Karoon considers bringing in partner for Brazil oil project

Karoon is considering bringing a partner in to develop its Neon project, off Brazil’s coast, the Australian oil company’s global CEO Julian Fowles tells BNamericas. 

The Santos basin undertaking will probably require over US$500mn, and Karoon is studying strategies to improve its profitability. 

In this interview, Fowles also speaks about production from the firm’s Baúna field and the Brazil exploration outlook.

BNamericas: How has production been going at the Baúna field?

Fowles: First of all, I think it's important to emphasize that Brazil is our big operating focus. This is where Karoon has its biggest presence and where we're making most of our investments. We see a lot of opportunity here in oil and gas. 

We've been operating Baúna now for nearly four years. I think we've done nearly 60 cargos, each involving 500,000b. 

We’ve invested in growing production with an intervention program and bringing the petroleum field upstream. That program we completed last year. Today, we produce about 25,000b/d of oil from the complex of fields at the Baúna project, including Piracicaba and Patola. And they continue to perform strongly. We’re currently looking to bring another well [SPS88] back on stream early next year, which should take our production to 27,000b/d or 27,500b/d.

Now we need to look forward to the future, beyond 2025. So we have the Neon project, where we have some things to do to make that opportunity into an investment case. What we're working on there is the subsurface needs to underpin everything we do. But then, secondly, the capex for that project. We need to make sure that the low side volumes for Neon can still be profitable. And at the moment they're marginal, so it struggles. If we can get lower capex, that will immediately improve profitability, too.

BNamericas: What is the capex range estimated for Neon? 

Fowles: We don't really have a capex range for it yet, but it's over US$500mn.It's a field that has about 60 million barrels of 2C contingent reserves. Goiá, which is not far away, has another 27Mb [of 2C contingent resources]. So between the two of those, it's a very attractive volume. But what we're trying to do is to make what we call the Neon foundation, make that work, so that Goiá can then be a tieback into that project, which will simplify the development. We need to make sure we're at the lower end rather than the upper end, which could stretch to a billion dollars, for example.

BNamericas: In any case, those projects would require at least one FPSO, right?

Fowles: We think now that the project will be an independent development from Baúna. In the past, we looked to see if we could tie it back, but it's probably not going to be the best economic case. We'll get the most production from Neon if we have a standalone facility sitting there. And that'll allow us to tie in the Goiá discovery. And we have another prospect, which is undrilled, called Neon West, which at some point I'm sure we’ll come to drill there.

We're dealing with a high capex environment just now. Petrobras is flooding the market with orders for their growth profile. And there are other companies that are also in the middle of that growth phase, like Equinor. So it's important that we're able to manage the risk of the capex going over budget. 

BNamericas: Do you have any further exploration commitments for Neon?

Fowles: We're going through a process to revise that field development plan to make the economic thresholds that are required. And that will then go through the [regulator] ANP for their review and for that to be approved. That's where the big focus of work is at the moment.

And if Neon is to work, I think it'll be a great project for Karoon. It's a project that potentially we could bring another partner into. For a field which has development risk, normally companies will bring partners. That's something that we're looking at, the right time to probably talk with the market of potential partners. 

BNamericas: What about oil and gas bidding rounds? Do you have any plans or considerations regarding expanding your exploration portfolio?

Fowles: The last bidding round we had was last December. We made quite a bold step and took some new blocks on that. There's a lot of work going on with those, but they're many steps away from being progressed far. I think the areas that are around our portfolio are of interest to us in future bidding rounds.

If we can get Neon to work, then potentially around that area maybe there's something that would be useful to bring into the portfolio. And if there are things to add around there, that would be the exploration focus for that.

Regarding Baúna, we've looked at that a lot in the past and not seen very much. We're taking another look at it now to check for additional opportunities to tie into the field. 

I hear that maybe by the middle of next year the [ANP] bidding round might take place. So, yeah, we'll take a look at that. But Karoon's not a greenfield exploration company. We've been doing this midlife field redevelopment. And that's a great area for us to focus on. 

BNamericas: Altera and Ocyan operate the Baúna FPSO. What is the term of the contract?

Fowles: The contract goes until 2028, but from 2026 to 2028 it has an option period. So we're currently working with Altera Ocean to ensure that the FPSO will operate with the maximum efficiency through to the end of that period. And even to look beyond that period. 

BNamericas: And until when does Baúna’s license run?

Fowles: 2038. 

BNamericas: Does the FPSO have the conditions to withstand all this period?

Fowles: We’d certainly like to see that FPSO capable of producing that long, but it will require investment to do that. We’re working with Altera and Ocyan to ensure that that happens. 

BNamericas: Do you have any concerns regarding the regulatory environment in Brazil? 

Fowles: We got a bit of a shock last year with the oil export tax. But it was really good to see that at the end of the 120 days that wasn't renewed because it had a big impact on investor sentiment.

[Editor’s note: In 2023, the Brazilian government taxed crude oil exports for 120 days, until June 30, at a rate of 9.2%.] 

Investors like to see stability, and I’d say one of the most attractive things about the Brazil upstream environment has been stability for two decades or more. The government has generally not interfered in existing contracts and that encourages me to want to invest more. We've invested well over a billion dollars in Brazil, and I want to look forward to the next billion after that, and I hope that, whereas the first billion maybe took us six or seven years, maybe the next billion takes us three or four years. Don't take that as a promise, but I look forward to being in that environment to be able to do that.