Q1 2020 Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the first quarter Twentytwenty Hess Corporation Conference call. My name is me and I would be your operator for today I guess time, all participants are in that listen only mode. Later, we'll conduct a question and answer session.
Any time, you require offering or at least.
Please press star followed by <unk> and people be happy it's actually if you I mean my during this conference is being recorded for replay purposes, I would now like to trend sequentially over the cable senior Vice President of Investor Relations. Please proceed.
Thank you Mary.
Good morning, everyone and thank you for participating in our first quarter earnings conference call.
Our earnings release was issued this morning.
Our website www dot has dot com.
First like to express our hope that all of you listening and your families are safe and well.
Today's conference call contains projections and other forward looking statements within the meaning of the federal Securities law.
These statements are subject to known and unknown risks and uncertainties that may cause actual results could differ from those expressed or implied in such statements.
These risks, including those set forth in the risk factor section Ashes annual and quarterly reports filed with the FCC.
In light of the Cobot 19, pandemic and reduced spending plans weve put in place that any of the forward looking statements from our previous presentations and investor materials have changed and should not be relied upon.
We will provide updated guidance during this call.
As a result out of the Cobot 19 pandemic, our operations and those of our business partners service companies and suppliers have experienced and they continue to experience adverse effects, including disruptions delays were temporary suspension of operations and supply chains.
Temporary closure and so facilities and other employee impacts.
In addition, the pandemic has adversely impacted and may continue to adversely impact our oil demand and prices export capacity and the availability of commercial storage options, which could lead to further curtailments and try to incent production by our industry.
To the extent, we Werent our business partners service companies and suppliers experience these or other effects almost heard often liquidity financial condition results of operations and future growth prospects may be adversely affected.
The timeline and potential magnitude of the Cobot 19 pandemic is currently unknown to the extent cobot 19 pandemic adversely affects our business and financial results. It may also have the effect of tightening. Many other risks described in our annual report on form 10-K for the around it.
December 31st 2019.
Also on todays conference call, we may discuss certain non-GAAP financial measures a reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website.
On the line with me today for John Tattory, Chief Executive Officer.
Hill, Chief operating Officer, and John Riley Chief Financial Officer.
Compliance with social distancing protocols, we are conducting this call remotely so please bear witness.
Case, there are audio issues, we will be posting transcripts of each speaker's prepared remarks on www dot dot com following the presentation.
I'll now turn the call are pretty John Hess.
Thank you Jay.
Good morning, and welcome to our first quarter conference call and we hope you when your families are well and staying healthy.
Today, I will discuss our strategic response to the market downturn.
And the steps we are taking to manage in a sustained period of low oil prices then Greg Hill will discuss our operations and John Wiley will follow to review our financial results.
We all know the world has been battling a global pandemic and the danger Repos just to society.
Our Hearts go out to those who have lost loved ones to cope with 19 and also to those who are struggling with the loss of jobs.
Our top priority throughout this crisis is the safety of our workforce in the communities where we operate.
Multi disciplinary has emergency response team has been overseeing our plans and precautions to reduce the risk of cope with 19 in our work environment.
We are grateful to every health care worker in first responder for all that you're doing doing during this very difficult sorry.
In addition.
The pandemic has had its severe impact on the near term oil demand.
Resulting in a sharp decline in oil prices.
Our priorities in this low price environment or to preserve cash preserve capability and preserve the long term value ballpark assets.
In terms of preserving cash we came into 2020 with approximately 80% of our oil production hedged would put options for 130000 barrels per day at $50 for $5 per barrel WT, API and 20000 barrels per day at $60 per barrel Brett.
To maximize the value of our production.
We have charted three very large crude carriers are vlccs just stores 2 million barrels each of May June and July Bakken crude oil production.
We expect to sell in Asia in the fourth quarter 2020.
As announced on March 17th we further strengthened the company's cash position and liquidity through a 1 billion dollar three year term loan underwritten by JP Morgan Chase.
We also have a 3.5 billion dollar undrawn revolving credit facility and no material debt maturities until the term loan comes due in 2023.
We have further reduced our 2020 capital and exploratory budget down to $1.9 billion.
37% reduction from our original budget of $3 billion. This reduction will be achieved primarily by shifting from a six week program to one rig in the Bakken by the end of this month and a deferral of certain exploratory and development expenditures in Guyana.
Continue to operating one rig in the Bakken our largest operated assets.
Will help us preserve our capability and lean manufacturing, which over the years has generated significant cost efficiencies and productivity improvements we plan to stay at one rate until WG <unk> oil prices stabilize in a $50 per barrel range.
In terms of preserving long term value of our assets our top priority is Guyana, which is one of the industry's most attractive investments on the Stabroek block where has has a 30% interest and Exxon Mobil is the operator, we have made 16 discoveries since 2015 the curve.
Current estimate of gross discovered recoverable resources for the block stands at more than 8 billion barrels oil equivalent with multi billion barrels of exploration potential remaining.
The Lisa Phase one development achieved first production in December and is expected to reaches full capacity of 120000 gross barrels of oil per day in June.
The lease a phase two development remains on track for a 2020 to start off with a production capacity of 220000 gross barrels oil per day.
Development of the pie or a field, where they production capacity of 220000 gross barrels of oil per day has been deferred six to 12 months pending government approval to proceed.
In addition, pandemic related travel restrictions have temporarily slowed our drilling campaign in Guyana.
As a result, our production objective of more than 750000 gross barrels oil per day has been moved into 2026.
In summary, our company is in a strong position to manage through this low price environment and to prosper when the oil market recovers with our low cost of supply and high return investments that will drive material cash flow growth and increasing financial returns.
Finally, we want to thank our employees for their strong commitment to operating safely and reliably during this pandemic.
We are deeply proud of every member of art.
And confident in our ability to meet the challenges ahead I will now turn the call over to Greg for an operational update.
Thanks, John.
I'd like to provide an update on a rough correct.
Tail on our response to the significant decline in oil prices.
First.
I'd like to describe the actions, we're taking to protect the health and safety for.
Chain business continuity in the middle of the global pandemic.
They cross functional areas response team has been implementing a variety of health and safety measures in consultation with suppliers and partners, which are based on the most current recommendations by government public health agencies.
This concludes enhance cleaning procedures.
Travel restrictions extended work scheduled at offshore platforms, and social distancing initiatives such as remote working.
Personnel on work sites wherever possible.
As a result would be majors I'm pleased to report that today, we've had no.
Were 19 among have employees.
Turning to our operational results for the core.
We delivered strong performance across our portfolio and especially in the Bakken.
Company wide net production averaged 344000 barrels oil equivalent per day, excluding Libya.
Which wasn't the work guidance 320000 325000.
So per day.
In the second quarter, we expect net production to be in the range of 310.
315000 barrels of oil equivalent per day, excluding Libya.
This reduction from the first quarter due to low nominations and I don't think East Asia.
But I hope it demand impacts.
Non operated wells shut ins.
Yes.
Sounds in the Gulf of Mexico.
For the full year 20.
Yeah production is forecast to average approximately 320000 barrels of oil per day, excluding Libya.
In the Bakken, we're currently operating two rigs and expect to be.
By the end of this month.
Our plan is to maintain at one rate.
Coal prices move above $50 per barrel on a sustained basis.
Operating one.
Okay and key operating capabilities.
We have worked very hard to build over the years spoke with enhanced and within our primary drilling and completion suppliers.
Barack capital spend is now expected to be approximately $740 million in 2020.
And assuming a 100 program in 2021 block and capital spend would drop to approximate.
Yes, there's next year.
In the first quarter or Bakken team delivered strong results.
Excessive or plug and perf completion designs and mild weather conditions.
Good for reducing the rig count.
<unk> of 200000 barrels of oil equivalent per day for 11 days in March well ahead of schedule.
Demonstrating the exception I've seen capacity of our box position.
First quarter Bakken net production.
90000 barrels of oil equivalent per day, and an increase of more than 46% from the year go quarter.
All right.
Approximately 170000 barrels oil equivalent per day.
In 2020.
We now expect it to drill approximately 70 wells you bring approximately 110, new wells online.
We plan to complete wells.
No go online and less netback prices dropped below variable cash production costs or we are physically unable to move barrels.
In the second quarter, we forecast that are Bakken net production will average approximately 185000 barrels oil equivalent per day.
For the full year 2020, we continue to forecast.
Reached approximately 175000 barrels of oil equivalent per day.
Assuming a one rig program through next year, we forecast.
I can put I've been in 2021 leverage between 855000.
See thousand barrels of oil equivalent per day.
Right.
Percent lower than this year.
We continue planning for the tight gas plant turnaround in third quarter 2020, well closely monitoring you could to accommodate 19 risks.
Moving to the offshore.
In the deepwater Gulf of Mexico.
Sure.
Average 74000 barrels of oil equivalent per day.
The Sox, one well, which came online in February is it.
I have two rate, but he ended the second quarter.
No other production wells are planned to be drilled these.
We will participate with a 25% working.
Operated Galapagos the exploration well expect this but later this month.
I'd class Cretaceous aged up.
In the Mississippi Canyon area.
In the second quarter, we forecast the Gulf of Mexico, net production leverage between 65070 thousand barrels.
Per day, reflecting planned major maintenance shut ins that bold paid.
Pete planned 30 day shutdowns at Konger and want to.
In deferred to the third quarter.
For the full year 2020 Gulf of Mexico net production is we're testing and free to approximately 65000 barrels of oil equipped.
Good day.
In the Gulf of Thailand.
Section in the first quarter was 58000 barrels of oil equivalent per day.
During April natural gas nominations were reduced due to slower economic activity associated with cobot 19.
As a result, we don't forget second quarter net production to average approximately 35000 barrels oil equivalent per day and the full year 20 to average approximately 50000 barrels.
Now turning to Guyana.
Our discoveries and developments on the Stabroek block.
World Class in every respect with some of the loan spreads.
Well industry.
The adjustments we've made elsewhere in the portfolio.
The long term value of this extraordinary assets.
Production from leaves the phase one committed.
2019, and in the first quarter average 58000 gross barrels of oil equivalent per day were 15000 barrels.
Oil equivalent rate net oil per day net to have.
As of this gross.
To approximately 75000 barrels of oil.
And is expected to reaches full capacity of 120000 gross barrels of oil per day in June.
Leaves a phase two will utilize the lead to you the FPSO.
To be to produce up to 220000 gross barrels oil per day.
Despite some pandemic related delays the project is progressing to plan with about 70% of the overall work can be and first oil remains on track for 22.
So on mobile.
Some activities for the plan priority of element of being deferred pending government approved.
Hitting a potential delaying production startup of six to 12 months.
As a result could they make related travel restrictions in Guyana.
Exxon Mobil has temporarily idle to drill ships, Santa Karen and then I will come that.
These vessels are expected to resume by June.
From an activities or can you know the noble Dawn Taylor and noble Bob Douglas Drillships.
Hi partnership has deferred the addition of drill ship.
Hi.
They did the deferral of pie are up and to reduce drilling activities to over 19 travel restrictions.
Has resulted in your next to our 2020, Guyana capital anyway.
Budget of approximately $200 million.
In closing.
The once again.
Good execution and delivery across our asset base under very challenging conditions.
I'd like to personally.
All of our employees for their hard work and dedication.
To ensure the health and safety for workforce and to ensure that our company is well positioned for this historic downturn.
That is sure to come.
I'll now turn the call over to John Riley.
Thanks, Greg in my remarks today, I will discuss our ongoing efforts to preserve cash in this low price environment.
Review, our first quarter financial results and update our 2020 guides.
At quarter end, excluding midstream cash and cash equivalents were $2.1 billion and our total liquidity was $5.9 billion, including available committed credit facilities, while debt and finance lease obligations totaled $6.6 billion.
Our fully Undrawn 3.5 billion dollar revolving credit facility is committed through May 2023.
We have taken prudent steps to improve our liquidity and reduce costs.
As John mentioned, we've cut our 2020 DNP capital guidance, another $300 million to $1.9 billion, which is $1.1 billion below our initial guidance from the beginning of the year.
On March 16, 2020, we entered into a 1 billion three year term loan agreement with JP Morgan Chase Bank.
Sites on the term loan, which matures in March 2023, we have no other near term debt maturities.
We also have more than 80% of but remain 2012, <unk> oil production hedged with $55 W. T. I put options for 130000 barrels of oil per day.
And $60 Brent put options for 20000 barrels of oil per day.
April Thirtyth 2020, real life settlements to date, where approximately $300 million.
Plus the unrealized fair value of open contracts of 1 billion, a $15 million results total realized and unrealized value of approximately $1.850 billion before considering premiums paid.
Finally in response to the current low oil price environment, we have actively cut costs to align with our lower planned activity levels and to remove discretionary spend.
Which has contributed to a decrease in our projected full year 2020, M.P. cash operating costs of approximately $225 million.
We are continuing to look for further capital and operating cost reductions.
Now turning to results, we incurred a net loss of $2.433 billion in the first quarter of 2020, including non cash impairment and other after tax charges of $2.251 billion, resulting from the <unk> vice environment compared to a net loss of 200 and.
22 million in the fourth quarter of 2019.
Turning to justice adjusted basis, which excludes items affecting comparability of earnings between periods.
We incurred a net loss of $182 million in the first quarter 2020, compared to an adjusted loss of $180 million in the previous quarter.
Turning to NP.
On an adjusted basis N P incurred a net loss of $120 million in the first quarter 2020, compared to a net loss of $124 million in the previous quarter.
The changes in the after tax components of adjusted MP results between the first quarter of 2020 and fourth quarter of 2019 were as follows.
Lower realized selling prices reduced results by $147 million.
Higher sales volumes improve results by $22 million.
Lower cash costs in salt by $78 million lower exploration expenses improved results by $66 million.
All other items reduced results by $15 million over.
Overall increase in first quarter results of $4 million.
Turning to midstream.
On an adjusted basis. The midstream segment had net income of $61 million in the first quarter of 2020 compared to $49 million in the previous quarter, reflecting higher throughput volumes.
Midstream EBITDA and adjusted basis, and before non controlling interest amounted to $193 million in the first quarter of 2020 compared to $157 million in the previous quarter.
Turning to corporate.
On an adjusted basis after tax corporate and interest expenses were $123 million in the first quarter of 2020 compared to $105 million in the previous quarter, which included capitalized interest expense of $11 million Liza field.
Capitalize interest for the Liza field seized upon first production in December 2019.
First quarter 2000, <unk> corporate expenses included a nonrecurring charge of $7 million for legal costs related former downstream businesses.
Now turning to guidance.
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As previously mentioned our second quarter net production is estimated to be in the range of 310 to 315000 barrels of oil equivalent per day.
The unprecedented reduction in oil demand due to cobot 19, U.S. commercial storage is approaching capacity, resulting in a sharp decline in oil prices.
To maximize the value of our production we have chartered three be lccs implant to store 2 million each of May June and July Bakken crude oil production on the Vlccs and sell these barrels in the fourth quarter.
We have hedged the contango in the forward Brent curve for these barrels.
We do not expect they shut in any of our operated production due to our marketing arrangements and our be LCC storage.
From an accounting standpoint sales volumes will be under lifted by approximately 4 million barrels of oil in the second quarter and 2 million barrels of oil in the third quarter as a result of using the vlccs.
While we will receive cash for settlement gains as the put option contracts much mature the NIM bys gain on contracts associated with the 6 million barrels of under lifted oil comprised of the cash settlement lessee associated amortization of premiums paid.
We'll be deferred until the volume stored in the vlccs or so.
We project E N P cash costs, excluding Libya to be in the range of $10 to $10.50 per barrel of oil equivalent for the second quarter and for the full year of 2020 down from previous full year guidance of $11 spent 50 cents to $12 in 50 cents per barrel.
What primarily due to cost reduction efforts.
BDNA expense, excluding Libya is forecast to be in the range of 14 to $15 oil equivalent for the second quarter and $15 to $16 per barrels oil equivalent for the full year 2020.
Down from previous full year guidance of $16 in 50 cents to $17.50 per barrel of oil equivalent.
As a result of the asset impairment charges.
This results in projected total DNP unit operating costs, excluding Libya TV in the range of 24 to $25.50 per barrels oil equivalent for the second quarter and $25 to $26 in 50 cents per barrel of oil equivalent for the full year of 2020.
Exploration expenses, excluding dry hole costs are expected to be in the range of $35 million to $40 million in the second quarter.
Full year 2020 guidance now expected to be $145 million to $155 million down from previous full year guidance of $210 million to $220 million.
The midstream tariff is projected to be in the range of $215 million to $230 million in the second quarter and full year 2020 guidance in the range of $905 million to $930 million down from previous full year guidance of 940 million to $965 million.
In Pete income tax expense, excluding Libya is expected to be in the range of $5 million to $10 million for the second quarter and in the range of $20 million to $30 million for the full year of 2020 downs from previous full year guidance of $80 million to $90 million.
For midstream.
We anticipate net income attributable to Hess from the midstream segment to be in the range of $40 million to $50 million in the second quarter and full year 2020 guidance in the range of $185 million to $195 million down from previous full year guidance of 205 to 215 million.
In dollars.
For corporate.
Corporate inch corporate expenses are estimated to be in the range of $25 million to $30 million in the second quarter and full year 2020 guidance in the range of $115 million to $125 million is unchanged.
<unk> expense is estimated to be in the range of $95 million to $100 million for the second quarter with the full year 2020 guidance expected to be $375 million to $385 million up from previous full year guidance of $350 million to $360 million due to the new term low.
This concludes my remarks, we will be happy to answer any questions I will now I'll turn the call over to the operator.
Ladies and gentlemen, if you have a question. Please press star followed by one on your phone. If your question have you been answered or you would like to they told me a question Reston town key questions will be taken Andy Order received please press star one to begin.
Yeah. My first question from Ryan Todd Siemens.
Siemens Energy your line is now open.
Yeah, Thanks, maybe if I could.
Start with with the bank, there and that obviously very strong first quarter production.
You gave some guidance around the rest of the or I think some of the numbers.
As Greg was talking could you maybe.
Good some clarity around what completion activity.
Looks like with the one rig running in will you be building ducs are completing through and maybe if you could repeat what the one rig capex number like in 2021.
Yes, Greg why don't you gave it to try and just maybe we speak just a little slower to let the phones catch up and if we look at it John John Wiley will follow up.
Okay. So Ryan let me, let me start with a capital for the year.
The capital for the year in the Bakken will be $740 million.
And in that 740 million.
We expect to drill approximately 70, Bakken wells and bring a 110 new wells online.
And we do not plan to build any ducs, we plan to drill and complete.
Well actually we drew.
You are going up here and into next year.
Great Thanks and.
Maybe if I get on the maybe for you John Riley.
Either either one can you provide some color on that decision the charter the vlccs in terms of how you view the relevant pluses and minuses of store in the barrels on the ground versus arm there on the VIP and what it and what sort of price signal is there a price signal that you need to sell the barrel ended the fourth quarter that already set up in contractor.
So you know the contango of the difference of the current a month in Brent and the future months in Brent lets say out to December is already hedged so we've locked that in.
But to maximize the value of our Bakken production and preserve our cash flow for this year.
We were able to use our marketing capabilities and our firm transportation to the U.S. Gulf Coast to charter three vlccs to load store and export 2 million barrels per month of Bakken crude oil in May June and July and basically that spread has been fixed.
In Brent on top of it it is Brent based pricing, which obviously provides an advantage instead of W. T I and we plan to market the oil in Asia Asia demand for oil is already improving so it is possible that we sell the oil before depending upon a book before the fourth quarter.
Depending upon market conditions, but the point as we've hedged that we've locked it in and basically the contango in the market and the fact that we used Brent based pricing.
Offsets the cost of the charters there three different chargers different terms different rates.
But the contango in the market that we've hedged and the fact that is Brent based pricing not T I.
More than offsets the cost of the charters.
Thanks, I appreciate the color to.
Next question, Doug, let Jay from Bank of America. Your line is now open.
Thank you everybody I hope I hope everybody has done well as there.
I I guess my first question before for Greg probably.
Greg the resilience of the Bakken is loosely left you with your guidance unchanged, but what does it look like going into 2021.
In terms of nor the underlying production capacity decline rate with a one rig program.
On a go to follow up for Mr. B. Riley. Please.
Yes.
Mexican my opening remarks, who to keep.
Rig program through 2021, it's about a 10%.
Decline decline rate for the Bakken.
No I apologize I think I missed so let me let me let me take up a second pulpits identify made us with the capacity was already north of 200000 Boes a day.
You hadn't extend the dog drove through the back end of this year does that assume the trajectory through the backend of 2020 to 21 is the exit rate is risks higher.
Yeah, well, we exit rate, we're projecting Ah Ah.
Yes, the ended the year.
Hi thousand barrels a day Doug.
So the behavior of it you know this years is relatively flat because of course, we built quite a backlog.
Tom with the six rigs can and we're going to go ahead and complete those wells.
Yes, you're right that number Greg it it got muffled again.
Hey, John your exit.
Yes.
Exit rate is gonna be 175000 barrels a day.
And the reason it's relatively high is because.
With that six rigs.
We built a fair number of wells to complete.
And our plan of course is to complete those.
[music].
Okay. All right appreciate the color I know, it's tricky in them and the mountains, Greg So I'm going to Miss the Riley thoughts okay.
John the that you were very early to look in the hedges for this year.
Thats, obviously paying huge dividends at this point, but as you look into 2021.
If the current strip price it would still have you been a bit of a cash burn if you maintain become level spending. So can you walk us through what your flexibility is in the event that the current strip turned out to be right, obviously, a little bit isn't but.
Where we where else do you are you able to move things around because a cash burn should be quite meaningful.
So let me first start with you you're right. We've got great hedge position this year and we'll continue to monitor the market as we go through the year and we'll clearly look to put on hedges for 2021, as we get closer to the end of the ended the year hopefully prices, we better and then we can get hedges on but let me then.
Follow your your question along should prices stay lower so everything we've done in the plans we put in place.
Set up for a two year low price scenario, we with the term loan with the hedges for this year with reductions in capital that we've made this year and if we were looking at strip prices going these prices as you said going into next year, our production I mean, sorry, our capital spend.
And should be flat to potentially down a little and it's it's due to with the one rig in the Bakken as Greg mentioned $740 million. This year go down to 300 million with a one rig program or somewhere around 300 million next year.
And then obviously it will be offset by some increase in Guyana capital spend so one looking for capital remained flat, but we'll be looking at capital reductions further capital reductions further operating cost reductions as we move through this year and into 2021, especially if prices stay low.
And then obviously, we do have the one rig it's not something we want to do as you move into 2021. However, if prices did say low it's something that we could reduce down to zero at least for a period of time and bring back on its Greg had mentioned we spent a lot of time building up.
Lean manufacturing capability. So we really don't want to do that but it's clearly a lever that we can look at as we move into into 2021.
I think thats will be we're constantly looking for other things that we can do but I also would tell you. It's the because we put in place are set for this low price environment to get us all the way through 2021 without incurring any additional debt through the end of that here and then being in a place where pace to starts up.
Right there in 2022, and we're getting an additional say 65000 barrels of Brent based oil from lease a phase two and you know the hope would be by 2022, you're getting a bit better prices. There. So we really have put this plan in place and everything we're doing even though we'll continue to fine tune and try to cut costs.
But to get us through this two year low price environment.
[noise] Joel.
If I just need to tie going one very quickly because up and it's maybe one for John has actually one of your peers. This morning last night I should say hopes about their dividends and suspended their dividend nothing goes semantics between spending and canceling because we know the cash flow capacity or past is about to inflect.
Significantly higher but in in a scenario, where we did some extended periods of depressed prices as a dividend an option in terms of at least temporarily a source of incremental cash how are you thinking about I'll leave it there. Thank you.
Yeah.
I believe the.
Company, you're talking about it is in a much different financial position than we are so I wouldn't want to try to compare us to anybody else, but having said that look if oil prices are severely depressed for a long enough period of time all options would be on the table, having said that we think we've taken the.
Steps to put ourselves in a strong financial position as John said, and we are committed to our dividend and certainly are not contemplating a cutting it at this time.
Appreciate the color John and that's a very valid point, thanks a lot.
Next in line as Devons <unk> Morgan Stanley. Your line is now okay.
Hey, good morning, Thanks for taking the question.
I wanted to ask the first one on the Bakken in clarifying some of the remarks I think Greg made during.
His opening opening remarks here and that's on just the point of what you'd start to bring back activity in the Bakken and Greg I think you said that it was around $50 WT I or were you would begin to add from the current one rig cadence that you're out right. Now I was wondering you just what clarify if I heard that correctly and then to a bit more detail on how you think about the economics and decision making behind beginning.
The increase Capex extent, we see higher prices in the future.
Yeah, So I switch phones, so hopefully everybody can hear me much better.
So yes, what we'd have to see as we say this strong stable $50 oil price before we'd add.
Second the block.
Obviously, we got to that point.
We would decide at what pace and what cadence we would add those back but we would similar to what we did last time.
During the downturn, where we dropped down to two rig.
No we slowed we added those those rigs back in order to maintain.
We manufacturing ads.
And not have or cost phrase or whatever so.
You know as John said in his opening remarks that is one of our key strategies here is to be able to maintain that capability. So that we can smoothly ran the block and.
Hopefully in the future.
Got it it makes a lot of sense and my follow up it relates to the backing but also the rest of the portfolio. That's when we think about at the level of spending required to hold production flat. It's in the Bakken how do you think about that activity level now lets me efficiency gains and overall cost deflation that you've seen and then.
And for it for the rest of the portfolio X Guyana, just an update on what that means level of spending is.
John why do you take that one yeah.
Sure so.
To get to let's call. It is flat production level now at a lower its somewhere around.
Let's sell call it three rigs and it'll be right around that level and you could always kind of as a rule of thumb put 200 million per rig. So you know you're talking about $600 million, then maybe too to get it back and keep it at a flat level, where we're at right now once you go back to say four.
Our rigs we could start to grow at from this level again and you saw the capability that you know we have in the Bakken in that first quarter to deliver when you know obviously weather was good but just offer operations just ran.
At a really high level and so if you. If you started going back a four rigs you could begin to grow this again, but again as Greg said getting a solid $50 W.P.T.I. price in place if we start putting it back three rigs we could sustainably hold the level and then we can decide from there whether to to grow.
Ralph.
Great.
And the rest of the portfolio.
Terms of holding everything else flat, how should we think about that maintenance capex level of spending.
So it's let's just talk a JV, a and north Malay Basin first you know and under normal operations. There, we've always talked about somewhere with that $150 million to $200 million.
They can come in in bunches, the capital because you're putting wellhead platforms. There, but you can pretty much hold that flat at that 60 to 65000 barrels a day for a number of years basically out through the end of the PM Easter.
With that type of of capital levels. The gone is the interesting one because again, what we had been saying is we need to do some tieback wells.
Over time, and we could hold it flat, let's say for three to five years. If we're putting in these tie back was like Aesop the successful he sox well.
We could hold that Gulf of Mexico flat, you know in that 65 type type level for a number of years now kind of as Greg said on his opening remarks, we're not drilling in the Gulf of Mexico, We're not doing tieback wells and we're not there is no plan for US right now in 2021 in this low.
Price environment to to put a tie back while it so within the additions we've done this year you won't get as much of a decline next year, you're still going to get some decline. So you could get somewhere in I'm going to call an approximate 10% decline for the Gulf of Mexico, you going into 2021.
And then if we don't put further wells in there.
Gulf of Mexico will continue to decline so I mean, our original goal and we'll see when prices get back.
Two more appropriate levels is to get those tieback wells and Greg mentioned, we have the exploration well the galapagos deep well that we're drilling a well with BP is drilling or where a partner and so we do have a very exciting Gulf of Mexico lease portfolio that we would like to get some exploration.
The wells and over the next couple of years as prices get better and then we do think we can grow the Gulf of Mexico production.
And then Diana you, obviously know where we're going to be in a growth mode. There phase two coming online early 2022, all all on track for that then we've got to the delay six to 12 months like delay and pay our a but as John has said in his remarks growing a 750000 barrels a day gross by 2026, So we've got.
Nice balance the portfolio. So we're not just tied to the shale production. So obviously, we're reducing our rigs there, but we have the offsetting growth here coming in Guyana, and southeast Asia can stay relatively flat with limited.
Capital and then the Gulf of Mexico will be a toggle as we see prices improve we'll we'll get back to work there.
It makes the detailed response congrats again on the continued solid results. Thanks for taking the question.
Thank you.
Next question, it's the line of Paul Cheng Scotiabank. Your line is now open.
The guy.
I have couple first kind of occasion.
On for John Weiland eat that.
Die in the production number that you guys show in the press releases that including the tax payroll goes up.
So Paul with Yeah, I know if you remember at the end of last year, we put up some deferred tax assets with the start of first production essentially and all wells. So there were a lot of expenses.
Incurred in Guyana, So we built up this and a well here at the start so there will be utilizing that and how well do not expect any gross up tax barrels in 2000 in 20.
Okay and that going forward should we assume that the.
Goes up tax payable in that time, you going to per why the number that you had both.
What is that just.
Not to do and what is the report.
Yes, yes, we will we will get that number so did it and again, we'll be disclosing the current taxes that are there and in Guyana, along with that revenue adjustment and yes. So that will be something that will be available and and you will be able to see and model.
With that and that.
On the I have to apologize that then the mechanic on the video Cc storage. So we going to have to under lift in the second and third quarter. So should we would assume that the entire 6 million, though based on the current trend yet is going to be a openly.
In the fourth quarter.
Yes go ahead John that.
What's the price that we should assume I'd, Sean to understand how we.
I expect that and also in the second and third quarter, you actually already have the cash coming in because all the settlement right. So yes that go into so lucky in the working capital for I guess going to fill up in India that nine.
Correct. So let me start with with the hedges that the cash we will be receiving the cash from there and that will show up in the working capital.
Line, then in the fourth quarter when it is recognized because we'll defer the gain on that that's when it will then come back out of working capital at that point.
And to your question again, yes, it's right. So we will have the under lift in the second and third and you should assume in the fourth quarter that we will have the overlift of the 6 million barrels coming in.
In the fourth quarter and just so you know also just going through the accounting.
The second and third quarters, we will have all you will see the production costs and the DDNA associated with the production of the 6 million barrels that will be there then what we do is put it into inventory on the balance sheet and could have credit through our marketing lie. So you will get to see the actual costs associated.
With that then what we left in the fourth quarter will remove the inventory and the cost of those barrels will go through the marketing line and that's when we pick up the revenue as well.
I see thank you.
You're welcome.
Next isn't much of an age from Wells Fargo. Your line is helping.
Yes. Thank you good morning.
Morning.
Yes, hopefully everybody here and it's in these conference calls have been pretty pretty weird.
Just was curious if we could get into the impacts the deferrals that Indiana thinking yes first off the is the near term issues with the deferrals on the rigs how that affects kind of overall economics of the wells and.
The June started how good does that look at this point is there something specific we're waiting to see that that that is a good day to use where we are at risk of further delays there.
Yeah, Greg why don't you grab that.
Greg you Didnt.
Your phone.
So Roger.
In my opening remarks, I talked about.
That's solely koby at 90 related to rig.
Have been idled and that's purely to do with crude changes.
And so in order to protect those crews there their corn.
Well for 14 days, so if you kind of run through all the math on that.
Exxon Mobil made the decision I'm really to hot stack, we are on track to get both of those rigs running again by June So we're in good shape.
There.
In terms of the wells really no impact on the economics of the wells right I mean really what has been deferred.
Is this start.
Phase two drilling.
And of course, the exploration that we want to get done as well.
So as we look forward now with four rigs going.
June forward, there's really three objectives, we're trying to do one is.
Phinisi appraisal yellowtail.
Two is get two to three more exploration wells in the ground, including its couple would have.
I would go down and yes.
Penetrate deeper.
Tony in and then the third objective is to continue drilling on phase one gets started on phase two producer drilling. So that's how the program's going to kind of lay out between now and we ended the year.
Okay, great. Thanks, and then.
Question going back to the.
Deal seeing C.
Playing here I, just want to make sure I understand what the ongoing risk reward is here or is everything and the way you're thinking about all the price realizations. When you actually physically deliver the barrels in the fourth quarter is already set on I guess what I'm.
That is the volatility we've seen in the market for curve looks good today, but who knows when we get there better or worse and so I'm just trying to understand.
Again, our the barrels only weighing on physical delivery and the prices all said or are we still looking at additional ERM price volatility as a reward awards of riskier no. It's great question basically look at it this way we have our oil hedged already and the 55 and six.
The dollar.
A range that I talked about you add the contango.
It is Brent based and you get an advantage uptick for T.I. and this would be originally T.I. based and then you take off a the VLCC.
The LCC charter and when you do that the price is set and you're actually getting a value uptick because of moving it out of the United States, where oil is locked up into a market that will take it. So it's really to deal with the physical risk and the financial risk is pretty much been laid off.
All right great. That's what I wanted to understand thank you.
Next question is from Iran J.
JP Morgan your line is now open.
Good morning team John I was wondering if you could provide maybe a little bit of perspective on where we're at in terms of the Guiana election.
And perhaps provide some details on how you at Exxon adjusting your longer term development exploration activities for face gone independent Governor approvals Cobot 19 in it specifically is wondering is how is it.
Acting how you're thinking about the lease.
Versus ly timing on the Fpsos as well as the longer term thoughts so versus exploration versus a development spend.
No. Thanks, a room for that question.
In terms of Guyana.
And the political landscape the recount for the Guyana national election actually resumed yesterday.
And.
States in international observers have encouraged this process.
To go to completion, so it will reflect the will of the Guyanese people.
And you know we expect a transparent election results in the weeks ahead.
And at that time, when there is a a new sitting government.
Newly elected sitting government, we would assume the first second and third priority for us and Exxon and seen up.
Is to move the.
Approval for the pie our development forward working with the government.
And so that pretty much explains the six to 12 month delay on on PPI Aurora and then a combination of the co bid.
Initiated.
Delays.
In staffing the rigs has made us have a a slow down for a few months, but as Greg said, you know we should be going back to a four rig program in June the first second and third priority will be development wells, but then we'll start feathering in exploration wells and appraisal wells is.
Well, so you know a a temporary interruption, yes, but not a major one and then we would move forward with our exploration and appraisal activities in development activities Accordingly.
On top of that that six to 12 month delay Empire I will.
Affect the startup of the fourth and fifth ship as we currently have contemplated such that you know.
We will have the we plan now on having the five ships and at least 750000 barrels a day oil production online in 2026, instead of 2025, so a delay yes, but not a major one and you know it's certainly still is our top investment priority in a top priority for Exxon to move.
Forward with the plans that we've outlined in the past some minor delays, but but not major delays.
Great and just.
A quickie for Greg.
Yes, I see a big size of Bakken beat in why Q could you just give us maybe the drivers of the beat relative to your guidance and or whether it was it was pretty benign, but maybe thought.
Whether as well as the well productivity.
Quarter.
Yeah. So there was really two major things one was the weather, which we had so you know mother nature was going to us.
In the first quarter, which as we all know has a big impact sometimes in the Bakken.
So, we built something that into or contingency in or forecast for the first quarter.
But even more important is the wells we brought on in the fourth quarter.
Just be a really well.
So we had planned to convert those right.
During the first quarter and in fact, we didn't need to because we'll still.
Still we're flowing well through the first quarter. So we got a really nice production foam from the wells.
And online in the fourth quarter, but also in the first quarter.
So the combination of those things.
For the outperform.
Great. Thanks.
Thank you.
We have our next question some of that unless you know Raymond James Your line is now open.
Thanks for taking the question obviously most of your.
Capex cuts or pertain to your domestic operations and I suppose Guiana as well.
What about exploration, I'm, particularly thinking Suriname, which was supposed to.
Be kind of a late 2020 early 21 story have you changed any of the medium term plans for beginning drilling there.
Greg, Yes, sure no or plans are still to drill that well in 2021.
The answer now.
Got it okay is that contingent on level of commodity prices no. I think you know that's that you know the operators in control of that and Cosmos, but the latest discussions we've had with them, we're still planning the well for 2021.
Okay. Appreciate it guys.
Next in line. This is Bryan singer Goldman Sachs. Your line is now open.
Thank you good morning, good morning right.
On on Guyana, looking beyond feet to realize that there are so understandable delays.
Phase three plus I wonder if there's any benefit that you could see or are seeing on the cost front can you can you talk to the cost environment that you're seeing after sanctioning longer term deepwater offshore projects and whether you see any adjustments to that just as a result of the environment that way.
Yeah, Greg do you want to take that please sure yeah. So Brian as you know the majority of services have been contract.
You know certainly for phase two and also phase III now you know later on in time, you know you get into other phases, you know there could be depending on commodity prices. Obviously, you know there could be concessions there, but you know a large part of the of the.
Contracts.
Already underway.
For certainly the activity in Guyana that we're doing now now as I look arc across our portfolio and kind of what we're seeing.
And we're in the midst of this I'm working with all of her contract partners now buyers.
It's too Jeff to the activity, but also keep continuity of the cruise.
And brings more costs out we're seeing kind of on the order into 15% and that is both in the off or and the on store.
For our business. So I think that's a reasonable number because you know the those companies were.
Potentially already be stress so.
They don't have as much stickier than maybe they didn't know last downturn, so 10% to 15% as what we're seeing.
Great. Thank you and then my follow up is with regards to the Malaysia is the gas demand.
Let it some of the weakness that you're seeing here near term do you or do you get any sense as to whether there are secular impacts here to demand and ultimately to production versus just a just these being cyclical on a sign of the parent debt at current environment.
Yeah, we definitely think it's one off and we already see demand recovering, but John Riley you want to elaborate.
Sure no. It that's what we are seeing you know obviously, Malaysia they had their shelter in place they call that mcl the movement control order they actually did lift it a little earlier.
Then the original plan. So again, we do see this from a cyclical just standpoint here kind of kind of one off so you see the Q2 number we are forecasting at 35, almost kind of equal production out of and B and J.D.A. and then we have a slow ramps forecasted for the.
Rest of the year and again, we just going back to the uncertainty around.
Oh, good 19, and the resulting business activity, but we you know we are seeing some green shoots here.
So we just do think it's more of a one off.
Great. Thank you.
Thank you very much at least concludes today's conference. Thank you for your participation you may now disconnect have a great day.
Thank you.
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