the early 2030s if we’re not able to extend the FPSO as long as we would like, that asset could be done by 2032, 2033 or so. So, yes, we’re certainly focused on getting things going longer-term and getting a broader asset base, I think is what will get us there, broader asset base with further potential. You would have seen in December, we moved to purchase two deepwater exploration blocks in the Southern Santos basin close to where we currently operate. That’s part of that longer-term potential story. After we’ve signed those blocks, which we think will be a little later this year, we’ll be in a position to talk a bit more about what we think we can do with those blocks. But yes, that’s really just an indication of how we’re looking at things and yes, absolutely looking to get a sustaining production profile, which will have that longer-term confidence and value for shareholders.
James Burns: Yes. Thanks, Julian. I got to say, though, like I’m probably a bit surprised about the talk on this call from yourself and from the line of questioning around the next deal, right, because you’ve only just completed the acquisition of Who Dat. And I accept what you said a moment ago in response to Dale’s question about the focus of the organization still on integrating that. But I mean, personally, I’d probably feel pretty uncomfortable if you were utilizing your dry powder too soon. So maybe could you just tell us about the human resourcing within the organization, your capacity to actually bolt-on more assets in the next year or two?
Julian Fowles: Yes. Look, it’s a good point and obviously it’s something that gets discussed at the Board in terms of our capacities and capabilities. What you’ve got to remember is that we have a very strong operating team in Brazil, which has been operating the Baúna asset now for a number of years and is continuing to, I think to get the best out of that asset and to understand at a very detailed level what that asset looks like. Separate to that, we have a largely Melbourne supported M&A team, of which there are also some elements in Brazil, of course, and that team is currently involved in the integration work with Who Dat. But Who Dat is a non-operated asset. So once we have the systems and the processes in place for ensuring we’re getting the best marketing and sales for our crude and for our gas, ensuring that we’ve got the right accounting processes in place and that we have the right forums and people to challenge and debate with the operator, I think that that team will have time and capacity to look at further assets. And that’s not necessarily what will happen in the next few months. But I think once we move into certainly that strategic review period, I think that there will be certainly capacity that comes free at that stage.
James Burns: Got it. Yes. Very much looking forward to this strategic review. Just to finish up, quick one for Ray. As I mentioned earlier, good operating cash result versus market expectations. And perhaps I need to dig into the numbers a bit more, but easier if I ask you. Was there anything timing wise with regards to operating cash flow? We ought to be aware of whether it’s timing of cargoes or tax payments or contingent payments that might have inflated that number at all. Thanks.
Ray Church: Good question. There’s only one item and it goes the other way. We were ship to ship offloading right on balance date. So we have about 500,000 – at least 400,000 barrels in inventory that actually sold in the first week of January. So that was a split cargo and that revenue didn’t come in. The cash really was attributed to that half period. So there’s a little bit of about 400,000 barrels of inventory there that realistically should have shifted. But because we’re doing ship to ship, we can split production and offtakes right now. And that happened to span those couple of days. So that’s the only thing that really, I think you would say, attributes to this half rather than the next one.
James Burns: Good to know. Thank you. Appreciate it.
Ray Church: Welcome.
Operator: Your next question comes from Nik Burns with Jarden Australia. Please go ahead.
Nik Burns: Thanks, Julian and Ray. Actually, I might just follow on from James’ question around the operating cash flow, because I was again surprised with the numbers coming through there. And in particular on tax, you only paid $19.5 million of tax in the last six months. And on my numbers, I was expecting to be paying a lot more tax than that and therefore at least was anticipating a large current tax liability on a balance sheet, but it only showed $16.8 million. Is that $16.8 million all that’s owing from a tax perspective over – from your earnings from the past 12 months or is there more to come?
Ray Church: I was really hoping someone asked this question. So will have – it’s like a provisional tax system. So you pay on an estimate basis during the period and then true up in the first quarter. So there’s around $20 million payable for this half or actually for the financial year – for the calendar year that will be paid in March. So that’s a cash flow that’s attributed to that period. But also there is a one-time tax incentive that’s at a state level in Brazil. I’m going to oversimplify, but we developed Patola and we received a tax rebate or a tax offset for costs – the capital costs invested in Patola that are incentives, I suppose in the tax system for development of new assets. So there’s a – the delta that you’re chasing, I think is that credit that we actually won’t have to pay. It’s a one-time benefit. So you can see it in the effective tax rate that you can see that it’s down to, I think, about 32%. Well, the tax expense is around 32% and in the past we’d be normally 35% with some change. So the delta is mainly that item, that incentive.
Nik Burns: Got it. Thanks for that, Ray. And just a question on Who Dat. Just on your reserve statement, the split between developed and undeveloped reserves looks like just over half of the two peer reserves in Who Dat classified as developed. A couple of questions around this. I’m just wondering if the reserves targeted by the G2 and G4 wells were classified as developed or undeveloped at 31 December. And beyond that, have you had an opportunity to engage with the operator around their plans to develop the remaining undeveloped reserves? Any insights you can give us around what that would entail? More wells, artificial lift, something else, timing. Thank you.
Julian Fowles: Yes. Good. I’ll take that one, Nik. So what I would say is some of the stuff that was targeted by those wells – those four recent wells was undeveloped. Some of it was actually completely new. The 4200 zone in G2, for example, and some of it was already classified as developed reserve and a good example also being in G2, the 4600 zone. So there was a bit of a mix in there. We haven’t yet sat down with the operator in detail to look at the long-term infill plan for Who Dat. I got a bit of an overview of it a couple of weeks ago of some preliminary thoughts when I was over there. And yes, I was actually very, very encouraged by that in terms of the potential to sustain our rates. We’ll end up with a saw tooth pattern, right, for Who Dat, production will decline one way or another and then we’ll tie in some new infill or potentially, if these new wells prove up new volumes, we can tie those in, too. So, yes, look, I think that there’s a bit of a mix of developed and undeveloped in those recent wells. And over the next, I expect, six to nine months, we will work with the operator on the medium-term infill program for the asset.
Nik Burns: Got it. Thanks for that. Just one more question. More modeling, I guess. Last quarter’s report included 11 days contribution from Who Dat. And in that you commingled oil with condensate and gas with gas liquids. I guess as we look ahead, will you split those four product streams out? And can you just remind us what price realizations relative to various benchmarks we should be modeling for those four streams? Thank you.
Ray Church: Sure. So we’ll probably we’ll avoid splitting out items so that we just get it too low granularity. But our crew that in the U.S. trades to the Mars pipeline index which are very similar to WTI. So it has a close connection to WTI. So that’s probably the reference point for the crude. The gas is Henry Hub pricing, which is a bit more volatile. So they’re the two indexes that I’d suggest you tie to.
Julian Fowles: The compensate goes out with the oil, and the NGLs obviously go with the gas. And we get paid for NGLs, but it’s a pretty small contribution.
Nik Burns: Yes. So I’m just wondering if that would result in a premium to Henry Hub, including the gas liquids in with the gas stream.
Ray Church: Sure. Well, I can probably tackle that. But yes, we will – we have seen historically a modest premium on Henry Hub, especially the last few months, but that’s on the order of perhaps $0.10 and obviously frequently lower than that. The Mars index tends to bounce up and down above and below WTI, so the oil and condensate can be higher or lower. At the moment, I believe it’s a little higher. We also have a quality part to our crude because we’re a little better quality than the general Mars index. And so that brings us at least recently has brought our pricing up above WTI. But again, we’re only talking cents, tens of cents, not $5 or something.
Julian Fowles: I just want to add. So you’re right, it’s a small premium to WTI on the crude and then typically a small premium to Henry Hub or NYMEX on the gas. But the pricing that you’ll see in our results is net of royalties, just to be clear. And transportation costs, et cetera, et cetera, obviously it takes money to transport our oil and our gas to the ultimate buyer and we pay for that transportation.
Nik Burns: That’s helpful. Thanks guys. Cheers.
Julian Fowles: Yes.
Operator: Your next question comes from Henry Meyer with Goldman Sachs (NYSE:GS). Please go ahead.
Henry Meyer: Morning Julian and Ray. Thanks for the updates. It’s been a pretty long call, so I might try and keep this one punchy. Just on the strategic review you’ve mentioned through the call, you’ve talked about more on M&A, potential returns, explorations creeping back into the portfolio. You’ve got a bit of a product shift going into gas. Could you expand a bit on what outcomes you’re working towards in the review and perhaps what’s driven the requirement to complete one, whether it’s new chair or observations through M&A or otherwise?
Julian Fowles: Yes, Henry. I’d love to go into detail about what we’re doing, but we haven’t yet scoped out the terms of reference for it. We’re sort of about to do that once we’ve got through this latest round of engagements. And so I’ll be able to talk a bit more about that probably in terms of the scope at the next opportunity. But yes, it’s really – it’s on the agenda for what we have to do this year. It’s going to be, I think, a pretty important piece of work, either to establish that we are going to continue with the knitting, if I can put it that way, or maybe we’ll add an additional stream or we’ll add some additional opportunity evaluation work into that longer term. But yes, at the moment, I haven’t – I literally haven’t got the sort of debatable material to be able to bring to you, Henry.
Henry Meyer: Okay, no worries. Thanks, Julian. And another quick one back on Neon. The commentary is fairly cautionary. Could you talk to a bit about what the Board will be assessing in this review next month, what the skew of risk is and some of the concepts. Is there actually a risk that you wouldn’t move into Concept Select for Neon?
Julian Fowles: I can’t obviously predict what the Board will decide. I think from my perspective, I think there’s a very strong chance that we will move forward into the next phase, and that’s because I think we see the feasibility of the project being reasonably robust at the mid case volume level. I think the key questions that we’ll need to address will be how do we mitigate downside outcomes? And those downside outcomes are twofold, largely to do with the overall recoverable volume. So and Sarah already asked a little bit about Neon West, perhaps that’s a way to mitigate that, if that is a key concern. But obviously that’s uncertain at the moment. And I think the second part is around what do the production rates look like? Obviously, these things tend to be more profitable the harder you can produce them. But that depends on, number one, how much CapEx you spend, how many wells you put in the ground, what’s the configuration of the wells. But even more importantly, what really is the producibility of the reservoirs throughout this particular field? We have a test, obviously from Echidna-1 which was pushing towards 5,000 barrels a day. It was very positive. But I can imagine that the Board will be asking questions around subsurface outcomes. They’ll also, of course, be interested in what’s our projections of future CapEx profiles. At the moment, there’s still quite a bit of uncertainty around that. And what do we see in terms of if we were to go standalone, what do we see in terms of the outlook for potential facilities that we could use on the field? So, yes, still heaps of unknowns and the key question at the moment is what’s the level of feasibility? And it would be a relatively modest CapEx going through 2024, should we take the decision to move forward in DG-1.
Henry Meyer: Great. Thanks, Julian. That’s great detail.
Julian Fowles: Yes.
Operator: There are no further phone questions at this time. I’ll now hand back to Ms. Ann Diamant to address any web written questions.
Ann Diamant: Thank you, Ashley, for that. We have had a number of questions on the – through the web. I think a number of them have already been answered, so I’ll just focus on the ones which are still outstanding. Firstly, from Andrew Mouchacca at Flinders Partners. Hi, team. Can you provide an update on appointing an in-country general manager in Brazil and maybe a comment on the expectation for what a team in the U.S. will look like?
Julian Fowles: Yes. Let me address that. First of all, the recruitment for the country manager role in Brazil is going very well. We have some very strong candidates and yes, I would expect that over the next few weeks, we will be in a position to make an offer, and hopefully, if that offer is accepted, we can then move forward to tell the market about that. But we’ve got very strong candidates. It’s been, I think, a process that has really looked at the depth and capability of Brazilian talent and also international talent, to be honest, for a role like this. And I’ve been very impressed with the candidates that we’ve seen so far. So, yes, that is going well. In terms of the team in the U.S., we’ve set up an office in Houston. We’ve actually got a more permanent office that we’re moving that team to. It’s in downtown Houston. We have about five or six people there at the moment that consists of a very small team that does scheduling, commercial and marketing. From the end of March onwards, we will be doing all of our own marketing of the liquids and the gas from Who Dat, and we’re very well positioned to start that. The team, we’ve brought in very experienced operators in that regard. We also have someone to do the finance for us and to make sure that all the numbers add up properly. It’s obviously a lot more than that. I’m not trying to downplay that role, but the importance of it is obviously large. And we’re looking at a couple of technical people who will do a lot of the day-to-day joint venture liaison with our partners LLOG and Westlawn [ph], of course. And the market for those types of roles, upstream experience roles in Houston is broad and deep. It’s massively encouraging when you go and talk there. Having said that, of course, though, we will also utilize our capabilities from Brazil. And I’m looking forward to getting the Brazil team involved in our non-operated venture in the U.S. And yes, there’s – on a number of projects we will bring the right people and the right capabilities to bear from Brazil as well. We have a reasonable amount of Gulf of Mexico experience in Brazil already in the team there, so that’s also very good. We’ll probably also at some point appoint a lawyer into the team. As you know, Andrew and everyone else knows, the U.S. can be quite a litigious environment. And I think appointing a lawyer will be very good. We’re very well served at the moment though with the legal counsels that we have that we’re able to use on a contractual basis. So, yes, it’s not any problem for us at this stage but, yes, so that’s sort of half a dozen people, more or less. I think that’s where we’ll end up through the year. I don’t see it being any bigger than that.
Ann Diamant: Thank you. The next question is from David Birrell from Croxon Capital. Who Dat is the gas oil split expected to be 40%, 60% going forward with the new worlds coming online?
Julian Fowles: Yes, look, I think the oil is 60% to 65% from memory I haven’t got it exactly to hand. But in terms of a BOE basis I think 60% to 65% of that is oil, 35% or so is gas or gas and NGLs. We don’t see that necessarily changing in the near term obviously it goes up and down a little bit depending on what is actually producing from the field and as you draw down pressures you tend to liberate a little more gas from liquids. I think a lot of Who Dat has been through that phase. But yes so we don’t see massive change in the near term.
Ann Diamant: Thank you. And the final question is from Jess Laser [ph], who is a shareholder. His first part of his question is about dividends, which I think we’ve already discussed. But the second part is would Karoon look at buying back into the Australian market if a good opportunity appeared?
Julian Fowles: Look, I think with our head office being in Melbourne, we do stay very close to what is happening in the Australian market. I’ll be frank. We probably see a sovereign risk in Australia that wasn't like it – it’s not like it used to be. There was a period when the majors and super majors couldn’t get through the door into Australia fast enough because it was such a good place to be. Now I don’t think we see quite so much of that. There are a number of attractive projects in Brazil. Getting access to those projects at a scale that would make sense for Karoon. I think is not necessarily simple and doing it in a way that does not increase our long-term risk profile. Especially from a sovereign point of view, I think is important. We’ve seen a lot of things in the last 12 months or 18 months in Australia which I think has been very surprising for the upstream oil and gas industry. Some of that maybe is backing off a little bit now, but yes, I mean, it’s harder to get approvals in Australia than it is in Brazil, just as if you want to lay a benchmark down there, much harder. So I think we will still look at Australia, but obviously through a lens of what the risk profile is like.
Ann Diamant: Thank you, Julian. There are no further questions online. So I’ll hand back to you to wrap up.
Julian Fowles: Thanks very much, Ann. And thank you, Ray and the team. Thank you, Ashley, for helping us through the webcast as well. Yes, just I want to thank our shareholders for their confidence and long-term support in Karoon. We are continuing to go through a growth phase in the company which remains transformative for the organization and for our asset base. The Board is convinced it is the absolutely right strategy for us to be on. We continue to be focused on oil. Obviously with Who Dat, we’ve taken on some gas. We are comfortable with that position. And I think with the strong cash flows that we’re seeing, I’m hoping that through 2024, shareholders will have an opportunity to see and understand how that plays out with the two key assets that we now have. So thank you very much to everyone. Thank you, of course, to the team in Karoon and to our Board of Directors for the support and confidence that they’ve given to the team as we’ve gone through 2023. And I look forward to updating the market in the next round of updates that we provide. Thank you very much.
Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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