Q1 2022 Talos Energy Inc Earnings Call

Good morning, and welcome to the Telus Energy first quarter 2022 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your.

Telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask any question. You May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.

I would now like to turn the conference over to Sergio <unk>, Vice President of Finance Investor Relations and Treasurer. Please go ahead.

Thank you operator, good morning, everyone and welcome to our first quarter 2022 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.

Set forth in yesterday's press release and in our Form 10-Q for the quarter ending March 31, 2022 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 was included in yesterday's earnings press release, which was filed with the SEC and which is also available on our website at palace energy Dot com.

And now I'd like to turn the call over to Tim.

Thank you Sergio and good morning, everyone and thank you for joining our earnings call today.

As we enter 2022, we had several specific goals for the year.

First we wanted to lower our debt metric to approximately one times, which would be the lowest since going public in 2018.

Second we wanted to reintroduce high impact drilling projects into our portfolio Inorganically grow our reserve base.

Third we wanted to continue to build out our growing carbon capture business and finally, we wanted to continue to actively pursue accretive M&A deals after four months into the year with a strong first quarter result, and with exciting and tangible milestones still in front of us I'm confident we're well positioned to achieve all our goals in 2022.

And tell US we're building what we think the energy company of the future should look like when the balances to continue to responsible growth of our upstream business to meet the world's needs as well as the increasing mandate to reduce our industrial carbon footprint. We are delivering on both of those imperatives and I'm truly excited to discuss the first quarter and the future of Dallas.

In the first quarter tell us generated 414 million in revenue coupled with lower than expected operating costs, we generated $208 million and adjusted EBITDA inclusive of hedge losses, and 77 of adjusted earnings per share with a lighter capital investment program in the first quarter <unk> generated over $92 million of free cash flow in the firm.

Quarter alone.

Allowing the company to continue its debt reduction trend and stay on track to reaching our first goal getting to a one times leverage target by year end or sooner.

I'll spend more time talking about the details of the quarter, including our successful spring borrowing base Redetermination that provides increased borrowing capacity and liquidity.

On the operational side, our platform rig program is progressing well at Pompano approximately 2.4 thousand barrels of equivalent per day of added average production in March we.

We recently spud, the Seville exploitation, well and look forward to results from that well and at least one additional well from the platform rig later in the year.

As we prepare to initiate our open water drilling program in the second half of 2022 we seized an opportunity to extend our rig contract with three additional consecutive well slots, which will now take the contract into 2023 was sixth straight planned wells. These additional wells were already expected to be in the 2023 capital program and an X.

Keeping them consecutively, we expect to realize significant operational synergies and lower overall cost more importantly, the extended rig contract assures that in the following 12 months, we can have a balanced portfolio of operated subsea projects.

Some projects are lower risk subsea tie backs.

Others are more impactful such as our lime rock Venice and readily prospects.

Each of these are tieback candidates to either our Ram Powell, our pompano facilities.

Each of these prospects are targeting 10 to 30 million barrels equivalent gross and each are a one well subsea tieback that could deliver a gross initial production rate between six and 10000 barrels equivalent per day per well.

We expect them to be online between late 2023 and throughout 2024, depending on each project's timing.

Working interest levels are expected to be approximately 50 to 60 per cent per project.

Delivery of this rig is currently scheduled for early in the third quarter, though it may accelerate into the second quarter, depending on the timing and the result of ongoing rig operations by the operator that is currently using the rig.

On the non operated portfolio, we expect to participate in three deepwater non op wells, all subsea tie back to existing infrastructure with working interest ranging between 10 and 25%.

Amongst these projects is the appraisal of our 2021 Puma West discovery, which is set to spud in the second half of 2022.

Moving on to Mexico, Zama remains an important catalyst for the company. Following the receipt of the final unit deflation resolution from Mexico's Ministry of energy to House continues to have constructive dialogue with Pemex and how we can move this project towards up I D and the most commercially attractive way we've mentioned in the past that we believe.

Zama is a valuable project in the company's portfolio and we will continue our effort to make sure the value of Zama is unlocked for our shareholders.

On the carbon capture and sequestration part of the business. It was exciting quarter for the tell us low carbon solutions team.

Our rapidly growing Ccs business has had numerous key milestones announced that highlight the speed the commerciality in the innovative thinking that our team is bringing to bear and what that new vertical can look like for Telus.

In February we announced two separate projects.

First river been Ccs is at 26000 acres sequestration site with exceptional rock properties. They can store over 500 million metric tons of C. O. Two and is centrally located between Baton Rouge, and New Orleans, Louisiana.

Alex's partner with Enlink midstream on the project as an equity partner, providing access to the company's footprint of over 4000 miles of transportation infrastructure in the region much of a connected as the last mile into numerous industrial sites in the area.

Following River Bend, we separately announced our coastal Bend project, but the port of Corpus Christi in Howard Energy partners, we will be working with the Port authority as the landowner and Howard as the preferred midstream infrastructure provider in the area to develop another Ccs as a service offering to industrial partners, along the port of Corpus Christi a major.

Export hub in an ideal ccs projects setting due to its highly concentrated industrial footprint footprint in place transportation infrastructure.

And solid geology available onsite on port on land, we look forward to advancing both river band and coastal Bend this year with pre feed work as well as stratigraphic characterization wells ahead of classics EPA permit application submissions.

While continuing to maintain discussions with local industrial partners in each market.

Lastly, this week, we announced an expansion of our Bayou Bend project in Jefferson County, Texas with the preliminary agreement to bring Chevron into an expanded joint venture with the current partners tell us in carpet Bert.

This transaction will include a consideration of cash and the capital carry that will cover telesis costs through F. D, which includes feed studies are stratigraphic well test activities related to classics permitting and ultimately final project approval.

House remain the operator of the project and it is our belief that chevron's reputation and commitment to investing in Ccs related projects will help kick start this important hub.

This is a major development speaks to tangible success in Telus has achieved over the past year in at Ccs initiative.

We look forward to collaborating with chevron in the coming months and years to make Bayou Bend the Premier Ccs solution in the Beaumont Port Arthur Industrial region of Southeast, Texas.

Robin and are happy to take questions on any of these developments.

While I talk about low carbon initiatives, it's worth mentioning as a follow up from our annual ESG report published in the fourth quarter of 2021, our operations team finalized our 2021 emissions intensity data, we saw a 9% decrease in emissions intensity from 2020, and a 27% decrease from our 2000.

18, baseline, putting us well on our way to achieving a 40% reduction stretch goal by 2025 and.

In addition to the emissions we are reducing in our upstream business. The amount of emissions, we expect to capture just from our current Ccs portfolio loan is significant.

Once fully online we estimate that our four announced Ccs projects would be capturing more than 50 times talus is 2021 upstream scope one emissions.

Finally on the M&A front, we've continued to actively evaluate a number of business development opportunities and are being patient in identifying the best opportunities for Towson shareholders. We remain committed to sneaking out transactions that are a good fit for our skill sets and strategies are accretive to our shareholders and preserve or improve our strong.

That position.

But those key updates on the progress of our 2022 goals I'll turn it over to Shane to address some of the financial details of the quarter.

Thank you Tim and thank you everybody for joining our call. This morning.

I'd like to start by congratulating our team on another solid quarter operationally and financially. Despite some unplanned third party shut ins we experienced.

Today I'd like to cover three things.

First the financial results for the first quarter, and then give some thoughts on the outlook for the second quarter and the full year 2022.

And finally, an update on the continued strength of our leverage and liquidity position, including our successful borrowing base redetermination that we announced yesterday.

As Tim mentioned in his opening remarks. This quarter's results reflect continued effort to focus on the things we can control.

Our facilities production performance and control of operational and capital costs.

During the quarter, we generated production of $63 2000 barrels of oil equivalent of which 67% was oil and 75% was liquids.

That figure includes the impact of approximately 40 days of unplanned third party downtime from the Eugene Island pipeline system.

Totaling $4 7000 barrel equivalent impact for the quarter.

Realized pricing for the quarter was $93 42 per barrel of oil.

<unk> $36 54 per barrel of Ngls and nearly $5 per Mcf on natural gas.

With this we were able to generate quarterly revenue of $414 million.

This strong performance was further bolstered by continued focus on cost control, which also contributed to great margins we.

We generated $208 million of adjusted EBITDA during the quarter or <unk> $36 61 per barrel equivalent or.

Our adjusted EBITDA, excluding hedge losses of $335 million or approximately $59 per barrel equivalent.

These amounted to 73% and 81% margins respectively.

After approximately $85 million of capital expenditures in the quarter, we generated over $90 million of free cash flow before changes in working capital.

Importantly, adjusted net income for the quarter was $64 million or 77 per diluted share.

As previously mentioned, we expect the dry dock process for the HP one floating production unit to start during the month of June and run for approximately 45 to 60 days impacting production in both the second and third quarters with production deferrals.

During the second quarter. We currently expect total planned downtime inclusive of the HP, one planned downtime to negatively impact the quarter's production by between four five and 5000 barrels equivalent per day <unk>.

Similar to the downtime impact we experienced in the first quarter.

This planned downtime has been accounted for in our full year 2022 production guidance previously issued.

Further our previously issued cost guidance was inclusive of inflationary pressures that we're currently seeing throughout the course cost structure for expenses like helicopters service vessels personnel materials and rigs.

The team relentlessly work to manage all of these items and we will continue to provide updates accordingly, if our cost expectations for the year materially change.

During the quarter, we paid down an additional $35 million on our credit facility and reduced our leverage debt to one four times net debt to EBITDA down from one seven times at year end.

Over the past 12 months, we have now reduced net debt by over $160 million and are continuing our aggressive debt reduction plan in order to reach our one times net debt to EBITDA goal by year end 2022.

If not sooner.

Liquidity at quarter end stood at $516 million, including over $450 million available under our credit facility.

This brings our credit profile back to around the same strong levels, we knew pre pandemic.

Earlier this week, we successfully concluded our semiannual borrowing base redetermination process.

We increased our borrowing base by $150 million from $950 million to $1 1 billion and increased our commitments to $806 million with two lenders opting to increase their existing commitments.

We continue to appreciate the support of this of our Army All Syndicate partners as we execute our growth plans in both our upstream and Ccs businesses.

Finally, as a reminder, we will host our first ever analyst and Investor Day in New York City. Later this month on May 24.

There we plan to discuss our many recent strategic and execution milestones, our portfolio and future capital allocation opportunities and our outlook for both the upstream and Ccs businesses among many other topics.

We invite all of our investors and research analysts to join US for this important and informative day.

With that I will hand, the call back to Tim.

Thank you Shane.

Dallas is celebrating our 10 year anniversary in 2022 and as I reflect on the last 10 years of palaces history I'm extremely honored to been a part of advancing the extraordinary business that we have built.

However, our valuation today reflects the steep discount to the value of our current production and does not give us credit for any of the value wedges of our business, namely our carbon capture business discovered resources, such as Puma Western Zama and the value of our drilling portfolio today.

Today I still see Pallas is an incredible investment opportunity and one that I believe is amongst the best opportunities in the energy sector.

With that operator, we'll open up the line for Q&A.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

And then you're telling your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster with.

The first question comes from <unk> Chandra with Benchmark Company. Please go ahead.

Yeah, Hey, good morning, guys.

So first question I guess is on the program congrats on getting it going.

So on the rig to Eni.

Did eni extend their contract for the rig and.

Through October or do you have a shot at getting it.

Earlier than that.

Which I think you might've said and second.

When should we see the production response from the.

The sequence of wells do.

Do we have to wait for the program the end or can you know based on success with subsea tie backs began immediately.

Yeah, Hey, Sue bus.

Thanks for joining the call. It's good to hear from me I.

I think the current operator, who is eni has that rig through whatever operation there in the middle of right now and then and it was always the plan that we would receive that rig after the current operation and so now the timing of when that operation ends can always be in flux.

And look we don't we don't dive into the details of exactly what eni's doing but the question really on the rig extension was when we were so we were going to take that rig always planned to be in the third quarter initiate a three project program and it was going to start with a re completion on a deepwater well. So that would have production response fairly quickly and then it would move into these.

High impact projects that we've been waiting to put together that we really wanted to wait for a more constructive commodity environment to do so and we have that now what was presented to US was an idea that hey look the operator, there was going to receive the rig after us which would push us into 2023 was rethinking their portfolio and did we want an opportunity to extend the rig once we receive.

Lived it.

We looked at the rig market and where it could be going in 2023, and we looked at the efficiencies of having a rig for a little longer period of time, you think about logistics do you think about the operating crew.

And our goal is to always be engaged in two to three kind of subsea projects a year on the operating basis. If we can do so so it was going to be in the plans to have these projects teed up for 2023 I think this was just an opportunity to extend it and so we've got some ideas that are in the Mr became an area there around infrastructure that we own and control and operate I would say.

To answer your other question, though we're drilling these targets that can be anywhere between 10% and 30 million barrel equivalent one well subsea tie backs. I mean. These are these are good projects that are exactly down the middle of our fairway, but they are projects that are going to come online in six months. There are projects that are going to take <unk>.

15 months, maybe 24 months and so this this is production we're going to see late in 'twenty, three and into 'twenty for we still feel fairly positive about the casino the constructive aspects of the commodity environment at that time, but it's a great time to invest in these projects now and really see the benefit of that revenue and income in late 'twenty, three and 'twenty four.

Okay. Thanks, Thanks for that.

So could you shed any more.

Light on sort of how that chevron transaction okay.

Is that something that you are.

Looking for partners or they came to you and it seems like you know they they brought.

A big broad expertise I guess quote unquote, but they basically bought it a checkbook it seems and no existing assets so how.

How are you sort of interpret that in <unk>.

Given the balance of your Cts projects, and the bank ability or I guess the.

The value that can be recognized in those Cts projects yeah, Yeah, no. It's a good question and I'm going to I'm going to start I'm going to hand, it over to Robyn to kind of give her views of that partnership and the benefits of what that partnership can do for us, but you know as we've built these out our whole goal was to have conviction that we could do this that we can be a player in the space that we can certainly manage to sequestration.

<unk> and the monitoring and we brought that to bear.

We knew that if we were finding the right areas, we absolutely understood. The majors, we're gonna be involved in this as the right guys to be involved in this day theyre investing in tech they've been studying this for a long time, if we pick the right locations in the right markets and the right pore space that.

We might have an opportunity to partner with some of these majors and so you know Chevron is a huge global brand. They do an excellent job. They are clearly committed you've seen their CEO and multiple outlets talk about their commitment to the space and so we think its a great validation and and Robin will talk about that project specifically in her views of it but I think <unk>.

Broadly the fact that where we've been able to retain our operator ship is important and look these are companies that we partner with for example in Puma West and so I think as a smaller company.

We've built a reputation of being very smart technical team a good operations team and and I think we always want good partnerships and red Robin additional thoughts on that particular project sure. Thanks, Tim and thanks <unk> for the question, Yes, we're looking across the value chain and thinking about strategic partners and making sure. We're all aligned that we want to.

I have calculated speed maintain that first mover advantage.

Be that partner of choice, whether it's with our equity partners or recognizing where customer facing until we wouldn't be that customer.

Facing brand and so having the right mix there across the value chain that as Tim touched on is that operational Sharon's piece, making sure. We've got an experienced and the partnership and so now with our partner carbon Bert and now with Chevron, we feel like we've got a lot of the right skill set experience expertise.

And all things that we're going to need to develop these projects from from filing our first classics permits all the way through the injection and long term monitoring programs here and so we're excited to have this does that.

This new group together as we're tackling a very large regional hubs. So we know there's there's tremendous amount of emissions and the Beaumont Port Arthur corridor, and so we're excited about being able to lead that that premier projects and to have the fantastic partnership at the first and only offshore ECS site in the United States, Yes.

The other thing I'd add before I wrap up and gone to other questions. As you have to think about this end to end on one end you have an industrial emitter and a lot of those are big investment grade companies, they're thinking about their counterparties and look people have to think about counterparty risk and indemnities and things of that nature on the other end you have a landowner whether EBIT, whether at the state or private mineral owner and they're thinking about.

When they want project deliver the urgency in which they'll get revenue you've got to marry all of that and I think the right partnership does that and look we think we bring a lot to the table Chevron adds a little more to that and again, it's great validation for us. So and then look we're managing capital as well, we're always sensitive about that Sue Bosch, how how are we managing capital to get it carried through RFID is <unk>.

Extremely important for a company of our size and I think it's the responsible thing for us to do.

Yeah, Hey, Robinson.

I'll just follow up a couple of things there. So there is regulatory approval required as you stated in the release and there's a you know a cash carry so one is how would you handicap regulatory approval.

On getting this done second is.

Will you at some point share the terms of the cash and carry on this and I'll. Just last question forward out there Tim you did talk more specifically about M&A at this time.

Or Shane did I think.

Could you just say between international and domestic if you look at what the split of opportunities might be thank you very much.

Sure I'll try to tackle those in order. So first yes, we're very excited about this announcement of the SNL U or rapidly advancing and progressing toward definitive agreement and we do have the intent once we have a transaction finalized that.

That we would we would talk about the specifics at the time, but really just wanted to announce the partnership idea and the concept here to really put that extra emphasis.

And that additional expertise and experience to develop this this regional hub for that for the Port Arthur Beaumont region.

And as far as how were looking we certainly wanted to start our Ccs portfolio, along the U S Gulf coast because of that.

Does the rock quality, we've got there so that the world class storage and then also when we think about all these emission clusters.

We are looking beyond we're looking at other places in North America and internationally.

First and foremost we wanted to advance the existing projects that we've announced but we've got we've got our age of the ground and looking to see where else we might be able to participate.

We've since where we're pricing that's what the portfolio mindset, we've got for announced projects today, but we could add a few more in and I've demonstrated here, we don't have to be at 100% of each of these weekend.

We can monetize pieces of it and and spread our.

Our dollar at dollars around that after our exposure around as we get some exposure to some of these other markets and then I think on M&A. She buschmann asked on the oil and gas side of the house and.

Look you know we're always in the market. It was frustrating almost not to get a deal done last year were trying to make that a priority. This year, but it's got to make sense. It's got to have some core principles are our absolute number one goal for the year as you get this leverage target back down to one times, we're committed to it.

So a transaction has to fit inside of that it needs to be accretive to our shareholders. We absolutely understand that we always start in the Gulf because we know we can effect synergies in the Gulf, but you know look we've said we've looked outside the basin, a little bit and because if we can fit our geological and operating skill set.

That will look at it. So you know look there's no breaking news other than it's been a focal point for this year and it's good to tell the market that the word counterparties ready to engage if something makes sense to engage.

Thank you.

The next question comes from Jared Drew with Stifel. Please go ahead.

Hey, good morning, guys.

Good morning.

First question was just over about inflation I know it was talked about in the opening remarks.

It's just been a hot topic with onshore operators and really the whole industry. So just seeing how tolerances going about trying to mitigate inflation yes.

Well look one of them was that rig decision you know and there's no doubt the rig market is increasing and you know what I don't it's hard to tell.

Where the deepwater floater rig market is going to be just picking a time say call. It the second half of 2023, and what would that market look like and so when we had an opportunity and we know we want to engage like I mentioned in the previous question and two to three of these projects a year, where we're operating a subsea tieback and so you know the idea of getting this rig and just extending it doesn't add capital necessarily and <unk>.

'twenty two as much as it would be in 'twenty, three but capturing that now is that some measure a way to kind of manage inflation in that marketplace, but we're seeing it everywhere youre seeing it around labor when you have you know yet.

To think about our operations, maybe a little differently than some of the onshore names.

Follow we use a lot of boats, we use a lot of helicopters a lot of fuel involved that's an operating cost.

Mrs are high that tie obviously, there's labor pressures are there supply chain issues that if you want it on time, a little quicker you might have to pay a little more so all of that's in the system I think our team look we had a big.

First quarter beat on Opex.

Yes, Shane you might have some comments, we had a first quarter beat on Opex and it just speaks to the team's ability to try to manage through that so Shane any thoughts on your side. Yeah look I would just say you did you saw in the first quarter. You know we were all really proud of the sort of the way the business performed in terms of keeping keeping costs in check and because of that.

Great I think we are well within our guidance outlook still for the full year, which I think was a L. O E 300 to 320 and we bake in.

Our outlook for for inflationary pressures into that outlook. So Kim.

Cannot say, we're always right, but last year I think as you remember we came in below the low end of our L. O E M capital guidance frankly, nothing to say that happens every year, but we certainly try to bake in anticipation of some cost creep, but you know I would just kind of use this moment as a way to just really remind everybody.

The second and third quarter and then we're talking about the HP. One we're talking about the production deferrals I think we've also guided that it's probably an extra $20 million or so in expense. So I wouldn't expect to see $60 million a quarter each quarter over the next couple.

When we incorporate some of that HB, one expenditure in there as well and we're talking about dry docks, specifically right, yes on the dry dock expense.

Perfect. Thank you for that.

And then one last question.

After the federal lease sale in November was projected blocked by the Federal Court do you have any color on what you believe the federal lease sale and environment could look like this year. Thanks.

Yeah look I think it's going to be and we've talked about in the past I would suspect it would be difficult to anticipate another sale this year.

I do think ultimately the sales need to come back it's the offshore Continental lands Act as law and that requires a five year plan and there is a five year plan that was previously in the previous administration that plant is expiring in June and then that that plan then gets re initiated.

For for another five year leasing period, there could be the planning process of getting that five year plan. In places is ongoing right now we try to engage with interior on that actively theres trade groups that engage on that actively I think there is an absolute expectation that there's going to be a new five year plan and part of that plan should be federal lease sales there youre seeing.

A little bit of that again, the way that's managed offshore slightly different than how that's managed onshore. So you've seen some of that come back onshore. It's a different five year plan for offshore so.

I think just by the nature of the way the administration's prioritizing this and moving on this obviously, it's taking longer than we would want.

But I don't you.

You can't delay this forever with I think a little bit about people up in Washington, So we would expect it we have trade groups focused on it we've got a huge acreage position I think we've talked in the past about $1 3 million acres, a huge position both on our producing leases on and primary term and so we feel good about our inventory and we feel good that that ultimately youre going to see lease sale.

Again, I think there's a temporary pause it's frustrating we're not fans of it.

I think we're fairly vocal about that with other operators in the Gulf of Mexico, but it is law to have lease sales in the Gulf of Mexico, We should all have the expectation did they come back.

Perfect. Thank you that does it for me thanks, guys.

The next question comes from Jeff Robertson with water Tower Research. Please go ahead. Thank.

Thank you good morning, Tim on the deepwater subsea tie back program.

Are there any long lead time items that makes sense to try to order to shorten the cycle time.

Bringing discoveries on.

Yeah. There is Jeff it's a good question and I think it's an underappreciated part of how we have to manage things in the Gulf of Mexico and again. Another reason why when you had we had an opportunity to take a rig there can be extended into the 2023 program, where we didn't have a rig kind of dedicated at the time, but go ahead and use the rig that were going to use in 2022.

Extended into 2023, you can really start to think about planning in that planning can be beyond.

Just on vehicles and trees. It can be tubular and again, we all know there's supply chain issues and so if you can kind of plan now as opposed to waiting six months from now and then hoping you can get that at another delivery in 'twenty. Three I think we can all agree just in time is being challenged in the current global supply chain issues. So you are absolutely right now.

So as you figure out where these projects are going to go and exactly the order you want to operate some of these projects, particularly the ones on the later side of that rig cycle, you're really buying inventory and then you're placing that inventory to those projects. Later, so you know.

It's just the way you need to manage kind of where the supply chain is but absolutely for us to accelerate first oil on the subsea projects, which are always going to be a little longer than things that we do from a platform. So you always have to remember the time lag is going to be there, but if we can shorten that by having long leads and taking a little bit of risk upfront.

On some of those long lead items I think it's a responsible thing for us to do we just have to be smart in how we do it.

And we just can't order, absolutely everything and it assumes nothing but great success. All the time, so we have to be measured on a risk basis on how we do that but we've got a pretty sophisticated team that thinks about that so yes, but it's we're doing it and it's important that we do it.

So Tim that can add some value to those prospects.

In terms of their present value correct.

Well that's time I mean, if you do it the right way and you have some success. It might you know on a project that could take 24 months you can make it in 18 months. So it absolutely allows you to be to what would be a kind of a wait and see if you wait and see on everything before you order that then youre going to Youre going to add six months to a lot of these projects.

<unk>, if you add six months to every subsea tie back project do you want to do then the whole portfolio looks a little less little less interesting. So you know again. So the balance is I can't assume I'm going to have great success on everything and I'm just ordering inventory under the Sun. That's not responsible but then I don't want to wait for success on projects that we think have a two and three three and four.

<unk> success right. So you just have to be balanced in how you do it and knowing where the benefits are and sometimes when you have your own infrastructure. It's another reason to lean in a little bit because you can make it happen even faster. So there's a lot that goes into it but we think about it all the time and we certainly engage in long lease theres no doubt about it.

Question on Bayou Bend is chevron, a potential anchor shipper for or I'm, sorry anchor customer for.

That project as well as being involved in that.

With their current participation.

Yeah, we didn't announce any associated emissions with this project right now we're just talking about bringing the men as a partner to buy then African we gotta get definitive agreements are and so we're just excited to have that tcs experienced in some of the projects around the globe that they've done and it.

This point Miller.

Miller.

These guys.

<unk> made the appropriate pledges from what Theyre doing with emissions and our hope is obviously that you know when a big organization, you've got a lot of jv's into downstream space. If you really study it Jeff it's probably worth studying it's interesting the level of JV is in the downstream space. So you know you've got a you hope there's influence there, but again I think the critical part was to have someone so committed to the space.

In this project and I think that just helps the execution.

Last question Shane is there on the.

On the 12% notes since its 2022 I know, they're not due until 2026, but rates are going up is there do you all look at any options to.

Refinance those at a lower cost.

We do we think about that a lot. So I mean, it's something that we'd like to do it was the right execution at the time, we did the notes back in December of 2020 as the market was opening up.

After the low points in the pandemic.

I would tell you remind is.

And then do you.

And it is a you know they're not callable until January 15th 2023, you know there are some potential make whole provisions, but that basket.

It gets pretty.

Pretty snappy.

So I think as soon as we get a little closer to that window will will you know we will continue to monitor it and <unk> I'm trying to figure out if there's something interesting we can do there to lower the overall cost of capital of the business.

Thank you.

Okay.

Again, if you have a question. Please press Star then one.

Our next question comes from Steven Becker with Keybanc. Please go ahead.

Hey, guys just wanted to see how you guys are thinking about hedging.

This current commodity price environment.

Yeah look thanks, Steve and thanks for joining the call I mean, you know I I'll, let Shane talk about kind of the <unk>.

Prescriptive in this of how we hedge but I would say you know and I think it's interesting it's frustrating when hedges aren't working in your favor. It's great. When they are I would tell you that over the course since probably the first quarter of 2014, the entirety of the hedge book, which is interesting because you'd think about.

The waves if you will on the commodity between 2014, I think the entirety of that hedge book over that time was about breakeven and so as painful as we might see hedge losses this quarter.

We're proud of where we are we're proud of where the balance sheet is on those quarters, where it swung the other way clearly that helped US survive what were turbulent times that a lot of companies couldn't survive and so I think it gets to you have to you have to have a policy around that you can't just run away and hope that you're going to have be in a constructive environment forever as frustrating as it is and you know Jamie.

Maybe just a couple of comments on how we think about hedges yeah, I'll think about it we've got some minimum requirements that are in place related to the credit agreement that we have and clearly we're going to continue to adhere to that I'd I'd also say those.

The minimums lineup.

Quite well with sort of our internal views and policies around sort of minimum minimum hedge. So I think you'll continue to see us.

Continue to see us put hedges on and build that book is as time goes on.

I would say just as a matter of note you can look at our hedge schedule, we got in the in the press release and in the.

In the Q as well that really after this quarter pretty steep drop off just in terms of volume metrics in terms of what's in place you are still going to see them in those low to mid fifties for the remainder of the year. The hedge book once you get past this year, you'll see obviously the volumes are lower again, but also you're starting to see that hedge book being rebuilt.

And that $70 plus contact so you'll see the look of the hedge book change overtime, a fair bit.

My final comment is if you go back to last year's financials, and you look at it on a on an unhedged basis kind of the unhedged average price last year was I think around $65 in that business ramp unbelievably well and so you think about it.

As things roll off and I don't know what kind of commodity environment. We're gonna be in next year I suspect it will be constructive, but if I have some 70 plus dollar hedges you know.

I'm not going to lose sleep over it. So it's just we absolutely want to have a portion of our revenue exposed to the market and get the benefit of where that market is to bear, but again I think when you look over a longer view and the period of time I do think the hedge book has served its purpose for us.

Okay, Great. That's all from me Okay. Thanks, Steven.

This concludes our question and answer session I would like to turn the conference back over to Tim Duncan.

Oh for any closing remarks.

Again, thanks for everyone everyone for joining the call I think what we laid out where the goals. We've had for the year that we laid out in our first call. After the fourth quarter I think it's great to revisit those goals, which we tried to do today and then kind of come back to you and continue to talk about where we are and what we think is a pivotal year for us as we try to continue to invest in the right projects and a bigger diversity of.

<unk> on the oil and gas side and on the drill bit side and then also a build out of what we're trying to do on the Ccs side. The team works very hard for its shareholders and we're proud of the direction were going and continue to appreciate everyone's participation in these calls.

One last plug for the analyst day, Oh, Yeah, no. Thank you Shane.

Said that all out but yeah, we have an analyst day on may 24th for those institutions that can attend and in New York and absolutely we will lay out more plants. So we appreciate that.

Thanks, everyone.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Yeah.

[music].

Yeah.