Carnarvon Energy Faces Dorado Development Delay but Holds Strong Cash Position

Strong Financial Position Amid Project Uncertainty

Carnarvon Energy Limited (ASX: CVN) closed the December 2024 quarter with a solid financial footing, boasting A$187 million in cash and no debt. This robust balance sheet provides the company with significant flexibility as it navigates a period of uncertainty surrounding its flagship Dorado oil and gas project off the coast of Western Australia.

Despite this financial strength, the company faced a setback when Santos Limited, the operator of the Bedout Basin Joint Venture, announced in January that it would not proceed with the acquisition of a Floating Production Storage and Offloading (FPSO) vessel nor commence Front End Engineering and Design (FEED) activities for the Dorado Phase 1 liquids development. This decision delays the progression of what was anticipated to be Australia's largest undeveloped oil field development.

Dorado Project: A World-Class Resource on Hold

The Dorado field, located approximately 150 kilometres offshore in 90 metres of water, represents a significant resource with a staged development plan involving initial liquids extraction followed by gas export. The Phase 1 concept centred on a single wellhead platform tied back to an FPSO capable of handling up to 12 wells. Carnarvon expressed disappointment at the operator’s decision, highlighting confidence in the value accretive and cost-effective nature of the proposed development.

While the delay is a blow to near-term development timelines, Carnarvon and its partners remain optimistic about the long-term value of the Dorado resource and the surrounding acreage. The company is actively reviewing strategic options to accelerate value realisation for shareholders.

Exploration Permits Renewed, Drilling Plans for 2026

On a more positive note, the regulatory authority granted a five-year renewal of the Bedout Basin exploration permits WA-435-P, WA-436-P, WA-437-P, and WA-438-P. This renewal, which required relinquishment of 50% of the permit areas excluding key production licenses and location declarations, preserves over 11,000 square kilometres of highly prospective acreage.

The Bedout Sub-basin is regarded as one of Australia's most promising exploration regions, with unrisked prospective resources estimated at 9 trillion cubic feet of gas and 1.6 billion barrels of liquids (Pmean, gross). The Joint Venture plans to prioritise drilling activities targeted for 2026, subject to environmental approvals and rig availability, aiming to unlock further resources that could underpin a large-scale integrated oil and gas development.

Corporate Discipline and Cash Management

Carnarvon’s management continues to demonstrate prudent financial stewardship, with corporate cost reductions achieved throughout 2024 and interest income exceeding administrative expenses during the quarter. The company holds a mix of Australian and US dollar term deposits, with plans to realise recent foreign exchange gains given favourable rates.

Looking ahead, Carnarvon forecasts exploration expenditures of A$300,000 to A$550,000 in the Bedout Sub-basin and corporate costs between A$800,000 and A$1 million for the upcoming quarter. The company’s strong liquidity position provides a buffer to fund these activities without the need for external financing.

Strategic Review and Market Outlook

CEO Philip Huizenga emphasised the company’s commitment to exploring alternative transactions and strategic pathways to unlock value from its asset base. With a world-class resource in Dorado and significant exploration potential in the Bedout Basin, Carnarvon is well-positioned to adapt to evolving market conditions and operator decisions.

Investors will be watching closely for updates on the Joint Venture’s drilling plans and any shifts in Santos’ stance on the Dorado development, which will be critical to Carnarvon’s growth trajectory in the coming years.