Q3 2021 Kosmos Energy Ltd Earnings Call
Good day, everyone and welcome to Kosmos Energy's third quarter, 2020 One conference call.
Just as a reminder, today's call is being recorded at this time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Kosmos energy.
Thank you operator.
Thanks to everyone for joining us today.
This morning, we issued our third quarter earnings release in this release and the slide presentation to accompany today's call.
Available on the investors page of our website.
Joining me on the call today to go through the material I'm being those chairman and C U E.
Oh sure Yeah.
During today's presentation, we will make forward looking statements that refer to our plans.
And expectations.
Well results and outcomes could differ materially due to factors. We noted in this presentation.
K and SEC filings.
Please refer to our annual report stock exchange announcement, and SEC filings for the details.
These documents are available on our website.
And at this time I will turn the call like its Amit.
Thanks, Jamie and good morning, and afternoon to everyone. Thank.
Thank you for joining us today for our third quarter results cool I'll run through the highlights for the quarter before handing over to Neal to take you through the financials. I will then provide a few closing thoughts in summary, before taking questions at the end.
<unk> on slide one.
A lot has been achieved at Cosmo since our last quarterly call in August we delivered several transactions that have advanced the company's strategy and significantly improved our financial position.
We'll talk more about the <unk> acquisition shortly but in summary, the acquisition is expected to materially increase our free cash flow from high margin oil assets, which we plan to invest in our portfolio transition to LNG at a time of rising global natural gas demand, while reducing debt.
The transaction is strategically consistent and financially compelling for cosmos and is highly accretive across all financial metrics.
In Mauritania and Senegal, we closed the <unk> transaction in mid August, which materially reduces our capital expenditure to first gas.
With increased production, including from the Oxy, Ghana transaction and higher oil prices. We now expect to fund our remaining capex the first gas through organic cash flow.
We expect the newly acquired assets in our base business to generate significant free cash flow from <unk> 21, and are currently hedging our growing production at attractive levels.
With <unk> growing in excess cash use to reduce absolute debt going forward, we expect to delever the balance sheet rapidly and we are targeting a leverage ratio of less than two times at year end 2020 to $65 Brent.
Using current oil prices that target would be around one five times.
And finally on this slide the recent transactions continue to strengthen our ESG agenda with growing investment in Africa across our portfolio aligned with our objective of supporting a just energy transition.
Turning to slide two.
The acquisition of additional interest in the Jubilee and 10 fields in Ghana accelerates Cosmos as strategic delivery across three key dimensions.
First the acquired assets generate significant free cash flow of $65 brand, we expect the asset to generate around $1 billion of incremental free cash flow between now and the end of 2026 over two times our initial investment.
At current prices Africa could be materially higher.
While we manage our business perform at much lower oil prices. The recent strength in brands and double UTI does highlight the considerable upside potential if OPEC plus continues to be disciplined on supply management over the coming years.
Second we expect the assets to materially enhance EBITDAX and cash flow, enabling us to grow the company organically, while reducing our absolute debt with rising EBITDAX in excess cash to further pay down debt, we expect the transaction to accelerate the pace of deleveraging to our target less.
<unk> of one to one five times.
Third we plan to use some of our increased cash flow to fund our growing gas activities in Mauritania, and Senegal, including our remaining Capex. The first gas on torture phase one.
On the right hand side of the slide you will see how the portfolio mix is expected to change as our LNG activities in Mauritania and Senegal ramp up.
We plan to use low cost lower carbon oil production to finance the transition to low cost lower carbon natural gas, thereby shifting the balance of our portfolio over time and increasing our exposure to the field with the strongest long term demand and a necessary part of the energy.
<unk>.
And our <unk> results earlier this year, we detailed five year goal to get production up to around 100000 barrels a day.
Day of oil equivalent by 2026, when phases, one and two are towards your expected online.
Clearly this transaction accelerates our production goal by several years, whilst at the same time strengthening the balance sheet.
Turning now to slide three.
We announced the Oxy Ghana transaction on the 13th of October with our intention to fund the transaction through a mix of new equity of new senior notes with a green shoot we issued around 43 million shares in total raising approximately $140 million of equity in total.
The shares were issued at a small premium to the previous night's closing price with a transaction multiple times oversubscribed with strong demand from new and existing investors in Europe and the U S.
We launched a senior notes offering the following week issuing $400 million of five and a half year notes non cole II, which were priced at 775%.
The issue was also heavily oversubscribed with strong demand from both high yield and emerging market investors.
I'd like to thank our equity and bond investors for their support about the deal itself and the subsequent financings, which have put the company in the balance sheet in great shape to execute our strategy, it's very much I appreciate it.
The bottom of the slide you can see the impact of the transaction on a near term metrics.
Pro forma for the assets acquired we expect our year end exit production to be greater than 75000 barrels of oil equivalent per day with pro forma EBITDAX of over $900 million for 2021, resulting in year end pro forma leverage of around two five times.
Turning to slide four.
Operationally, we continue to make good progress in each of our production hubs.
In Ghana Jubilee is currently producing above 80000 barrels of oil per day gross with a J 56 producer coming online in July the JV 55 water inject online in September.
The second Jubilee producer is currently being drilled and is expected to be online before year end. This should result in Jubilee production exiting the year above 85000 barrels per day.
At <unk> gross production is currently around 30000 barrels of oil per day. The gas injected came online last month and is expected to support current production levels.
And so again a gross production is currently around 30000 barrels of oil per day. The partnership finished Saba reliability projects in the third quarter with completion of the accumulate upgrade project expected this quarter.
The first of three planned infill wells and the accumulate complex was completed in August with Hookup currently in progress.
In the third quarter, the operator began drilling the second well, which is expected to be online in December.
The third plan well is now expected to be deferred as the rig is being utilized to plug and abandon an existing well an extra <unk>.
As required to mobilize for its next contract before it can complete the drilling of the last well we do expect the output from the first two wells will largely compensate for any deferral of a third well given reservoir down to the high end of expectations from the first two wells.
In the Gulf of Mexico as previously noted production in the quarter was impacted by Hurricane Ida, which resulted in around 4000 barrels of oil equivalent being shut in versus our previous guidance.
While none of Cosmos as infrastructure in the Gulf of Mexico was damaged in the storm lengthy shut ins arose from key pipelines and receiving terminals being offline leading to basin wide shutdowns in the aftermath of the hurricane.
Production across our gum assets was restored to pre <unk> levels by the end of September we should allow for a strong rebound in the fourth quarter.
We are currently in the process of drilling the wins of our appraisal well with the results expected later this quarter.
Turning to slide five which looks at told you how world class gas development.
As you've heard me say in the past so choose the right projects at the right time.
The chart on the last is one you've seen before.
It shows the torches Orion project because of where it sits on the cost curve.
With phase one gas also to BP, the real upside potential as the phase II, where we have a huge amount of optionality because the gas is currently in contracted.
We believe that towards your phase II can deliver gas engine pan at a breakeven cost of just.
Over $4 per Btu. So therefore competes very favorably with other new LNG projects expected to start production in coming years.
The chart on the right shows the project is due to come online at the right time with global gas demand continuing to grow strongly as the world exit the restrictions of the pandemic.
The chart shows the forward curve for JK am in TTS today versus the forward curves a year ago.
If we ignore the near term elevated prices and look further out to December 2023. The chart shows the re rating of future price expectations with both JK and Tcf leveling out at around $10 per Btu approximately double the same from a year ago.
This is fundamentally about robust long term demand for gas is it displaces more carbon intensive alternatives and acts as a baseload partner to renewables in the energy transition.
As demand grows long term gas prices are likely to be supported at a level necessary for the marginal cost of supply to meet that demand.
A recent research note Morgan Stanley predicted LNG demand is set to rise twice as fast as supply through 2025 with price is expected to be 60% higher over the next five years versus the last five years on average.
In this environment and the lowest cost gas projects should come out on top with torture, you're making good progress another significant gas discoveries, we have in Mauritania and Senegal, We believe Kosmos is well placed to take advantage of the strengthening market dynamics.
We've contracted phase one volumes of the slope of around 10 brands, which means we'd be selling phase one gas at around $8 per btu at current oil prices.
For phase two we have yet to sell the gas, which gives us greater flexibility on pricing, whether we choose long term contracts different indices spot sales or a combination.
Turning to slide six Torchy phase one continues to make good operational and funding progress with four key work streams all moving forward.
On the floating LNG vessel mechanical completion activities have commenced with instrument loop checks.
Control assess commissioning is expected to commence in the first quarter of next year.
On the CSO topside integration and hull and living quarters mechanical completion activities have commenced pre commissioning activities are expected to commence later this quarter.
On the breakwater, we commenced fabrication of 'twenty or 'twenty, one case loans with 12 now installed Jesse powering is expected to commence later this quarter.
And finally on the subsea the Nouakchott in Dhaka Marine supply bases are being established this is expected to enable the offshore installation campaigns commence in the first quarter of next year.
As you can see in the top picture on the slide the hump terminal Brightwater is now starting to take shape.
Image shows the caisson and position and you can see the impact on the sea state on the protective side of the Brightwater.
The bottom picture on the cover slide of today's presentation shows the top science module is being loaded onto the ipso another significant milestone for that key work streams.
With regards project funding, we've completed the <unk> transaction and now have a clear financing paths the first gas on torture.
The CSL transaction materially reduces our outstanding Capex on the project with all 2021 cash calls now funded through year end and the remaining benefit expected in 2022.
As mentioned earlier, we now expect to fund our extending Capex. The first gas with the free cash flow from our base business, which we are currently hedging at attractive levels.
We're also working on the NFC loan refinancing targeting completion around year end.
As BP plans on its earnings call last week, the project partners and the governments of Mauritania and Senegal are working hard to advance phase two of the project and we expect a final investment decision in 2022.
I'll now hand over to <unk> to take you through the financials for the quarter.
Thank you and turning to slide seven.
Production of approximately 49000 barrels of oil equivalent in the quarter was in line with expectations taking into account the unplanned downtime in the Gulf of Mexico from Hurricane either Andy talked about which had an impact of around 4000 barrels of oil equivalent per day in <unk>.
As guided last quarter sales volumes for <unk> were expected to be low due to the number of cargo lifting which resulted in a significant under lift of around $1 5 million barrel at the end of the quarter.
Wholesale volumes, coupled with a working capital draw partly related to the under lift and partly related to cash payments in Mauritania and Senegal prior to the transaction closing led to a cash outflow within the quarter.
The lower realized price in <unk> reflects regular monthly settlement of hedges, despite lower sales volumes in the quarter.
With $5 five cargoes expected in Ghana, and <unk> in the fourth quarter and down production restored to pre hurricane iron levels, We expect a significant cash inflow in the fourth quarter as we close out the year with more production and selling at a significantly higher realized prices.
The rest of the line items were largely in line with prior guidance.
Turning to slide eight.
You've heard both Andy and myself talking about our commitment to reducing leverage with a target.
Between one and one five times.
The oxiana transaction helps to accelerate delivery of that goal.
The equity debt mix, we put in place to execute the Downer transaction Lindsay acquired assets at a leverage multiple of less than two times.
Trailing 12 months EBITDAX.
It's not the transaction was deleveraging immediately.
The chart on this slide shows the pace of expected deleveraging through year end 'twenty one into 'twenty, two as we benefit from growing production and higher oil prices, which we are able to lock in with new hedges.
We have started to hedge the acquired barrels with two way collars for $70 per barrel and a ceiling of around $90 per barrel.
This gives us EBITDAX and cash flow visibility, both of which should positively enhance leverage over the coming months.
By the end of next year, we are targeting leverage of around one five times at current oil prices, which would be below the level at which we exited 2019.
Before any benefit from new production <unk> in.
In 2023.
With that I'll, let Andy wrap up today's presentation.
Thanks, Neal turning to slide nine.
As I said in my opening remarks, it's a transformational time for Cosmos and I'm proud of what the team has achieved within the last quarter.
As I look back 2020 was a year of survival for the sector, where cosmos took the opportunity to reposition its portfolio to be fit for the future.
2021 has been a year of resuming operational activity and strengthening the balance sheet, which has been significantly enhanced by the two major transactions I've talked about in today's presentation.
Looking ahead 2022 is a year in which cosmos can really sell to thrive we have the right portfolio for the future and a clear pathway to unlocking shareholder value.
Looking at some of the important milestones, we see through <unk> and into next year.
First we expect our base.
Business assets and the newly acquired assets from the <unk> transaction to generate significant free cash flow, which we plan to use to fund the torchy project and to pay down debt.
As we move through 2022 first gas at <unk> comes into view, where the bulk of the capital funded we also expect to take FID on phase II during the year.
Now 2021 hedges are now rolling off and we are able to hedge our growing production base is significantly higher levels, giving us increased visibility to enhance future cash flows.
And finally building on Neal's comments from the previous slide we are committed to deleveraging the company with 2022 year end leverage of around one five times at current oil prices.
Thank you and I'd now like to turn the call over to the operator to open the session for questions.
Thank you.
To ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the queue. You May press star two if he would like to remove your lines in the queue and fair participates using speaker equipment. It may be necessary to pick up the handset before pressing the star.
Our first question is from Charles Meade with Johnson Rice. Please proceed.
Good morning, Andy.
Neil.
Hi.
My first question on the.
The phase two for.
<unk>.
Are there are there any significant quest.
Questions are unknowns you guys are still.
Grappling with or Alternatively use this just.
You have to follow the process, but this is a.
This is Ed.
This is complete.
Completely.
Okay, Yeah, I'll take that question I think.
We're clear on the approach, which is we pre invested in the infrastructure to enable both the phase one phase two.
Developments.
The.
Objective therefore is to ensure that we fully optimize the phase III.
And to do that we need to ensure that we got the right approach for the subsea pipeline of Shaw.
<unk>.
The LNG solution I think these the work on the offshore side of it as well described we know exactly how we're going to get the most out of what we pre invested in in terms of the FAA. So in pipeline. So it was a minimal incremental spend there and we're now working through the commercial Nick.
Locations to optimize the the LNG solution so.
That's really the key activity too to progress and with that in place that then enables us to move forward. So I would say that we're in.
We're certainly in a position where we can complete that work in a timely manner and clearly the external environment today is helping all parties.
Ourselves BP and the NSS.
Got it.
Thank you for that and then.
Follow up question on your on your activity levels your capex levels.
From the outside looking in it looks to me like your activity levels.
Across your portfolio in 'twenty, two we're going to be about.
About the level that we're seeing for Q4 and I guess my question is is that.
Is that a fair reading is is <unk> kind of activity and spending.
A reasonable baseline to two.
To use for 2002 levels.
Yes, let me, let me take that Andy Charles.
Yes, I'd say the piece that <unk> doesn't reflect in terms of the implications for 'twenty two is really around sort of Mauritania, Senegal, and so I think from Mcdonough business.
Activity level will be the same EG spend as sort of moves around by quarter, but broadly will be similar to sort of.
The levels, we spent this year as well as within within the Gulf of Mexico.
We will be spending a bit more in Mauritania, Senegal to get sort of the phase one.
First gas when we've talked about that around having $300 million left to go.
<unk>.
DSO transaction in the 'twenty two 'twenty three.
A timeframe.
Thanks for that added detail Neil.
Yes sure.
Our next question is from Neil Mehta with Goldman Sachs. Please proceed.
Hi, David can you hear me okay.
Yes, we can hear you well mail thanks, Andy so far.
First question is just around <unk>, and how youre thinking about phase two and specifically the economics of phase II relative to phase one I think that the Brent slope on phase one is lower than maybe some would have desired although the economics will be better if we sustain an $80 Brent type of environment, but phase two it feels.
There could be some outsized economics talk about where we are in terms of the gating process to getting to phase II and just how you think about the contracting environment, especially with global LNG prices, having firmed up so much.
Yes, Thanks, Neal I think.
As I said to Charles I think we were clear on.
<unk>.
The basis for the expansion of phase two the minimum amount of capex to put into the.
The expansion and using the capital that we've invested in phase one so bad.
That enables some very low <unk>.
<unk> costs, which is what we showed in the presentation. So as you look around the world for brownfield expansions, we believe it.
Is one of the most cost competitive projects around so hence the desire of the partnership to move forward. So it's advantage from that perspective, and then I think from a cosmos perspective, its advantage because we have flexibility now on how we price.
That gas.
Yeah.
We have flexibility because we have the cash flows clearly from phase one.
The funding for the phase III.
Is considerably lower from.
<unk> phase one we've talked as a partnership of a number growth being less than $1 billion.
So from a <unk>.
Funding perspective, there are no sort of finance financing requirements.
Cause us to not optimize the pricing so I think youll see us.
Going forward now look at how we capture the current market conditions and the best way.
As I said in my remarks I think.
We have opportunities now to look at different indexation, we have the ability to look at some gasoline contracted longer term.
Some proportion of the gas being been spot so we.
See it as a significant opportunity now to capture what I believe will be a strong LNG market.
Going through the rest of this decade.
<unk>.
Firmly believe in.
Engineering sense.
It's the right project at the right time, because it has a very low cost of supply and it's the right project at the right time, because its entering the market. When there were very few competing projects and therefore, it can benefit from a very good price environment. So I think all of that has to come in as you sort of.
We see it as a major upside.
And there are a lot of moving pieces with the business certainly.
<unk> is.
In flight.
The Oxy Ghana transaction.
He is in motion as well and obviously the oil price, but is there any way.
You guys can help us understand what the mid cycle free cash flow power of this business looks like.
In a more constructive commodity price environment or at a minimum at the curve. Once you have phase one on.
And.
And layered in the gone assets as well.
Yes, I guess the way I'd answer that.
Sort of given guidance around sort of phase, one and phase two free cash flow of around sort of $150 million to $200 million of free cash flow per year and the way to think about it is we've got to spend to get it online than phase one really sort of funds phase II and then once phase one and phase two are online and you get sort of that 150 to 200.
Million dollar.
Number out of that for sort of 20 ish.
Years out of that business I think the oil prices.
Oil business should be pretty easy.
The model at this point.
We are in all of the all of the businesses between Ghana.
EG.
Yeah.
In the Gulf of Mexico, a broadly similar in terms of operating costs and sort of the 10% to $15 range additional.
Additional sort of maintenance capex for.
To keep production at sort of that now so the 75000 barrel a day level and then some cash taxes, particularly.
On the front end.
In Ghana and the EG.
And then we will start paying cash taxes at some point within three to four years or after three or four years in the Gulf of Mexico.
So there's a number of moving parts on that piece, but all of them solidly produced free cash flow down to sort of day.
$40 $50 oil price environment, and then you bolt on sort of the free cash.
On the gas business in 2026 plus.
And then Neil just remind us again, the oil price sensitivity.
Yes.
It's around $100 million unhedged every year.
For a $5 change.
$5 change in the oil price yet.
Okay, great. Thank you.
Our next question is from Bob Brackett with Bernstein Research. Please proceed.
Good morning, I've got a short term question and then a longer term question on the short term can you talk about the path to the refinancing of the NOC loans by year and anything we should watch for worry about.
Yes, it's above it with its sort of a lot of the discussion that we're in with a number of banks and financial institutions to get that across so there won't be really any milestones between now and then it's really been a function of.
Being able to have the conversations yes, we got we needed to get the PSA transaction done before we can have the conversations on the NSE and then clearly the last few weeks or months.
We've been working on the financing related to the.
The oxycontin transactions.
Yes.
Theres no other sort of milestones expected.
<unk>.
Once we.
Have a deal done.
Alright.
And then the bit of a longer term question. If I think about winterfell going to appraisal are you maintaining the ability to convert that appraisal well into a development well or is that something you shy away from.
No we are maintaining that optionality.
Yes, so as you rightly said we have the first.
Discovery well drilled.
Drilling.
The second fault block.
And we're currently operations are underway.
Once we have the results of that week or that have the opportunity of.
Of an early production scheme that brought those wells.
Back online.
Great Thanks for that.
Our next question is from Nick Dano with Roth Capital. Please proceed.
Alright.
I think from a thank you for taking my questions Scott.
I'd like to ask if I may.
The first one is for you.
If I go back a year ago, when the VPN arms, two skus, the scope or talk to.
Make it.
It's more of a push button.
No of course.
Maybe a little sense Latino markets.
Quite a bit since then and just wondering if you can say about that decision.
Still makes sense and then I kind of like to ask a follow up to last question, how should I be thinking about future phases.
Talk to you in Armenia.
The personality to do like a brownfield development after phase two mode to.
I don't think we've got anymore. So what.
The other phases and look like and then.
My third question is form.
Is it for me.
Got it.
Listen I think week left for either partners have gone up.
Preemption rights.
Can we kind of like.
Thank you Bassil <unk> exercise at this point thanks.
Yeah, Nick good questions I think.
Yes.
Fundamentally every dollar we put into Cosmos has.
Highest possible return.
And our objective on the next phase of torture, you with absolutely deliver the most carefully efficient scheme and the scheme. We've described it.
The expansion to two <unk>.
5 million tons, essentially sort of utilizing fully the infrastructure. We have in place is I believe absolutely the right decision.
<unk>.
Where.
We're driven by ensuring that we create the highest possible returns and generate the most value. In this scheme is the one that actually does that so I think it's absolutely the right objective irrespective of the price.
Environment, clearly at a higher price world will make a much stronger margin.
And that's great for any day of the week I think when you then look beyond that I think we would then look I think for the next phase as where phase three to sort of fully optimize the resource base, which can support around 10 million tons per annum and I think thats why.
You then make the next step up you've fully sort of utilize the existing offshore infrastructure in terms of the <unk> in the pipeline.
How do you then increment two to 10 million tons it will require additional facilities offshore.
It will require additional pipeline how do you then and then integrate that into the existing hub terminal. So I think that to me is a very logical process yeah.
<unk> enabled the project through the first phase phase two is the logical brownfield development to fully utilize the invested capital and delivers the highest return the third phase should then be about the long term expansion to fully utilize all of the <unk>.
So that was the objective I think we've stuck to that plan in a really rigorous way.
I believe through that we've optimized the through that the rigor of that approach, we have optimized the capital efficiency and therefore the value creation.
Neil.
Yes, so just on the preemption Nick Yes, you are right I mean, they have there's about a week.
Left within that.
That option and again, we're not going to opine in terms of what the partners do I think.
If you sort of step back the transaction for us was around again.
Access to a materially larger stake and garner, particularly in the Jubilee field.
We've gone up from 24% to 42%.
Well Walt preemption as possible.
The good thing from our perspective as well.
We retained a much larger stake and do believe which is where we see the largest sort of near term upside.
And the impacted largely beyond a reduction in the 10 asset.
It is still outstanding and we'll know when.
<unk> gone through.
Okay.
And then the thought sensitivity.
Since the pvt.
You gave.
Sure.
Just a few minutes ago seemed levels.
Oxiclean one right.
Shouldn't that be a bit higher now with the oxide with the increased stake in Ghana.
Yes.
Yes, I mean, there is yes, I mean, the number hasnt materially.
The change in terms of maybe there is another $15 million to $20 million.
Or for $5, but again, it's just sort of not a huge overall chain.
Alright got you. Thanks, so much.
Our next question is from <unk> <unk> with Barclays. Please proceed.
Yes, hi, Thank you. It's a couple of questions from me just first off how should we think about shareholder returns is that something that can come and leverage falls below one five times EBITDA. What other considerations are metrics, we think over the trigger for that catalyst.
And then just unfortunately I was just wondering with the carbon intensity of production and what you expect it to be I think there is scope for you to look at marketing carbon neutral cargoes from from that project.
Yes.
I'll talk to shareholder returns in the naval chime in.
We talked about getting to a leverage range of one to one five times.
Clearly when we're in that range I think it is a valid conversation to have and I think the only commentary out on top of that as it needs to be sort of sustainable. So how do we get to a world where we can see a sustainable leverage of one to one five times and.
When we're in that will we will then have to have that debate clearly our objective is to get there as fast as we can.
And I think we're pretty clear today on how well we're doing that while supporting the transition of the of the business from from purely a low carb and.
Low cost oil business to a balanced portfolio.
The only thing I'd add on that Andy.
Neil's question earlier, and the business generates a lot of free cash flow.
And oil prices.
Where we are right now so as we do get leverage at that point.
Within that range by the end of next year, we have gotten the capital from <unk>.
Largely behind us at that point and then additional production on the <unk> I think that's the appropriate time to have that conversation and again I think.
We'll be there to well positioned to do it at that.
Timeframe set and there's still more work to be done on our end, but again, we've got pretty clear line of sight to the delivery of that recently.
Short timeframe.
Yes, when you look at.
Ed how tall too.
Benchmarks from a carbon intensity perspective.
It's pretty good and when you look across the range of both existing.
Projects and new projects that are being brought on.
It's got a.
Significantly better than average carbon.
Intensity. So we feel good about it from that perspective, and then looking forward to the marketing of.
Carbon neutral cargoes.
Yes. It is something that we're looking we're looking into clearly we're a little ways from that point in terms of having those cargoes on on the water, but it would be another opportunity I think for us to get a differential price for the cargoes and that's ultimately what it is initially the cargos.
Being sold too to BP. So in that sense that that's that will I think the opportunity comes when we start to think about phase two.
And cargos.
We may market through different.
Mechanisms I think Thats why you can start to see some.
Yes.
A way to differentiate the cargos.
See a potentially a more attractive price. So I think thats, where we would focus that effort on James is sort of the longer term view.
I've told you in particular the unmarked at play.
Phase II cargos.
Okay. Thank you very much.
As a reminder, the star one on your telephone keypad, if you would like to ask a question.
Our next question is from Mark Wilson with Jefferies. Please proceed.
Hi, good afternoon gentlemen.
That's about right.
Uh huh.
Discretionary.
Around the time of the deal.
Okay.
Sure.
Do you believe.
Any reason to think that.
Okay.
Steel.
Can you remind us on the timing of that.
Hum.
Ghana, and whether that might be.
And then lastly.
And you mentioned about.
Ken.
Jack.
<unk> current levels.
30000 level should be looking at.
Great.
Okay.
That's really that's undergone a site and then.
Then lastly.
Any commentary regarding the.
Okay great.
Okay great.
Yes.
I think that's it.
Okay.
Thank you.
Alright, Thanks Mark.
Yes going through garner in terms of the sort of three areas. You mentioned I think <unk> been very clear on on operator ship.
We have a very good working relationship with with Tullow.
We've seen as a result, I think of a strong partnership significant progress being made in terms of the operational delivery.
In terms of reliability in terms of the water injection and gas offtake in actually drilling performance. So.
That's what we're focused on now is to ensure that that partnership continues its great for GE and PC to have a large stake as well as part of the transaction.
We have the same partnership as it were going forward now and our objective is to ensure that we continue to leverage that partnership to create.
More value through.
Higher production good cost management.
And delivery of the targets in terms of the of.
The second rig we're clearly in the debate at the moment with.
With our partners on the drilling program.
I think the timing is probably around year end.
Why.
It allows us then to fully utilize.
Our rig string on.
On <unk> itself, where we will be starting the drilling at Jubilee southeast.
And then there are other opportunities that we wanted to pursue in particular.
Think across the existing areas.
Under development in Jubilee and 10, so I think youll see us.
And make that decision towards the end of the year, and then being able to sort of open up those those work fronts I think what we need to stay focused on at the moment is to ensure that we deliver continue to deliver really good drilling performance and that comes by having a very clear program is well described.
And the targets of delivering what they said they would do but youre absolutely right longer term.
We see more opportunity in Jubilee more opportunity in China in particular in Jubilee on Jubilee Southeast.
Then.
In terms of obtaining youre absolutely right.
We completed the gas injection enzyme that's about sort of supporting the enzyme.
<unk> production going forward improvements in rate from 10 will come from additional wells and so it is a balance of a one rig program, what we drill on Jubilee water, we drill on 10, and how do we optimize that program in particular as we look forward to 2020.
Three.
We will then start to sort of want to focus on Jubilee southeast how do we bring the same focus to 10, so I think youre going to see.
A more rapid increase in production in Jubilee as sort of a longer term ramp up in 10.
In terms of 'twenty, two will depend on the ultimate optimization of that of that rig program.
So turning to Mauritania and Senegal.
You're right obviously, our initial focus is our focus at the moment is on phase one getting phase one on production on time.
Sure.
And ensure that we are where we have a phase two that is moving forward in parallel and I feel good about both of those spaces. We've clearly got significant gas resource in the north in gorilla.
Mauritania and then the south.
In Senegal.
Senegal assets or anger is ultimately about a domestic gas scheme first.
It's a scheme, where there's real synergy, whereas the country's agenda, replacing diesel burning with with gas. This is a gas resources close to the doctor up an insular.
And so the work that BP and ourselves are pursuing is doing the front end engineering.
Round, describing that scheme and then it's ultimately a conversation with the government around the commercial basis for that moving forward.
In.
In Mauritania Barilla.
Again, a very significant resource and our objective there is to find the right way to advance that.
That project.
Be more of an export project yes.
Much more population in Mauritania.
Lower energy demand that will be gas for domestic consumption coming from from torture. Therefore, it is about.
Do we have a follow on project and Brown, which leverages the technologies and approaches that we've established for for torture, So again in a world where.
The sustained long term demand for gas.
And few areas of the world that have world class.
Our low carbon gas gas in Mauritania and Senegal.
Barry.
De minimus amount of C. O. Two this is very LNG friendly gas how do we facilitate.
Its development so that.
Those are the two areas, where we're working on now with with both of those projects.
And.
I'm optimistic with both I think we've got a huge resource to develop there.
And the timing is sort of coming into the frame because of the need for that gas longer term.
Okay. Thank you very much I'll have Doug.
Final question from Matthew.
Please proceed.
Yes, hi, there.
Thanks for taking the question just just one to finish off and that was.
Just whether you were looking into.
Revenue sharing a toll on your cargoes in Ghana in particular, because it does seem as though the market sometimes struggles too.
Yes, the underlying sort of free cash flow.
Earnings potential of the company just due to the quarter on quarter volatility sometimes field.
Share price reaction.
Almost best in that vertical based upon.
The nature of the quarter and I think we've had a few questions on this call around the underlying sort of free cash flow potential of the business. So just wondering if.
Revenue sharing agreement is something you're considering at this stage.
Yes.
Thanks, Matt.
Good question, it's something obviously, we're cognizant of and actually has been almost exacerbated as production levels in Ghana.
The decrease in the early part of this year in increasing the production actually will help even out.
That issue, so where it should be less of a concern and then to your point, we are planning to lift our own.
They're also in terms of the acquired barrels plus our existing barrels.
If we put them together.
We will.
Also get rid of some of the revenue.
That is the timing issues that will have much more regular.
Volume going forward. So it is something that were attentive because I agree I think it does create a bit of a distraction.
And some of the quarterly.
Numbers and it will as we look to 'twenty two it does naturally.
Become less of an issue is we're both growing production and actually co list.
Barrels.
The ones that we acquired plus our existing barrels helps smooth that out to where we don't have as much variation.
Yes, and <unk> and beyond.
Sure understood. Thanks.
Thanks, Matt.
And Sir no further questions at this time.
Okay.
Thanks.
Joining us today.
At this time and thank you for your question.
Okay.
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