Karoon Energy Finalizes Baúna Operatorship Shift, Achieves Record 97% FPSO Efficiency in Q2 2026

Baúna Operatorship Transition Enhances Control and Cost Efficiency

On 27 May 2026, Karoon Energy completed the Baúna FPSO operatorship transition, marking a pivotal milestone that enhances operational control and reduces operating expenses. This shift moves management from an external operator to direct control over day-to-day operations at Karoon's flagship Brazilian asset. CEO and MD Carri Lockhart explained that this transition is part of an ambitious 2026 program aimed at strengthening Baúna operations. The change follows the completion of the company's largest-ever revitalisation and maintenance campaign.

This operatorship change aligns with Karoon's strategic goal to build a robust operating platform that delivers higher efficiency and improved cash flow. Direct oversight of the FPSO vessel, which processes and exports Baúna crude, enables Karoon to better manage maintenance schedules, control costs, and optimize production decisions. The company anticipates measurable benefits from this structural change in the latter half of 2026 and beyond as operational processes and cost structures are refined under Karoon's management.

Q2 2026 Sees Record 97% FPSO Efficiency Post-Maintenance

Following a comprehensive Baúna FPSO revitalisation and maintenance program in Q2 2026, Karoon achieved an outstanding 97% operating efficiency, exceeding its 90–95% target range. The extensive maintenance addressed multiple FPSO systems to enhance reliability and minimize unplanned downtime. After completing well activities at SPS-92 and PRA-2, Karoon restored approximately 10,000 barrels per day of production that had been offline during maintenance.

This efficiency improvement directly supports production stability and cash flow generation from Baúna. With all Baúna wells online, total production reached approximately 22,000 bopd by quarter-end. The revitalisation addressed aging equipment critical to FPSO operations, with efficiency gains confirming the value of maintenance investments. Safety performance also improved, with over a year without recordable personal safety incidents by end-Q2 2026. Two Tier 2 process safety incidents involving minor gas releases were swiftly resolved without operational impact.

Q2 2026 Production and Revenue Overview

Karoon produced 1.08 million barrels of oil equivalent (net revenue interest) in Q2 2026, generating US$116.4 million in sales revenue. This included 0.84 million barrels of oil from Baúna and 0.24 million barrels of oil equivalent from Who Dat. Despite a 9% revenue decrease from US$128.2 million in Q1 2026, realised oil prices were significantly higher in Q2. The revenue decline reflects lower production volumes during maintenance prioritisation over maximizing throughput.

Baúna crude achieved an average realised price of US$94.56 per barrel in Q2, a 33% increase from US$71.12 in Q1. Who Dat liquids prices rose 55% quarter-on-quarter, benefiting from elevated global commodity prices. Baúna oil sales totaled 0.98 million barrels in Q2 compared to 1.47 million barrels in Q1, reflecting the planned production pause. Who Dat oil, condensate, and NGLs sales (net revenue interest) were 0.22 million barrels in Q2.

Who Dat A1 Sidetrack Online; Riser Replacement Planning Advances

The Who Dat A1 sidetrack began production on 13 July 2026, delivering 1,700 barrels of oil equivalent per day (net revenue interest) as expected. This sidetrack provides near-term production support for the Who Dat asset in the Espírito Santo Basin. It offers incremental production with lower capital requirements compared to larger projects, enhancing near-term cash flow. Production is ramping up and may increase as the well stabilizes.

Planning is progressing for removal and replacement of the E riser at Who Dat, addressing technical issues affecting E field production. Operator LLOG plans riser removal in Q3 2026 for inspection. Karoon’s base case assumes replacement of one or both E risers, with E manifold production anticipated to resume in Q4 2027. This represents a key production restoration opportunity, subject to riser inspection, joint venture approvals, contracting, and regulatory clearances. The joint venture is also pursuing additional production opportunities beyond the E riser restoration.

Strategic Growth: Who Dat East FID Expected in Q3 2026

Karoon is advancing strategic growth projects, with the Who Dat East Final Investment Decision (FID) expected in Q3 2026. This development could significantly expand Who Dat’s production capacity, contingent on economic viability and joint venture approvals. The project will leverage existing infrastructure, connecting to the Who Dat production system to reduce complexity. Karoon will evaluate Who Dat East against strict return thresholds aligned with its capital allocation framework prioritizing value over growth for growth’s sake.

Simultaneously, Karoon is optimizing the Neon development concept to enhance capital efficiency, targeting a milestone in Q4 2026. Neon represents another strategic growth opportunity, with efforts focused on lowering capital costs and improving economics. Both projects remain subject to FIDs and are not yet committed. Karoon’s disciplined capital approach ensures projects proceed only if they meet economic and shareholder value criteria.

Robust Balance Sheet with US$363.6 Million Liquidity at June 30, 2026

As of 30 June 2026, Karoon maintained total liquidity of US$363.6 million, including US$80.3 million in cash and equivalents plus available credit facilities. Net debt stood at US$269.7 million, with US$350.0 million drawn debt. In H1 2026, Karoon invested approximately 85% of its annual capital budget, mainly in Baúna programs to safeguard operations and enhance performance. Most capital expenditure was funded from cash on hand and operating cash flow, demonstrating the company’s ability to self-fund major operational initiatives without external financing.

Karoon expects higher free cash flow in H2 2026 due to increased production and reduced capital spending, as Baúna maintenance concludes. This guidance assumes oil prices between US$60–70 per barrel and operational performance within expectations. With significantly lower capital expenditure in H2, the company anticipates generating material free cash flow for deployment aligned with its capital allocation strategy, balancing growth, shareholder returns, and balance sheet strength.

Share Buyback Program Continues with 2.8 Million Shares Repurchased in Q2 2026

During Q2 2026, Karoon repurchased 2.8 million shares through its on-market buyback program, with an additional buyback commencing in July 2026. The board views buybacks as an effective near-term capital use, consistent with its capital allocation framework emphasizing shareholder returns alongside growth and balance sheet health. Management believes Karoon shares offer compelling value relative to cash generation and growth prospects. The announcement did not disclose average buyback prices or total capital deployed in Q2.

The continuation of buybacks in July reflects confidence in liquidity to support both shareholder returns and ongoing capital needs. Buyback execution remains discretionary and opportunistic, without formal Board limits disclosed. This balanced approach prioritizes returning cash to shareholders while maintaining financial flexibility for growth and operations.

Brazil Extends Windfall Export Tax by 60 Days; EU Sales Covered by Trade Treaty

Brazil extended its 120-day windfall export tax, introduced on 12 March 2026, by an additional 60 days, prolonging this extraordinary levy on oil exporters. Karoon’s Baúna asset in Brazilian waters is subject to this tax, representing a significant operational and financial factor. The company noted that sales to European Union buyers benefit from an EU trade treaty, potentially exempting those cargoes from the windfall tax depending on commercial and treaty terms.

The extension introduces ongoing uncertainty about the tax’s duration and impact on Karoon’s cash flow and profitability. The company did not quantify the tax’s financial effect for Q2 2026 or provide future exposure guidance. The EU treaty relief offers some flexibility in managing tax exposure via cargo destination, although practical constraints and the extent of this benefit remain unspecified.

2026 Production and Capital Expenditure Guidance Update

Karoon updated its 2026 production and capital expenditure guidance in a separate announcement on 29 June 2026 titled "Baúna SPS-92 production restart and 2026 guidance updated." The Q2 report directs investors to that release for detailed guidance, following the successful restart of SPS-92 well production which supported an upward revision of full-year 2026 production expectations.

Cash flow guidance for H2 2026 assumes production consistent with updated guidance, oil prices averaging US$60–70 per barrel, and operational performance in line with expectations. The company emphasized that guidance remains subject to operational risks, commodity price volatility, and successful execution of planned activities. Higher free cash flow in H2 depends on materially reduced capital expenditure as Baúna maintenance concludes. Detailed 2026 financial results and updated guidance will be presented at a results briefing on 27 August 2026 at 11am.