Q4 2021 Talos Energy Inc Earnings Call
[music].
Good day and welcome to the Telus fourth quarter 2021 earnings call all participants will be in listen only mode.
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Like to turn the conference over to Sergio Please.
Please go ahead.
Thank you operator, good morning, everyone and welcome to our fourth quarter 2021 earnings Conference call.
Joining me today to discuss our results are Tim Duncan President and Chief Executive Officer, Shane Young Executive Vice President and Chief Financial Officer, and Robin fielder Executive Vice President low carbon strategy and Chief Sustainability Officer.
Before we get started I'd like to take this opportunity to remind you that our remarks today will include forward looking statements.
Actual results may differ materially from those contemplated by these forward looking statements.
Factors that could cause these results to differ materially are set forth in yesterday's press release and in our Form 10-K for the year ending December 31, 2021 filed with the SEC yesterday.
Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
During this call we may present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures.
As included in yesterday's earnings press release, which was filed with the SEC and which is also available on our website at <unk> Dot com and now I'd like to turn the call over to Tim.
Thank you Sergio.
First discuss our results for the fourth quarter of 2021, we delivered a strong operational and financial performance to conclude 2021, starting with achieving another record quarterly production milestone of $68 7000 barrels of oil equivalent per day. Our production is favorably oil weighted for the current commodity environment at almost 70% oil and <unk>.
75% total liquids our margins were very strong we generated adjusted EBITDA per barrel of oil equivalent of over $30 or over $46 when adjusting for the cash hedge losses in the quarter, which demonstrates the benefit of our strategy of adding new high margin oil weighted production through tell us owned larger.
Fixed cost infrastructure lastly, we generated very strong $93 million of free cash flow in the quarter.
For the full year 2021, we also delivered record production of $64 4000 barrels of oil equivalent per day for the year, Despite third quarter downtime associated with Hurricane Isaac.
An annual increase of approximately 18% over 2020. This led to adjusted EBITDA of over $600 million in free cash flow of approximately $135 million. This strong performance allowed us to significantly reduce our leverage ratio and increase liquidity throughout the year and Shane will provide those details shortly.
Operationally our team had an outstanding year. It goes beyond their efforts on production and cost control alone recording zero lost time safety incidents in 2021, and continuing to drive down recordable from already strong levels amongst our offshore peers.
For the third consecutive year, we recorded zero hydrocarbon releases of more than one barrel offshore and further reduced our <unk>.
Intensity, putting us ahead of schedule to achieve our 30% reduction target by 2025 from our 2018 baseline and on track to meet our stretch goal of a 40% reduction.
Turning to our carbon capture business as a reminder of our entry into this attractive business opportunity task conducted an in depth review in late 2020, and early 2021, and how we can best utilize our skill set to contribute to the energy transition into de Carbonization R.
Our expertise with conventional geology combined with our operational capabilities made carbon capture and sequestration and natural fit.
We rapidly formed a team and very quickly we achieve success being named the operator of the state of Texas first offshore carbon sequestration site or the GLM site, just offshore of Jefferson County.
That milestone, we've accelerated progress and we've quickly established a strong portfolio of both physical process projects as well as alliance and partnerships across the value chain.
In the fourth quarter and subsequently in the early weeks of 2022, we also made significant strides with our carbon capture business and announcing a technical alliance with Technip FMC. Our first point source projects and then our next regional hub project.
The technique the lines will accelerate front end engineering design or feed processes during project development phase across our Ccs portfolio moving forward, it's going to stay but significant time and money.
The project with Freeport LNG, one of the largest LNG export facilities in the world will develop a custom point source solution to capture transport and sequester Cotwo onsite at the facility along the Texas Gulf Coast. This.
This will be one of the first commercial dedicated sequestration projects, along the Gulf Coast and a model for Decarbonising, an important source of global energy.
And then most recently, we announced the Riverbend Ccs project in collaboration with Enlink Midstream, which is the first Ccs projects along the Gulf coast to offer an integrated transport and sequestration solution to potential customers does he outstanding geology, including a 3000 foot saline aquifer column and a large surface.
<unk> acreage footprint the project called significant capacity of over 500 million metric tonnes and it's coupled with Enlink has over 4000 miles of pipe that are connected to a large customer base of industrial emitters. It's one of the largest announced projects to date and the first with a fully integrated midstream is sequestration solution combined.
The Riverbend project is strategically located along the Mississippi River corridor between Baton Rouge, and New Orleans, one of the highest industrial emissions regions in the United States. It provides a huge addressable market.
Look forward to advancing this project in the coming months and we've already begun engaging with potential customers.
In our last call. We were confident we will continue to build out the portfolio of Ccs projects and become a visible market leader, we're thrilled with the progress we've made and are continuing to pursue a variety of business development opportunities across the Gulf coast, while advancing key milestones in our current projects.
To further drive that business, we proactively added a new key executives from our team to lead our Ccs efforts as well as our broad sustainability efforts across the company.
Robin fielder brings a diverse background of technical and commercial expertise ranging from infield engineering roles to most recently the CEO of two publicly traded midstream companies. So I think she's going to do a tremendous job building, our ccs business and positioning us as a sustainability leader Robin is joining us on the call. This morning is available for Q&A at the conclusion of our prepared remarks.
Turning back to our upstream business with yearend reserves, we concluded the year with 162 million barrels equivalent of proved reserves, which was approximately 84% proved developed and 69% oil.
This reserve base, how the PV 10 value of approximately $3 9 billion at year end utilizing FCC prices of $66 55 per barrel and $3 60 per <unk>.
At a price sensitivity of $80 per barrel more reflective of today's commodity environment. Our proved reserves carry a PV 10 of over $4 9 billion.
These reserve figures are fully audited and include all P&A associated with those properties in the report.
Shortly we hold an additional 60 million barrels of probable reserves with a PV 10 at SEC prices of $1 4 billion, a reserve basis, very solid and we see significant unrecognized fundamental value, we aim to unlock in the future.
With that I'll turn it over to Shane to address some of the financial details of the quarter and the full year as well as an update on our 2022 operational and financial guidance. I will then conclude with more details on our 2022 capital program and some closing remarks.
Thank you Tim and thank you everyone for joining the call. This morning.
This morning, I will discuss our fourth quarter and full year 2021 results.
In addition, I'll cover our guidance for 2022 as well as our financial goals for the year.
Production for the fourth quarter averaged $68 7000 barrels equivalent per day and was highly liquids weighted at 77%.
This is at the high end of the production range provided in our operational update earlier this year and benefited from efficient operations and extremely high uptime in the quarter.
Lease operating expenses for the quarter totaled approximately $75 million or less than $12 per barrel equivalent.
While recurring cash G&A totaled $16 $4 million or less than $3 per barrel equivalent.
As a result of strong production highly high realized prices of approximately $74 per barrel and over $5 per Mcf and competitive cash costs, we generated adjusted EBITDA of $194 million for the quarter.
Further adjusting for realized hedge losses, the core operating business generated adjusted EBITDA of over $291 million.
These results equate to strong netback of over $30 and $46 per barrel equivalent respectively.
Net income was a positive $81 million equating to <unk> 98 per share.
Adjusted net income was $37 4 million or <unk> 45 per share.
All of these after realized hedge losses of approximately $100 million in the quarter.
Capital expenditures totaled $64 $2 million, resulting in free cash flow before working capital of just over $93 million during the quarter.
Turning to full year 2021, panelist generated average production of 64 4000 barrels equivalent per day again highly liquid weighted and approximately 18% over 2020 production levels.
Adjusted EBITDA for the full year was $606 $5 million inclusive.
Inclusive of the impact of $290 million of realized losses from legacy financial hedges entered during the early COVID-19 pandemic.
Capital expenditures were approximately $339 million for the full year, which was below the low end of our 2021 guidance and equated to a 56% reinvestment rate.
Ultimately palace generated free cash flow of $134 $5 million for the full year before working capital.
In 2021, we used a significant portion of our free cash flow to repay borrowings under the company's credit facility.
Over the last three quarters <unk> rapidly reduced leverage by almost one full turn and reached a leverage ratio of approximately one seven times at year end.
During 2022, we expect to continue to deliver strong free cash flow and we'll continue to prioritize further debt reduction.
To that end, we expect the company should achieve approximately one times net debt to EBITDA by year end 2022, and we will be within our one to one five times target leverage range over the next quarter or two.
Finally liquidity built rapidly over the course of 2021 with approximately $135 million of free cash flow before working capital and the addition of two new banks to our credit facility.
As a result year end liquidity stood at $473 million.
I'll now address some of the details of our 2022 guidance disclosed in yesterday's press release.
Starting with production.
We expect daily production to average between 60% and 64000 barrels of oil equivalent for the year.
Roughly consistent with our 2021 production levels.
Factors, including both planned downtime and recent third party unplanned downtime negatively impacted 2022 production guidance by approximately 3% to 4000 barrels equivalent per day.
The planned downtime relates primarily to the previously disclosed HP, one dry dock process, which will have a two to 3000 barrels equivalent per day impact for the year.
The HP one floating production unit is the vessel that handle volumes from our Phoenix and tornado fields.
For regulatory requirements the vessel undergoes maintenance every several years of 45 to 60 days.
During which production is deferred.
This drydock window will begin in the second quarter and will be completed during the third quarter.
This process addresses key regular maintenance items, which in turn extend field life and contribute to the fields otherwise extremely high uptime.
Second our full year forecast includes the impact of recent third party midstream downtime from Eugene Island pipeline system in the first quarter of the year.
We expect <unk> to return to service imminently and that it will result in a three five to 4000 barrels equivalent per day impact the first quarter and approximately 1000 barrels equivalent per day over the full year 2022.
For 2022, we expect cash operating cost of $300 million to $320 million in cash G&A expenses of $68 million to $73 million.
Operating expenses are inclusive of approximately $20 million of HP, one drydock related costs as well as our full year expectations for cost inflation.
G&A also includes incremental expenses over 2021 to allow for the additional build out of our rapidly growing carbon capture business.
Capital expenditures for the year are expected to total between 450 and $480 million roughly.
Roughly 65% of the program will be invested in asset management.
Lower risk infield development around our own infrastructure.
And high impact appraisal and exploitation projects.
The balance of the program will be invested in gmg land DNA Ccs and other capitalized items.
Capital expenditures are expected to be slightly weighted to the second half of the year. When we expect to have our open water drilling operations active.
Due to timing of a portion of the drilling program and completion lead times approximately 50% of the 2022 drilling and completion investment will come online and begin generating production adds for 2023 and beyond supporting our future production growth.
On our Ccs business, we will be disciplined and measured and expect to invest approximately $30 million during 2022.
This year's capital program is exciting for Telus.
It includes spending to support our base production as well as investing in production adds for future years.
It exposes capital to material resource additions through the drill bit and progresses, our leadership position in Gulf coast carbon capture and sequestration.
Our reinvestment rate for 2022 is expected to be approximately 55% when looking at upstream investments alone with additional 4% to 5% when factoring in investments in carbon capture and sequestration.
Given current market conditions, we expect this plan to deliver significant free cash flow during the year and as previously mentioned our primary objective will be continuing debt paydown.
We expect this to result in reaching approximately one times leverage by year end 2022, ending the year with lower leverage and greater liquidity than <unk> was pre pandemic.
On the equity side trading liquidity and tallow stock has significantly increased throughout 2021 and is now 4% to five times the daily volume we enjoyed pre pandemic.
As a significant shareholder has exited its position in the stock after a long term investment we believe the previous technical overhang in our trading has been largely resolved and should accrue to the benefit of stockholders going forward.
With that I'll hand, the call back over to Tim.
Thank you Shane.
As <unk> discussed in this year's program, we will still have our normal balance of asset management projects and development drilling, including our platform rig work on the Pompano facility, but we will also focus on growing reserves and investing in projects that will provide impactful production in the second half of 2023 and into 2024, our focus area will be a series of subsidy.
Tieback drilling projects in the Mississippi Canyon Miocene corridor with two to three operated projects that would tie back to Talis operated facilities more specifically around our pompano and ramp up facilities.
Our working interest levels on these projects will be between 50 and 60%.
We will also participate in three additional non operated subsea projects will also tie back to local infrastructure and in these projects. We will have a 10% to 20% working interest. These single well tie backs can generally provide initial gross production rates between five and 10000 barrels of equivalent per day per well.
And our Puma West discovery, we look forward to initiating our appraisal well in the second half of 2022 with our partners BP and Chevron with BP is the operator the goal of the appraisal will be to delineate the resource discovered in the original well as well as evaluating additional prospective Miocene sands. The initial sub salt discovery was drilled to a depth.
The 23350 feet and is surrounded by prolific fields with similar rock and fluid properties that we found and promote.
These adjacent fields also represent nearby opportunities to accelerate production utilizing the unused capacity of these facilities because we suspend the discovery well as a keeper. If we are successful in our appraisal program, our hope and expectation would be to accelerate development as a multi well subsea tie back to one of these nearby facilities.
Our capital guidance with respect to our growing Ccs business allows us to advance feed work and drill multiple stratigraphic test wells on previously announced project sites to advance the required EPA classics permitting process during the year <unk>.
We have also set aside lease cost to continue to grow our portfolio and hope to announce additional progress on that front soon.
We truly believe we found a new vertical business that not only critically important for lowering industrial emissions broadly, but a great transfer of the expertise we have in house and I'm proud of our team's effort and moving quickly and with conviction that we would become a market leader.
To wrap up our 2020 plan delivers stable production high margins and solid free cash flow, while our capital program is targeted at optimizing the resource and skill sets that make palace unique amongst U S. E&P companies access to material conventional offshore resources across the risk reward spectrum catalyst opportunities to build the business in the future.
And differentiated carbon capture and sequestration opportunities in an evolving industry all of which we believe will build material long term shareholder value.
As Shane mentioned, we've also experienced a challenging technical headwind in our stock throughout the past year.
With that selling pressure alleviated as the trading liquidity has increased we believe it's a net positive for equity holders.
Anchored by higher impact subsidy drilling projects from our existing inventory both into 2022 budget and in the coming years, we expect that our base business can generate over 1 billion in free cash flow through 2025.
Technical challenges removed.
Incredibly strong fundamentals driving the base business for several years in the future plus diversification of rapid growth in our carbon capture business. We think talent is very attractively positioned and represents a highly compelling investment opportunities. We look forward to an exciting 2022.
With that operator, we'll open up the line for Q&A.
Thank you.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question please.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from.
<unk> with benchmark company. Please go ahead.
Thanks, Tim billion.
Heck of a number.
Just wanted to first before I get to that just to talk about Ccs.
What is sort of the pathway are first to get too definitive on.
On the projects Youre working on.
Status and then the pathway to.
F E.
And where does the.
The class six permits.
And in the process.
Yes, let me so.
So first of all <unk> I hope, you're doing well im going to give you a little bit of my view on a high level answer parts of that and then maybe some of the classics Robyn I'll hand, it over to Robyn to kind of opine here as well, but look these projects and we talked about before they've got three parts of that value chain and it always starts within a mentor who has to have a motivation or incentive to decide they're going to go capture.
Their carbon.
And that starts with them they are the ones, who potentially have an opportunity to retain some credits when they do that and then there is a transportation and the storage and monitoring piece of that the parts. We can control right now is the storage and the monitoring piece and then we tried to bring together the piping and the transportation piece, while we work with the emitters ultimately all of that has to come together.
For one of these projects at <unk>, that's why a point source project, which we have with Freeport LNG can be a little quicker than a hub, where you have a store in a midstream which is what we announced in river Bend as an alliance working with emitters. So theres a lot going on to get there and then Robin Robin you add some more comments on that if you could talk about the EPA permit.
Because ultimately when you pull all those together now you are entering into that process and we can also talk about some of the things we're doing to accelerate those processes.
Yeah, Thanks, Tien and hydro basket to hear from you.
So as you mentioned, obviously the anchor mentor is a key piece for for all three of our projects for Freeport, Our Jefferson County acreage and the newly announced Riverbend Ccs project in Louisiana, We want to continue to advance.
And the pre feed work and part of that is to go out and collect the data necessary to file these classics permit.
That's part of what we talked about drilling these stratigraphic test wells collecting some additional subsurface data to help us better characterize the reservoir in order to make sure when we apply for these permits we've got.
Efficient data included in that application process that we can push that through in a timely manner.
As far as the timeline on that as you know today that the regulatory body overseeing those classic <unk> injection permit is still the EPA.
State of Louisiana has filed for privacy.
And we would expect to hear something hopefully later this year on that and we think the state of Texas will be not too far behind on filing for privacy as well.
That'll be a key.
Keith of our timelines here and Meanwhile, again working with our technical alliance on some of the well.
<unk> had in sub surface pre feed and moving that advancing into feed work as we advance all three of these projects on the beyond store stores and then there's <unk>, which is in our shallow state waters, yes. So I think to wrap that up so we've advanced from I think a couple of calls ago look we have a goal of setting up established store regions, where we know.
Theres, a big industrial mineral addressable market.
Can we partner with midstream players Youre seeing that youre seeing the advancement. The team's worked so hard on now we have things we need to execute on so youre seeing the stratigraphic test, but we still have ambition on what else. We can build out throughout the Gulf coast from a business development standpoint so.
Last year was extraordinary busy for the team and now it's got some great leadership with Rob and you can expect this year to be equally busy if not this year.
Yeah, Hey, Robyn.
You again as well so Tim I guess, the terminology on Mou versus definitive etc.
What's what.
What's the.
I guess the.
The moving parts there to get from one to the <unk>.
Look it's a good question and it's funny.
There is often times when we have a mature business like what we have on the oil and gas side and people wanting to say hey look.
You announce things when they are definitive because it's so easy to get to some definitive agreement if someone selling an asset and buying an asset yield that youll hear about that were added definitive agreement here. We're moving very quickly we want to establish this business. We want people in the market to know that we're here and that we're working and we're not alone in that and Thats why sometimes it makes sense to kind of put an mou together, where maybe we end.
Another counterparty for example, the Enlink agreement says Hey look we've got assets that we think are very interesting. We entered into this lease that's a compelling lease relative to the addressable <unk> market and they've got a great asset and infrastructure in their pipeline network why don't we collaborate to see if we can pull this together into a project.
But ultimately again reaches that Bob and bill to business for both of US. So thats a memorandum of understanding as we work on that together and as we hope to pull that together that then becomes that works.
Self into a definitive agreement.
Again, you need that anchor a meter that robin alluded to and until you get that you really got to kind of work you got to collaborate more than youre entered into a definitive agreement. So it's just a different process for an evolving business than what we would have in a more mature business Robyn anything additional to that.
Great comments, the only thing I'll add.
As Tim was alluding as really letting the market now that we now have a bundled solution and that.
Baton Rouge, Mississippi River, New Orleans corridor area.
And again that that model is going to be duplicated in other areas for the same reasons again, you want to be able to kind of look for an obvious partner decide you're going to collaborate but really what you're doing in that collaboration is looking for the industrial accessible and meter market that you can pull into kind of the store you are creating.
Okay got it and my <unk>.
Follow up so the $1 billion free cash flow pretty close to your market cap et cetera.
For years it sounds like.
How should we think about that.
You're going to buyback every single socket.
I suppose that amount of this that goes in the future opportunity, but how do you think of that post <unk>.
No good questions, they're going to get behind you like Sebastian taking all my questions just by the way, but they're good questions, but look I mean, if you look at this year I think we had 135 million of free cash flow. Obviously, we had some hedges we put on in 2020 as the pandemic was starting to wind down, but you still had lower oil prices does create that hedge losses, you can imagine kind of pull.
Those hedge losses may be back into the system as we have a more constructive environment and multiplying that by a couple of years, it's not hard to see where our business could generate over $1 billion through 2025, just to kind of start with that foundation.
And then I'm going to talk about our primary goal I'm going to let Shane add some commentary as well, but look we obviously, we want to get our debt profile down to one times. It was 1213 before the pandemic, which is a good thing because that allowed it to only creep around the 2526 area. When we had prices collapsed and now we are slowly working that back down and hopefully accelerating that this year to closer to one times.
That's our priority it should be our priority and I think it takes us through the bulk of this year from there. Obviously, we have ambition to do kind of look at where we deliver capital back to shareholders. Shane why don't you kind of keep addressing the question yeah, Yeah happy to do that.
That's exactly right. We went through we were in la.
Last year and a $2 six we ended this year at a $1 seven a rapid deleveraging paid off just under $100 million of.
Of that over the course of the year and we intend to stay the course.
Until we get down to one times I think our range that we've the window, we sort of put out for a period of time is we want to be between one and one five times, we think we will get there.
Inside that range over the next quarter or two.
And then we intend to keep driving down below there I think as it relates to that.
So that longer window. The tune talks about look obviously a lot of things are on the table you mentioned essentially some M&A I don't know that M&A is mutually exclusive to other things because we tend to do our M&A in ways that keeps the balance sheet in good shape, but.
But I think then that opens us up to the possibility of.
Getting into more return of capital type activities.
And taking it forward from there once we hit that one.
One times leverage marker.
Yes.
Okay excellent thanks, guys.
Alright, thanks, so much.
Our next question comes from Michael.
All right.
Please go ahead.
Yes, hi, good morning, everyone and Robin congratulations on the new position looking forward to working with you again.
It seems like the.
Ccs business has been moving along maybe more quickly than you anticipated.
Kate at about $30 million this year.
Just trying.
Trying to get a sense of as you look forward do you think as you are in this.
Testing and pre class six permits stage.
It does.
Is that sort of a level you anticipate.
The business for the next couple of years or do you see it ramping more quickly than that.
Well look I mean, so theres a couple of things one I think we go back to previous calls Michael We've talked about this at some conferences before we had to ask ourselves once we really start to thinking about how do we play how do we play in the transition where conventional geology.
Professionals here, it's what we know can we utilize that skill set where offshore operators, we know that Gulf coast operators from previous companies and we decide to play in the Ccs.
Evolving industry and then once we put that bid in on CLO, We're lucky enough to be a successful bidder, we really looked around the room is Sid why aren't we trying hard across every ounce of floor space that we know that we understand state regulated pore space private ownership for space potentially hopefully one day, a federally regulated pore space at all can be used for.
Purposeful sequestration, so savings Ctrip sequestration and once we built that team look we were about it we were really working hard in that came with the point source announcement, you've seen the riverbend announcement, we've said in previous calls and I think and even previous decks, we expect to do more.
And I would still say that in so look when we really said Hey, we think we've got the skill set we think we've got the business development and the ambition and the agility and the urgency we probably also need to put there's only so much of my time, Bob <unk>, who has been a big part of this was leading it but we should probably look at additional executive leadership and that led to Robyn and I look.
Hand, it over to Robyn. So she can kind of expressed her own ambitions, but I would say that they are plentiful. So anything you want to add to that on where we see the team going.
I'll just add.
With increased success and as we continue to look across the U S Gulf coast that opportunities where <unk> got.
Our stacking of the poor space and continue contiguous leasehold at the surface.
And add local emissions, we will continue to advance these projects and we talked about getting in from pre feed moving into feed and also developing what that development plan looks like identifying how many injection wells so that with success again over time, yes, we would expect will continue.
To put forth $1 needed to advance these projects and get not just our free our Freeport <unk> source.
And the next few years to position these hubs to be able to come online in just a few years' time and I think look I think the capital spend we have in that program. It's appropriate it's not it's not too much its but its enough to make sure that we're addressing what we think is needed to get these projects that Bob and then also needed to go look to hopefully bring some more announcement.
Shortly.
Well look forward to those.
I wanted to see if you could talk a little bit more about your Miocene exploration wells that you plan. This year I assume those don't depend on the November release sale go through and at what point you.
And anticipated that.
Being a part of I think some of those but.
And do you already have partners. There do you plan to change the interior comes back and says those lease sales are going forward.
Tell us about those.
So these are these are so those are all good questions and we'll put those into a couple of buckets first of all what were going to drill this year, all leases, where we have executed lease agreements and we've talked about in the past and it's a fair question when people feel like there is political uncertainty to ask about permitting.
And a lot of what if scenarios right and one thing that we've said in previous calls is we haven't had any delays on the permits that have a good precedent record whether that's drilling permit.
Whether that's a re completion or things related to asset management, certainly things related to our plugging and abandonment activities. Those permits are happening in due course, primarily because we have a working lease agreement between the parties us and operator and the government on how we're going to execute on that lease and that's the case with all of these things we're going to drill.
We're going to drill this year on that lease sale that was just vacated we were very close to entering into those new lease agreements when that was vacated so we don't actually have and it's disappointing and it's a whole another commentary around energy policy that will not make on this call because there's other things for us to discuss.
On on why we need good robust development offshore because we need it and it's a shame that we don't have it but we do have it where we have lease agreements. So we'll let that sit there with respect to why Mississippi Canyon, and just to kind of get into that a little bit some of that depends on the timing of how we do transactions and as you know Michael how we think about reprocessing seismic data.
And last year was heavy in the Green Canyon area, including the Puma West discovery, because we did some transactions several years ago that led to more science more reprocessing seismic and it led to field redevelopment and ultimately it also led to our interpretation of Puma West. It was successful that was great. We're thrilled with what we did in the Green Canyon area was also a little.
Bit defensive it was heavy on development because we were in the middle of recovering from a pandemic, which led to our highest level of proved developed reserves at the end of this year's report our last year's report as we move into Mississippi Canyon. These are more exploitation exploration there one well subsea tie backs think of these targets is $10 million to $20 million.
Barrels gross oil equivalent type targets that are within 10 miles or so of facilities and in this case facilities, we operate in Pompano and Ram Powell and then there are some things on the non op that have a similar profile. The differences working interest we have partners very close to being lined up that's fine we don't get a rig till the second half of the year. So everything timing wise is work.
<unk> out and as we roll out some corporate deck, we will give you some more details on these as well. So look we're really excited about it as you know Mississippi Canyon's, a prolific area. It's an area, where we want to spend quite a bit of money and reinvest in the business last year Green Canyon was a great program. We're just moving it to the east this year and then again with some appraisal of Puma West in the second half of the year as well.
I appreciate the color Tim.
Our next question comes from Stephen Volkmann.
Keybanc. Please go ahead.
Hey, guys I just wanted to follow up on the classics permits.
It sounds like.
While that is going to depend on what happens with EPA and the state of Louisiana, but is there any kind of more specific timing you guys have in mind like do you think you could potentially file those at some point this year.
Yes, I'm going to address that one let me address the limited.
Federal government stuff and unique address specifics on the on the Strat test and what we're doing there but.
Look I think I would tell you we spend our whole careers.
That just by the nature of our assets being on federal lands dealing with federal government and I think when the federal government has will the federal government can move fairly quickly to federal government doesn't have political will that it may take a little longer I think this is an area.
Where we think the federal government does have political will I do think we have to caution though that there is a lot of interest here and theres going to be a lot of permits that are filed we want to start.
We think it's easy to say we are in the process of filing a permit and you're really not doing much at all you really need to get out there and drill a stratigraphic test on these assets, where you have definitive leases and then we follow a process and we'll see we'll see how long that takes there's no perfect answer.
But I do think I do think we have a government really wants to see the succeed.
Yes, so as we're completing all of the.
Both the strat well testing and continuing to work the subsurface reservoir characterization using some of our existing seismic data set and some geo modeling.
We want to be in a position to start filing. These applications. Later this year. So thats. The <unk> and then it's really just about the timeline of those approvals depending on which.
Regulatory body will be will be.
Once the reward those over time, but.
But it starts it again it starts with the stress test and we're absolutely going to drill strat tests, where we have definitive leases in this budget that's why we've allocated for.
Got it okay great.
And then just a follow up just kind of wanted to hear your guys' wherewith with discussions with the meters any color you can provide there would be great. Thanks.
Yes, well look obviously at Freeport, we have one that's why that <unk> project. So interesting and it's also why we are trying to expand that side of our portfolio.
And then in Freeport. It there's there's obviously work to do we're talking it's a huge addressable market and we're talking to everybody in that addressable market and then I think in river Bend.
Because of that offering where you have our poor space in enlink pipe in and links the kind of.
Our partner.
With that customer base with that infrastructure, we're really thrilled to be working with those guys. They've got great infrastructure, they're going to be a great partner and they've got those relationships already in progress. So we're very bullish on how quickly I think river bank and come together.
Yes, and just adding to that between the regional emissions and that River Bank, Mississippi River corridor, when you add that to whats in the Beaumont Port Arthur corridor that sits adjacent to our Texas yellow leaf site.
We're talking more than 100 million tonnes per annum of total emissions out there and so we are actively having dialogues with our new potential potential customers and as Tim pointed out we have already subscribed to Freeport and when you've got some of these emission sources that are a little bit easier to abate and they can.
Capture technology doesn't exceed the current 45 Q some of these.
Things like natural gas processing.
Methanol those kind of emissions, we can make those work today that there are quite a few that we still are waiting for some enhancement to the 45 key IRS tax code.
To lift that that dollar per ton relief and offset for direct pay and we think that will help increase.
Pool of emissions that will be able to subscribe to our project, yes, and let me expand a little bit on that because I think this is important.
The current 45 acute framework works for some of the emissions and the addressable market, but not all of them. Obviously, we've talked about and others that are playing in the space have talked about the need for enhanced incentives to.
To really pull in more of the addressable market that does the most good frankly now those folks the issue. The question for US is can we wait for perfect policy and if we're going to be a leader in this business. The one thing that we've talked to a meter is all the time and we were in that conversation last week with the particular bidder, where they say look if we're going to make this investment because it starts with those emitters and industrial partners.
Those investments we want to know that we're ready you already and for us to be ready. We have to go ahead and move forward on preparing those classics permits and drilling those stress tests and being available for those customers, who are ready to make that investment as well. So it's a little bit of a chicken and the egg, but the last thing. We can be is the laggard in that we want to be a leader in that would be upfront.
Okay, Great I appreciate the time alright.
Alright, thank you.
Okay.
Our next question comes from Jeff Robertson with water Tower Research. Please go ahead.
Thank you good morning.
At River Bend, you all I believe owned three different lease blocks based on the map that Enlink had in your presentation.
Is it right that you will need a separate class six permit for each area and do you work them. All at one time or do you work them individually to try to secure wanted to move on to the others.
We're still in the evaluation mode, but we will look at see where does injection sites will be so for any injection, well, obviously youll need a classics permanent for that well.
We'll continue that evaluation to see whether or not the optimal place. It may be all three and we've also got an update on some additional acreage. So our current agreement with a large landfill holders for 26000 acres.
Good news here is the poor space fitness exceeds 3000 foot in some areas and we've got tremendous storage space and just.
<unk> locations.
Do you have the option to continue looking around the area to really address what is one of the largest.
Regional emission sources, when you talk about the 80 million tons per annum.
At Mississippi River Industrial corridor.
I get the nature of that question, Jeff look, it's pretty consistent geology, I mean, I think what's interesting about this without getting too technical is we're in an area of the geology that typically in this area didn't have hydrocarbon extraction. So there wasn't really a reason to do the level of geological D to the <unk>.
Level of geological detail that we need to do now to put Cotwo way in these daily an acre versus so.
But the geology is pretty consistent across that lease acreage. So we wanted to do as much. Good as we can with the stress test to describe that geology and described the rock properties and show why that is prepared and ready for sequestration.
Okay.
To clarify on that wherever band at the additional 63000 acres are actually a writer first refusal.
Now, let me clear up that even with that additional acreage that we have a kind of a writer first refusal option on in the stuff that we've announced just so kind of we haven't when you take the GLA poor space. The riverbend pore space and then even in the smaller but still meaningful around the Freeport LNG, we're up to around 900 million metric tonnes of available sequestration capacity.
And again, that's before some of the additional acreage that Robin just alluded to so again going back to of how hard this team's work to kind of really build this out in a short amount of time.
Thanks, a broader question on Ccs fuel with the point source and then the two hub projects can.
Can you talk it all about.
Return preference or economic or I'm, sorry, your return profile.
And how those two different sets of projects might compare.
Look I think the point source removes a certain level of capital with it you don't have to pipe it potentially 510, 15 miles and that's meaningful.
So thats they have an opportunity to have slightly higher economics.
When you think about our hub, there's a lot of moving pieces. There. It really requires committed volumes and then youre trying to have an anchor in that acre than pools in into some infrastructure. Obviously part of that pipe and then part of that is the injection well and are monitoring well and it just yields for that more of that tolling model that is going to be more of a midstream model and I think you would expect.
Midstream returns.
But again all of this exactly where that lands and it's a great question and we get it all the time, we know where the pore spaces, we know where the addressable market is and as we build that out we'll show maps that you just alluded to a map that you saw you really have to start with who's going to anchor. This and then once that acreage. We look again, we talked to a lot of emitters, all the time as do other companies.
5 million metric ton emitters, very interesting, we want to see them in the store, that's not going to anchor our hub and so you really have to figure out where is that anchor a meter who is it going to be and how does that fit into the complex and then you've got a little better feel for the capital involved.
The tolling kind of structure that youre going to need and then you can kind of have a better feel on how the rest of the industrial partners can come into the space.
Thanks.
Just move in the Gulf of Mexico Real quick one of the leases that was vacated from the November sale I think is adjacent to Puma West does that have any impact on your.
Near term development plans or appraisal plans for that discovery.
No not at all.
Yes, no. It's a good question not at all look it's we would call that if we would fringe acreage protection acreage. It's interesting we want to have it in kind of the upside case, which could be material. It's nice to cover up everything, but obviously, if we're not leasing it nobody else's leasing it right now and it really on our base case and our goals of accelerate.
Development here, which we've talked about we kept that original well as a keeper.
And then we're going to go appraise and go delineate that resource and what we found in the original well. We're also going to look for some additional Miocene sands.
And then we want to try to figure out how to hook those two wells up if we're successful as quickly as we can and having a fringe lease again very important to always when it get as much as you can.
But for what we can do to accelerate this we don't need it I would go back to.
Frustration around that being vacated and the need to really decide how we're going to develop the resources offshore but I'd just go back to Puma West is an example of a great discovery that we wanted to delineate we have plenty of things in our large acreage position that we can go work on for years to come.
Even with this kind of vacated process of this particular lease sale.
Great. Thank you very much alright, thanks, Jeff.
This concludes our question and answer session I would like to turn the conference back over to Tim Duncan for any closing remarks.
Okay. Thank you operator will look the team had a great fourth quarter and the fun thing about these calls sometimes as I know our employees listen in I want to just take a moment to thank them for all their hard work. They had a great year last year, we had a great quarter and our team is working extremely hard with record production and building a new business and I'm very proud of them and I want them to know that and we're really.
Excited about what we can do this year.
And we're excited about kind of where we go from here and we look forward to giving you guys updates throughout the year.
The conference has now concluded.
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