Q2 2020 Talos Energy Inc Earnings Call

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Energy second quarter 2020, <unk> earnings call.

All participants will be in listen only mode.

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Today's presentation will be opportunity that's question.

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Please note that this event is being recorded.

No I'd like to turn the conference Mr., Sergio My warm Vice President Finance and Investor Relations.

Sure.

Please go ahead.

Thank you operator, good morning, everyone and welcome to our second quarter 2020 earnings Conference call.

Joining me today to discuss our results or Tim Duncan, President and Chief Executive Officer, and Shane Young Executive Vice President and Chief Financial Officer.

Before we get started I'd like to take this opportunity to remind you that our remarks today will include forward looking statements.

Actual results may differ materially from those contemplated by these forward looking statements factors that could cause these results to differ materially are set forth in yesterday's press release and on our form 10-Q for the quarter ending June Thirtyth 2020 filed with the FCC yesterday.

Any forward looking statements that we May go to school are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

During the school, we May present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures. What's included in yesterday's earnings press release, which was filed with the FCC and which is also available on our website at Talbot energy Dotcom.

Now I'd like to try to call over time.

Thank you Sergio and good morning to everyone joining us today, the past quarter brought unprecedented challenges in that had significant impact across not only our energy industry, but the global economy as well as a whole as well as our daily lives livelihood. Despite all of this.

I'm proud of how weve rapidly adapted to make the best of the quarter and this ourselves up for even greater success moving forward.

Dramatically reduce cost across the board, we lowered our net debt executed a tactical bolt on transaction and added depth to our exploration inventory, all which leaves the company in a better position today 90 days ago, despite the difficult macroeconomic backdrop.

We have a number of key developments into second half of the year, starting with the closing of the discussed bolt on transaction yesterday.

Well its completing our 2020 development drilling campaign, which we expect in the next too much we remain excited about our business any opportunities the weight moving forward.

Oh address the key highlights of the quarter, we recorded an average daily production rate of 52.4 thousand barrels equivalent a day, which includes the reduction of approximately 14.4 thousand barrels equivalent a day for various material production deferrals and the shuttering of an additional 600 barrels equivalent a day legacy shallow water production.

<unk> as that production returns when we bring new wells online in the second half of 2020, we expect to exit the year with approximately 71 to 73000 barrels equivalent a day.

During the quarter, we continued to adapt to the rapidly changing environment with aggressive indecisive cost cutting measures and expect approximately 200 million up cost reductions.

Our initial 2020 gods on a year over year basis as compared to our pro forma 2019 cost, we expect approximately 20 million or 25% sustain DNA cost reductions that approximately 49 or 12% and sustained Halloween production.

Finally during the quarter, we lowered our total debt net debt balances closing the quarter with an attractive leverage metric of 1.4 times net debt to the last 12 months EBITDA and over 400 native available liquidity.

Earlier in a week, we closed our previously announced acquisition of additional working interest in certain shallow water producing assets. It was an opportunistic acquisition died at approximately PV 20 of PDP based on our valuation it was value accretive for our shareholders and the economics. It continued to improve as the commodity prices have rebound.

In addition to provide us with operational control over most of those fields moving forward on the portfolio side, we were awarded over 23000 acres and a bidding partnership with BP.

The acreage cover several high impact deepwater sub salt Miocene prospects at at least cost of under $160, an acre taltz, 1% to 25% working interest on those leases.

Late in the second quarter, we brought on lot of production from our Claiborne's number three well and made several advancements on key projects, including tornado for Kaleidoscope bullet all of which we expect to achieved first oil oh by the end of third quarter.

Each of these projects remain highly economic in the current price environment and will provide fresh production rate and cash flow in the fourth quarter and moving into 2021.

We've also taken positive steps forward in both of our high impact discoveries and offshore Mexico, the Mexican governments instructions to unitize on Arzama discovery on block seven what the adjacent Pemex block.

We have a from timeline for Unitization discussions and expect resolution by January 2021, when the hundred and 20 business days period required by Unitization instruction in.

We certainly hope to reach an agreement sooner and we continue to maintain a constructive dialogue with Pemex in order to hit that target.

Separately on block 31, we received the results of Nederland schools independent evaluation, especially Chamonix discovery.

Which provide the gross resource best estimate of over 100 million barrels of oil equivalent and provides third party validation of our second major discovery in the country. As a reminder, this discovery is estimated to be over 95%. Good quality oil is located in 60 feet above water in less than two miles from shore all of which contributed.

A highly competitive economics for the project.

Lastly, at mid year and pro forma to the close transaction Telesat proved reserves of approximately 189 million barrels of oil equivalent representing a PV 10 up over $2.8 billion FCC prices PDP reserves alone rubber 93 million barrels and 1.8 billion of de Vito.

As you see probably oil prices at mid year were just over $47 a barrel WT I've flat held in perpetuity and these figures are inclusive of the plugging and abandonment costs associated with these properties.

It is also important to highlight that neither of our offshore Mexico discoveries are included in these reserve numbers.

These figures compare to our current enterprise value of approximately one one and a half billion.

Based on Tuesday's close that a new share count of 73 million shares outstanding.

I will turn call over to change to discuss the quarterly results I will then discuss how we're focusing tell us on the second half of the year in into 2021.

Thank you gentlemen, good morning, everybody I'd like to start by discussing in greater detail. The result, so the second quarter.

Production for the quarter of 52.4 thousand barrels equivalent per day of which approximately 76% was liquids.

The quarters production included the impact the multiple categories of shut in production.

The vast majority of which was voluntary differing volumes to a higher price environment well in some cases also taking advantage of the opportunity to pull forward scheduled maintenance for the second half of the year.

In addition.

Lets goes to permanently shut or 600 Boe per day of high operating cost shallow water production as a result in lower margins and economic conditions.

Revenue was $174.9 million inclusive of the impact of realized hedge gains.

Realized pricing for the quarter averaged $22.71 per barrel and $1.59 cents per and then B T U excluding hedges.

Oil realizations were negatively impacted by not only the historically low index pricing, but also by the negative impact of differentials in the quarter as the Gulf coast crude market rebalanced.

Well WCS WTI prices have recovered to the Fortys importantly, differentials have continued to improve the levels more in line with historical levels.

The company generated adjusted EBITDA for the quarter of 97, and a half million dollars equating to margins of $20.41 per barrel equivalent or approximately 56%.

Capital expenditures for the second quarter totaled $129.1 million inclusive of plugging and abandonment spending.

Activity levels for the quarter were high as expected as the company advanced numerous projects simultaneously.

And we expect to conclude the majority of this activity and achieved first oil later in the third quarter.

For the first half a 2020 telos was roughly free cash flow neutral and still expects to generate positive free cash flow for the full year.

Prior to the economic in commodity downturns tell us maintain an attractive credit profile in the absolute and relative to the industry.

We have maintained this focus throughout the recent volatile months.

And our credit position remains very strong.

We ended the quarter with a pro forma leverage metrics of 1.4 times net debt LTM EBITDA and currently have over $400 million of liquidity.

Well the spring Bank Redetermination season was tough for the industry. Our borrowing base continues to strengthen as our assets are developed and commodity prices recover from their April lows.

As we navigated the worst of the commodity crisis, we're mindful to protect the business, our strong balance sheet and our shareholders centrus to that end, we aggressively cut costs throughout the business, we executed critical capital projects, and we took steps to opportunistically reduced leverage and enhance our credit profile.

During the second quarter, we were able to eliminate approximately $40 million of total debt primarily from the elimination of $37 million of the outstanding principal about 11% see secondly nodes the an exchange transaction.

Well this type of one off transaction is not something we were proactively seeking out we will continue to evaluate creative ideas as they are brought to us.

In this case, we concluded that the exchanges in the best interest of our shareholders.

Helped address the future maturity and provided significant cash interest savings that can be reinvested in the business going forward.

The manager 2022 maturity, our priority is maintaining a strong financeable credit profile and being prepared when the capital markets become available again.

Well opportunistically evaluating shareholder friendly ideas to make incremental progress while the markets improve.

As we look forward to the second half of the year, we believe tell us remains well positioned financially.

We shut in volumes a bit higher than originally anticipated and additional unplanned downtime at rampell ongoing as we make facility repairs. We now expect the average production to be at the low end of the guidance for the full year 2020.

At the same time, we expect production for the year to exit strong with the addition of new deepwater wells in the third quarter, which will also help bolster our collateral value as we head into the fall.

On the cost cost front, our teams have responded by significantly reducing costs.

Cross operating expenses, DNA and capital expense categories.

As we expect to be on the low into guidance on Opex and DNA as well as within the range on Capex. Despite increased opex associated with the recent acquisition and increased coded and shut in related costs.

All of this includes the contribution of cast Ekso five acquisition on the full year outlook.

Our hedging position for the remainder of 2020, a solid with a weighted average price of $45 per barrel and $2.26 per annum be to you.

We will continue to Opportunistically add hedges as we move forward. Additionally in line with past practices and as prices have stabilized we resumed hedging volumes in 2021 and beyond in particular, we had a significant portion of the expected gas volumes from the additional working interest acquired in the cast tech so.

Five acquisition through 2022 at attractive prices substantially supporting our investment case economics for that transaction.

I'm proud of our teams for their rapid response on the cost front as well as their creativity and using the downturn to improve our relative position.

Either by pulling forward future maintenance downtime driving down costs wherever possible managing relationships in contracts on the operational front, all while continuing their focus on safety and HSC performance throughout the period.

I Echo Tim sentiment that the company successfully endured the mouse from and is well positioned strong and remains excited for the second half a year and beyond.

With that I'd like to turn the call back over to Tim.

Thanks, Jay would they historically challenging quarter behind us tell some benefit from the cost cutting initiatives the strong credit position in the well advanced near first of all projects. We're highly focused on optimizing our performance for the remainder of 2020 and looking towards 2021.

On the investment side, we expect our third quarter capital deployment to be similar to the second quarter as we wrap up all the drilling and completion activities for the year. However, once we complete our current rig activity our capital spending should decrease significantly.

First oil from key 2020 wells will underpin higher production rates in the fourth quarter and beyond.

We expect the baseline 2020 exit rate of approximately 71 to 73000 barrels equivalent per day, and as Shane mentioned expect to be free cash flow positive for the year.

We will continue to monitor the commodity price environment will adapt next year's plans accordingly on the capital planning front from for the time being we have no capital commitments for next year and have layered good hedges, providing us with full optionality to design, our best 2021 capital program, depending on the market conditions as we move towards next year.

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We also could continue to evaluate M&A and business development opportunities. This continues to be an area, which we believe can drive significant value creation for our shareholders. We firmly believe that the Gulf of Mexico and other offshore basins around the world are under invested despite being proven hydrocarbon province is with attractive investment economics.

Houses core competencies of deep technical subsurface expertise and offshore operations, coupled with our experience managing assets through the various stages of the lifecycle from greenfield exploration to mature assets.

Positions the company well to execute solid accretive transactions the drive shareholder value creation realization of synergies portfolio diversification and ultimately greater scale.

With the company well positioned to execute strategically and operationally we must also take a step back and remind ourselves what our business is and what did aspires to be.

We were at the forefront of energy exploration and production in offshore basins. Some of the harsh is that most operationally challenging conditions on the planet were dedicated to maximizing resources to provide safe reliable plentiful and affordable energy to support the global economy, and our daily ways of life.

According to bps Energy Statistical review from last year, our energy mix as a nation was more diverse than ever with natural gas and renewables being a bigger part of the energy mix and see a tissue cotwo emissions down over 3% a higher rate of reduction than our 10 year average and within that mix oil is still the biggest energy product and as a country.

We are more energy secure than we've ever been.

The Gulf of Mexico, as a federal resource is the second largest oil producing basins in the country and it plays an important role in our energy security. Additionally, the operators in the basin invest approximately $30 billion every year and our economy and support over 340000 high paying jobs across our entire supply.

Great.

And deepwater subsea production benefits from the least amount of admissions of any natural resource energy production. It missed the least amount of Seo two per dollar.

Net present value created which in summary means that this is where you want to invest in produce oil.

As a growing it more visible operator in the basin, we take very seriously our responsibility as being environmental stewards and we're proud that our products play a critical role that modern society.

We are increasingly seeing political rhetoric around the important role our industry. It more specifically our basin plays in our society.

Recent headlines have raised a number of concerns related to our ability to run our business effectively depending on the results of the upcoming election. It is our belief that being pragmatic on how to embrace the basin and its role and job creation revenue generation for the federal government and our role at producing low emission barrels will ultimately prevail politically.

But on the concept the federal leasing tell us maintains a robust 1.4 million acres of which approximately half is held by production and the other half his primary term our exploration acreage with minimum near term expirations are deep inventory of both short cycle subsea tie backs in high impact exploration projects provide several years.

As of drilling activity on our existing acreage as a result tell us we'll continue to have robust supply of drilling and development opportunities into coming years to whether any political change and policy.

In conclusion I'm excited about the second half of the year end 2021, the significant structural cost reductions tops expects to achieve coupled with the new wells, we anticipate bringing online over the next couple of months will allow us to capitalize on the potential rebound in the market. Our current reserves demonstrated strong value of our portfolio and.

Central in the stock, even excluding our world class portfolio in Mexico.

We continue to evaluate opportunities to create shareholder value through our M&A efforts, but we also believe in our organic inventory and the opportunities that we have to provide significant economic growth for the company for years to come.

With that operator, we'll open up the line for queuing it.

Well I'll begin the question answer session.

Yes. Good question Press Star then one on your Touchtone phone.

If we use in the speakerphone, please pick up your handset before pressing the keys.

Draw. Your question. Please press Star then too.

This time, we'll pause momentarily go somewhere the roster.

First question comes from Jeff Grampp Northland Capital markets. Please go ahead.

I'll start first the block 31 with fits with this.

Assessment that you guys had the 100 million barrel number can you guys can you give us some context for maybe how that compare I think you guys ever put anything out formally in the past, but kind of internal expectations, how that compared and then just generally next steps that you see for that asset.

I'd and ultimately first oil there.

Yes, sure Jeff how are you doing by the way.

Yes. Thank you.

You bet. So look so just to go back in to remind ourselves kind of what that trade was so obviously a lot of tensions on musser and we can answer some questions about that it's a great project, but we also had a block coming out of that very first lease round call block two and like what we did and some are we reprocessed a lot of seismic data and that size.

Data covered a block to the south call block 31, which was picked up in a subsequent sale.

So as we were looking at bringing in a partner for block to we talk to the folks at Penn America. There. The operator there. There are also a visible operator and offshore Mexico. They have another development called the Husky development, which was the second private sector development that produced oil.

Since the reforms. So we were familiar with those guys. We let them know that look our reprocessing efforts sees a lot of potential on block 31 day, obviously saw some of that potential as well. So we work to trade and I'm not trying to go too far backwards, but how do we end up on block 31. So we ended up we working a trade where they would participate in a couple projects on block two.

And we would participate in this project is a non operator and block 31 on block two we found hydrocarbons in a couple of wells there.

But not enough to be commercial and then on block 31, we were surprised when we drilled our first well the second wells really what trip to the tipped over and I think we talked about it on previous calls where the second well was down Deb much quicker than we thought and really extended the size of this thing now this is shallow oil and I've talked.

About in the past, how when you're developing this basin and apply as seen in Miocene section, which is the geological section that produces in the U.S. Gulf of Mexico that we really believe is under explored and underexploited here in offshore Mexico. This isn't that geological section shallow oil similar to this stuff we would five years ago as we were developed.

The U.S. Gulf of Mexico, but but it seems to be all over the lease all over the contract area not only where we've discovered it but in other areas as well. So no. One is still did as they came in and said Hey look let's try to give a best estimate of not just what you found but what his perspective on this block based on the three wells.

You have to date.

So you have a contingent resource center perspective resource and their best estimate of all those resources is about 100 million barrels and again. This is very shallow around 3000 feet. This in 16 sub sea depth since 60 feet a water. It's a couple of miles from shore. So it's a it's again similar to some of the things we would do years.

Go as we were developing this geological section and the U.S. Gulf of Mexico in total now we've drilled I think eight wells.

In offshore Mexico, and we've had six come in two discoveries insight into others that were commercial.

But were try hole, so I can't say enough about the team's effort down there now what's next.

I think they put in some plans to the CNH there'd probably be some additional appraisal more in the late 21 early 22.

And then ultimately decision on the right way to get this to market, but no more than anything else I think it's a milestone on continuing to make progress on on the value that we're trying to create a yeah in offshore Mexico.

Great appreciate that and Thats perfect.

A follow up.

Can you guys clarified the exit rate number that you provided should we think about that as a true exit rates or is that more of a for Q average type of number and then just as we think about 2021, maybe if you can touch on how you view that the sustainability of that progressing into next year.

Yes so.

I think it's somewhat depends on how things kind of come online come back we talked about I think in the on the call that there's a repair we're going to doing ran Powell and you know I think our hope is to see that production in September could that drift a little bit you know, there's there's a couple ebbs and flows there certainly we think it's a clean run rate in December eight it could be potentially you know a rough.

Collected in the totality of the Q, but at a minimum it's a clean run rate in December.

Now as we get into what what happens next year I think look when you exit with that kind of rate you've got options in front of view and I think what we mentioned earlier, we don't have rig contracts yet we're thinking about how we want to manage next year right. Now we've got total flexibility we've got some base hedges in place. We've got some open open book later in the year as we've.

You see where the market recovers. So I think we're in a really kind of a really nice spot to decide how do we want to manage this portfolio that we're really trying to make sure people can dig into and understand that it is that is varied between lower risk stuff, which is what we did this year and that a nice handful of exploration ideas and so no. This is the time of year as we think about.

How we're going to exit the fourth quarters, we think about where the rig market is as we think about our portfolio that we can start setting plan. So I think we're I think we're in a great spot in the year no doubt about it.

Great looking forward to exit.

You got but.

Thank you for next question Leo Mariani Keybanc. Please go ahead.

Hey, guys wanted to fall a little bit more on Mexico.

I guess, the president down there and low is kind of recently made some statements about maybe kind of.

Shutting down.

You know sort of new private sector activity in Mexico, and no future kind of lease sales that might be open to anyone other than than Pemex.

Just wanted to kind of get a sense. It yet had any kind of thoughts whether or not there was anything else kind of going on there.

In terms of existing projects as well as.

Just existing leases down there is there kind of that big nationalistic.

Push that he's recently.

Putting in place here and kind of how could that potentially that examined going forward.

Yeah, Hey live does it look those are all good questions and.

There's always a lot of rhetoric around you know, what's what's the roll the private sector down there with this new administration, what's the role Pemex, when we get and by the way that's not new I mean coming right out of the campaign. There was a discussion on reviewing all the contracts and there was some nervousness about that I think you've followed through on saying you know look we're not going to we're going to honor all of the car.

Contracts, we have which by the way or over 100 private sector contracts a in the basin I think even in his most recent comments he's caveated those comments by saying, we're going to honor you know again the over 100 contracts that we've entered into so I've always found comfort in that that could that statement has been consistent I think he's navigated with how can we help pemex.

You know it going forward in terms of farm outs, giving them the opportunity to have more leases.

And then he suspended sales almost immediately in his new administration. So I really no Leo I don't know a lot as change, but look here's what I would tell you about the private sector and offshore Mexico, which I think is interesting and I think needs to be part of the conversation. So were to trade group called the Mexia Theres 40 to 50 members all of us that have a contractor in.

Maxi, we spend we have spent to date as a collective group I mean, the enterprise sector $14 billion investing in offshore Mexico, and if you look at the projects that are lined up there's another 45 million billion dollars out there so call that close to $60 billion. Pemex is budget. This year I think is around $15 billion.

Any MP so it's impossible to not think about the contribution of the private sector at a minimum their doubling up and you know what Pemex can go out there and do and we want Pemex to do very well, we want them to be successful, but know that the private sector is also doubling down on investment in offshore Mexico and again, there has been plenty of discoveries in ours included so.

Hey, look politics or politics center is always a little bit of a discussion on the roll the private sector in offshore Mexico, but the data is pretty compelling.

In terms of what the private sector is contributing to down there. It takes a while to see that oil with respect to zama amount I think our big aren't big push in our Big statement is you know, we think we're well prepared to get that production online in this president administration, and we just keep pounding impounding that message, while we continue to negotiate with Pemex.

And so you know as you can imagine Leo I mean, it all the time it's.

It's an amazing discovery, we're lucky to have it in our portfolio. We've never had any risk that the contract. The rights we have under the contract had been diminished we know we're going to pull value to shareholders and certainly that values not reflected in the price today and we're going to pull that value forward. What form that takes is really what we need to crystallize in the coming.

Yes.

Okay. Thanks, I just wanted to follow up a little bit on some of the comments you guys made on sort of the balance sheet wanting to see if there's any updated thoughts on tackling the 2021 remaining maturities in terms of what you might be looking at for strategy there.

Yeah, Let me let me start late autumn ahead over to shape. It look I think what we did in the second quarter by the way was pretty opportunistic and I think it was the right move.

And in allowed us to.

To understand who the note holders were a bit changed hyper focused on it and I'll, let him kind of give you some thoughts.

Yeah, no lead thanks, a bunch for the question look on the 2020 twos.

Yes. It is something that we think a lot about where we're very very highly focused on it I think you know the approach was were taken is.

You know sort of option a if you will is a refinancing the capital markets on a regular way transaction, how do we get there we control the things we can control would just add the most financeable credit possible when that market's available to us. So certainly you know off the top we're trying to do all the things that we need to do to be there now the things we don't.

Patrols sort of the access.

Timing of that that access and so I think we've got to be a little bit more creative so you've seen us do a couple of things over the course of the last quarter to sort of help manage that maturity a little bit so first of which was reducing a $40 million of of the principal amount of that.

That's a big step sort of makes that a much more manageable number.

But at the same time I would tell you you know between the team you know we're always thinking about a other creative ideas will always be open to a minute I would say you know, particularly after the bottom of the the commodity.

Back into April May you know, it's clear that.

There's a lot of people with interest in our business profile and so again, we'll evaluate other opportunities over the course, the second half of this year.

And I think you saw the mid your reserves and you can see the coverage ratio on on our honor credit and so we feel good about where we are we just have to be patient and see where the opportunities.

Okay, and certainly appreciate there's a lot of flexibility.

Rig contracts in 2021, but I guess apart from that is there any other visibility on projects beyond what's finishing up here in third quarter or maybe on the on our side like Puma West's not sure whether it's additive that is and then just trying to get a sense is there anything else that you can see on the horizon on the non op side that might.

Coming in in 2021.

Right well look you know you mentioned from West to me that project will come back. It was a it's a great project. There was a temporary suspension and look at the design and then with the full intention of coming back, but I think it raises.

You know I think raises the question about how do we think about allocating capital and how do we think about our portfolio and again I I did mentioned at the assets we own today, if I look back at 2019. These assets had a capital program of around $600 million and by the way these assets collectively pro forma at the price we had last year I think generated.

At $100 million of free cash flow. So we have good set of assets, we reacted to the downturn by really kind of thinking about maintenance in the in the budget. We have today, although with some design work, we're doing in XOMA, which may not be consider maintenance, it's more of a maintenance budget as we go into next year. The question is do we want it to be simply maintenance.

And it or do we want to think about trickling back in some exploration. The good news is we've got to a low risk portfolio that we can do maintenance with the new we've got to high impact portfolio that we can think about as well so permal west as a big one Ah Theres a couple others that work that we're also thinking about I don't know if there's anything huge on the on the non apparel.

Ryzen, you know kind of right off the bat that it's that we're you know kind of considering I think there's I think is our are not partners think about their budgets I suspect we'll have some calls so all that's going to crystallize in the coming months and then of course one of the goals for next year is going to get some at F.I.D.. So and I think we've kind of had a schedule that we were trying to keep in that part.

The bulk shifted with the Unitization discussions et cetera. So now we expect to data busy year next year, how busy we wanted to be is really at our option, which is the I think the place we want to be right now.

Okay. Thanks.

All right you got it.

Thank you and the next question is from Michael Scali of Stifel. Please.

Please go ahead.

Hi, good morning.

Tim just wondering if anything you can share around your conversations with Pemex in particular wanting us.

Since they are seeing H is weighed in on any of those conversations other than that give you a timeline on when they need to be finalized.

Yeah. Thanks for question they haven't weighed in outside what you saw publicly but look I don't want to underscore the importance of of that weighing in if you will you know I think that I think you showed some leadership I think it showed that they wanted to be a part of the process I think it showed transparency I think it was those were all pause.

But if things to say look you know this is this the project with great interest to US we want to make sure that it's recognized.

This is something we need to do and we made a filing to make sure. They knew they knew that we thought that this was a shared reservoir needed to be unitized and so I you know all data to me is not a negative we've we obviously we're in discussions with Pemex. You know those are certainly closed or discussions we feel good about our contribution to the discussions obviously weve.

Ben as a partnership between 250 $300 million, our net share 35% of that Weve appraised. We've got four penetrations, we've done a tremendous amount of work we've been under budget. It on schedule and obviously, we don't see a reason why we can't pull this project the first oil.

But there is different bearing interest in different parties and we've just got to pull them to together and look co vid isn't great. In these situations. These are better done you know face to face, but I think we're all trying to be mindful of of safety here and so things slow down a little but no I think the government's doing the right thing here and it's interesting I mean, you know in earlier.

A question about comments that the president made and we understand that your debt you've got kind of global comments that might be made by any administration about our business into basins. We work in and then there's the day to day effort of trying to create value and solve disputes and I think.

I think we're heading down the track or trying to do that here, but it'll probably take the bulk of the time to do it we'll do our best to try to sneak in under the time.

But just the nature of these negotiations would probably take the bulk of the time.

I appreciate that and then I realize there's still a lot of uncertainty as to.

Your ownership will ultimately be can you give up a ballpark estimate at this point on what the maybe the gross.

Capex might be for the project next year.

Well I don't think you know next year.

We'll get a little closer and do the guidance on that but I don't think it'll be immaterial amount. It's been next year, regardless I think look we've done a ton of engineering work this year and I'm glad we stayed on pace.

But you still got a you know as soon as we get through Unitization and we formalized the partnership that partnership that contract. It's got to get adjudicated and then your submitting a development plan. So did the actual spend where you really start saying look it's time to cut steel we've picked the right construction yard that's really later in the year and so thats been.

Pickup in kind of 2020 to 2023 and you know in terms of what our interest star.

We won't say more than I think what we said publicly but I think thats why we brought in Netherlands tool to ER to really look at this thing and look at all the data and and and then they made that assessment of 60 40 on our side and frankly, if you look at scenario pressed a press release when they instructed us to unitize that map is a pretty similar to them.

Mapped to the one that Netherland Sewell use so we feel good about the science around what the splits ought to look like and then in terms of spending it'll be much later near the point that I continue to drive home. Though is is the value is out there for shareholders. There's no doubt about that and where we're trading today's obviously isn't reflective of that so.

I think sitting as an equity owner you're in a good spot.

Very good at Edwin.

For Shane as well as Shane I know you mentioned in your prepared remarks, but can you give a little bit more detail on the debt exchange completed it wasn't completely clear on from though.

If there were new notes issued there.

Yeah, no. So that was a well what's referred to the three a nine exchange. So it's an exchange of our debt securities for our equity securities to an existing holder that was out there and yes. It is for a little bit of background on that.

I would tell you you know there's this was a holder that had been with us for for a while we knew well good conversations with over the time and they approached us about.

Saying, we would have some interest in this I think they might have played or seen other things like this in the market and so.

Talk to us and again when these discussions originally began we're sort of near the bottom of the market.

Pricewise commodity wise, the et cetera, and really over the course of many weeks I'd say sort of four to six weeks.

Is that stock price began to rise this deal just look better and better from our standpoint over that period, So working with the management team talking the board as well.

We were able to pull together the trade that Ah that eliminated those notes.

Keith how many shares were involved there.

It was about 3 million.

Got it great. Thank you.

All right. Thanks.

Thank you next question comes from you on White of Roth capital.

Please go ahead.

Good morning, gentlemen.

John.

Tim I want to say I appreciated your multifaceted comments on how the Gulf of Mexico fits into the overall energy picture.

That was that was much commentary.

Looking ahead to kaleidoscope and bullet or any color on what the initial production rates might be there.

Well you know it's it.

The reason, we haven't specifically guided that is because each of the seats is doing what are the times kaleidoscope, what we're doing there and I think it's really an interesting project and speaks to part of our strategy is we're taking an old hundred million barrel field. There was developed by Exxon that was part of the transaction. That's a it you know the these specific blocks called Green Canyon 18 and.

We have a facility there that we that we did in a competitive transaction and so we remapped 100 million barrels with with better data and reprocessed data and there were a going in and drilling a development well just going to try to go open up you know I think three to five objectives and so the question is which of those objectives will be fine you know John.

Im going to find one of only going to find all five of them and all those have different rate expectations and so there has been wells in the field that are produced a thousand barrels a day there has been wells in the field that it produced 4000 barrels a day, so theres a nice range of outcomes.

And the good news is you know we get to hook. It up immediately so we're we're in the depth of that project right. Now some delays you know because as you can imagine what the supply chain, but the team has hung in there and they're trying to execute that so that's why sometimes it's tricky on those to do perfect guidance and the same with.

Bullet, even though bullet, which by the way is 10 miles from the kaleidoscope, well, so 10 miles from that Green Canyon platform I talked about you know bullet really ties to a field to the north where there has been rates between 3500 barrels a day and 7000 barrels a day and so we looking at the well we think it could be on the high side of that but theres.

Just a range of outcomes. So you know these some of these types of projects that are a little more mature in terms of kind of the setting and what the wells they tied to versus maybe an exploration project, where you can kind of look at it and kind of say, hey, I can ring fence that big stick deepwater sand and I know it's going.

To produce ex these a little more variable so thats why don't see the guidance, but I think I gave you an idea of what some of those wells look like and then look with respect to the commentary.

No we get asked a lot about our views of of the basin in our views of.

What could be impacted in November and I do think we're gonna have to spend a lot of time talking about just how beneficial. It is that what we do offshore and then I do believe that people will be pragmatic and about how they manage how they manage offshore and so I'm.

Im always hopeful that people see the benefit of what we do when they think about policy and they make sure that you know the engine that is offshore Gulf of Mexico, and the jobs that we support and the production and the revenue stream that we provide stays intact and I'm confident it will.

Well you know how I feel it's a very underappreciated basin in the U.S. energy picture.

Uh huh.

In your opening remarks on the net lunch tool best estimate in block 31, I think I missed it but did you say that's 90% oil.

That is right. It's a it's a kind of a load you are 95%.

Oil project and again, the the best estimate Netherland Sewell, you can use and a lot of different ways. Obviously, we use them to audit all of our proved and probable reserves. You can also use and to look at your contingent and prospective resource once you've made a discovery. It's just something else that you can bring those guys into do.

And we have found that were when we're in basins outside of the Gulf of Mexico, It's prudent to bring those guys in and give US a view of what they of how they see what we've discovered there and that's what that report and that's what that's disclosures about.

Alright, well nice results given the given these bar.

Thanks for taking my questions that you got John.

Again, if you have a question.

Please press Star then one.

Our next question comes from Richard Tullis of capital one. Please go ahead.

Hey, Thanks, Good morning question.

Tim or Shane.

In the earnings release, you mentioned, you know ample business development opportunities.

To become more diversified resilient company, maybe expand on that a bit could that include looking for M&A outside the Gulf of Mexico, and door met or offshore Mexico.

Yeah look Richard and hope to doing well I mean, if you look at the first quarter, you know and I've Skews me the second quarter and I think we read obviously the trough of a pretty serious situation in terms of the commodity backdrop in demand independent make and just a lot going on in that what I would say was a.

Was a difficult quarter for everyone industry to manage we were still able to do a PV 20, PDP bolt on we were still able to add to our inventory by being at a bidding agreement with BP. You. I think is one of the preeminent explores our basin, we announced the results of another discovery. So I think we've made the best we could add to that.

Quarter, It and look that's not too different to how we were doing it on the private side and the last commodity market that ultimately led to a transformative transaction as we got out of that cycle and so you know we're always looking ahead, Richard we've got a team dedicated to all they do is look for business development opportunities while other team.

Seems really pound the assets and look for asset management opportunities.

Could they be outside the U.S. Gulf of Mexico look we think our skill set is is the geology conventional geology and we think conventional geology response, the seismic we believe into technology of seismic and how it affects conventional geology and we're good at offshore operations and can that happened in places outside the U.S. goal I think so.

Obviously, we brought it down to offshore Mexico, which has been.

Highlighted in this call and something we're very very proud of how we executed there we never we're in a different jurisdiction. We've managed to supply chain, we certainly manage the social content you know rules.

I think we've been a good steward and a good operator, there can we do that in other areas, yes, potentially it's got to make sense. Its got to be something we think you know creates long term shareholder value, but I do believe that we need to achieve scale and diversity for the value of what we're good at the really find the right place and we're always looking for ways to do that.

That's helpful. Tim Thank you and and just lastly from me roughly how much second half Twentys storm downtime is reflected in the updated 2020 production guidance.

Well you know so we were down about 25% in the second quarter some of that accelerated maintenance. Some of that you know was not operated I would say maybe half of that is back half of that still still almost coming back Murphy's got a little work to do in Delta House, I think they've talked about it they've done a great job.

They're just a little more to get that all the way back and we've got ramp how are some repairs to do a there. So you know I think that's why we've talked about you know how we think about the production guidance, we'll get all this this stuff back eventually, but you may not see the cleanest run rate to get into the fourth quarter.

Alright, well that's all for me thanks, everyone Hi, Richard Thank you, but.

This concludes our question and answer session now like to turn the conference back over to Mr., Tim Duncan for closing remarks. Please go ahead.

Alright, Thanks, operator look some good questions. There I think we all kind of agree that we've all had challenges 15 16 was the challenges in those of US there were managing companies and overshadow nine you know those are some challenges, particularly or nine certainly this year has been a different type of challenge, but I'm very very proud of how weve.

Been opportunistic into second quarter, how we made the appropriate moves we're committed to keeping our balance sheet is one of the more competitive balance sheets and in our in our space certainly for small mid cap.

We're going to continue to look for opportunities. So we've driven down our cost structure, we want to keep it there we've got full flexibility going into next year.

I'm really excited about where we're going to be in the second half a year, where we end the year and then how we think about rebounding into 2021, so with that I'll end the call when it. Thank you for your participation and we look forward to talking to you next time.

Well for instance is now concluded. Thank you for attending today's presentation you may now disconnect.