Q3 2019 Earnings Call
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Please note this event is being recorded.
I would now like to turn the conference over to Brad Whitmarsh. Please go ahead.
And thanks to all of you for joining our third quarter conference call. This morning.
I Hope you got a chance to review the news release and presentation deck that we published earlier today.
Materials are available on the investors page of our website and they highlight continued a strong performance for the business.
Later today, we plan to file our form 10, q. with the S.C.C.
I want to remind everyone that today's discussion contains projections and forward looking statements as well as certain on get financial measures you should read our full disclosures in our latest news releases in S.C.C. filings for a discussion of those items.
Following our prepared remarks will hold the question and answer session and we will wrap up within an hour today.
Acid analysts limit themselves to one primary and one follow up.
Our plan comments. This morning, we'll come from Dave's Stover Chairman in C.E.O.
As well as Brent smaller president and C.O., who has lost his voice somewhat also joining us is Hodge Walker SBP of onshore and Hodge, we'll talk us through the U.S. portion of our comments.
Both can Fisher E.V.P.N.C.F.L. and Keith Elliott R.S.V.P. of offshore are joining us remotely this morning.
With that I Wanna trying to call over today.
Thanks, Brad and good morning, everyone and thanks for joining us today.
Our teams have continued to execute very well through 2019.
We went into the air focused on creating more certain day throughout our business and positioning our company for long term success.
This morning, I'll highlight we've already accomplished many of our key goals and targets for the year. In fact, we're on track to realize $300 million of capital and cost reductions, while generating more operating cash flow and volume than the original 2019 plan.
Whether it is taking the Mustang project in the D.J. basin from zero to 60000 barrels of oil equivalent per day within 18 months.
Or the Leviathan project execution in eastern Mediterranean.
Noble energy continues to deliver and lead across the board.
The capital efficiency improvements on shore.
Progress on off shore projects, and capturing new exploration opportunities are all substantial visible contributors to a long term sustainable future for our company.
Looking at third quarter result, we performed extremely well on all items within our control, including lower capital lower cash costs and higher production.
Capital expenditures for the quarter came in more than 12% below expectations.
With reductions in our U.S. on shore, well costs and facility capital and lower Leviathan costs.
For the full year, we're now estimating to be $200 million below or original 2019 Camp Company Capital Guide.
We continue to maintain discipline and are prioritizing these savings to the balance sheet instead of allocating two additional growth.
On the expense side, we again came in below expectation on production costs, and we material a reduced our G.N.A. and third quarter, both benefiting from continuous improvement initiatives.
For 2019, we've reduced these cash costs by more than $100 million as compared to our original expectations.
Also during the third quarter, we launched a debt transaction designed to extend our maturity tower clearing out near term maturities through late 2023.
And Additionally issued at record low coupon rates for noble energy, which will save a few million dollars per year and interest.
Used with the execution of the transaction in the bond markets reception of the issuance.
Total company in U.S. on short volumes for the third quarter came in at the high end up guidance.
The U.S. on short teams delivered at 30000 barrels of oil equivalent per day increase over the second quarter of the year.
Including 10000 barrels of oil per day.
Each on shore business unit reflected materials sequential growth.
Our original full year company guidance indicated approximately 10 per cent growth from 2018 to 2019, we're trending above that number with our performance here today and fourth quarter a guidance.
I'm slide for we've provided a look back at the key deliverables, we targeted as we entered the year.
The number of check marts here reflects the tremendous execution of our teams and delivery across the portfolio.
In addition to the on short capital efficiencies and major project development successes I also want to highlight the dividend raise earlier this year.
The recent success that a thing with a new development well.
Execution of the Columbia exploration agreement.
The submission of another comprehensive drilling plan in Colorado.
I'm also proud of the effort to produce the company's initial climate resilience report that's available on our website.
Just yesterday, we announced the extremely significant milestone of closing of the E.M.G. pipeline acquisition, which opens like t. pathway for lateral gas deliveries from Israel and Egypt.
Keith is in Israel, as we speak ensuring the final steps live Leviathan project completion infield startup.
The bias Leviathans first guess sales is fast approaching with initial deliveries now expected in December .
In addition to an early started up we've lowered the gross capital expenditure estimate to $3.6 billion 150 million dollar decrease from the original budget.
It's extremely exciting and remarkable to be involved with a project that will have such a historic impact to a country and a region.
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Endless amount of effort remaining to bring the project to completion.
Away remain highly focused on delivering a successful unsafe start up at Leviathan.
I want to thank all the noble project teams are partners vendors and key regulators <unk> all work so hard to bring this transformational project to reality.
One other important catalyst for us as with clothes out 2019 is reaching conclusion on the mid stream <unk> strategic review.
We've worked through multiple alternatives are on track to complete the review by the end of the year.
Our focus has remained on the best longterm value creation for noble shareholders and N.B.L.X. unit holders.
I'm confident that we're reaching the best outcome for all.
Let me now handed over to Brent to update you on our operational performance and then I will come back with some closing comments before opening for a question.
<unk> morning, everyone.
And I apologize little Scratchy. This morning, so I'll try to get through this here has David mentioned, we had a tremendous success as far and 2019 and we're undergoing substantial transformation has removing the next year with significantly lower capital, increasing cash flow and increasing production volumes.
At ready to change is largely due to leviathan.
Have you look at our Israeli assets or their high quality reservoirs with reliable production, which reduces volatility in our cash flows.
In fact, we recently surpassed to T.C. effort production from tomorrow, but over 99% run time since inception in 2013.
Leviathan project remains at a cost and schedule once again, demonstrating the scale of our major projects team.
During the third quarter. The production index were successfully installed including a world record off shore Crane lift at 15300 metric tons.
We're now in the final commissioning phase of the production facilities.
And they mentioned we has to make cumulative gross savings of about $150 million versus the projects sanction, which is is truly remarkable for a multi year project of this scale and a credit to our teams into 2200 people that have worked on the project around the world.
We're nearing the finish line and we're looking forward to first production next month.
Q3, we announced the amendment of the <unk> sales agreements in Egypt from Tomorrow in Leviathan.
The the original from contracts of a 1.15 Tcf over 10 years have been expanded the three tcf over 15 years, reflecting the long term demand in the region.
Initial from volumes ended adelphia disagreements begin at 200 million cubic feet per day.
Step up to 450, and mid 2020 and increased to 650 and mid 22 and the rest of the 15 year term.
He's gas export contracts to Egypt, and Jordan represent a new era exports for Israel, and a new chapter of regional cooperation and our noble team is excited to take part in that transition.
Post Leviathan noble is moving from a single asset supplying Israel domestic customers to multiple asset supplying over 45 gas sales contracts to customers in three countries.
There's demand in the region evolves and our Leviathan production capacity expands we naturally expect a greater range of sales volumes.
Currently estimate combined Labar tomorrow, and Leviathans sales to average between 1.6 and 1.8 P.C.F. per day gross for full year 2020.
We expect the first half the year to range from 1.4 to 1.6 P.C.F. per day with growth in the second half the year to 1.8 to to be C.F. per day.
Where we're at a really important inflection point for noble energy and it's made possible by bringing on the largest project in our history and the largest one of the largest ever infrastructure projects in Israel.
In West Africa, <unk> seeing six P. development, well was drilled and completed under budget this quarter.
First production commenced in October and the well us performing as expected.
Over the wells lie for expect to recover approximately 10 million barrels of oil, which will add to the about 100 million barrel milestone that we recently surpassed.
Same field.
At a land we continue to focus on base decline in reservoir management.
Which has resulted in lower production decline in the field.
The OLED gas monetization project is progressing well.
Construction materials are expected to arrive in the first quarter of next year, and we're still targeting startup in the first half of 2021.
As a reminder, this is a unique capital efficient project that will utilize existing production wells and facilities and the LNG infrastructure on Bianco Island.
We're very excited about the cash flow profile. This project and its ability to grow without additional capex has a land gas backfills a growing LNG plant availability.
I guess now is the Hodge to take us through the US onshore uptake if you would have changed thanks, Brian Good morning, everyone.
In the us onshore business, we achieve further capital efficiency improvements in substantial production growth in the quarter production volumes were up 11% sequentially with capital down over $70 million.
Our well costs have continued to improve as a result of shorter cycle times and better execution.
For example in the DJ we set a world record of over 10300 feet drilled into 24 hour period.
And in the Delaware, we drilled a 9300 foot lateral and under 12.8 days.
These new records are setting the drilling benchmarks in each area.
There are also fundamental in our continuous improvement culture.
If we can do it on a single well and then we can improve the average well.
I'm pleased to report as we've improved execution efficiencies. We've also improved our personal and process safety performance.
This reflects a strong safety culture of our organization and demonstrates that efficient operations are usually safe operations.
On discussed in the US onshore operations I want to point out that our midstream business also had an excellent quarter of execution.
They delivered record gathering volumes in capital efficiency gains in both the DJ and Delaware basins.
And we'll look for opportunities to collaborate on ways to make both businesses more efficient.
Slide 11 includes a little more color on the us upstream results by Bu.
The DJ basin continued to deliver significant growth setting record production volumes, while generating free cash flow.
Total volumes of 158000 barrels of oil equivalent per day were higher than our expectations and up 25% from third quarter of last year.
During the quarter with till 38 wells 15, and Mustang road to and the remainder in wells Ranch.
Our Mustang ROE development produced over 60000 barrels of oil equivalent per day net to noble.
We've also deployed our first electric line power drilling rig in Mustang, which reduces noise and emissions.
And reduces capital due to less diesel fuel eight use.
We've also move to electric powered compressors and Tankless production facilities. All these changes enhance environmental stewardship, while continuing to improve safe and efficient operations.
And the fourth quarter, we expect until approximately 20 wells in the DJ Basin, primarily focused in wells ranch in the east Pony areas.
Looking further ahead.
We are produce we're pursuing a second CDP and north Wells Ranch.
The application consists of about 38000 acres in the Oilier part of the basin and the new CDP will ultimately add up to 250 additional drilling permits.
In the Delaware, we had another quarterly record.
Of 70000 barrels of oil equivalent per day.
The Delaware production benefited from shorter cycle time.
And productive productivity improvements during the year.
And the first half of 2018 24 hour test rates on our new wells averaged approximately 190 barrels of oil equivalent per thousand foot of lateral.
During the third quarter, new wells averaged over 220 barrels of oil equivalent per thousand foot.
In addition.
We have several wells into southern portion of our acreage, which started up early in the fourth quarter with encouraging early time production.
In the fourth quarter activity in Delaware will be lower with 10 Tils plan.
Wrapping up the us onshore.
In the Eagle Ford, we brought on 16 ducts late in the second quarter, which contributed to the significant third quarter jump in production.
We also partially offset some unplanned downtime at one of our large production facilities, which required production to be shut in and a portion of the field during most of September and October .
We've made the necessary repairs.
In all production is coming back online however, the third and fourth quarters will be impacted by about 5000 barrels of oil equivalent per day and.
And about 1000 barrels of oil per day.
With that I'll hand, it back to Brent.
Thanks very much.
So clearly capital and operating cost improvements have been a big focus for us in the onshore us business.
Our results are summarized on slide 14.
In addition to the drilling gains in tonnage mentioned earlier completion cycle times of also continued to improve.
Average well cost and both the DJ and Delaware basins are down an incremental $500000 from mid year of this year.
In total were down almost $2 million per well from the end of last year and each basin, which is a remarkable accomplishment. It's a significant driver of the reduced capital guidance for 2019.
And the current environment I feel really good that we can cannot maintain these cost reductions heading into 2020.
Lease operating expenses have also been front center for our production ops teams. The DJ Basin is down 15% per BOE, we from the fourth quarter of 2018 with improvements in compression optimization and chemical costs, leading the way.
The Delaware basins decrease unit Callaway by over 30%.
Cost are lower in almost every expense category, including lower workover costs.
So going forward, we expect our our recently installed electric power facilities to further reduce fuel and rental generation cost while at the same time, increasing the reliability of our production.
So overall I'm very pleased with year to date execution on capital expenses.
On volumes in both of us onshore and offshore.
In total we successfully reduced our capital expenditures by over $200 million and by reducing cycle time, we benefited from lower capital and an accelerated till schedule and higher volumes in the first three quarters.
Since we've chosen to not redeploy the capital savings into further growth, we expect for Q volumes.
Onshore volumes to be down some from the third quarter and tails will be down in the second half of the year versus the first half.
Eagle Ford is anticipated to be down meaningfully because we havent had a new activity there since the first half of the year, the Delaware will be down.
Down flat to slightly down.
And the DJ will grow slightly in Q4.
On International front West Africa gas sales should be lower than Q3 in Israel could be down slightly due to normal seasonality that we see in Israel.
I wanted to point out that Weve not included any leviathan volumes in our guidance for the fourth quarter. However, we expect to have some sales amount of meaningful amounts of commissioning gas in the month of December .
So before I hand, it back to Dave I, just want to summarize some of the things that they really exciting and I. Thank our our competitive advantages for noble as we move into 2020.
First our continuous improvement culture is delivering sustainable reductions in capital per well significantly reducing our annual maintenance capital needs.
Second we've improved our execution and us onshore business with ROE developments, and we're now positioned to develop deliver free cash flow in 2020.
Third our Leviathan project readiness, and our long term and long term division ability.
So we sanctioned that project is two and a half years ago, and it's literally changing the future of our company.
And fourth were commencing commencing the next major project in Atlanta and EG.
These major projects are important sources of long term stable cash flows and our significant growth and value drivers for the company.
Thanks, Brent than Hodge both of you for the the good wrap up on the operations.
As you've heard from US this morning critical to our differentiated outlook is our diversified portfolio, providing both high return and high margin unconventional opportunities as well as long life low cost conventional major projects.
The comp this combination enhances capital allocation option optionality and reduces long term volatility.
Slide 15, as a slide that you've seen in our presentation disclosures from earlier this year, highlighting one specific benefit and competitive advantage from our portfolio.
In seeing the buyers the rate of change in our corporate decline profile as Leviathan comes on production.
From mid 30% range this year to low 20% range next year.
This lower corporate decline benefit thus by reducing annual maintenance capital needs.
Leviathan also creates a noticeable net cash flow swing from 2019 to 2020 as capital investments roll off and we generate substantial cash flow in 2020.
The benefits of the diversified portfolio become even clear when you consider the but significant growth potential as leviathan production expands to the installed capacity.
And a land gas comes online.
The growth in offshore provides us great flexibility and making the right capital allocation decisions in the us onshore business, while prioritizing returns and free cash flow generation.
As we move into this transformational 2020, we continue to face a volatile commodity environment.
We are evaluating various capital scenarios for next year, and we remain focused on generating organic free cash flow improving corporate returns.
Protecting the balance sheet and returning capital to investors.
And all potential scenarios, we remain laser focused on an organic free cash flow target of at least $500 million.
I expect our 2020 outlook will reflect continued capital efficiency improvement.
As we wrap up 2019, I want to come back to Threeq key factors were noble energy as distinguishing itself.
The positive rate of change heading into 2020 from significantly decreasing capital is the first and increasing cash flow and volume.
Second the move to and even lower annual corporate decline rate and lower maintenance capital.
And third the global inventory that includes substantial low cost discovered resources that can utilize existing infrastructure to generate significant returns.
Our accomplishments throughout 2019 are setting the stage for a significant transformation of the company as we head into 2020.
Providing a platform for long term sustainable free cash flow for our investors.
Thank you for the time this morning, and we'll now open.
For questions Andrea.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are you the speakerphone, please pick up your handset before pressing mckee.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
And our first question comes from all wrong.
All right.
Morgan. Please go ahead.
Dave I was wondering if you could elaborate a little bit more on your thoughts on the us onshore business next year.
No you plan to prioritize free cash flow generation, you do have leviathan coming along but given some of the improvements you've seen in terms of capital efficiency.
Do you plan to have a program if oil is in the mid fiftys that that could keep call, let us onshore oil growth.
Flat with the second half levels are you thinking more on the on a year over year basis.
Well, yes, I think around it's one of the things that were were.
Reviewing right now as we lay out our plans and look at scenarios for next year I think you highlight a couple key things.
One is that the focus the primary focus is on making sure that we set ourselves up too.
Support and generate that 500 million plus of free cash flow for next year, So thats kind of first and foremost.
In the current price environment, Theres been a little softer commodity price on NGL and gas, but as you highlighted the efficiencies that we've seen help offset a lot of that.
I think when you get down to it the thing that will continue to.
Ask ourself as with this double digit growth rate that Leviathan, not just leviathan, but eastern med business provides for next year, what is the right amount of growth to drive and the onshore business from the us.
Oh Dear point.
Whatever capital allocation, we end up with the oil growth will be higher and our onshore US then our base onshore growth just when you think about it from the way, we're allocating capital and the onshore us to the DJ and Delaware and the Eagle Ford will be declining off.
So our onshore.
Oil growth rate will will be higher than our overall onshore growth rate on a year on year basis.
But we'll finalize that as we determine what's the right amount of capital spend in the onshore business and how much growth to we want to drive overall in our onshore business next year.
I guess launch a long way of saying, we're looking at some different sensitivity. Their primary focus again is on making sure that we support and sustain that free cash flow growth that weve.
I have highlighted and promise to investors.
And Dave Dave said, they are really well room, but just to add some emphasis on all of the us onshore scenarios that we've been looking at grow year over year.
That's helpful Brett.
Brent I was wondering if you could maybe also talk a little bit about.
What you're seeing in terms of well productivity in the Delaware Basin.
Also in particular is hoping you could elaborate on what you're seeing in the southern portion of your of your acreage position in Reeves County.
Yes, so I think that wed summarized the Delaware high level earnings. If we we've made significant improvements on the execution side and I'm really proud of the cost and.
Efficiency gains on both the Capex and the Opex side.
The the work that we still have to do is optimizing the completions.
Hi, just pointed out in the prepared comments that were improving as we go through the year, but I don't think we're done yet I think we still got work to go we definitely have some is as an area we call car you're down to the in the southern part that you referenced that we like the early results of.
But I don't think Haji those are even released yet on the 24 test. So I think we're in that that phase or that that stage, where we're continuing to optimize the completions and get to meet making better.
Great. Thanks, a lot.
Our next question comes from Bryan singer of Goldman Sachs. Please go ahead.
Thank you good morning.
Hey, Brian I wanted to follow up on a random question with regards to that 2020 outlook and your response there should.
Should we view 2020 onshore growth.
Below what you would regard as a sustainable growth rate because you were essentially choosing to slow it potentially choosing to slow at a given the greater growth temporarily coming as a result of.
Leviathan or are you kind of looking more at trying to create more ratable.
Sustainable sustainable growth as you go into 2020 again, assuming oil prices are mid fiftys or whatever you would regard as reasonable.
Yeah, I think it starts with what we've said previously is that we want to make sure. Our onshore business is supporting itself with its own cash flow.
And so we'll set it up accordingly.
Thank you.
As we've talked about we're going to be looking at some different scenarios. There on the onshore business I would expect and we've seen this over last few years too as you look at how you shape.
Lets call it the onshore business in 2020, the shape well be somewhat similar to the shape. This year, where the first half will be a little lower than the second half just based on activity levels and any scenario, we lay out there.
Yeah, Yeah, nothing I'd I'd say, Brian is if you go back to what we rolled out in February but a long term, yes way, we're thinking about the business and the five year capital plan.
Right on that plan and remember what we said at the time was that we had some flexibility and and growth rates in the you asked because we have discretion in that program and we have years like 2021, Leviathans coming on where you guys doesn't need to grow as much insight I think we're right on top of that plant.
The other thing to add and Thats a good point from Brent is that.
Our 20 and I made this in my prepared comments, but our 2020.
Outlook loyal reflect an improved capital efficiency as you're looking at it year on year. You go from 18 to 19, we saw an improvement 19 to 20 is going be a significant improvement.
Took one you've got the impact of Leviathan, obviously, but second I can't.
Overstate the importance of the efficiency improvements that have been now embedded in the business.
Brent hogs and the teams of have done that will roll forward into into 2020 by I think.
Whenever we finally rollout our 2020 outlook I think everybody will be very pleased with the capital efficiency outlook that gets rolled out.
That's great. Thanks, and then my follow up is that you made reference to exploratory activities.
And I just wondered if you can give us an update on key areas of focus on timing.
Yes exploration. The obviously has been a capability that we've maintained I think it's going to become even more important going forward as you look at the importance of the conventional assets I think you're seeing a resurgence in the recognition of some of the importance of these conventional assets obviously for us the bank some big major projects on like a lot.
Biased then like in Atlanta.
And the expansion of the eastern med at highlights that but Oh, all those came from exploration successes. So we're going to be anxious to get back to some exploration drilling next year again, it's the start not at a modest level, but probably the first key well will be the well in Colombia.
Next year, probably started about midyear the second half of the year, but we'll have results on that next year and what really looking forward to being able to test that very high quality project down there.
Great. Thank you.
Thanks, Brian .
Our next question comes from Doug luxury of Bank of America Merrill Lynch. Please go ahead.
Doug.
Doug Your line is open on our end or you muted.
Let's go to sorry, guys I was wondering here I know I'm here I'm here, I'd, I'd Musa and I'm so sorry.
It's okay.
Well I guess you can hear me.
Yes, it's been some one of those weeks I'm sorry goes so I've got two questions about feels like the hard when I was talking to myself there from minutes. So.
Pete myself.
I'd like to Hong Kong It would've been about this on short story, a little bit and ask the question a little differently.
The efficiency gains a year on year of secured on outperformed I would say relative to two I think what the street was expecting what would the minimum level of activity on the onshore required to be in order to to make sure. You don't lose you don't give any of those up.
And I'm thinking.
And everything you've talked about 5% sub 2 billion dollar capex.
If you want to be specific behind what am I in the ballpark.
Say again.
A number.
5% sub 2 billion dollar capital.
Yeah, you're talking on a company level.
As far as total cap on just on your onshore.
Onshore oil sub 5% drove.
Total company capital So $2 billion, that's kind of I'm, just trying to get a handle is too.
Already one of the most competitive growth stories in the sector with Leviathan, you'll need to go lower 48, So I'm just trying to understand what the minimum would be to retain those efficiencies and I think let's talk about it from a an activity standpoint.
You know this year, we were at relatively low activities, we had two rigs running.
Most of the year in the DJ and were able to drive these efficiencies.
Well, we've been able to reduce to frac crews to less than two on average because they're getting faster I think will I think we'll be able to hang on to all those operational efficiencies and then some of this year's capital was Eagle Ford remember, though it was just completing ducs and Thats kind of fall off next year, because we don't have any DUC inventory and Eagle.
So, we'll really be back to be down the Delaware and so focusing in those two basins I think we'll have enough activity in each area that will be able to hang on to all the operational efficiencies and then it just sleeves.
And remember that we didnt get all those operational efficiencies on day one in January we've been acquired accumulating over the year and I think we'll have a full year benefit of those cycle time reduction kind of efficiencies next year.
Then on top of that you'll be able to look at no inflation. It feels like where you had a good place right now with relatively low fourth quarter activities that started even back in the third quarter. So we're feeling pretty good that we can hang on to all of the efficiencies you know for the full year of next year. It hit a you know at levels kind of near this year.
Or even a little below.
Doug you bring up a good point the emphasized which is the.
Significant rate of change story for us skill and from 19 into 20, and what we laid out earlier this year and what Brent highlighted is that consistency and actually the improvement in that story that we've now created through the visibility of that through what we've done. This year I mean, if you think back to the two key elements that we've laid out going forward one.
Was delivering that organic free cash flow, which I think the underpinned with more certainty even now with the efficiency improvements that we've seen in the cost management that the organization delivered through a wide spectrum of commodity price environment. If you will and secondly that rated changes driven by our year on.
On year significant decrease in capital that we've talked about previously and significant increase in volume and both of those elements are going to be still realized.
So.
We're pretty excited.
Right, now and and I share your enthusiasm.
And then.
I'm sorry for joining.
I think your $2 billion reference if we go back to the five year framework you know on average we said, we'd expect to spend two to $2.2 billion to $2.2 billion, a year and in kind of laid out how we thought about had thought about.
Allocating that capital I think for 2020 were comfortable were going to be below the low into that range.
Yeah, and I think you'll see when we roll stuff out for the full picture is that in our maintenance capital is coming down I mean, there's no doubt the flows when I was trying to.
Yep Yep.
But I was trying to get you guys spoke to billings. Thank you for that and my follow up hopefully a quick or whatnot.
I have to say I disagree slightly with one of my colleagues comments about the.
Temporary growth and Leviathan because to me it kind of sets you up from multiyear growth phase beyond that starts off but can you just wonder if I wonder if you could just walk us through any visibility you have one incremental expansion not not capital expansion, but sort of free growth I feel like with additional spending over the next couple of years now I'll leave it there yeah I think the pointer.
Alluding to is that Leviathan, our eastern med volumes over the next year or two can expand without capital given the infrastructure and capacity will have in place.
And you start to see just the way we've kind of laid out first half the second half of the year, how what kind of growing into some of that capacity, we haven't filled it up by the second half of the year, but as you move into 20 122, and you start to fill that up you have inherent growth that essentially no capital, which creates an ongoing.
Capital efficiency improvement story.
If you will I think the other thing that's key there is we'll we'll start to learn more about this as we start to get a few months of production on with Leviathan. Then you know as we have a chance to come back in February will have gained a good bit of knowledge just from.
No.
Commissioning sales and and starting to see actual product moving both in country and and exports.
So we'll be able to you to update is as we go but it's setting itself up for a just a fantastic story, which is why it's so significant this milestone not only the ability now to make sure we're going into Jordan, Egypt and have exports, but now with Leviathan online and visible in the net.
Next month or so.
Then you're setting the stage for a growing market in Israel also.
Now, let's just say, Dave if you build that they will come so I'm very grateful for taking my questions. Thanks, So much thanks, Doug Thanks.
Our next question will come from Jeanine way of Barclays. Please go ahead.
Hi, good morning, everyone engineering.
I had a follow up on a couple of the prior question. So you indicated that all of your 2020 scenarios involve the U.S. growing year over year, but I think that might have been specifically in regard to 2020, and so I guess when we're thinking long term.
Given upside opportunities elsewhere in the portfolio and there's been a lot of talk about upside in eastern med so far.
Are you thinking about the U.S. onshore long term as more of a growth asset or more that free cash flow at that.
I I think it'll be it'll be transitioning into both here over over the next year or so.
That's the part about setting it up so that it can live within its own cash flow and actually start to generate cash flow and as it continues to grow and it will continue to grow in any plan and scenario that we're looking at it will be able to do both overtime. So the nice part is as we've laid out the program.
When we talked about earlier this year, you know modest growth setting ourselves up as a company, but sustainable.
Organic free cash flow delivery it'll be supplement at a time with major projects coming on which will give you a high growth years like we're seeing in 2020 at times, but underpinning all that.
Have growth in both parts of the business you have growth in the offshore and you have growth in the onshore.
Okay, Great that's very helpful and then.
Let's see sitting here today eastern med on slide eight of your presentation can you talk about any changes and volume expectations across mine Leviathan that went into your updated gross volume forecast there, they're a little bit different than what we had expected it.
Well, I think what where representing Anna and I mentioned it earlier that we're still early in this you got a lot more customers so you're.
Bringing in a lot more new information, if you will and so we're going to start out with our best understanding at this point as we get a few months into this and get some real production and see where it's going and who's taken what will be able to highlight a little better how it split between pieces, but I think obviously at first half of the year.
For tomorrow.
Now has the larger portion of the volume and you would expect that because it coincides with what we laid out in the delfina amended agreement to how it ramps up from first to second half the year and then the second half of the year Leviathan starts to catch up some.
Okay, Great very helpful. Thank you for taking my question.
Our next question comes from Ryan Todd of Simmons Energy. Please go ahead.
Good Thanks, maybe a couple of kind of specific ones I mean on your.
The amount that you've been able to drive down costs. This year not just on the west side, but on the operating side as well I'm thinking that the unit lifting cost and even DNA.
You expect to be other carry all that momentum into 2020, and how would you think about unit cost a trend next year.
Given the material uplift in volumes from the low cost Leviathan project.
Yeah, I think I think we should expect it to trend.
Again, I rarely rich into right direction because.
Because you know we didn't realize all those elouise savings.
On on day, one this year, we've been working our way through those changes and then we'll have you know increasing.
Flat increasing volumes as we've been talking about so that in the U.S. onshore. So that'll help with the unit cost story and then GNS same thing did she and I savings we've had a relatively recent so we'll get a full year benefit next year.
Inside I think we're going to okay, we're going to continue to trend while on on op costs, well and then think about it you got that large volume in the eastern med at a very low operating costs. So yeah brings your weighted average down.
And really set you up nicely.
Okay. That's great. Thanks, and then maybe a.
In the DJ Basin.
There was obviously, there's a greater mix the wells ranch and.
East Pony wells relative to Mustang and second half.
But as we look into next year and I think you said the next Mustang wells come on maybe into Q, but on an overall idea as we think about 2020, what sort of mix. We expect in the development phase of between kind of wells Ranch East Pony and must thing.
Yeah, we're not we're not all the way there yet.
On our final plans, so how much I mean at a high level.
It will be similar to this year.
Right I mean, most of the scenarios are going to we could pick up a little more of the already portions of the basin.
In 2020 versus 29 team.
Yeah, I'm going going into 2020. Thank you would expect the we're going to start the year going back into grow development within Mustang and as we move through the year I think from from an operational standpoint.
A little bit less east Pony next year than this year, but overall, what will be between Mustang and wells ranch and the ROE you're moving into and Mustang is a little oilier rather than you were in this year it'll be a sister to a or ROE are initially and we'll be moving across you yeah.
Yeah I appreciate the color guys. Thank you Pat as high level, though until we get everything analyzed.
Okay. Thanks.
Our next question comes from Michael Hall of Heikkinen Energy Advisors. Please go ahead.
Thanks.
It's kind of wanted to.
I guess come back on the capital efficiency side of things.
As you kind of look out too.
2020, given the the well costs that we had in the third quarter I understand we took down capital 200 million. This year, but that's that's kind of a weighted average should of course of the year.
If you were to annualize the current well costs, what sort of savings would that have represented.
For.
For 2019, if you have out and then.
How should we think about PDP declines on the U.S. only business in 2020.
For the cost.
The cost first pets.
Things I asked the question. So we got quite a bit of the savings early so I probably would say we're you know we then a million dollars fairly quickly in the year on average per well and then by the end of the year were 2 million into fourth quarter Southern thinking on an annual trend you know may in early 2 million light caught in a in a half.
Average I think the numbers will go around.
So we didn't get a few more wells have just somebody's clearly, we'll get a few more wells done in the DJ than we originally had budgeted for less capital. So some of that's some of that's being utilized but.
I think that's a reasonable way to think about it.
Based declines I don't have in front of as Hodge, Although the total company that we've been talking about is probably the best place to start.
But I don't have the basin by basin ones in front of mean total companies probably in a low thirtys and then after Leviathan comes on we are going to be in a low twentys.
Okay, Yeah, I can follow up on that.
Yeah, that's that's helpful. Though.
Yeah, I guess following up on the last question, what what what's sort of L., we should we use in the eastern Matt just want to make sure we're thinking about that right.
Going forward I think it's probably going to be pretty similar to tomorrow.
Okay.
Hello, higher starting out yeah startup, Florida, maybe a little higher but yeah as we get it lined out, especially as you get into the second half the year I would expect it'd be fair.
Fairly close.
Great. Thanks.
Our next question comes from Scott Hallowed RBC capital markets. Please go ahead.
Yeah. Thanks, guys, Hey quickly on the Permian Basin, you know with with is the big slug of wells that you all put on in a Threeq you I'm in the road development is there anything that you learned in that process that surprise you to the positive and negative and give you also give us some sense of the it looks like the oil cut is.
Around 61%, it's dropped I guess over the last several quarters is that because of better gas capture or is that just you know the trend we should continue to expect to see.
Oh, yes, the second part I think better capture we hit drill one pad that was.
Yeah farther east that we talked about in the last quarter that was we knew would be gassier.
But we haven't been surprised on GR across the field does does those forecasts have held up pretty.
Pretty well so so some of its more regionally I think we're on top of that okay.
The the other part I wrote development is now the clearly the benefits that we've seen from the efficiencies and they show up in both.
The midstream company and the upstream company by being able to develop them in that fashion.
We're driving down cost on non DNC and facilities both companies.
I don't I don't think it was surprised but it was a pleasant surprise how big it was.
I think on Halloween, who had a factor because you know obviously everything is right there in the.
And that kind of close proximity so we get a benefit on the other we side on how we operate the fields. So I think all of that SAP is as good as we expected or better.
On the completion side as I mentioned, we're still still optimizing.
You know we May use last 100 mesh for example, and we May use you know we may change some of the stage spacing, but that's normal optimization I would say.
Okay got it and quick follow up on the on the Eagleford in you know I know that you guys are gonna have detailed on 2020, but I guess Im am I reading into your comments that the Eagle Ford may not get a lot of capital allocation next grin and.
Where does that strategically fall in terms of like do you guys need to have that asset.
On the benefits strategically is you know I think there was a question earlier about.
Onshore strategy and Dave answered it in total for onshore.
Within that strategy, though you know we've got three assets Eagle Ford will be more a cash flow contributor.
Last growth expectations from it.
So the to the a delta the DJ Basin is already free cash flow positive for all of my team and then Permian is moving into that phase. So I think it has a fit and the strategy in that regard because it's a cash flow control.
Okay. Thank you.
Our next question from Leo Mariani of Keybanc. Please go ahead.
Hey, guys I was hoping you could just clarify little bit on the $500 million a free cash flow just wanted to make sure that that's a pre dividend number in 2020 and I was hoping you could talk to the uses of that free cash flow in terms of priorities is that priority to pay down debt.
Is it to get the buyback program going again would increase the dividend how do you think about those three pieces.
Right I think on slide 16, we touched on some of that Leo but yeah, yeah, that's consistent with the way we've been talking about it its before dividend.
And again the discussion has been around generating at least 500 million free cash flow whatever commodity price environment. We're in are supplying that.
The Oh.
No change in how we thought about uses of that free cash flow you.
Oh wait we've always talked about dividend growth with cash flow growth, we've talked about continuing to strengthen our balance sheet and then be an opportunistic on share buybacks. So I think those three pieces are all part of that balance.
Okay. That's that's helpful and I guess just on the into one slide where you talked about the is really gas price for 2020, I think it was five on a quarter.
Just kind of looking this past quarter in third quarter I think it was about 555 just wanted to get a sense. There is that just really reflecting the fact that youre leviathan volumes are going to be closer to $5 next year, where your tomorrow is going to be closer than 550, just trying to make sure I understood how that price changes in 20.
Right, you've got a mix now your blending a lot more contracts I think what we talked about over 45 contracts they get blended into there and the other thing when you think about on a lot of the new contracts, they're tied to Brent some of the old ones weren't they had some different ties if you will and what were assuming that Brent price of.
I think around $60. So you know those obviously have room to move it higher.
Oil price.
Okay. Thank you.
Our next question comes from Willis Patrick of Suntrust. Please go ahead.
Hey, good morning Barnwell.
On the North a wells ranch CDP, Hey is it fair to say that the road runner, which I think it's a nio give you confidence in area to pursue that in and what do you. What are your thoughts on the Codell up there I know you have some some older wells from 13.
Well this is Hodge I think.
To your point on did the Roadrunner give us confidence about the road runner was one of the appraisal wells, we did up there taking into consideration the other wells in the area our experience down and wells ranch, putting all that together is what's giving us confidence on on that CDP and and moving that that CD before.
Okay fair enough in and do you think that you guys could have a development rig up there in 20 or.
Was that probably 21 with the CDP process.
Possibly 20, we're moving through the process right now and and you know expectations or that that'll be occurring here.
That process is ongoing and we should be moving through that.
Probably in the first half of 2020.
Okay perfect. That's all I have thanks, so much.
This concludes our question and answer session I would like to turn the conference back over to Brad Whitmarsh for any closing remarks.
Okay. Thanks, Andrea I appreciate everybody that joined us today.
You have any follow up questions. Please don't hesitate to reach out to Tim or myself will be around to answer your calls thanks guys.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.