Security Deposits The Group’s security deposits relating to Australia and Peru are considered to have low credit risk on the basis that there is a low risk of default with the relevant bank counterparty. Management considers ‘low credit risk’ for security deposits with banks and financial institutions to be an investment grade credit rating with at least 1 major rating agency. The Group is exposed to credit risk in relation to a security deposit of $1,273k (30 June 2020: $1,130k) held with Itau Unibanco SA in Brazil. The Group provided the ANP (the Brazilian oil and gas regulator) a letter of credit to carry out the minimum work program in relation to exploration in Santos Basin Block S‑M‑1537. The letter of credit is fully funded by way of payment of a security deposit (refer Note 13(b)), which will be released once the work program is met. The credit rating of Itau Unibanco SA is Ba2 (30 June 2020: Ba3), which is a non‑investment grade rating that carries substantial credit risk. The credit rating of Itau Unibanco SA in Brazil is monitored on a periodic basis for credit deterioration. In addition, Management continually monitors Brazilian macro‑economic factors for any deterioration which directly impacts the credit ratings of Brazilian financial institutions. As there has not been a significant increase in credit risk since initial recognition of this security deposit, which is predominantly impacted by negative macro‑economic factors in Brazil, any impairment test uses a 12‑month expected credit loss model measure. As at 30 June 2021, there were $Nil (30 June 2020: $Nil) security deposits past due. The loss allowance recognised during the financial year for security deposits was $Nil. Accordingly, interest income revenue has been calculated on the gross carrying amount during the financial year (30 June 2020: $Nil). Receivables The Group’s receivables relating to Brazil and Australia are considered to have low credit risk on the basis that there is a low risk of default and the debtor has a strong (robust) capacity to meet its obligations in the short‑term. Accordingly, for receivables any impairment test uses a 12‑month expected credit loss model measure. The Group is exposed to credit risk in relation to an interest receivable of $173k (30 June 2020: $164k) predominantly related to the security deposit held with Itau Unibanco SA in Brazil. As there has not been a significant increase in credit risk since initial recognition of the security deposit, which is predominantly impacted by negative macro‑economic factors in Brazil, any impairment test uses a 12‑month expected credit loss model measure. As at 30 June 2021, there were $Nil (30 June 2020: $Nil) receivables past due. The loss allowance for receivables recognised during the financial year was considered to be $Nil (30 June 2020: $Nil). (d) Liquidity Risk Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. At the end of the financial year, the Group held cash and cash equivalents at call of $133,209k (30 June 2020: $296,420k) that are expected to readily generate cash inflows for managing liquidity risk. The Group manages liquidity risk by ensuring that there are sufficient funds available to meet financial obligations on a day‑to‑day basis and to meet unexpected liquidity needs in the normal course of business. Emphasis is placed on ensuring there is sufficient funding in place to meet the ongoing operational requirements of the Group’s production activities, exploration, evaluation and development expenditure, and other corporate initiatives. The following mechanisms are utilised to manage liquidity risk: • preparing and maintaining rolling forecast cash flows in relation to operational, investing and financing activities; • comparing the maturity profile of financial liabilities with the realisation profile of financial assets; • managing credit risk related to financial assets; • when necessary, utilising short‑term and long‑term loan facilities; • investing surplus cash only in credit quality banks and financial institutions; and • maintaining a reputable credit profile. Karoon Energy Ltd 97 Annual Report 2021