Karoon Energy : June 2022 Quarterly Report and Appendix 5B

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JUNE 2022 QUARTERLY ACTIVITIES REPORT & APPENDIX 5B* Issued 28 July 2022

Highlights:

• Oil production in the 2022 June quarter from the Baúna Field in the Santos Basin, Brazil was 1.08 million barrels (MMbbl), produced at an average rate of 11,878 barrels of oil per day (bopd), taking production for FY2022 to 4.64 MMbbl, slightly above the 4.4 - 4.6 MMbbl guidance range.
• Oil sales for the quarter were 0.98 MMbbl, with two cargoes lifted during the period. The average net realised oil price was US$107.43/bbl, 13% higher than in the March quarter.
• Revenue from the cargoes lifted was US$105.4 million, while cash receipts from oil sales were US$104.1 million, with a further US$55.9 million cash payment received in early July. FY2022 oil revenue and cash receipts were US$385.1 million and US$363.0 million, respectively.
• The four-well Baúna workover campaign using the Maersk Developer drilling rig commenced during the quarter, with the first well, PRA-2, being entered in late May to replace the downhole Electric Submersible Pump. PRA-2 was brought back onstream successfully in late June, with a boost to production in line with expectations.
• Two Lost Time Incidents (LTIs) were recorded in the quarter while a resurgence of COVID-19 in Brazil led to a number of cases onboard both the FPSO Cidade de Itajaí and the Maersk Developer drilling rig, but with no disruptions to operations. There were no significant environmental incidents.
• Cash and cash equivalents at 30 June 2022 were US$157.7 million. Undrawn and available debt, including a US$50 million Accordion Facility established in April, was US$180.0 million, taking total liquidity at the end of June to US$337.7 million.
• Work progressed on planning for a drilling campaign on the Neon oil discovery offshore Brazil, with a commitment in April to drill one, and possibly two, control wells in CY2023 following the Patola drilling (subject to the receipt of required environmental approvals).
• In May, Karoon terminated its Exclusivity Agreement with Enauta Energia S.A. and withdrew its conditional, non-binding and incomplete offer for the potential acquisition of a 50% non-operated interest in the Atlanta oil field, Santos Basin, offshore Brazil.
• Karoon's results for the financial year to 30 June 2022 are expected to be released to the market on 25 August 2022. Revised guidance for FY2022 is shown on page 6. Key changes in guidance include a reduction in anticipated Unit Operating Costs due to higher than expected production, and lower than anticipated capital expenditure due to timing of spend. In addition, a further increase in the fair value of the total contingent consideration payable to Petrobras is expected to be recognised, based on the Company's oil price outlook at the end of the 2022 financial year. Guidance for FY2023 will be provided when Karoon's FY2022 financial results are announced on 25 August 2022.

• While Karoon is now an oil producer, it remains an "oil and gas exploration entity" for the purposes of the ASX Listing Rules and, as such, will continue to report as one until it becomes an "oil and gas producing entity" for the purposes of the ASX Listing Rules.

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Comments from Chief Executive Officer/Managing Director, Dr Julian Fowles:

"Oil production in the June 2022 quarter was 3% higher than in the March 2022 quarter, reflecting excellent facilities availability of 99% combined with strong reservoir and well performance. The final quarter performance took total production for FY2022 to 4.64 MMbbl, slightly above the top end of the guidance range.

Two cargoes were lifted during the quarter, with a total volume of just under one million barrels of oil. The average oil price realised, of US$107.43/bbl net of marketing expenses, was a quarterly record for Karoon, resulting in a 13% increase in sales revenue, compared to the March 2022 quarter. Unfortunately, two LTIs were recorded and despite our stringent COVID-19 safety protocols, we had a number of COVID-19 cases in our offshore operations, the majority on the Maersk Developer rig, but with no impact on the efficiency of our operations.

Our four well Baúna interventions campaign commenced during the quarter, within the predicted program window. A new Electric Submersible Pump was successfully installed in the first well (PRA-2) and the well brought back onstream in late June. Production steadily increased to more than 3,000 bopd in early July as the pump was brought up to normal operating conditions, compared to 1,900 bopd prior to the intervention. The rig has now commenced the second intervention, on well SPS-56, where gas lift is to be installed. Overall, the rig schedule is slightly behind target. As we have emphasised previously, diesel fuel costs have been significantly higher than budgeted, due to strong crude prices. As a result, the intervention programme costs are tracking towards the upper end of our US$110 - $130 million guidance range, with risk of going higher should current fuel costs be sustained.

Planning for the two well Patola development continued on schedule over the period. In April, we committed to drilling up to two control wells on the Neon oil discovery, aimed at reducing subsurface uncertainty, with drilling planned after completion of the Patola wells, subject to the receipt of the relevant approvals.

In April, we established a US$50 million Accordion Facility, increasing our total debt facilities to US$210 million. US$180 million remains undrawn which, together with cash of US$157.7 million, provided us with total liquidity of US$337.7 million at 30 June 2022. Proceeds of US$55.9 million from the June cargo were received in early July, boosting our cash balance further. The March - June 2022 hedges, required under the terms of the funding facility, expired during the period with settlements of approximately US$10 million on the expiring sold calls.

We announced in May that work on the potential acquisition of a 50% interest in the Atlanta oil field, offshore Brazil, from Enauta Energia SA, had ceased, reflecting our disciplined approach to evaluating acquisition opportunities. A number of other growth opportunities remain under evaluation.

I look forward to updating the market on our financial results for FY2022, which are expected to be released on 25 August."

For further information on this release, please contact:

	Investors:	Media:
	Ann Diamant	Australia	Brazil
	SVP Communications and Investor	P&L Corporate Communications	InPress Porter Novelli
	Relations	Ian Pemberton	Andrea Blum
	Mob: [phone]	Mob: + 61 402 256 576	Mob: + 55 21 98105-9338
	Email:	Email:	Patricia Odenbreit
	[e-mail]	Mob: + 55 21 96674-6403
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Production Summary

Baúna Field (BM-S-40, Santos Basin, Brazil - 100% Equity interest, Operator)

Key Data	June	March	% change	FY2022
	Quarter	Quarter
	2022	2022
Production rate ('000 bopd)	11.88	11.72	+1	12.70
Production volume (MMbbl)	1.08	1.05	+3	4.64
Sales volume (MMbbl)	0.98	0.98	-	4.54
Weighted average net realised price (US$/bbl)	107.43	95.02	+13	84.74
Oil sales revenue (US$ million)	105.4	93.2	+13	385.1
Oil sales cash proceeds (US$ million)1	104.1	75.2	+38	363.0
Closing cash and cash equivalents (US$ million)	157.7	200.4	-21	157.7
Closing debt (US$ million)	30.0	30.0	-	30.0
Closing net cash and cash equivalents (US$ million) 2	127.7	170.4	-25	127.7
Undrawn debt (US$ million)	180.0	130.0	+38	180.0
Lost time injury rate (incidents/200,000 hours)	0.98	0.96	+2	0.77
Total recordable incident rate (Incidents/200,000	0.98	0.96	+2	0.77
hours)

1. Includes proceeds from the cargo lifted in March 2022, which were received in April 2022, and excludes proceeds from the June 2022 cargo, which were received after the end of the quarter.
2. Net of drawn debt.

Total oil production during the quarter was 1.08 mmbbl, produced at an average rate of 11,878 bopd. Despite three short unplanned shutdowns, FPSO uptime averaged 99% over the period and Baúna reservoir performance remained strong. In late May, the PRA-2 well was taken offline for intervention work, with production resuming just before the end of the quarter.

Two cargoes were lifted during the quarter, totalling 0.98 million barrels of oil, with one cargo sold to a buyer in Asia and the other to a buyer in North America. The average realised oil price, net of selling expenses, was US$107.43/bbl, 13% higher than in the prior quarter, reflecting the continued strengthening in global oil prices. Oil revenue generated from the two cargoes shipped in the quarter was US$105.4 million.

Oil receipts for the quarter of US$104.1 million included proceeds from the March and April 2022 cargoes, but excluded the June cargo, with cash proceeds of US$55.9 million received in early July.

There were two Lost Time Incidents (LTI) recorded in the June quarter. In April, a third-party contractor onboard a support vessel slipped and fractured a rib, and in June a worker twisted their ankle on the FPSO, which was subsequently identified as a fracture. Safety and safe outcomes continue to be emphasised as a priority in all our operations, and education regarding the importance of following procedures and keeping training up to date has been provided to staff and contractors. There has been a resurgence of the COVID pandemic in Brazil, reflected in new cases within Karoon's operations. During the quarter, 46 COVID cases were identified and treated, with six cases detected onboard the FPSO, 35 onboard the Maersk Developer rig and the remainder in hotel quarantine prior to embarkation. No cases required hospitalisation, and many were asymptomatic. To date, there has not been any interruption to production from COVID-19, reflecting the effective implementation of the Company's ongoing COVID safety protocols. Karoon has worked with Maersk Drilling on revising its COVID protocols, to ensure the health and safety of the rig operations and has further reinforced the application of its established COVID protocols for its FPSO workforce.

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Production data relating to Baúna can be found in monthly newsletters produced (in Portuguese) by the Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP: the Brazilian oil and gas regulator) and on the ANP's dynamic panel of oil and gas production, both of which can be accessed via the ANP's website at http://www.anp.gov.br.

Well Interventions Campaign and Development Activities

The Maersk Developer rig arrived in Brazilian waters in April and after minor repairs and the receipt of regulatory approvals, was mobilised to Baúna in early May. The first intervention, on PRA-2, commenced in late May. Following the installation of a new Electric Submersible Pump, the well was brought back online successfully in late June, with production steadily increasing to more than 3,000 bopd in early July as the pump was brought up to full operating capacity. The second intervention in the program, to install gas lift on the SPS-56 well, commenced in July.

Preparations for the Patola development continued. During the quarter, Technip FMC nominated the pipelaying vessel and approval was received from the Brazilian authorities for the connection of the two Patola wells (to be constructed as part of the Patola development) to the FPSO.

Corporate and Commercial Summary

Liquidity

At 30 June 2022, Karoon's total liquidity was US$337.7 million, comprising US$157.7 million in cash and cash equivalents and US$180 million in undrawn available debt capacity.

Cash flows from operating activities included receipts from oil sales of US$104.1 million. This excluded the June 2022 cargo, with US$55.9 million proceeds received in early July. US$52.7 million of net cash was generated from operating activities during the quarter, or US$43.4 million when adjusted for the principal elements of lease payments included in financing activities. The deferred firm consideration payment of US$43.6m was made to Petrobras, as per the Sales and Purchase Agreement (SPA), for the Baúna acquisition, and US$38.8 million was used for continued activities related to the Baúna intervention campaign and Patola development.

Significant cash flows

The June 2022 quarter included the following key financial items:

• US$104.1 million in proceeds from oil sales.
• US$43.6 million paid to Petrobras for the deferred consideration under the terms of the SPA.
• US$40.8 million related to payments for property, plant and equipment, including US$32.0 million of intervention campaign CAPEX, US$6.8 million paid for long lead items and other planning activities required for the development of the Patola field and US$2.0 million for tools.
• US$28.9 million in payments related to Baúna production costs, including US$11.5 million in royalty payments.
• US$13.2 million spent on FPSO lease charter payments, which are included in lease payments and finance costs in the Appendix 5B.
• US$8.1 million of Brazilian income tax instalments.
• US$6.0 million paid for out of the money oil hedges.
• US$1.1 million paid for costs associated with the establishment of a US$50 million Accordion Facility.
• US$0.8 million of exploration and evaluation costs, predominantly related to ongoing subsurface and engineering studies on the Neon discovery and minor costs related to WA-482-P in Australia.
• US$0.3 million related to director and committee fees paid to non-executive directors and salary paid to the Chief Executive Officer and Managing Director in accordance with his employment contract.

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Debt facility

During the quarter, Karoon established a US$50 million Accordion Facility, increasing the total amount of the Company's debt facility to US$210 million. The additional funding will provide extra liquidity for Karoon during the Neon control well drilling program, which was approved in April and is scheduled to take place after the conclusion of the Patola development campaign, subject to the receipt of required environmental approvals.

As at 30 June 2022, the total drawn amount was US$30 million, unchanged from the previous quarter. Total undrawn and available debt at the end of the quarter was US$180 million.

Hedging

During the quarter, 426,000 bought Asian put options and 426,000 sold Asian call options expired. Karoon settled US$10.3 million on the expiring sold calls, which will be expensed through the profit and loss statement this quarter. Over the quarter, 61% of production was unhedged and no incremental hedges were established.

Sustainability

During the quarter, Karoon Petróleo & Gás Ltda., a wholly owned subsidiary of Karoon Energy Ltd, made its first purchase under an agreement with Shell Western Supply and Trading Limited, acquiring more than 29,000 verified emission reductions (VERs), which, together with a previous purchase of VERs in November 2021, has offset all Scope 1 and 2 Baúna FY2021 emissions. This is a significant achievement, making Karoon a carbon neutral operator for Scope 1 and 2 Baúna FY2021 emissions and demonstrating our commitment to managing our carbon footprint and our recognition of the importance of facing the global challenges of climate change.

Karoon's greenhouse gas (GHG) emissions (Scope 1 and 2) increased during the quarter, due to the arrival of the Maersk Developer rig and the commencement of activities on the Baúna intervention campaign. These activities have temporarily raised the GHG emissions intensity of Karoon's Baúna operations, which will decrease once the workover campaign and Patola development are completed. Partially offsetting the increase, a project focused on scheduling vessel movements, aimed at optimising fuel efficiency and reducing diesel use and GHG emissions, commenced during the quarter.

Karoon committed to three new voluntary social-environmental projects over the period. The projects are all located in the state of Santa Catarina in southern Brazil. The projects seek to provide a range of positive social and environmental outcomes, including the provision of employment for vulnerable individuals, providing access to recycling facilities to reduce landfill waste, increasing awareness and knowledge of traditional culture, and protection of endangered species.

Exploration, Appraisal and Potential Development Update

Brazil

Santos Basin, Blocks S-M-1037,S-M-1101

100% Equity Interest, Operator

Following the completion of pre-development geotechnical and engineering work on the Neon discovery during the March quarter, in early April, Karoon committed to drilling a Neon control well and, depending on the results of that well, a second control well, with the specific goal of reducing subsurface uncertainty.

During the quarter, detailed planning and engineering studies for the drilling program progressed. The primary objectives of the control wells are to confirm the reservoir quality, continuity and extent, and the depth of field oil:water contacts. To achieve this, Karoon plans to drill the first control well, Echidna-2, approximately 2 kilometres south of the Echidna-1 discovery well. If successful, a second control well, Echidna-3, will then be drilled approximately 2 kilometres to the north of Echidna-1, where additional target reservoirs have been identified. The control wells are designed to provide sufficient constraint of the stratigraphic and lateral limit of the oil pools to allow a revised development plan to be formulated. In addition, the results are aimed at bringing

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