Q1 2020 Earnings Call
Good morning, and welcome to the Noble Energy first quarter 2020 earnings Conference call.
All participants will be and listen only Matt.
So they need assistance clean signal, our corporate specialists by pressing a sarkouhi followed by C. rap.
After today's presentation, there won't be an opportunity to ask questions.
I would now like to turn the conference ever to Brag Whitmarsh I've Investor Relations. Please go ahead.
Thank you Allison and thanks, everybody for joining today's conference call.
It'd be better chance to review the news release in supporting slide deck that we publish this morning.
Materials are available on the investors page of our website and they highlight strong first quarter performance.
Normally we would be providing an update to our guidance at this time, however, given the uncertainty of covert 19, and the pace of all demand recovery, we're not providing detailed guidance, we will provide thoughts on how we see activity in production trending through the year that I think will help you.
Model are are outlook.
Oh never mind every one of today's discussion contains projections and forward looking statements as well as certain non gap financial measures.
You should read our full disclosure shit disclosures at our news releases, an S.U.C. filings for discussion of those items.
Following our prepared remarks will hold a question to answer session I would ask that analysts limit themselves to one primary and one follow up.
Planned comments this morning come from Dave Stover, Chairman and C.E.O. can Fisher E.V.P.N.C.F.I., when Brett small like the president and C.R.
Also joining for Q. and I applaud Walker S.P.P. of Onshoring keep Elliot S.V.P. of off shore.
Or plant comments will go about 20 minutes, what's that trying to call the Dave.
Expressed in good morning, everyone.
Before commenting about the business, how we performed in how where you are responding in the current environment.
To extend well wishes to all of you.
Joining us.
That you and your families are remaining healthy as our country in the whole world deal with that kind of at 19 pandemic.
Over the past several weeks the courage and professionalism of our frontline community workers has been extremely evident.
This includes our health care workers food supply providers government agencies, another critical services.
On behalf of everyone at noble energy I extend a sincere. Thank you to those on the front lines for their tireless and sacrificial efforts.
I'd like to also extend my gratitude to the employees of noble energy, our customers and suppliers partners and all for their extraordinary efforts to maintain safety and health.
Our employee base has been working from home for nearly eight weeks now during one of the toughest industry environments, where I've ever faced.
They maintained a great focus on safety efficiency and execution.
Our first quarter results highlight our teams extraordinary commitment capability.
We delivered one of the best quarters of execution noble energies history.
Organization did an exceptional job building off last year successes in terms of capital efficiency cost improvement.
Production was above plan, well capital expenditures operating costs, and G.N.A., where all lower than expectation.
As you all know well this is an extremely dynamic situation.
The impacts from the kind of at 19 pandemic and the resulting demand destruction upgraded the most unpredictable marketplace that I've experienced in my 40 years in this industry.
We've seen supply response by OPEC plus.
And producers here in the U.S. or quickly rationing capital and adjusting production.
However, the supply demand imbalance is likely to remain in the near term.
While we don't know the duration of this pandemic or or the ultimate slope with demand recovery, we will continue to be agile and respond appropriately.
Before handing over again I want to highlight the recent actions we have taken with a focus on optimizing our cash flow and liquidity.
Preserving inventory.
Setting us on a path for success coming through this environment and moving forward.
Burst in response to the current commodity environment, we've lowered our 2020 capital plan by more than 50 per cent versus original guidance a decrease of $900 million.
The majority of these reductions that come from or U.S. on short business or guard commodity prices did not justified new New York term investment Michelle in any basis.
And noble energy, we will not invest capital at less than acceptable returns and we will preserve our resource for a better future.
Well. This will result in production declines in the second half of the year, we're focused on value not volume.
This is further highlighted by our election to voluntarily curtail production in May and June.
Offshore we're moving forward the pipeline expansion working Israel, and the L.M. gas monetization project and Ecuadorean Guinea.
Both projects are expected to generate good returns enhancing our cash flows beginning later this year and establishing the pathway for long term value up left and those businesses.
In addition to announce capital savings, we've identified $225 million and cash reductions mainly from operating cost no G.N.A. initiatives.
Until it all the reductions that we have announced today between capital cost and other initiatives are saving approximately $1.3 billion as compared to our original 2020 plans.
And we will continue to work do identify even more cost reduction opportunities as we move through the year.
Level energy as well positioned to manage through the current environment or strategies right with Leviathan online at the end of last year or diversified portfolio stands out with low cost him supply assets globally, and a low annual production declined base.
Our financial standing as strong with high levels of liquidity and a reset cost structure is we move forward.
Or execution capabilities are industry, leading.
Best in class major project delivery and record U.S. on short drawing and completion cycle times, providing a strong base of support when activity levels resume.
I'm confident that were well situated to come through this environment and a position of strike.
Ready to capitalize on opportunities and to rebuild shareholder value.
Turn it over to Ken.
Thanks, Dave I also want to wish that by best all of you have your family's during these challenging times.
Throughout our history, maintaining strong financial liquidity and resilience as better hall bark of noble energy.
We have affectively navigated through volatile commodity cycles of the past and today is no different.
We have robust financial liquidity ending at 4.4 billion it first quarter.
And we have no near term debt maturities. In fact, we have one of the longest stated maturity profiles and B.E. and P. space at a very competitive average coupon.
As you know, we consolidate noble midstream partners N.B.L.X. at our financials N.B.L.X. is in solid financial condition, what Apple liquidity and exceptional coverage.
With the majority of their backbone infrastructure built then it place.
And they're J.B. pipeline investments nearly complete they will move tour ganic cash flow positive position in the second quarter with a focus on reducing debt.
One additional point N.B.L.X. debt is not <unk>.
As I mentioned noble energy ended first quarter with 4.4 billion in financial liquidity, including 1.4 billion in cash and 3 billion of Baylor Bowl borrowing capacity on our revolving credit facility.
Are on a unsecured investment grade revolver is one of the strongest did the energy space backed by more than 25 bags.
It contains only one financial covenant, a debt to capitalization ratio of less than 65%.
On the Covenant calculation, we ended first quarter at approximately 35% that the capitalization.
Similar to commodity cycles of the past we have protected our cash flows with our commodity hedging program. During the quarter. We took the opportunity to bring forward cash proceeds through modernization of certain crude oil hedges. The did reach maximum value. This contributed to the total 208 billion of debt.
Hedge proceeds that the first quarter.
Additionally, we added significant oil hedge coverage for the remainder of the year to protect cash flows.
The majority of second quarter is lock the end at fixed price swaps up nearly $36 per barrel W.P.I. second half is also well protected with a combination of both fixed price swaps and three way collars between 30 and 40.
Per barrel W.T.I.
Value of our forward hedge position as of the end of the first quarter was approximately $235 billion.
In summary, we are confident that our financial position with robust liquidity, well manage maturity profile solid hedge protection and the cash flow contribution of our long term international gas assets now, let me hear that the bread.
Thanks can good morning, everyone.
I also want to express my gratitude to the noble and noble midstream employees for their performance during the the pandemic.
Our office based teams have kept the business running effectively while working remotely since mid March.
I feel based team building on site teams up quickly adopted new health and wellness practices to safely execute our day to day operations and to successfully managed logistics in global chain supply chain disruptions.
They mentioned, we built upon 29 teams execution successes and we delivered an exceptional first quarter.
In the U.S. on shore, we drilled a completed our fast as well as today and average walk cost and Q1 were down 10 to 15 per cent versus budget.
And 2019 are average well costs for 6.2 million and 8 million, respectively for the D.J. and the Delaware and during the first quarter. This year, we delivered them for 5.4 and 6.8 million.
Production expenses of also improve with total U.S. on shore unit production cost more than 50 cents for B.O., we below plan.
We exceeded expectations on sales volumes with strong base performance and new well productivity.
And our operational efficiency gains resulted in higher two accounts than expected.
Meaningfully lower capital.
The first quarter was at a high point for us on shore execution.
And although the entree activities not warranted into current environment. These milestones are still important.
When we choose to restart will be building on a stronger operational foundation.
And the eastern Mad, we advance to Leviathan commissioning process delivered over 92% facility run time in the second quarter.
Satisfied all of our domestic an export gas sales contracts.
I'm happy to report that the platform commissioning is nearly complete reliabilities high and we've delivered close to 100 per cent runtime over the last month.
Following a strong start to sales in January and February the economic slowdown from Kobe became visible in the in eastern Med region, which impacted power demand and natural gas consumption in March.
Turning D.G. strong all liftings in the quarter benefited from our seeing six p. well and active production declined management at both the Alpha feels a an L.N. fields.
Looking forward to the remainder of 2020 and the U.S. onshore we've revised we have a revised capital plan of $575 million for the year.
But over 55% of that spending the first quarter.
Oh completion activities been suspended drilling activity has been reduced to one rig into D.J. basin.
The plan includes $75 million to $100 million for the the option to complete deejay wells into fourth quarter.
Well hold that capital decision until late this year based on a variety of factors, including the extent of all price improvement.
If we elect to carry the ducks into next year in the U.S. onshore capital will be under $500 million this year.
Due to low low crude all realize pricing. We've also voluntarily curtailed may net production by five to 10000 barrels of oil per day.
And for June we expect to curtail 30 to 40000 barrels of oil per day.
We made these decisions and shut engine to Traunches. The first bucket is lower productivity wells, which are not covering variable operating costs.
We're also differing production from certain higher rate wells for better value.
In future higher price environments.
Exact amount in the duration of these could tell much is uncertain and will will and will depend on the recovery bought prices if economics.
It was red mentioned, although we've not provided specific production guidance I'll provide you some directional trends for the remainder of the year.
<unk> elements, we estimate the Q2 onshore production would've been roughly equivalent to Q1.
Without any new tools plan based declines in the U.S. will be about 10 to 12 per cent per quarter in the second half of the year.
When you consider our efficiency gains are cost reduction improvements in duck inventory, we estimate the U.S. onshore maintenance capital required to hold fourth quarter oil and be always flat for 2021 is now between six and $700 million.
The combination of lower on shore maintenance capital and our conventional international assets, which we expect to grow over the next few years, we believe that that remains a competitive advantage for noble.
And he g. the L.N. project continues to make good progress startup anticipated early next year.
We finalize the marketing agreements for the <unk> during the first quarter with pricing index to European L.N.G.
Considering the attractive liquification costs the projects anticipated to pay out in approximately two years.
We estimate at 230 million dollar cash flow swing from 2020 to 2021 has spending is completed this year and new cash flow begins early next year.
And the eastern Mad the pace of the economic recovery makes it a little more difficult to forecast sales volumes.
Good news here, though is that Israel and Jordan appear to be several weeks ahead of the U.S. in terms of reopening their economies, which is encouraging for demand recovery. This summer.
We also anticipate a step up in sales volumes in the second half of the year due to seasonal demand and increase quantities in Egypt contract.
We're currently preparing to install compression equipment to expand the E.M.G. pipeline capacity for higher Egypt sales.
But the Latin fully install we now have a total of 2.3 B.C.F. of gross deliverability.
That's that's a great opportunity for us over the next a couple of years to grow production in cash flows as demand returns without incurring any additional capital.
This is a one of a kind asset base with extremely low operating in development costs No annual production decline in over 32 T.C.F. of gas to produce in the future from Leviathan into more.
So I'll wrap up this morning were Dave started we're making the right adjustments in the current macro environment. It will be a stronger more efficient company as conditions improved.
Now open the call for questions operator.
Thank you.
We went out again the question anyway.
Yeah. The question you May press start.
On your pets huh.
And they withdraw your question [laughter] press start then too.
We are using a hand pick up your handset people are pressing a key.
First question today will come from Brian.
Okay, what's called syntactic. Please go ahead.
Wanting to see if you guys could touch a little bit more on just the production trajectory and I get we could certainly get there's moving pieces here I can relate to today I take it a second quarter and maybe even a third quarter, but how yeah, you're thinking about tend to vary it indicates basing when you think about the capital budget that you're planning here for this.
Hear what the implication car for exec rate or exit rate production, and and and and natural declined it.
Yeah, Brian this is bred.
As I as I outlined in some of the prepared comments the way we're thinking about it is that you know coupons in the bag.
We've given some pretty clear direction I think on shut ins as best we can guesstimate them for now for May June.
If you back those out of Q1 that I I think we would've otherwise been about five flat and Q. too.
And then or U.S. onshore overall declines about about 10% to 12% a quarter. So I think that it gives you a pretty good direction on how we think it's going to play out of the year with the capital the way we've designed it we're going to have that one rig running into D.J.
For for for most of the second half of the year, if not all if we do the completions that we've got into $75 million to $100 million in the capital that'll be fourth quarter. So it'll have a fairly small or no impact on exit volumes you know right at the end of the year, but it'll be you know well as it could potentially come on in early Q1.
So that's kind of generally how we're thinking about the U.S. on shore part of the business internationals largely going to be you know wrapping up the the two projects then.
Then project and he G. and the compression projects pipeline work they were doing in in Egypt and Israel.
Great. Thank you and then my follow up a little bit more bigger picture when when you think about the various areas in which noble is a noble is operating and the environment that were in how do you think about really t. thinks one free cash flow and and then how that would would be returned to share.
Holder is at what point would you know you think about bringing the dividend back more more meaningfully and then also more on a consolidation Frank D.C. noble at the participant in that either during the down cycle or when a when things that when takes on the left.
Yeah, Brian This day about I'll start on the first one on the free cash flow that still still life. Our focus you know we went into this year is aren't that's being our focus to generate free cash flow and it still our focus I think all that quick actions that you've seen us take have been in in support from service of of that direction.
There I think as.
Sleigh through this downturn balance sheet is going to be a focus for us here I think coming out of this downturn there'll still be a focus as we get support from commodity prices and get back into a higher cash flow picture you know dividend, we would expect to increase with cash flow over time, but you know dividends Bennett key component.
Of our structure has always been a key component of our belief and shareholder return and so it'll still play a key role going forward, but I think balance sheets. The focus right now on the downturn.
Liquidity.
Great. Thank you.
Our next question today will come from spot.
Please go ahead.
Yeah, it's good morning.
5600 to 700 million of U.S. maintenance <unk> include a a duck drawl.
How should we think about the vacations.
Greater than 100 duct say that you can be 18 year with.
Yeah, we we would factor that in we we normally have a a duck inventory because it's just a normal lagging the schedules, but we'll have a little bit bigger one.
We'll probably add four or five ducks, a month is kind of how we look at it with the rig that we have running now so it's not a big difference, but those will those will this will support lower maintenance capital because that production will either start up very late this year. Early next so it makes it makes next year's capital a little more efficient probably the bigger differ.
Is.
The actual cost reductions we've taken out of the program over the last couple of years and I I gave some first quarter results just to help you see how much we've been able to reduce the her well cost so that meaningfully helps lower it and and then lastly, you know starting from you know a lower base exiting year.
Yeah, I like just to add to that when you think of the company picture overall for 21, we got a couple of things that are really working in our advantage. One has been the cost reset, but you know the team jumped on very quickly this year that will carry over and probably span.
Into next year and then it's what we'd mentioned earlier with a land coming on you've got a big cash flow switch from spending some money this year to generating money next year, that's a big difference and then with Leviathan and the eastern Med, you've got capacity it'll start to fill up at no additional capital. So there's a number of things as we move.
Move into 21 that are really working in our favorite besides just the increased efficiency and the on shore, which has been significant.
Yeah it it.
Additional color and outlook for a user but volumes and two q. and the second half of the the second has largely come in those have expected pretty a previous gardens.
We've we've always as you recall, we've always expected to to to be the lowest quarter for the year <unk>, just because of normal lower seasonal demand.
I think you have to layer on a little extra demand destruction because of the Kobe buyers, though so I think those are the two elements that we've we factored into cute too and it'll still be we still anticipate it'd be in lower so Q1, you have to to lower and then we had to step up in the second half assuming recovery in regional demand.
And this step up in the gym contract.
Yeah, but no lingering coded into three Q. expected at this point.
Well I think that the uncertainty when you think about around the world. That's encouraging part is that we're starting to see Israel returned to work you're starting to see Jordan.
Have signs and returning to work the unknowns are just how quickly we'll we'll things continue to return to work and and how.
You know, we not have any relapse, if you will over the rest of the year. So that that's part of the uncertainty, but I think as Brent mentioned.
The impact that we've seen even gonna if you will end that trough.
The filled with impact here over last month or two has been maybe 10 to 15 per cent at most so.
I think that bodes well as we see these countries returned to work for the second half of the year and you're still going to Saint seasonal demands third quarter is going to be the high court or for the year fourth quarter will have a seasonal piece that'll come down a little bit. So if you go back and look out tomorrow started up when you had additional capacity it.
That's the same type shape.
Kinda with first and third quarter being the highest and second and fourth quarter being the lowest.
God appreciate your dollar thank you.
Our next question today.
J.P. Morgan. Please go ahead.
A good morning Jensen, a and a good good result, I had a couple of questions for you. This morning.
One is I want to do a <unk>.
<unk> ask you a little bit about mechanically or how gases marketing. It is real between the tomorrow the bias it could soar Kim and just overall, how do you band is that process in the conflicts.
Just inherent in that and those structures.
Yeah I ran this is Brent.
You know a lot of a lot of what we haven't places is already contracted you know 10 to 15 year long term contracts and so that's already manage if you will and then and then what we have to contend with over the future is then how do we think about incremental gas and so you may have seen some of that and.
And in the in the public you know commentary, it's you know talking about incremental contracts for future gas as we as you think about as we penetrate into the.
To the you know coal fired power and as we get G.D.B. <unk> demand growth in those kind of thing. So I just want to make it clear for everybody that no. That's the most of it's already contracted long term.
Then and then you know to be able to manage it you know we've got you know good working relationships with all partners and so it's just an ongoing dialogue.
Yeah, not not to forget also.
<unk> you know another key part of Leviathans part as to focus on the export portion also.
Yeah. That's a good point that's a good point question for you can there's just one going through the commentary on an N.B.L.X. was super helpful. I know the dead is Don recourse to know, but what are the recurring questions. You know we get from the by side is what would happen to know more draconian scenario where access to cap.
<unk> more difficult and and how would you consider.
Thinking about using you know nobles balance sheet to assist N.B.L.X. and and again to draconian scenario.
I I <unk> is a very strong week position business.
You know it as I said that.
Infrastructure is built out and the G.B.'s are.
Pretty much complete so there there need for future capital is is pretty pretty low so they'll move into a cash generating position.
I would expect them to be paying down debt.
That's clearly there focus and so I I don't see any issue, where nobody would have to step in.
I think there well able to to fund themselves.
Great. That's that's super helpful. Thanks.
Hi next question today.
Have bank of America Huh.
Oh. Thanks, Thanks, everyone in the morning, [noise] Hope you guys, all doing well that Dave or maybe for a candle brands, obviously, but the operating cost reduction easy you guys are delivered over some pretty meaningful has to stay in the movies and those are both for 2020 and told me I'd be outside of this.
Yeah, if you're actually talking about the AAPEX or the expense side. You know we think we think some of them are very sustainable because they're.
Fundamentally changing how we're staffing and and.
And managing the assets. So we we think there we think they're sticking if you notice if you go back to the trends.
We had for both the objects and cap x. from all of last year. They trend it down through 19. If you look at Q1 results interested down again that gives me some hope that the belief that there's the bigger structural changes were making they're not <unk>.
Okay <unk>.
<unk>.
Go ahead thing on the the G.N.A. part of that that you asked on our backs, but you know on the G.N.A. part of that you know I think there are some things are it'd be very sticky as we move into next year that we saw maybe half or less than half of the benefit this year that'll.
<unk>.
Okay I I appreciate I'll leave me.
I don't think all of US are as soon as much of this is sustainable on slapstick question, but.
My my full of question if I may as you guys have obviously differentiated was due to opportunities outside of the U.S. I just wonder that.
Given the L.N. startled makes use of any color you can give us on how you see the trajectory. After you get the initial box so it'd be all coupland on in light of thought and loved bias on what is the right girl Sweet somebody you ask me or the other side of this.
<unk>.
Yeah. So so we've talked a few times about the you know that will just be basically backfilling as the obligations declines we'll be back feeling that decline.
Molecule per molecule. The next two to three years, we'll see growth.
From from the L.N. project and what we said you know even way before the virus early last year is that you know we you know we think that the <unk>. The bottles, you know lower growth rate model and we'd already started moving there for the U.S. on short part of our business. So I think we'll stay in that mindset is it because we're advantage on growing.
You know Israel volumes and growing P.G. volumes, you know, it's less pressure on us to have to grow U.S.
Oh I guess.
Thank you.
[noise] Hi next question today will come from Charles Neat I've time right.
Let's go ahead.
Well he did for you and your your whole team there. So I wonder if you could then you're going back to you you said something you prepare comments that struck me you said you know that you don't have accepted returns in any base in in the in the U.S. on shore now.
Could you give us an indication I guess, it's gonna gets back to not just the the the shutting of course should also brings up comments about perhaps going back to work on the complete deciding for Q. What is the the W.T.I. level, we should be thinking about for a where those returns would become acceptable.
Yeah. This is this is brand again, yeah, I think I think days comment was in the current kind of low commodity prices, there's no base in the U.S. it's economic.
No, but but you know if you look at our stack. The the D.J. is the highest returns we have in the U.S. on shore.
And it will be the first to come back in to to you know to being acceptable rate of return and that's why we have the rig running there and we're and we've created the option to spend the completion dollars again will hold that will hold that option to late in the year.
Decide if we're going to spend number will roll the ducks into 2021 for those but that that program. You know is you know pretty good economics around $40 flat you know the way we look at it today. So that's why we're taking the actions were taken.
<unk> and then.
<unk> any color you care to offer on on where.
Geographically.
But shut in that that you're seeing for for me in June or coming from.
Yeah. The book are going to come from from D.J. in Delaware, Obviously, and and we started in that first traunch of the lower rate.
Wells and the older wells in so that naturally moved some of that you know more more to D.J. because we've got the older vertical wells into program Delaware's newer for us. So it has less of those you know low low low rate late life higher cost lower margin kinds of wells and the portfolio, So probably something like two thirds with our D.J. down.
Aware.
But you Brent.
<unk>.
Oh My next question today.
Well <unk>.
I'm trying to please.
Yeah.
Hey, good morning.
Well.
You guys have talks a lot about the the demand impacts in in the eastern Mad <unk> just from a modeling perspective should we should we expect those to materialize via a volume or via price and you you talked about the March impact was was April flatish, maybe a little bit worse as as would be the tree.
Land on sale oil demand in general or or more stable.
Yeah, what was the second question <unk> Yeah.
<unk> is is the impact of the demand destruction and LVD into my thing is that going to is that going to flow through to y'all be a lower volumes are via a lower price.
Yeah.
And you talk to being you know impacting March how did how did April look as you can give you have again, okay. Yeah for the man yeah. So so just to again a reminder, that that you know our prices are said by contract or or by floors in the contracts and so those are long term you know 10 to 15 year.
No agreements that we have in place everybody's performing on those agreements and so so really we think of the uncertainty more is the volume uncertainty in the near term because of the impacts on.
Demand in the near term.
So that's that's the way we you know that's the way we're <unk>, we're tending to manage through if we we started the you're really high January and February we hit days. They were you know 1.6 to 1.8 B.C.F. a day gross between Tomorrow <unk>. So that tells you what sort of you know when the market's full on cold days high demand.
You know we were able to deliver those kinds of numbers. We saw the the impacts show up in March March was lowered that goes into the average for the quarter and we're seeing about the same levels in April is mark.
So I what I hope what we hope is you know the the.
The government is announced that you know they want to open up fairly aggressively a lot of the offices are now up to 50 per cent staff schools are opening summer's coming on so is it trends back to sort of normalcy, we hope to get back on normal trends. This summer, but again as as Brent highlighted earlier second quarter was always going to be.
Lois quarter, just from a seasonal standpoint, so that's that's been what's kinda encouraging is even with all the cove at peace, it's not that.
<unk> change you know like I said, maybe 10% to 15% we've seen in April and that should get better as we go through the year yeah. It just to remind everybody that this is almost almost pure natural gas. It almost all goes for power demand. Yeah. So we don't have the same challenges when you're when you're making motor fuels.
This is this is electric demand in the in the grid for both you know Israel and in the region you know Jordan in Egypt.
Okay perfect in and like you guys said in in the prepared remarks, you guys have one of the you know one of the best Bank lines in the industry really really covenant light et cetera.
Why why pulled down on it at all given given the kind of strength of your your position there.
Well we were concerned.
Of the what would happen in the banking system around the world.
So we was the abundance of caution no concerned about the availability of the facility, there's no read determination or anything like that so.
It is everything returns to normal probably pay some of that cash.
Perfect, but that's sort of figure thank you.
Hi next question today.
R.B.C. capital markets. Please go ahead.
They say good morning.
Good you.
Good good you talk a little more on the blames that year curtailing and differing in and just give a sense of our they true shut ins or are you choking the wells and obviously the decision to bring those wells back is different than the conversation you had a couple of questions go on when it takes to newt drill a new well.
Can you talk about when those well do you think are going to start look more economic.
Yeah, I would I would care to ours ours is primarily shout ends, especially the lower rate older wells because part of what you're trying to do theirs is take out all the variable costs and if you can you know variable life some of the fixed cost and take that out as well. So you don't want to you on it you know you know just cracked pinches wells back.
The other the second Traunches you know the higher deliverability higher rate Wells you know primarily you know this year, maybe late last year wells.
And those would be probably full shut ins as well for.
You know geography is within the field you know parts of the feels so we can idol.
All of the infrastructure to go along with it.
Those are obviously the easiest to come back on Scott and it wouldn't be much above you know, where we are today pricewise for those to be well above their variable cost. It's really a question that looking at you no longer term P.V. no value creation of delay differing that production.
Yeah <unk> the vertical wells is there a chance that those you know may not come on line for quite some time, considering they probably have the highest.
No fixed costs.
Yeah. The the the we should be able to restart there's all there's always gonna be some probably that are that are difficult that or you know hard to get him he'd get him kickback off again, but we should be able to restart you know most of the wells over time, the higher rate you know productive wells you know we've got good experience with.
With either because refracking, and we're all sitting and chatting and wells or because if we have upsets or plant anything that we cause them to shut in and we know those come back pretty well you know the highest rate hikes deliverability wells can almost think of them is storage, where we're just storing it in the ground and then and then they'll they'll respond pretty quickly when we turn them back on.
Okay. That's great and then I'm curious about the decision differ Columbia activity and and maybe it was mistaken, but I thought the capital outlay for this year was fairly small for that and obviously the opportunity can be you know some white impactful overtime.
I think the the capital was around 50 million this year and both from the standpoint of Ah.
Preserving that opportunity for next year or beyond but also just all the uncertainty that was tied in with you know when our country's going to be able to resume companies activity and so forth and just didn't make sense to push that this year, but put it back in a more stable environment.
Yep.
Later on top of that as there was a bit of a <unk> overlay of that because you know being able to to go in and start up a new operation and country, a and b. certain that we can supply the rig and with equipment and everything it just I think it makes it just more prudent to differ this until we get some better certainly in the world.
Understood. Thank you for that.
Hi next question, while compromise <unk> I can energy it by third.
Oh.
Thanks, Good morning, appreciate the time and everyone staying healthy.
Excuse me I was I was wondering if we could the the maintenance capital figure that you put out there maybe talk a little bit more about kind of what underlies the the the assumptions within that.
As it relates to.
You know maybe rig counter would treat and you'd be active in in any further.
Cost reductions that are embedded within that or is that kind of running with the latest costs are [laughter] you know what what do you think and I will cost within within those within that number.
He didn't assume any new you know lower cost savings we anchored in what we you know current cost and <unk> you want actually we delivered.
And I think that the only thing it makes it a little unique like I said earlier was that you know that we do have we will have a few more ducks that we'll either complete late this year early next and that would that would accrue that would that would appear as higher efficiency better efficiency and the 2021 program.
And then we are anchoring it just to be clear on the fourth quarter average volumes and so it's zero or volume number then we then we would've had an a four year number previously.
Year over year, I think as far as how we would distributed between the programs you could assume a lot like what we had planned on this year you know.
Not really hasn't changed the.
<unk> you know between department D.J. or.
You know that the rank order still about the same so so I think about the same kind of activity levels is this year's plan.
Like the original plan this year for him or the the current okay. Yeah. We've had more like we had about we had about twice as many wells in D.J.'s, we didn't Permian. So about 100 and about 50 round numbers, so that kind of ratios fine to assume for 21. The other the other thing it's maybe more important and all this though it's remember international.
You know we've got some capital included in there, but there's very little true maintenance capital to maintain production or cash flow required at all we've we've included some in that range.
But you know you know, we we could potentially significant growth in both EG because of the L.N. project coming on next year with all the spend this year.
With no additional capital next year, and then because we've got so much excess capacity already built.
That could be readily turned into the market as which demand grows with no additional capital in Israel.
That you got to put both of those two together to fully understand that.
The advantage and it creates for us.
Yeah, you just.
Just pre answered I guess, what am I follow up was going to be which was you know how to think about kind of <unk> Hmm capital requirements on the international business in 21, and if if the thought process is basically keep us at maintenance you know given the current strip keep keep us at maintenance and then let those potential growth will just come forward I mean, it is that <unk> capital requirement in.
50 to 75 million dollar level is that like my thinking about that right for for 21 for the international reasonable assumption. If you average it over the next two or three years for international maintenance.
Think about it this way.
If you look at I.
I mean, the eastern Mad is truly a unique asset.
I'm. So thankful, we've got the Leviathan project behind US last year and came on beginning of this year actually last day of last year, because think about what that sets up for Ya.
Got capacity to grow into the 2.3 B.C.F. a day that's established right now.
And that's what creates the unique asked that you can grow into that that essentially no capital.
Over the next couple of years, and then you combine that with a land there will be on by early next year and his Brent mentioned will continue to grow as its capacity increases from the need for additional gas in the in the onshore Ellen G. facility. Those are two unique position to have as you go into next year.
If I could just tax one more on in the context of V.G. <unk>, how much incremental gas comes from the L. and G. plan.
Not to you guys in in 21, 20 make sure I'm thinking about that right.
About it's about the Mike This Brad Weird.
Start up 95 100 million equivalent today that includes a couple a thousand I think barrels of condensates and so we expect to start up net to US Hundredish million 300 million on a gross basis and as a the guy said earlier that should be able to grow for a couple of years.
From there.
Okay. That's helpful. I appreciated guys. Thanks very much.
Hi, next class 10 ball come from.
Morgan Stanley. Please go ahead.
Good morning, they should taking my question so I wanted to.
<unk>, what's already come up but really the free cash flow potential a business and then we think about some of the the movie P.C. is going to 2021, you have to step up in eastern Mediterranean volumes that Egypt contract. You mentioned you have to step up in EG and also stepped down in cap acts there.
And you also have somebody ongoing deficiencies in cost gave me that you've talked about that that'll flowed through on all term basis. So.
I wanted to ask is with the onshore maintenance cap actually just close to 600 for 700 million, what's going to the the break even oil price you need to be free cash flow neutral.
What you'd like to be free cash flow positive and how that's trendy overtime.
I I think that trend over time, it's been very positive. When you just think about all the things. You described is probably five to 10 bucks lower than maybe what it would have been previously so.
You're looking in on just a specific.
Freight cash flow number you're probably in the 40 or less potential.
Type range.
And you're still going to make your capital decisions based on the right returns for those projects and Brent talked about that what you're looking for on a program in the U.S. is.
You know a program that what the outlook of prices that support you know generating at least 30 per cent type return at the well head.
Cover the cost though.
All things trending in the right direction with the reset of of costs, both on the capital efficiency side and and the underlying daily Runrate of costs that we're seeing being reset here.
[noise] makes a lot of <unk>. My follow question is just a bit more detail on the L. and off day contracts you know I didn't get mentions in in the slide that that linked to global benchmarks with that oily pricing gas benchmark, such we think about what's baked into the castle up lip you disclosed.
The sensitivities could be over time to that.
Yeah, those those contracts aren't public, but what we've been signalling is that their gas index to European gas prices.
So if you start their backup transport no really competitive liquefaction you still get to.
Good netbacks in the field it pays out in a couple of years pays out the project and a couple of years.
So hopefully that's enough clarity to kind of give me a sense of huh.
Wrong the project is.
It does the castle uplift Bacon something close to the the strip for European gas prices 2021.
Yeah, I mean, you pick your price that's how we think about it to start with European landed LNG.
Okay. Thank you very much.
Hi next question today will come from 10 name Laugh Park High. Please go ahead.
Hi, Good morning, everyone you mean.
My first question I'm, just gonna be following up on a few of the other question on regarding by calling Devon questions about me cut back we've done pretty impressed by industry common k. on how much. He declined are expected to improve in 21, given that big Catholic cuts next year. So.
I'm, an estimate of how much improvement your based crying in the U.S. like have the every year and what's in bad <unk>, Okay, and I know you mentioned this 10% to 12% deprives. The court Erin teach you are in the second half the air, but just wondering what that might improve q. and next year.
I think the thing you can look back is how prior years you know as we we we layer in a new years worth of capital and uplift.
On top of the existing base, we don't change the base that fast.
Right. So it's going to be you know if you percentage better.
We go from 19 or 20 to 21, if we have less new wells coming on this year than we otherwise would have had.
Okay, Great. That's helpful. And then maybe following up on well. This question on the eastern Bad and I'm not sure how much detail you can discuss but can you maybe talk a little bit more about the contact signs and how this <unk> <unk> well prices I guess in particular, we're wondering if she can provide some.
Color.
Peanuts contract that if we understand dialect comments correctly, and we might not [laughter] I think that contact allows the buyer to reduce lines on prat falls below.
Average for a single year, but I know, there's a lot of movie pizza.
Yeah, Let me, let me start that in that or maybe hand, it to keep the so just the reminder, that you know that's the project that.
Installing the compression on now.
So we're on the ground working collaboratively you know to be able to to be able to get that compression out because that is what allows us to step up the contract volumes from from 250 to 450 and mid year in so we're we're we're working with the buyers on the other side on without finished so they they're they're asking is to be ready.
To deliver that gas in the contract so the sort of the actions on the ground or they were still moving forward you know with you know with a step up in the second half of the here.
I don't know any other color on the on this.
<unk>.
Yeah, I mean, Janine to your to your question. There certainly are there are clauses as in the contract but.
Sustained you rent price you blow $50.
I have some rights too.
Temporarily reduced to take her pay but I think the key point is what brings describing his were engaged with with customers down in Egypt, they're asking us reassurances at the compression is going to be online on July 1st they're not asking us about reduction in takes.
Okay, Great. That's very helpful. Thank you very much.
Oh My next question will come probably online.
Keybank. Please go ahead.
Yeah, I just wanted to to follow up a little bit there on Israel. Certainly appreciate the color you guys have given I guess, there's been a you know some some various you know agencies out during the press that it kind of been putting on a you know issues that you might be having their.
Rarely competition, a doherty I guess with some of your minority partners. There. It's more what can you sort of tell US you know about that D.C. This is a major issue that can kinda impacts volumes of price for noble in Israel on board.
I think that the good piece there.
That you're talking about is what what's been under discussion is incremental volumes new volume portion and what the authority has said it is for the the partners to work it out and send it back to the partners to work out any differences and I think that's that's what's ongoing right now so I I find that all.
Encouraging for process forward and I don't see it having an impact this year.
So I I think it's just part of the process of.
You know new production coming online.
And I'd growing market to overtime.
Okay. That's helpful for short and just wanted to follow up on one of yours earlier comments wanting to make sure I sort of put this right I think you guys talked about.
You know sort of 40 dollar W.T.I. price, giving you a you know really nice rate of return in the D.J.. So just wanted to kind of get a sense, the the $75 million to $100 million potential extra capital in in the fourth quarter from cracking knows D.J. well do you need to see 40 or is it below.
That just given that you've already spent the drilling capital on those walls no I think we need to look at it you know full full cycle for the well and it you know we need to have you know our belief that we're going to be in you know you know forward you know forward world. It's in the 40 dollar range.
So I think that's the way you didn't think about it is.
Done we don't necessarily have to have it in the strip and be able to hedge it but we got to have a belief that were coming out of the recovery here.
That's the way I would think about it.
So.
Think it since you've asked you. They I think it's important just to remind her by that that's that's that option you know will exist up until the beginning of the fourth quarter, if we spend that capital or not so I think it's you know we wanted to pointed out to you because that's how we're thinking about the business and create that but if we don't spend it the U.S. on sure will be some $500 million this year.
Okay. That's very helpful color. Thank you.
Our next question will come from Gal nickel kind of Stephen Please go ahead.
I'm. Good morning, you got to keep really green efficiency of the last corporate quarters me laugh, which could be celebration of activity. What steps are you are can you take to make sure you preserve their necessities on a Gulf war when I can be read them.
Hey, that's a great question, yes. Thank you so part of what we've done as we've as we've as a rat slowed the activity down. The teams that are working on that are doing everything we can to archive all of the.
Best practices, and and and processes that we've improved over the last you know two years or so to make sure that we've got you know every step of every part of the operation clearly documented on how we've been able to deliver it from that includes all the relationship with our service providers and that.
Means everything we do internally and and how we plan and execute so we've done it before if you remember we had it a little slow down in and the fourth quarter at the end of of 19, and we wrap that activity back up in the first quarter. This year and look at the results of the first quarter. This year how good. They are so we got a restart plan.
We're working on right now.
Great and then apart $225 million <unk> talking about this year.
That retirement.
<unk> <unk> <unk>, that's been completely remove pen system alright.
<unk> A.R.
Right.
We've had efficiency gains in those just like we have in other parts of our operation. So we're able to it's primarily up into D.J., but we're able to abandon the wells at a lower cost per well, but we're also doing less of them. This year, because we've reduced to drilling activity. So we have less plugging in in in and around the drilling program.
That we do in advance of of drilling them. So it's a combination.
Allison, ladies and yeah I'm here in thank you Uh-huh, ladies and gentlemen, this will conclude the question and answer fashion and all now turned back to Brad Westmark's per closing remarks short thanks again everybody.
Wanting us Ah Kim and I are available to connect for any follow ups don't hesitate to reach out.
We look forward to talking to with many of our shoulders and analysts virtually in the upcoming weeks and a one I wish all the mothers out there are happy mother's day. So I hope everyone has a nice weekend.
[noise] accomplices now concluded we thank you for attending today's presentation <unk>.