MANAGING DIRECTOR'S REVIEW

Adrian Cook

The execution of Carnarvon’s strategy is reflected in its tangible progress on the Dorado project which is now a highly valuable core asset of the business and a platform for future investment and growth.

Carnarvon has maintained a consistent strategy that seeks to identify high quality technically driven opportunities offshore Western Australia in a region referred to as the North West Shelf (“NWS”).  The Dorado project is the result of a tenacious focus over many years to unlock a highly prospective new sub-basin on the NWS. The Company has a commanding position in this new sub-basin with attractive development and exploration opportunities before it.

The Dorado project has now been confirmed as a large oil and condensate rich resource and is rapidly maturing into a highly attractive development project. The Joint Venture has already agreed on a development concept which will focus on the production of the oil and condensate initially. The current work is focused on the engineering and design of the production facilities and on the determination of the cost to construct the field. This process will advance into the 2021 calendar year before, subject to market conditions, the Joint Venture making a decision to commence the construction phase.

The conventional nature of the field design, its location in shallow water and the scale of the resource are all factors that are expected to result in this being a low cost production asset on a global basis. This economic position is highly appealing for its downside protection in low oil price environments and, as is expected to be the case when on production, its high return on investment in a normal oil price environment.

The Dorado project’s development concept is being designed to accommodate liquids production of around 100,000 barrels per day with the operator providing initial flow rate guidance of 75,000 to 100,000 barrels per day. These rates will result in Carnarvon being one of the larger ASX listed producers of oil and condensate given its 20% interest in the project. The capacity of the facilities will also provide scope for adding in any additional discoveries made nearby in the future. These “tie-back” resources can be highly valuable given they benefit from utilising existing production facilities.

The Dorado project resides within a sub-basin on the NWS over which Carnarvon has a commanding position. The results to date prove that this sub-basin contains substantial quantities of liquids rich resources. Multiple play types and the under explored nature of the region provides tremendous opportunity for there to be substantial additional resources awaiting discovery. Subject to market conditions, the Joint Venture is working toward drilling a number of the high graded exploration targets late in the 2021 calendar year. The primary focus for the next phase of exploration is within an area covered by new seismic data acquired in 2019. The area contains a number of large volume potential targets as well as smaller tie-back targets close to the proposed Dorado field.

The Dorado project and the opportunities within the Bedout sub-basin are clearly core assets and high value propositions for the business. However, the Company’s strategy remains focused across the entire NWS and on advancing the Company’s other permit interests. Conditions within the energy sector have been challenging and consequently have impacted on the progression of Carnarvon’s other permits. But as has been evidenced with the advancement of the Bedout sub-basin permits, a tenacious focus and clear execution plan throughout the industry cycles delivers results in the long run. We remain confident that the Company holds attractive permits with exciting new play types that will be of appeal when market conditions recover.

I’d like to take this opportunity to thank the Carnarvon team for their resilience and “can do” attitude during this year, most specifically during the period of great uncertainty as the COVID-19 virus took hold around the world. Our operations progressed without missing a beat and that is a reflection of the team’s positive attitude and passion for the work that they all do.

Finally, on behalf of Carnarvon’s staff, I would like to thank our Chairman, Peter Leonhardt, for his many years of guidance and support. He has led the Company into a very strong position and leaves it with a very exciting future. The transition of the Chairmanship to Mr Bill Foster has been well planned for and was unsurprisingly well received by shareholders. Bill is no stranger to Carnarvon, having been a non-executive director for the last ten years, and has a strong passion for our next phase of growth that will involve the progression of the Dorado field development.

Adrian
Adrian Cook
Managing Director and Chief Executive Officer
Adrian Cook