Q2 2021 Hess Corp Earnings Call
Thank you for your patience Your conference call will begin momentarily again, thank you for your patience and please continue to standby.
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Good day, ladies and gentlemen, and welcome to the second quarter.
'twenty, 1 Hess Corporation conference call My.
My name is Liz and I will be your operator for today.
At this time, all participants are in listen only mode.
We will conduct a question and answer session.
If at any time you require operator assistance. Please press star followed by zero and we will be happy to assist you.
As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the conference over to Jay Wilson, Vice President of Investor Relations. Please proceed.
Thank you Liz good morning, everyone and thank you for participating in our second quarter earnings Conference call. Our earnings release was issued this morning and appears on our website.
2008, Www Dot Hess dotcom.
Today's conference call contains projections and other forward looking statements within the meaning of the federal Securities laws.
These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or.
Or implied in such statements.
These risks include those set forth in the risk factors section of Hess is annual and quarterly reports filed with the S. E C.
Also on today's conference call, we may discuss certain non-GAAP financial measures.
A reconciliation of the differences between these non-GAAP financial.
Measures.
And the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website.
On the line with me today are John Hess, Chief Executive Officer.
Greg Hill, Chief operating Officer, and John Reilly, Chief Financial Officer.
In case.
Are any audio issues, we will be posting transcripts of each speaker's prepared remarks on www Dot Hess Dot com. Following the presentation I'll now turn the call over to John Hess.
Thank you Jay Good morning, everyone welcome to our second quarter conference call today.
Their review our continued progress in executing our strategy and our long standing commitment to sustainability.
Greg Hill will then discuss our operations and John Riley will cover our financial results.
Our strategy is to grow our resource base have a low cost to supply and sustain.
I will flow growth.
Executing this strategy has positioned our company to deliver industry, leading cash flow growth over the next decade and has made our portfolio increasingly resilient in a low oil price environment.
Our strategy aligns with the world's growing need for affordable reliable.
Will and cleaner energy that is necessary for human prosperity and global economic development.
We recognize that climate chain change is the greatest scientific challenge of the 21st century and support the aim of the Paris agreement and a global ambition to achieve net zero emissions by 2050.
50.
The world faces a dual challenge of needing 20% more energy by 2040, and reaching net zero carbon emissions by 2050.
And the international energy agency's rigorous sustainable development scenario, which assumes that all pledges of the Paris agreement are met oil.
Cash will be 46% of the energy mix in 'twenty 40, compared with approximately 53 per cent today.
And the Iea's newest net zero scenario oil and gas will still be 29% of the energy mix in 2040.
In either scenario oil.
Oil and gas will be needed for decades to come and will require significantly more global investment over the next 10 years on an annual basis than the $300 billion spent last year.
The key for our company is to have a low cost of supply by investing only in high return low cost opportune.
Oil and gas the best rocks for the best returns, we have built a differentiated and focused portfolio that is balanced between short cycle and long cycle assets, Guyana is our growth engine and the Bakken Gulf of Mexico, and South East Asia, Our our cash engines, Guyana is positioned to become a.
If we can cash engine in the coming years as multiple phases of low cost oil developments come online, which we expect will drive our portfolio breakeven Brent oil price below $40 per barrel by the middle of the decade.
Based on the most recent third party estimates our cash flow.
Estimated to grow at a compound annual growth rate of 42% between 2020 and 'twenty 'twenty, 3 which is 75% above our peers and puts us in the top 5 per cent of the S&P 500.
With a line of sight for up to 10 F. P. S owes to develop the discovered resources.
ROE is in Guyana.
This industry, leading cash flow growth rate is expected to continue through the end of the decade investors want durability and growth in cash flow we have both.
We are pleased to announce today that in July we paid down $500 million of our 1.
And in dollar term loan maturing in March 20th twenty-three.
Depending upon market conditions, we plan to repay the remaining $500 million in 2022.
This debt reduction combined with a startup of Liza phase 2 early next year is expected to drive our debt to EBITDAX ratio under.
1 billion next year.
Once this debt is paid off and our portfolio generates increasing free cash flow. We plan to return the majority to our shareholders first through dividend increases and then opportunistic share repurchases.
In addition, we announced this morning that Hess midstream.
We'll buy back $750 million of its class B units from its sponsors Hess Corporation and global infrastructure partners to be completed in the third quarter, we expect to receive approximately $375 million in proceeds and our ownership and Hess midstream on a consolidated basis will.
2 <unk> 45 per cent compared with 46% prior to the transaction.
On April 30th we completed the sale of our little knife and Murphy Greek non strategic acreage interest in the Bakken for a total consideration of $312 million effective March 1.2021.
This acreage most of which we were not planning to drill before 2026 was located in the southern most portion of our Bakken position and was not connected as midstream infrastructure, the midstream transaction and the sale of the little knife and Murphy Creek acreage bring material value forward and further.
Further strengthen our cash and liquidity position.
The Bakken remains a core part of our portfolio and our largest operated asset.
We have a large inventory of future drilling locations that generate attractive financial returns at $50 per barrel W. G I.
In February when W. T oil price.
It moved above $50 per barrel, we added a second rig given the continued strength in oil prices. We are now planning to add a third rig in the Bakken in September which is expected to strengthen free cash flow generation in the years ahead.
Key to our long term strategy is Guyana with its low cost.
Price and industry, leading financial returns, we have an active exploration and appraisal program. This year on the Stabroek block, where Hess has a 30% interest and Exxonmobil is the operator, we see the potential for at least 6 F. P. S. OS on the block by 2027 and up to 10 F. P O sows to develop.
<unk> covered resources on the block.
And we continue to see multibillion barrels of future exploration potential remaining.
Earlier today, we announced a significant new oil discovery at whiptail.
The whiptail number 1 well encountered 246 feet of net pay.
This tail number 2 well, which is located 3 miles northeast of whiptail, 1 encountered 167 feet of net pay and high quality oil bearing sandstone reservoirs.
Drilling continues at both wells to test deeper targets.
Whip-tailed discovery could form the basis for our future oil developed.
And the women in the South East area of the Stabroek block and will add to the previous recoverable resource estimate of approximately 9 billion barrels of oil equivalent.
In June we also announced a discovery at the long tail, 3 well, which encountered approximately 230 feet of net pay including newly.
Development of 5 high quality hydrocarbon bearing reservoirs below the original long tail 1 discovery intervals.
In addition, the successful make may go too well together with the warm 2 well, which encountered approximately 120 feet of high quality oil bearing sandstone reservoir well potentially.
I depend a fifth oil development in the area East of Liza complex.
In terms of Guyana developments, the Liza Unity F. P. S O with a gross capacity of 220000 barrels of oil per day is expected to sail from Singapore to Guyana in late August and Elisa.
Under development is on track to achieve first oil in early 2022.
Our third oil development on the stable block at the <unk> field is expected to achieve first oil in 2024 also where the gross capacity of 220000 barrels of oil per day.
Engineering work for our fourth development.
Element on this day broke block it yellow tail is underway with preliminary plans for a gross capacity in the range of 220000 to 250000 barrels of oil per day and anticipated startup in 2025 pending government approvals and project sanctioning.
Our 3 sanctioned oil developments.
Let's have a breakeven.
Brent oil price of between 25 and $35 per barrel.
And according to a recent data from wood Mackenzie, our Guyana developments are the highest margin lowest carbon intensity oil and gas assets globally.
Last week, we announced the publication of our 24th annual sustainability report, which details our environmental social and governance or ESG strategy and performance in 2020, we significantly surpassed our 5 year emission reduction targets, reducing scope, 1 and 2 operated greenhouse.
<unk> gas emissions intensity by 46% and flaring intensity by 59 per cent compared to 2014 levels.
Our 5 year operated emission reduction targets for 2025, which are detailed in our sustainability report exceed that 22% reduction in carbon intensity.
C by 2030, and the international Energy agency's sustainable development scenario, which is consistent with the Paris agreement's ambition to hold the rise in global average temperature to well below 2 degrees centigrade.
We are also contributing to groundbreaking research being done by the Salk Institute.
To develop plants with larger root systems that are capable of absorbing and storing potentially billions of tons of carbon per year from the atmosphere.
We continue to be recognized as an industry leader for the quality of our ESG performance and disclosure.
In May Hess was named to the 100 best corporate citizen.
Tensity for list for the 14th consecutive year based upon an independent assessment by I S. S. E. S G.
And we were the only oil and gas company to earn a place on the 2021list.
In summary, oil and gas are going to be needed for decades to come.
By continuing to success.
Successfully execute our strategy and achieve strong operational performance. Our company is uniquely positioned to deliver industry, leading cash flow growth over the next decade.
As our term loan is paid off in our portfolio generates increasing free cash flow. The majority will be returned to our shareholders first.
Through dividend increases and then opportunistic share repurchases I will now turn the call over to Greg Hill for an operational update.
Thanks, John in the second quarter, we continued to deliver strong operational performance.
Company wide net production averaged 307.
<unk> thousand barrels of oil equivalent per day, excluding Libya.
Above our guidance of 290000 to 295000 barrels of oil equivalent per day, driven by good performance across the portfolio.
In the third quarter, we expect company wide net production to average approximately 2.
65000 barrels of oil equivalent per day, excluding Libya.
Which reflects the title of the gas plant turnaround in the Bakken and planned maintenance in the Gulf of Mexico, and South East Asia.
For full year 2021, we now forecast net production to average approximately 290.
5000 barrels of oil equivalent per day, excluding Libya compared to our previous forecast of between 290200.95000 barrels of oil equivalent per day. So we're now forecasting to be at the top of the range.
Turning to the Bakken second quarter net production averaged 100.
<unk> hundred 59000 barrels of oil equivalent per day.
This was above our guidance of approximately 155000 barrels of oil equivalent per day, primarily reflecting increased gas capture.
<unk> has allowed us to drive flaring to under 5% well below the states 9% limit.
For the third quarter, we expect Bakken net production to average approximately 145000 barrels of oil equivalent per day, which reflects the planned 45 day maintenance turnaround and expansion tie in at the Tayo the gas plant.
For the full year 2021.
Maintain our Bakken net production forecast of 155000 to 160000 barrels of oil equivalent per day.
In the second quarter.
We drilled 17 wells and brought 9 new wells online in.
In the third quarter, we expect to drill approximately 50.
<unk> wells and to bring approximately 20, new wells online.
And for the full year 2021.
We now expect to drill approximately 65 wells and bring approximately 50, new wells online.
In terms of drilling and completion costs.
Though we have experienced some cough.
Cost inflation.
We are confident that we can offset the increases through technology and lean manufacturing efficiency gains and are therefore, maintaining our full year average forecast of $5.8 million per well in 2021.
We've been operating 2 rigs since February.
But given the improvement in oil prices and a robust inventory of high return drilling locations. We plan to add a third rig in September moved.
Moving to a 3 rig program will allow us to grow cash flow and production better optimize our in basin infrastructure and drive further reductions.
And our unit cash costs.
Now moving to the offshore.
In the deepwater Gulf of Mexico second quarter net production averaged 52000 barrels of oil equivalent per day compared to our guidance of approximately 50000 barrels of oil equivalent per day.
In the third.
Quarter, we forecast Gulf of Mexico, net production to average between 35040 thousand barrels of oil equivalent per day, reflecting planned maintenance downtime as well as some hurricane contingency.
For the full year 2021, our forecast for Gulf of Mexico net production remains approximately 40.
<unk> thousand barrels of oil equivalent per day.
In South East Asia net.
Net production in the second quarter was 66000 barrels of oil equivalent per day above our guidance of approximately 60000 barrels of oil equivalent per day.
Third quarter net production is forecast to average between.
50050, 5000 barrels of oil equivalent per day, reflecting planned maintenance at North Malay basin, and the J D day as.
As well as phase III installation work at North Malay Basin.
Full year 2021, net production is forecast to average approximately 60000.
5 barrels of oil equivalent per day.
Now turning to Guyana.
In the second quarter gross production from Liza Phase 1 averaged 101000 barrels of oil per day or 26000 barrels of oil per day net to Hess.
The repaired flash gas compression system has been installed.
Installed on the Liza Destiny <unk> and is under test.
The operator is evaluating the test data to optimize performance and as safely managing production in the range of 120000 to 125000 barrels of oil per day.
Replacement of the flash gas compression system with our model.
Their design and production optimization work are planned for the fourth quarter, which will result in higher production capacity and reliability.
Net production from Liza Phase 1 is forecast to average approximately 30000 barrels of oil per day in the third quarter and for the full year.
Year 2021.
The Liza phase 2 development will utilize the 220000 barrels of oil per day unity <unk>.
Which is scheduled to sail away from Singapore at the end of August and first oil remains on track for early 2022.
Turned.
2 our third development and <unk> the.
Prosperity F. BSO Hull is complete and we will enter the Keppel yard in Singapore following sail away of the Liza unity.
Topside fabrication has commenced the dine in Mac and development drilling began in June the.
Overall project is approximately 45%.
Weighted.
The prosperity, we will have a gross production capacity of 220000 barrels of oil per day.
It's on track to achieve first oil in 2024.
As for our fourth development at yellow tail.
The joint venture anticipates submitting the plan of development to the government.
<unk> of Guyana in the fourth quarter with first oil targeted for 2025 pending government approvals and project sanctioning.
During the second quarter, the Mako 2 appraisal well on the Stabroek block confirmed the quality thickness in the aerial extent of the reservoir.
When integrated with the previous.
Can't complain announced discovery at Walter Reed to the data supports a potential fifth development in the area east of the Liza complex.
As John mentioned this morning, we announced a discovery at web tail.
Located approximately 4 miles southeast of raw Walgreen, 1 drilling continues or both.
Previous wells to test deeper targets in.
In terms of other drilling activity in the second half of 2021 after whiptail too.
The noble Don Taylor will drill the pink tail, 1 exploration well, which is located 5 miles southeast of yellow <unk>.
Followed by the Tripletail 2 appraisal.
Well located 5 miles south of Tripletail 1.
The noble Tom Madden will spud the cat it back 1 exploration well located 4.5 miles southeast of the Turbot 1 discovery in early August.
Then in the fourth quarter, we will drill our first dedicated test.
Of the deep potential at the bank tooth prospect located 9 miles northwest of Liza 1.
Okay.
In the third quarter, the noble Sam Croft will drill the turbine 2 appraisal well then transitioned to the 2 development drilling operations for the remainder of the year.
Karen will conduct a series of appraisal drill stem tests at Wahoo, 1 than Mako too and then long tail too.
In closing, we continue to deliver strong operational performance across our portfolio.
Our offshore assets are generating strong free cash flow the Bakken is on it.
Capital efficient growth trajectory, and Guyana keeps getting bigger and better all of which positions us to deliver industry, leading returns material cash flow generation and significant shareholder value I will now turn the call over to John Reilly.
Thanks, Greg in my remarks today I will.
Per results from the second quarter of 2021 to the first quarter of 'twenty 'twenty 1.
Adjusted net income was $74 million in the second quarter of 2021 compared to net income of $252 million in the first quarter of 2021.
Turning to E&P.
E N P. Adjusted.
<unk> net income was $122 million in the second quarter of 2021 compared to net income of $308 million in the previous quarter.
The changes in the after tax components of adjusted E&P results between the second quarter and first quarter of 2021 whereas follows.
Lower sales volumes reduced earnings by $126 million.
Higher cash costs reduced earnings by $48 million.
Higher exploration expenses reduced earnings by $10 million all other items reduced earnings by $2 million for an overall decrease in second quarter earnings of.
$186 million.
Second quarter sales volumes were lower primarily due to Guyana, having 2.1 million barrel lifting of oil compared with 3.1 million barrel lifting in the first quarter and first quarter sales volumes included nonrecurring sales of 2 VLCC cargoes totaling 4.
$4.2 million barrels of Bakken crude oil, which contributed approximately $70 million of net income.
In the second quarter, our E&P sales volumes were under lifted compared with production by approximately 785000 barrels which reduced our after tax results by approximately $18 million.
Yeah.
Cash costs for the second quarter came in at the lower end of guidance and reflect higher planned maintenance and workover activity in the first quarter.
In June the U S bankruptcy court approved the bankruptcy plan for field, when energy, which includes transferring abandonment obligations of field wood to predecessor.
Assessors entitled of certain of its assets, who are jointly and severally liable for the obligations.
As a result of the bankruptcy Hess is 1 of the predecessors entitled and 7 shallow water West Delta 70, 986 leases held by field Wood is responsible for the abandonment of the facilities on the leases.
Second quarter E&P results include an after tax charge of $147 million, representing the estimated gross abandonment obligation for West Delta 70, 986 without taking into account potential recoveries from other previous owners.
Within the next 9 months, we expect to receive.
Cash from the regulator, requiring us along with other predecessors entitled to decommission the facilities.
The timing of these decommissioning activities will be discussed and agreed upon with the regulator and we anticipate the cost will be incurred over the next several years.
Turning to midstream the midstream segment had.
And order income of $76 million in the second quarter of 2021 compared to $75 million in the prior quarter Mitch.
Midstream EBITDA before Noncontrolling interest amounted to $229 million in the second quarter of 2021 compared to $225 million in the previous quarter.
Net now turning to our financial position at quarter end, excluding midstream cash and cash equivalents were $2.42 billion, which includes receipt of net proceeds of $297 million from the sale of our little knife and Murphy Creek acreage in the Bakken.
Total liquidity was 6 point.
$1 billion, including available committed credit facilities, while debt and finance lease obligations totaled $6.6 billion.
Our fully Undrawn $3.5 billion dollar revolving credit facility is committed through May 'twenty 'twenty, 4 and we have no material near term debt maturities aside.
Aside from the 1 billion dollar term loan, which matures in March 2023.
In July we repaid $500 million of the term loan.
Earlier today, Hess Midstream announced an agreement to repurchase approximately 31 million class B units of Hess midstream held by G. I P and.
US for approximately $750 million we.
We expect to receive net proceeds of approximately $375 million from the sale in the third quarter.
In addition, we expect to receive proceeds in the third quarter from the sale of our interest in Denmark for total consideration of $150 million with an effective date.
<unk> 'twenty 'twenty 1.
In the second quarter of 2021 net cash provided by operating activities before changes in working capital was $659 million compared with $815 million in the first quarter.
Primarily due to lower sales volumes in.
Of Jan quarter, net cash provided by operating activities. After changes in working capital was $785 million compared with $591 million in the first quarter.
Changes in operating assets and liabilities assets and liabilities during the second quarter of 2021 increased cash flow from operating activities by 1.
The second and $26 million, primarily driven by an increase in payables that we expect to reverse in the third quarter.
Now turning to guidance.
First for E&P, our E&P cash costs were $11.63 per barrel of oil equivalent, including Libya and $12.16.
100 per barrel of oil equivalent excluding Libya in the second quarter of 2021, we.
We project E&P cash costs, excluding Libya to be in the range of 13 to $14 per barrel of oil equivalent for the third quarter, which reflects the impact of lower production volumes, resulting from the tayo good gas plant turnaround.
Sensor cash cost guidance of 11 to $12 per barrel of oil equivalent remains unchanged D.
DD&A expense was $11.55 per barrel of oil equivalent, including Libya and $12.13 per barrel of oil equivalent excluding Libya in the second quarter.
DD&A expense excluding Libya.
Full year cash to be in the range of 12 to $13 per barrel of oil equivalent for the third quarter and full year guidance of 12 to $13 per barrel of oil equivalent remains unchanged.
This results in projected total E&P unit operating costs, excluding Libya to be in the range of 25 to $27 per barrel of oil equivalent for the third.
It's 4 and 23 to $25 per barrel of oil equivalent for the full year of 'twenty 'twenty 1.
Exploration expenses, excluding dry hole costs are expected to be in the range of $40 million to $45 million in the third quarter and full year guidance is expected to be in the range of 160 to 170 million.
Quarters, which is down from previous guidance of $170 million to $180 million.
The midstream tariff is projected to be in the range of $265 million to $275 million for the third quarter and full year guidance is projected to be in the range of $1 billion $80 million to $1.100 billion.
Dollars, which is down from the previous guidance of 1.090 billion to 100 to $1.115 billion.
E&P income tax expense, excluding Libya is expected to be in the range of $35 million to $40 million for the third quarter and full year guidance is expected to be in the range of 100 and.
$25 million to $135 million, which is updated from the previous guidance of $105 million to $115 million, reflecting higher commodity prices.
We expect non cash option premium amortization will be approximately $65 million for the third quarter and full year guidance of approximately 245.
In dollars remains unchanged.
During the third quarter, we expect to sell 3.1 million barrel cargoes of oil from Guyana.
Our E&P capital and exploratory expenditures are expected to be approximately $575 million in the third quarter full year guidance, which now includes increasing drilling rigs in the.
Bakken to 3 from 2 in September remains unchanged from prior guidance at approximately $1.9 billion.
Turning to midstream, we anticipate net income attributable to Hess from the midstream segment to be in the range of $50 million to $60 million for the third quarter and full year guidance is projected to be in the range of.
$275 million to $285 million, which is down from the previous guidance of $280 million to $290 million.
Turning to corporate.
Corporate expenses are estimated to be in the range of $30 million to $35 million for the third quarter and full year guidance of $130 million to $140 million.
<unk> remains unchanged.
Interest expense is estimated to be in the range of $95 million to $100 million for the third quarter and approximately $380 million for the full year, which is at the lower end of our previous guidance of $380 million to $390 million, reflecting the $500 million reduction in the term loan.
This concludes my remarks, we will be happy to answer any questions I will now turn the call over to the operator.
Ladies and gentlemen, if you have a question. Please press star followed by 1 on your phone.
If your question has been answered or you would like to withdraw your question press pound.
Questions will be taken.
Florida received please press star 1 to begin.
Your first question comes from the line of Ryan Todd with Piper Sandler.
Great. Thanks good.
Good morning, maybe.
Starting off on.
Taken any hotel congratulations on the great results of both with Dell, 1 and 2.
Thank you I mean, how do you think.
Maybe it's a little early that day, but how do you think about ultimate potential resource size reservoir and oil quality and how it maybe stacks up against other.
Future resource.
To be developed and where it could land in the.
Yeah.
Great question, Ryan and thank you you know look whip-tailed drilling activities are still underway.
We're going to be drilling in both wells to some deeper targets whiptail adds to our queue of high value potential oil developments in Guyana, while Roe.
And May go as Greg talked about have the potential to be our fifth F. P. S. O whipped Hill has the potential to be another oil development and since evaluations. Our work is still going underway. It's a little premature to talk about our resource size, but definitely what were seeing is the foundation for.
Q potentially another oil development with web channel and then you know to remind everybody. We still have a very active exploration and appraisal program on the state Brook block are the remainder of this year, which should provide even more definition for future development investment opportunities. So the queue of high value potential oil developments is growing.
And you know we're going to optimize it as we continue to get more data and well results to further get clarity on you know what the Q will be.
And Ryan the quality of the reservoirs.
And whipped Hill are outstanding.
Alright. Thanks.
And then Greg maybe a follow up on Capex.
Prior to that prior guidance for 2021, Bakken Capex, that's $450 million.
Is that still the same with the addition of the third rig in September or was the possibility of a third rig already built in there.
And.
You've been running.
Running low on Capex, obviously in the first half of the year, but activity has accelerated in the second half is there is.
Is there a potential for moving downward pressure on on Capex on a full year basis or.
Is that kind of a trend upward in the second half likely to.
Are there things trended in line with where you would've expected.
And John Yes, so from the Bakken standpoint, no. We did not have the third rig in our initial guidance of the $450 million for the year. So that third rig is adding to the Bakken capital. So we'll go up from that $4.50, but like you've been saying we are have been running under for the first half and where it is primarily.
Merrily right now were under spending in Guyana, so that pretty much. The AD you know from September to December for the 1 rig in the Bakken is being offset by a little lower spend in Guyana.
As for the 1.9 billion, we do as you said expect a ramp up it's normal for us in the Bakken you know when you get into the summer season building interest.
What's your pads things like that so we do get a pickup on capital there same thing for our work in South East Asia is more ramping up Greg had mentioned the the phase III installation, that's going on so I you know I.
I do expect to be spending right around that $1.9 billion and we will get that pick up but again, we have been a little.
Infrastructure and that's why we can add that Bakken rig and stay at 1.9 billion.
Great. Thank you.
Thank you.
Our next question comes from Arun Jairam with J P. Morgan.
Yeah. Good morning. My first question is on Liza phase 2.
No the design.
Load of 220, TBD, but I was wondering if.
If the Hess Exxon consortium as is applying some of the learnings from the Liza phase 1 a.
A debottlenecking project on this ship and where it could initial predictive capacity b as well as I wanted to get.
Your timeline to maybe a first oil is if the boat is selling from Singapore at the end of August.
Thanks Rune Greg.
Sure Arun. So we are on track for first oil in early 2022, so no.
No change that first oil date.
We talked about before in regards to the Debottlenecking look.
My experience with these F. Dsos is yes, there will be some additional capacity that can be wrung out of the vessel.
The sequence is important though so the first thing you do is you get it out.
Out there.
<unk> run it at full operating conditions, then and only then after you get that dynamic data can you understand where your where your potential pinpoints or bottlenecks are and so that's why typically these optimization projects don't come until I'll say, the first year of operation.
<unk>.
But I think 15% to 20% is not atypical it will vary boat by boat, depending on the dynamic conditions, but I would think that you could get some additional upside from phase II and phase III.
And beyond.
Great My follow up is for John.
Hess John I wanted to see if you could help us think about.
The order of operations here regarding.
Additional cash returned to shareholders and maybe outline.
Paying off the term loan.
Maybe the timing of step 2 if the strip holds.
And when we could see Hess.
We kind of move on the dividend.
Yeah look and once we pay the $500 million off which we're intending to do next year from the term loan thereafter, as a function of oil price and we get visibility on free cash flow.
And the duration of the next priority is going to be returning the majority of that free cash flow to our shareholders.
And our first priority and that AR will.
We will be to increase our base dividend.
So you know this is something we've talked about with our board, we're very watchful about it but we got to take it a step at a time, but that will.
The sequence of events pay the other $500 million off we're estimating to do that next year, depending upon market conditions and then once after that once we start to have visibility on free cash flow and the market conditions for oil and the financial markets are supportive of the next step will be strengthening our base dividend.
Alright.
So generally John.
Yeah.
Your next question comes from David <unk> with.
Cowen.
Good morning, guys and thanks for taking my questions today. Thank you.
I just wanted to just touch on the Bakken again.
With the addition of a third rig could you, perhaps revisit guidance for where an exit rate should be at the end of this year.
And then should we be thinking about the addition of a fourth rig.
Just wanted to it in the context of what the current in house view is of the truly optimized program there in terms of activity.
John you wanted to say.
Okay, Great and then break any color you'd like to provide as well sure. So from the Bakken exit rate standpoint. The addition of a third rig when we're starting in September really is not going to add any wells in for production.
This year and what we had said in the prior quarter was that we were exiting somewhere at the 170 to.
Do you have any 5 type level as we ended the year now what we are seeing is higher propane prices than we saw back in in April so, which we like right that day.
What we see from the NGL price is actually to increase our cash flow in the third quarter, maybe $35 million to $40 million based on these higher propane prices.
But with those higher propane prices. If you remember that means we get less volumes under our percentage of proceeds contracts or a pop contracts. So right now based on what we're seeing on the propane prices I'd say the exit rate overall will be in the $1.65 to $1.70 range and then Greg I'll hand, it over to you for the fourth rig.
Yes.
1 said I think I'm just that just 1 couple more comments on the third rig so with that third rig in the world.
Drill 10 more wells. So that's why we increased our drilling well count from 55 to 65.
And then we'll also bring 5 more wells on line with that third rig. So that's why we raised the wells on line count from 45 to 50.
Yes, but as John said those wells come on right at the end of the year. So the impact of that will be seen in 2020 twos.
Volumes.
The fourth rig.
As we've always talked about you know the primary role of the Bakken.
Our portfolio is to be a cash engine. So that's number 1.
We'll see.
So any decision to add any rigs in the Bakken is going to be driven by returns and corporate cash flow needs now, having said that assume assuming oil prices stay high.
Into next year, then we'd consider adding a fourth rig.
At the end of next year why is it at.
And because you build out all your locations in the summertime.
And then by doing so that would allow us to take Bakken production up to around 200000 barrels a day and that level really optimize our in basin.
Infrastructure.
But again, that's going to be a.
A function of oil price or function of corporate cash flow needs, how much cash do we need the Bakken to deliver for the corporation that is going to be the primary driver of whether or not we add that fourth rig or not I will say the fourth rig would be the last rig. So the highest we would go with 4 rigs and we could maintain that 2.
In barrels a day with 4 rigs for nearly a decade given the extensive inventory of high return wells that we have.
Okay.
Thank you guys you seem well prepared for that question.
The color.
My follow up is just on <unk> quickly on Libya.
Obviously, you know the end of the force majeure, you've seen production kind of pick up there.
I know you guys guide ex Libya, but can you kind of revisit the productive capacity of that asset in your view kind of the rest of the year and then just broadly speaking where that sits in your portfolio.
Yeah.
Yeah.
You've seen obviously generates some cash for us.
You know it has been running at fairly stable levels, and we would estimate those levels would continue at.
At the current rate.
And you know it really is a function of a political security stability in the country, which is in.
Greece.
And so we would intend that Liberty would continue at.
The pace of cash generation that it's at now in the future.
Thank you guys.
Okay.
Your next question comes from Roger read with Wells Fargo.
Yeah. Thanks, good morning good.
Morning, Roger.
I guess 1 question to follow up on just from the comments earlier about well cost staying flat in the Bakken, but as you step back and look at cost inflation almost anywhere I know you're relatively.
Silent in the Gulf.
For Mexico to day, but you know there'd be expectations for next year and then as we think about building. The F. P. S shows or any sort of I guess supply chain issues that may be affecting anything as we think about the next like it's F. DSO and F. P. S. F. P. S O 2 and 3.
3.
As we think about the timing in Indiana.
Yes, Greg why police handle it you know the the cost inflation question that he's asking 1 maybe we covered the onshore focusing on the Bakken and then to the offshore.
Yeah sure so.
Let's talk about the onshore first because it's the easiest.
Yes, as I, you know as I said in my opening remarks.
We are seeing some minor inflation in the Bakken you know at the first half of the year was all tubular is however recall, we pre bought all of our tubular is for the program. This year. So we're covered on that.
Modesty based chemicals obviously.
Gone up.
But it really doesn't matter because we're able to cover that.
Through technology, and lean manufacturing gains and Thats, why we held our well cost forecast for the year still at 5.8 even though we're feeling some single digit kind of levels of inflation.
Now if.
If I turn to the offshore.
Gas industry seeing cost increases there as well you know day rates on deepwater rigs are up modestly are nowhere near what they were in the Halcyon days, let's say 5 years ago.
But remember.
Almost all of our offshore investing.
I turned Guyana.
We operate under EPC contracts, there so that largely insulates us from cost increases after the contract signed and then I've got to say Exxonmobil was doing an extraordinary job of utilizing this design 1 build many strategy to deliver.
And that has certain amount of efficiencies from that project. So certainly now and in the very near term I wouldn't expect any cost issues, there and of course, because the PSC if your costs do creep up.
It's all covered under cost recovery.
No that's helpful. Thanks and.
Congratulations on the discovery certainly go to bed.
<unk> today and recently so I was just curious some of the other.
Exploration opportunities you have out there as we think about.
Other blocks inside of Guyana, but also over in Suriname any updates.
Well the majority of our drilling is going to be honest Stainbrook block and I think Greg gave pretty good.
Roadmap for what our drilling the rest of the year, it's going to be it's gonna be a comment of exploration.
Phrasal I think Greg the only other thing to talk about is Suriname, probably block 42, because we do have some drilling planned there next year.
Sure.
Yes, we do so our planning is underway on block 42.
For a second exploration well in the first half of 2022.
Obviously, the Apache wells are encouraging for our acreage there.
Adjacent and 42.
And we.
We see the acreage as a potential play extension also from the stable block.
So we're the ones that have access to not only the stay Brook data, but also the data in Suriname. So we can we can couple those 2 together.
And really understand how the geology lays out there and thats what.
It makes us excited about.
Block 42, we also have an interest in block 59 is you know just outboard of 42.
Exxonmobil has completed the <unk> seismic survey on the block there the data has been analyzed.
And its fast and so.
The joint venture is now planning a very targeted.
<unk> 3 D survey over some interesting prospects, we see on that as well, but drilling there would not begin to occur until probably 'twenty 3 at the earliest.
Thank you.
Your next question comes from Paul Cheng with Scotiabank.
Hey, guys.
Good morning.
Morning, Paul Good morning, Pat.
John you guys are going to generate.
You pay them hung off the free cash and you're going to pay down debt termed that a mixed year, but longer term do you have a mess that Paul cat.
Uh huh, how much that you really want to be sitting on your.
Hi, good at all.
Thanks, Paul So our target and what I always say, it's a maximum target is at 2 times debt to EBITDAX targets. So as.
As you said is when we pay off this term loan next year and we have phase 2 coming online we're going to drive under that 2 times. So there's.
And what I expect here because I think it was we mentioned earlier, we really don't have any material near term debt maturity. So what we'll do is we'll pay off that term loan you know we have small amounts in 'twenty 'twenty 4 and it's not until 2027 that we have our next big maturity. So we will just pay off the small maturities as we have and will continue to let.
Our EBITDAX growth basically you know you're going to get phase..2 then pay our then yellow tailed in war with hill. So what we're going to have significant growth in EBITDA and our balance sheet is just going to get stronger and stronger from that standpoint. So what I would say is we'd hold that absolute debt level flat and decrease it for the maturities that.
And then as John mentioned, we're gonna start driving significant free cash flow generation and once that term loans paid off we'll start with dividend increases and then we'll move on to the opportunistic share repurchases.
Hey, John some of your peers that 1 day talking about say 2 times EBITDA.
Come up at 1 time or less than 1 time. They also identify or that are with the problems that they have work under what commodity price are they using not necessarily using the carbon price.
So did you guys just looked at the what is the current price you know EBITDA or you also a pocket then I'll go apply.
The maximum 2 times.
I know, we we look at even lower prices, what I would say that that target is there for us no matter what the commodity price is and look we always say this as the additional F. P. S. Owes you know come on as John said, these very low cost developments come on our margin.
<unk> and <unk>.
Cash flow just continues to improve so.
It even at lower commodity prices, when we start getting pay or a yellow tail wahoo Mako online, we're going to have significant free cash flow and our balance sheet is going to be very strong. So you know our target doesn't vary based on commodity prices and we like to say that.
That you know with these episodes coming on we can win in any commodity price environment.
Uh-huh and John No I think Uh Huh, John Hess has set that their first party royalty off the excess free cash after that time zone will pay off as our increasing that dividend is there any kind of pardon me till you can share.
Sure in terms of Ah you will set the dividend longer term based on say 10% of a.
Southern gas cash flow from operations based on certain north parcel of any kind of pardon me put that you can sell a matrix you can say it. So we can have some better understanding of.
What is the Protectory.
Sure what it what we've been saying right now and look we'll give guidance as we get.
Into this free cash flow generation is that we want to have a dividend that's better than the S&P 500 yield and why because obviously the oil and gas business is a little riskier and more volatile due to commodity prices. So we want to.
Set that at a level that gives us a better yield and we're gonna be in that position again as I mentioned with East F. P. S. O's coming on that we can set that have a better yield and withstand lower commodity prices. So we will test it at lower commodity prices, but again due to the uniqueness of the Guyana cash flows that will be coming in we can do that so.
That's the initial guidance I would look at it is that we're going to have our yield better than that S&P 500.
I finally final question and I think this is for Greg Greg when we look at your full year production guidance, which implies the second half is about 280, and you say the third quarter. It was about $2.60.
5.
So that means that the fourth quarter is about 300 is that a big conservative debt.
That on that number.
Well you know first of all Paul it's still early in the year. So we've got a lot of activity going on we've got tayo good turnaround.
Maintenance in the Gulf.
Mexico maintenance in South East Asia, and also some shutdowns for phase III in North Malay Basin, plus we did dial in.
A fair amount of hurricane can didn't see this year in the Gulf just based upon last year's experience, but also what the weather forecasters are saying this year. So.
Gulf of Mexico will be well.
We will be able to update that on the quarterly call next time, I hope you're right I hope it is conservative, but again, we have a fair amount of contingency in there for the work that we are doing.
You know and the Hurricanes that are anticipated in the Gulf. So, let's just see how it plays out.
Maybe let me answer it this way right.
The fourth quarter do you have any meaningful turnarounds or maintenance shutdown activities we.
We do have some in the fourth quarter, yes, and some of those are in South East Asia, and we also have a turnaround and baldpate in the Gulf of Mexico during.
For the quarter as well, but the hurricane contingency really rolls through both quarters. So.
Alright, thank you.
Thank you.
Your next.
<unk> comes from Doug Leggate with Bank of America.
Okay.
Thanks, Good morning, everyone I'll, just stick to 2 questions.
The force Okay.
Let me see if I can get them both in.
Greg I'm going to tell another go hill I seem to recall in a corner conversations.
Yeah.
Bill up quite a picture of how the lowers this prospect could be.
Now you've got to fix it sounds.
3 miles apart.
I'm not sure the amount of churn in saying that this could be more than 1 development sales in Brazil.
Go ahead Greg.
Look I think it's early days.
To be to be saying that Doug you know 1 of the reasons.
We drilled the wells concurrently is because we did have good seismic responses as you intimated on flip tail, we were well calibrated with that because of course it was sandwiched between the yellow tailing wall room, and so by drilling both of these wells concurrently obviously.
We accelerated the evaluation and appraisal you know of this highly prospective area.
We've got we've got more more appraisal work to do in some deepening to do in and around this area, but we're very we're very pleased with the results, but I think it's just too early to speculate on it.
Is it big enough.
Stand alone by itself or you know or what so just just give us some time to evaluate the well well well results yeah Doug.
Yeah, you know, we're still drilling are still evaluating the results, but certainly we're very encouraged that this could underpin.
On.
Its own future oil development. The foundation is there more work needs to be done.
To get that definition, but it certainly has the potential to provide a foundation for our future oil development and you know you also got to remember in yellow tail as we got more evaluation where again.
That obviously turned out to be a much bigger resource which is why.
Why are the ship for yellow tail as being size between 220 in 250000 barrels a day, which is bigger than the 2 ships that preceded it at 220000 barrels a day. So you know, let's get more drilling let's get more evaluation, but obviously our initial results are very encouraging.
I'm very pleased for that.
Greg maybe I will do our part 1.
We're going to John.
When you think about these hub sizes.
What are you thinking about the plot pool levels of production Nowadays are rethinking about 1 on top of the other or everything is declining how are you thinking about that given the scale of the resource.
Just so we can calibrate everybody.
Overtime.
No again, you and I have talked about this before.
These hubs all hubs frankly.
We will have a long plateau.
And longer than would be typical you know in the deepwater.
Our environment and that's simply because of the resource density.
Of how much is in the Guyana basin in and around these existing hubs. So.
Not only is there additional tieback opportunity in the campaigning I E. Lisa.
Lisa class.
You have worse, but as we go deeper in the San Antonia and let's say that works out.
Is it is it technical commercial success, then you could see where you could tie back San Antonia and into some existing existing campaigning hubs.
So if you if you step back and look at all of the prospectively in.
Campaigning all that prospectively in the San Antonia and.
It's pretty easy to see that these hubs will be full.
For a long time.
Thank you my follow up hopefully is a quick 1 John.
John rightly I don't want to price too much on this debt issue, but 2 times EBITDA.
It does a different number at $50.70 so.
Wonder if I could ask you what your.
Thinking is on the absolute level of debt that you want to get too because if Diana self funding from next year, which I believe it as sales to the potential to generate a ton of free cash flow was.
Obviously, there given your unhedged on the upside so just give us an idea of where you want the absolute balance sheet to be and I'll leave it there. Thanks.
Really as.
John has said it earlier once we pay off the $500 million on the term loan we have the debt at the level, we want it to be as I said, there is a small maturity out to 2024.
Really big maturities out until 2027, so that the debt is at that level and we wouldn't be looking to reduce it any further at that point and again as we add to EBITDA from each F. P. S. So we will quickly drive under 2 times and then you know quite frankly go.
Below 1 as we continue to add these F. P. S O.
In Guyana, so nice year Jay.
Guyana is so once phase 2 comes on Guyana is self funding.
Thank you.
You.
Your next question comes from Neil Mehta with Goldman Sachs.
Yeah.
Good morning, guys I'll be quick here, but is it 2 related questions. The first is for you John which as you know you always have a great perspective on the oil macro and there's a lot of uncertainty as we go into 2022.
Well, that's so maybe on the demand side, although we can debate that but more on supply in terms of OPEC behavior.
Hey, good or and as barrels come back into the market, we'll we'll well the market get oversupplied or oil inventories day in deficit. So I'd love your perspective, especially given that you spend a lot of time with market participants there and then the related question is just on Hess is hedging strategy for 2022.
Behavior.
Is it does it make sense to cost average in to the forward curve here or would you like to stay more open to participate and potential upside.
2 related questions.
Good morning, Thanks for the questions.
You know the oil market is definitely rebalancing.
<unk>.
2 factors demand supply inventories are we think demand is running right now at about 98 million barrels a day remember pre COVID-19 globally. It was running 100 million barrels a day.
I think demand as well supported.
With people getting back to work mobility.
<unk> trader in the United States, certainly jet fuel is almost a pre COVID-19 levels of demand obviously international travel is still down.
Gasoline in the United States demand as well as our gas oil demand is back at pre COVID-19 levels. So demand is pretty strong I think the financial stimulus.
Stimulus programs of the U S government and other governments across the world.
As well as accommodative monetary policies with the central banks are really turbocharging, the consumer turbocharging, the economy and supporting oil demand. So we see demand growth continuing into next year, we think we will get.
By the end of the year about 100 million barrels a day of global oil demand, we see that being stronger going into next year. So I think that's a key part a that you have to get grounded in to answer your question, what's the demand assumption.
Well you know we take the over the demand is going to continue to.
To be strong going into next year through the year supply.
Yeah, you know you look at shale shale is no longer the swing supplier.
It's gone from a business that's focused on production growth to 1 that's focused on a return of capital our financial discipline and appropriately. So so if you can grow a little bit.
When I read free cash according to the oil environment, that's what the investor discipline. Once that's what the company discipline. Once so you know we see the rig count you know maybe it gets up to 500 in the United States, but shale will not be growing at the level that it was growing at the last 5 years for you know what it's going to be growing the next 3 or 4 years.
There's a I think U S production in the range of Oh crude for let's say 11 million barrels a day, it's going to be hard to getting to pre COVID-19 levels of 13 million barrels a day probably for the next 3 or 4 years. So you know shell will play a role, but it's gonna have a backseat a in terms of being the swing supplier the swing supplier going.
But you didn't really the federal reserve of oil prices is gonna be OPEC led by where OPEC plus led by Saudi Arabia, Russia.
And the other members and I think they've been very disciplined very wise and being very tempered about bringing their spare capacity back. They just made a I think a very you know historic AR.
Agreement.
That says you know will bring on 400000 barrels a day a month by month, we will look at it if something happens in the variance something happens with Iran. Coming on you know, we may curtail that but basically that $5.8 million barrels a day of excess capacity I'll be whittled down.
4.
100, a day each month as it goes out they'll meet every month to check on that but basically that will be sort of that cushion that you need to keep supply up with demand, but in that scenario the markets in deficit. So that should keep prices well supported and the other key point as you know.
All our I'd say are were at pre Covid are inventory levels now are where the glut of 1.2 billion barrels of oil excess supply a year ago April ER now has been whittled down to where the market is really back in balance at pre COVID-19 levels. So you know looking forward the macro I.
Is very supportive demand growing faster than supply inventory, a brief over levels and the oil price should be well supported in that environment.
Is that tied.
Tied that back into and that might be a question for John Reilly tightened to hedging strategy.
So Neil you know what our strat.
Strategy is going to continue to be to use put options right. We wanted to get the full insurance on the downside and leave the upside for investors. So obviously, we've been watching the market and the frontier has been performing very well and you know it is a bit backward dated as you go into 2022, and so with the put options you know typically.
He put them on you know September to December towards the end of the year time value you know it gets the cost the options a little bit lower we will see where volatility is as we moved you know getting closer to 2022 now you should expect us to put on our significant hedge position again like we had.
This year and you know you should expect.
As we move into the fourth quarter us begin to add those hedges, but to be clear there'll be a put based strategy.
Makes a ton of sense. Thanks, guys. Thank.
Thank you.
Your next question comes from Paul Sankey with <unk> research.
Hi, everybody. Thanks, a lot of my questions have been answer.
To see the balance sheet, but I was just wondering if we could get a sense for the potential for acceleration.
Or any of the moving parts is the first would be.
Would pay down potentially be accelerates, even faster than what you've talked about 2 of them.
And if not would we potentially see foster cash return to shareholders.
Around the quicker decision to raise the dividend is that a potential or I guess the old zone. It would be that you're just the increased cash on the balance sheet and then operationally.
And I guess, it's a little bit longer term, but could the pace of Guyana development be accelerated do you think or is it a fairly set and predictable path.
Yeah, and what I'm really wondering is as you mentioned the exxonmobil by 1 build 1 design. Many design 1 build many strategy I wonder if that has the potential to accelerate.
If we look forward you know 2 to 3 to 5 to 7 years.
And finally, whether or not you would increase spending in.
A very strong.
The story that you have here in the Bakken oil the deep water Gulf of Mexico or anywhere else if that was another potential outlet for the successor enjoying things.
I am Paul Hi, good to hear your voice.
You know look.
We've laid out our plan, we're going to be very disciplined.
A planned about executing the plan, they're always always potential to accelerate its a function of market conditions, obviously, but I think the key thing is we do want to keep a strong cash position as you know a cushion.
For downturns in the oil market. It certainly served us well last year and it's serving us.
Well this year, obviously very different markets between last year and this year.
And in terms of you know our what our assumptions are going forward, we want to keep that strong cash position and with current prices, where they are we think it's prudent.
To go into next year with a strong cash position.
So we can fund the high value projects that we have in Guyana and.
The Bakken and obviously in our other 2 asset areas. So you know I think it's a good planning assumption to assume that it will be given market conditions are we would pay that $500 million off next year always have the flexibility to move it forward.
A word but you know we want to keep the strong cash position and we just think that's a financial a prudent strategy in terms of you know Guyana Exxon is doing as Greg said, a great job managing our world class.
Project are both in terms of cost and in terms of timing and this idea of design.
Build many and pretty much getting in a cadence of 1 of these are major F. P. S O is being built.
1 a year come on 1.8 year that that cadence is probably as aggressive as any ever done in the industry and you know exxonmobil often talks about.
<unk> leakage, meaning capital inefficiency. This pace of you know, bringing on 1 ship per year is probably has accelerated as you Wanna get and it's a pretty darn good 1.
Got it and then the potential for greater spending more growth is that it would it be.
Assume you'd be more focused on cash per ton ultimately because of the yeah. Yeah, we're gonna stay.
Very financially disciplined you know John talks about adding a third rig and then Greg will talk potentially a fourth rig does you know can certainly be folded in and actually that increases our free cash flow generation in the years I had so it actually strengthens our free cash flow, even though in the year of the investment you go up a notch but.
The Bakken is becoming a major free cash flow generator.
On its way, let's say to 200000 barrels a day equivalent and plateauing.
So there'll be some you know, obviously increase where the rigs John talks about it in the range of about 200 million per.
For a rig and then you have a different developments that we have.
But we're going to stay very focused on keeping a tight a string on on our capital investments.
So we can grow the free cash flow wedge and really compound that free cash flow wedge over the next 5 to 6 years.
Thank you could you can I just ask a couple of questions on the midstream what was the strategic could you add any strategic.
Color about the moves you've made in the midstream and I'll leave it there. Thank you.
Yeah sure just said that you know at a high level strategic standpoint, the midstream continues to add differentiated value to our E. N P asset. So it allows us to maintain operational and marketing control.
It provides the takeaway optionality to multiple high value markets.
And also it's driving our ability to increase our gas capture and drive down our greenhouse gas intensity. So just starting Paul at the high level, both G. I P and us remain committed to the long term value.
And so with this transaction like pro forma for the transaction you know Hess midstream maintains a strong credit position. It said 3 times debt.
The EBITDA and then it has continuing free cash flow after distributions as it moves forward so that debt to EBITDA will come back down from 3 so it's gonna have sustained low leverage and ample balance sheet capacity. So they really did this to optimize its capital structure and then with this ample balance sheet capacity can support future growth.
<unk> or incremental return to shareholders, including Hess and that can be this type of buyback or increase distributions. So in another way of saying it hasn't midstream becomes a free cash flow engine for Hess as well.
John.
Understood. Thank you gentlemen.
Your next question comes.
From Bob Brackett with Bernstein research.
Good morning, all I had a question about phase 2 if I heard Gregg right. He said it was a 9 miles northwest of Liza 1.
I look at a seismic section that the operator exxonmobil had in their Investor day, They show us a very large.
Large deep seismic signature that seems to correspond to where you're drilling.
Turning to.
And my overriding that or is this a fairly large structure that you're going to drill Greg.
Yeah. It is a very large structure that will be dedicated to you.
The deeper stratigraphy.
Your feet I'm, you know call it lower campaign in Saint Tony in them, So that will be our first stand alone well targeting those deeper intervals you know Bob as you know the rest of all been deep tails.
But this would be a standalone and yes. It is a very large structure.
Great Thanks for that.
Yes.
Okay.
Your next question comes from Noel Parks with Tuohy Brothers.
Hi, Good morning, good morning, just such a different sort of.
Continue on from that last question, but could you just sort of maybe.
Walk us through where.
Where things stand on as far as.
Main targets in Guyana versus deeper a potential targets.
Sort of the.
Just kind of what you.
Pretty much have established.
Beyond the primary targets.
And and sort of what's what's still to come.
Hi, Greg.
You bet, so you know that.
So when I talk about deeper plays I'm really talking about the the bottom of the campaigning and lower campaigning and then down into the same Tony and then.
No as I.
Before these have the potential to be a a very large addition to the recoverable resource base in Guyana.
If successful as I mentioned previously they could be exploited through a combination of tie backs to existing hubs.
<unk> stand Standalone developments, if they're big enough.
So we've had 8.
I said to date in the deeper plays.
And then if you couple that with the success in Suriname, which as we understand the better part over there again don't have the day to it but this is just what we're hearing from others in the industry appears to be kind of the lower campaign in San Antonia and interval as well so theres been.
<unk> a number of penetration so that's why we're encouraged now.
We've got a lot more drilling to do.
Early to fully understand the potential of this play so in the second half.
We've got several more deep targets that are planned.
3 will be what I call deepening.
Now there'll be details on campaigning and targets.
2 of which John mentioned in his script, which are whiptail, so both with <unk> and with Dell to will be deepened down into the same Tony in.
The next 1 after that is cat aback and then also pink tail.
We will have a detailed.
So monitored as well and then as I just discussed with Mr. Bracket, there will be a deep standalone called Fang too. So just on this day Brook block by the end of the year.
We will have 13 total penetrations in the deeper stratigraphy. So we'll begin to now understand.
Tail better how it's all put together, where we think the hydrocarbons are et cetera et cetera. So keep watching this space evolving story.
But very exciting, but again need more drilling to figure out where and what we have.
Great and just a sort of a.
Stand and then the other dimension.
John.
I seem to remember that.
The report.
Last quarter 3 months ago.
<unk> had some implications for aerial extent and.
In the well.
On the on the horizon, the second half of the year.
Are there any of those that will be.
Particularly informative about per server the aerial extent of.
The deeper zones.
Well, yes.
It's a mosaic it's a picture that we're trying to put together so yes I mean.
We mentioned <unk> for example, being a very large structure stratigraphic feature I should say, obviously if that if the if the results of that are very positive and we will probably want to follow up with a with an appraisal well or a second well in that given that the structure is quite large right.
But some of these sales will also inform the.
The size of some of these as well because of course youre going after seismic features that you see on seismic that are of various sizes. Some are big.
Some are smaller so by definition, we will get a better understanding of that and Greg that's great perspective.
Some of the exploration potential some of the appraisal potential but you also might point out that we have a pretty.
Active testing program between now and the end of the year and to address the aerial extent and productivity of potential developments you might talk about that.
<unk> So you remember.
We'll be.
To have a drill stem test at <unk>.
At Mako and then also a long tail.
Before the end of the year, so that will give us really key data.
I understand the size of those reservoirs in particular so.
And then ultimately that helps us define.
Doing.
The value of our and upgrade the value of our development Q4 projects going forward. So very active program for the rest of the year new targets appraising, our current targets and also testing them. So we can upgrade the development queue future oil projects.
I would anticipate.
Fine on those lines.
Essentially we will do a DST it flipped payable as well.
Great. Thanks, a lot just what I was looking for thank you.
Thank you very much this concludes today's conference call.
Thank you for your participation.
You may now disconnect have a great day.
Yes.
Okay.
[music].
<unk>.
[music] growth.
Yes.