Chairman’s review

The challenges of COVID-19 and the economic effects of this have continued throughout the past year. Both human and operational activity has required careful management to ensure the safety and well-being of staff and the achievement of operations despite logistic and supply chain disruptions. On behalf of the Board, I wish to express our appreciation to our staff in working through this in a safe and efficient manner and to thank Adrian Cook for the leadership he has shown as Managing Director.

Various agencies such as the International Energy Agency have identified that a rapid increase in renewable energy sources is necessary if the world is to achieve a net zero emissions position by 2050. These agencies also recognise that oil and gas will be required through this period to meet energy needs. Carnarvon’s position remains strong due to its focus on low cost assets and the expected strengthening in the oil price due to significant under-investment in recent years in new supply sources. I am firmly of the view Carnarvon has an ongoing future for many years that shareholders will be able to realise value through in the projects now being developed.

The Annual General Meeting of Carnarvon held last November saw the appointment of Ms Debra Bakker to the board, the retirement of Mr Peter Leonhardt as Chairman and my appointment to that position. The skillset of the board has been considerably enhanced with Debra’s appointment through her financing background, this now being a key aspect of Carnarvon’s project achievement. I wish to thank Peter for the excellent stewardship he provided to Carnarvon over his 15-year term as Chairman and I look forward to continuing this.

Carnarvon’s strategy was refined this year to a focus on realising shareholder value from the major discoveries in the high-grade exploration areas it now holds. Four main areas of focus were progressed around the Buffalo Field Redevelopment; the Dorado Field Development; the selection of drilling prospects adjacent to the Dorado field and a deep assessment of the potential within Carnarvon’s existing exploration portfolio.

The coming year is both exciting and transformational for Carnarvon. The level of activity will be at an all-time high. With three wells to be drilled and with Dorado Field Development progressing shareholders have much to look forward to.

The Buffalo Field Redevelopment target is to drill the Buffalo-10 well into the remapped structural crest of this former field before the end of 2021, where between 15 and 48 million barrels of oil are prognosed as being recoverable. This target is on track to be achieved with spud of the well planned for late October 2021. Carnarvon’s 50% partner in the Timor-Leste Production Sharing Contract (“PSC”), Advance Energy PLC (“Advance”), is funding US$20 million of the costs of this well. With drilling success, the newly formed joint venture will acquire development funding from third party lenders and any additional funding requirements (above that provided by third party lenders) will be provided by Advance as an interest free loan. Carnarvon also remains as operator for the PSC. We wish to acknowledge the cooperation of the Timor-Leste authorities in maintaining the schedule in what has been very difficult times for them due to COVID-19.

In relation to the Dorado Field Development, Front End Engineering and Design (“FEED”) for this project was announced by Santos, the operating partner of the licence area, at the end of this financial year. The original milestone was delayed by some six months to better plan for potential development from nearby prospects that could utilise the Dorado field’s infrastructure. The high productivity of the Dorado reservoirs means that oil recovery is very rapid and capacity to process other fields’ production will quickly become available. This incremental production has an extremely high net revenue margin as minimal new infrastructure is required. The Final Investment Decision (“FID”) for the Dorado Field Development is now expected around the middle of calendar 2022, with production commencement targeted for late 2025.

During the year, a commitment was made to the drilling of two large prospects adjacent to the Dorado field with commencement of the first well expected in early 2022 and the other to immediately follow. These are the Pavo-1 well and the Apus-1 well and the Managing Directors’ report will outline further details of these. Success in either of these prospects will be transformational in value for shareholders.

Carnarvon’s exploration portfolio has some 10 offshore permits and licences stretching from the Carnarvon Basin to the Timor Sea. High grading of these was undertaken this year to ensure that future expenditure was consistent with realising the maximum value potential of an area. It would be no surprise that the outstanding potential lay in the four licence areas that were a part of the Bedout Basin. This is where most of Carnarvon’s exploration funds will be spent in the future.

Against the background of this significant activity has been an overriding emphasis on Carnarvon’s social licence and the subsequent ESG activities it has undertaken. Commitment to a net zero emission position by 2050 has been made, whilst current emissions are being totally offset. Moving into a production phase, emissions will rise substantially, and plans are being developed to minimise and offset these. A step in these plans is the joint venture that Carnarvon has established with Frontier Impact Group (“FIG”) to build a biorefinery business in Western Australia based on waste lignocellulosic biomass as a feedstock. This business is very complementary to the significant increase in tree plantings that are now taking place across Western Australia as a carbon offset measure by many companies.

The coming year is both exciting and transformational for Carnarvon. The level of activity will be at an all-time high. With three wells to be drilled and with Dorado Field Development progressing shareholders have much to look forward to.

William (Bill) Foster