Financial Review

The Group reports an after-tax loss of $4,096,000 for the financial year ending 30 June 2023 (2022: $53,753,000).

Carnarvon’s balance sheet remains strong with cash and cash equivalents of $95,301,000 (2022: $112,424,000), with no debt and minimal commitments going forward.

During the year, the Company invested $12,119,000 on exploration and evaluation assets. These costs were primarily related to the Dorado FEED activities, the Pavo-1 and Apus-1 exploration well costs and interpretation of the 3D seismic acquisition over the Dorado and surrounding exploration areas.

The Group recognised its 50% share of the loss of $792,000 (2022: $513,000) incurred by the FEA biofuels Joint Venture during the year as the Joint Venture continued Front-End Engineering and Design (FEED) works for its first biorefinery in Narrogin.

The Group’s administrative and head office costs during the year were $2,634,000 (2022: $2,988,000). Employee benefits of $3,356,000 (2022: $2,597,000) were incurred during the year which includes the recognition of grants under the performance rights scheme. The increase in employee benefits year on year is due to a reduction of employee expenditure capitalised against the Company’s exploration projects, with a greater emphasis on corporate activities during the period, such as the partial divestment of the Company’s interest in the Bedout Sub-basin. Despite this, employee costs before exploration capitalisation reduced by 9% year on year as outlined in note 20.

The Group earned $3,390,000 (2022: $336,000) in interest income during the year by taking advantage of the higher interest rates received on call deposits and the Company’s strong cash position. There was also an unrealised gain on foreign exchange movements of $1,521,000 (2022: $3,800,000) due to the depreciation of the AUD against the Company’s USD cash and financial assets. The Group does not currently use derivative financial instruments to hedge financial risk exposures and therefore it is exposed to daily movements in the international oil prices, exchange rates, and interest rates. The Company manages its cash position in US Dollars and Australian Dollars to naturally hedge its foreign exchange rate exposures having regard to likely future expenditure.

Risk Management

Carnarvon recognises the importance of risk management in order to deliver the Company’s strategies and to provide sustainable growth to shareholders. Carnarvon manages its risks in accordance with its risk management policy to ensure critical risks are identified, managed and monitored. Carnarvon’s risk management framework is overseen by the Risk, Governance and Sustainability Committee. Oversight of the effectiveness of the risk management process provides assurance to the Board and shareholders and supports the Company’s commitment to continuous business improvement.

Material Business Risks

Safety, Environment and Sustainability:

Health, Safety and Environment

Oil and gas exploration, development and production activities involve a variety of risks which may impact the health and safety of Carnarvon’s people, communities, and the environment. These impacts could also damage Carnarvon’s reputation or lead to fines and other penalties.

Carnarvon’s projects are subject to various laws and regulations regarding the environment. Oil and gas exploration, development and production can be potentially environmentally hazardous giving rise to substantial costs for environmental clean-up and rehabilitation.

Carnarvon maintains high standards for health, safety, and environmental (“HSE”) management. HSE risks are embedded in Carnarvon’s operations and risk management framework and actively managed. Appropriate insurance is also maintained, and regularly reviewed to ensure adequate coverage. Where Carnarvon does not directly manage exploration and development activities, Carnarvon ensures its partner acting as operator maintains equally high standards in respect of HSE management.

Climate Change

Climate change and the management of carbon emissions may affect Carnarvon’s operations, markets for oil and gas and the funding and insuring of projects. Potential risks arising from physical changes caused by climate change include increased severe weather events and rising sea levels which may impact Carnarvon’s operations. There are also risks arising from policy changes by government which may result in increased regulation and costs which could have a material adverse impact on Carnarvon’s operations.

Carnarvon recognises climate-related risks and the need for these to be managed effectively. As a result, the Company actively monitors current and potential areas of climate change risk.

Further information about Carnarvon’s emissions management, and the potential impact of climate change on Carnarvon’s business, can be found in the company’s Sustainability Report for the financial year ending 30 June 2023.

In terms of future developments, like Dorado, Carnarvon is committed to working with its Joint Venture partners to reduce emissions from the project facilities, and will offset emissions in accordance with relevant regulatory requirements like the Safeguard Mechanism and environmental approvals.

Carnarvon is also seeking to diversify its portfolio by potentially developing lower carbon intensive assets which provide appropriate returns to shareholders. This includes Carnarvon’s early stage biofuels business, as well as other ‘new energy’ opportunities.

Economic and Financial Risks:

Additional information on financial risks is contained in Note 25 to the Financial Statements.

Oil Price

The financial performance, future value and growth of Carnarvon is dependent upon the prevailing oil price. The price of oil is subject to fluctuations and is affected by numerous factors beyond the control of Carnarvon. A sustained period of low or declining oil prices could adversely affect the carrying value of Carnarvon’s assets and the commercial viability of future developments.

Carnarvon monitors and analyses oil markets and seeks to reduce the price risk where reasonable and practical. Carnarvon will develop a hedging strategy upon sanction of future projects. Due to the early stage of Carnarvon’s projects, Carnarvon does not currently have any active hedges against the price of oil. Once Carnarvon’s projects develop further, the Company may enter hedging contracts to mitigate against fluctuations in the price of oil.

Foreign Currency Exchange

Carnarvon’s financial report is presented in Australian dollars; however, Carnarvon holds funds in both AUD and USD. The retention of US dollars influences Carnarvon’s reported cash holdings due to AUD / USD exchange rates at the end of each relevant reporting period, which may result in foreign exchange gains or losses in a period. Carnarvon also incurs some costs in foreign currencies, typically US dollars, which means Carnarvon is subject to fluctuations in the rates of currency exchanges.

To mitigate against these foreign currency exchange fluctuations, Carnarvon holds a balance between USD and AUD as a natural hedge to committed future expenditures denominated in both USD and AUD. Once Carnarvon’s projects develop further, the Company may enter into hedging contracts to mitigate against fluctuations in foreign currency exchanges.

Funding Risk

The nature of Carnarvon’s business involves significant capital expenditure on exploration, appraisal, and potential development activities. Carnarvon’s business and the development of projects which Carnarvon pursues relies on access to debt and equity funding. Limitations on Carnarvon’s ability to access funding could result in the postponement or reduction of capital expenditures, the relinquishment of rights in relation to assets, adversely affect Carnarvon’s ability to take advantage of new opportunities and restrict the expansion of the business. These could result in a material adverse effect on Carnarvon’s business, financial condition, and operations.

Carnarvon establishes funding plans for its material projects to ensure that the optimal funding is obtained to maximise shareholder value. This includes an economic and commercial analysis of projects and funding and ensuring that potential funding complies with Carnarvon’s risk management framework. Carnarvon also prepares short and long-term budgets and financial models which are monitored monthly in order to identify and manage any potential risks.

Operational Risks:


Exploration is a speculative activity with an associated risk of discovery to find oil and gas in commercial quantities. The future profitability of Carnarvon directly relates to the results of exploration, development, and production activities. If Carnarvon is unsuccessful in locating and developing new resources that are commercially viable, this may have a material adverse effect on Carnarvon’s future business, operations, and financial conditions.

Carnarvon utilises well-established prospect evaluation and experienced personnel to identify and evaluate prospects in order to manage exploration risks. Carnarvon also has a process to ensure major decisions are subject to assurance reviews which include external experts and contractors where appropriate.

Joint Venture Operations

Carnarvon participates in a number of joint ventures. This is a common commercial arrangement in the oil and gas industry to share the benefits, costs and risks associated with projects between participants. Subject to any sole risk rights which may exist in joint venture agreements, Carnarvon may require the agreement of other joint venturers to proceed with its activities, including a development project. Failure to agree on these matters may have a material adverse effect on Carnarvon’s business.

To the extent that Carnarvon is not the operator of a joint venture, it is reliant on the efficient and effective management of its partner acting as operator. The objectives and strategies of the operator may not always be consistent with the objectives and strategies of Carnarvon. However, operators must act in accordance with the directions of the operating committee, whose decisions are subject to the voting principles in the joint operating agreement (“JOA”).

Carnarvon must also pay its percentage interest share of all costs and liabilities incurred by the joint venture as required under the relevant JOA. If Carnarvon fails to meet these obligations it may experience a dilution or loss (via a buy-out) of its interest in the joint venture or may not gain the benefit of joint venture activities, except at a significant cost penalty later in time.

Carnarvon manages joint venture risks through careful joint venture partner selection, stakeholder engagement and relationship management. Commercial and legal agreements, including industry standard JOAs, are in place across all joint ventures to define the responsibilities and obligations of the joint venture.

Resource Estimates

Oil and gas resource estimates are expressions of judgement based on knowledge, experience, and industry practice. Estimates which are valid when originally calculated may alter significantly or become uncertain when new information becomes available. Material changes to resource estimates may result in Carnarvon altering its plans which could have a positive or negative effect on its operations.

Carnarvon prepares its reserves and contingent resources estimates in accordance with the definitions and guidelines in the Society of Petroleum Engineers 2018 Petroleum Resources Management System. Carnarvon engages personnel with an appropriate level of skill and experience to prepare and review its resource estimates. The assessment of Reserves and Contingent Resources may also undergo independent audit and review.


The development of Carnarvon’s projects is subject to a range of risks and uncertainties. Oil and gas developments are exposed to the risk of low side reserve outcomes, cost overruns, timing delays, technical issues and potential production decreases. A poor development outcome could result in material adverse impacts to reserve and production forecasts, future revenues, and operating costs.

Carnarvon mitigates these risks through the careful selection of joint venture partners, ensuring the utilisation of high quality and experienced contractors throughout the development process, conducting assurance and other reviews during development, as well as comprehensively assessing all developments prior to making any commitment to participate.


Carnarvon operates in highly regulated industries and jurisdictions. Changes in regulations or enforcement actions could have material adverse impacts on Carnarvon. Changes in government, monetary, taxation, operational and other laws in the country(s) in which Carnarvon operates may also impact Carnarvon’s operations.

Carnarvon holds interests in permits which are governed by the granting of contracts, licences, permits, or leases by the appropriate government authorities. Carnarvon may lose title to or its interest in a permit if licence conditions are not met, or insufficient funds are available to meet expenditure commitments.

Carnarvon monitors changes in relevant regulations and engages with regulators and industry bodies to ensure the impact of policy changes are understood, and the Company continues to comply with all regulatory requirements.

Foreign Operations

Some countries which Carnarvon may undertake business in are developing countries that have political and regulatory structures that are maturing and have potential for future change. There is the risk that certain events could have a material impact on the investment and security environment within those countries which could impact the assets held by Carnarvon.

Carnarvon closely monitors political developments and events in the countries in which it transacts. Carnarvon engages with stakeholders in those countries and maintains local offices which are staffed by in-country personnel who can liaise directly with regulators and provide appropriate local expertise.

Key Personnel

Skilled employees and consultants are essential to the successful delivery of Carnarvon’s business strategy. Carnarvon relies on the services of certain key personnel, including Executive Management, other key employees, and consultants. The loss of any of these key personnel could have a material adverse effect on Carnarvon’s business.

Carnarvon ensures it maintains competitive remuneration practices relative to its industry, including short and long incentive schemes, to ensure it maintains the services of key personnel and has the ability to attract additional staff, as required.

Carnarvon maintains clear and regular updates on strategy and business planning to provide clarity on the company’s future plans. Guidance and opportunities are provided for staff to further their careers, and staff training and development seeks to ensure individual development goals align with Carnarvon’s strategy. Succession planning for key personnel and other key employees is also undertaken on a periodic basis.