Q3 2022 Hess Corp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Good day, ladies and gentlemen, and welcome to the third quarter 2022, Hess Corporation Conference call. My name is Carmen and I'll be your operator for today at this time all participants are in a listen only mode. After.
We will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes I would now like to turn the conference over to Jay Wilson, Vice President of Investor Relations. Please proceed.
Thank you Carmen good morning, everyone and thank you for participating in our third quarter earnings Conference call.
Our earnings release was issued this morning and appears on our website Www Dot has dot Com today's conference call contains projections and other forward looking statements within the meaning of the federal Securities laws.
These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements.
These risks include those set forth in the risk factors section of <unk> annual and quarterly reports filed with the SEC.
Also on today's conference call, we may discuss certain non-GAAP financial measures.
Reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website.
Of each speakers prepared remarks on www Dot Hess Dot com following the presentation I'll now turn the call over to John has.
Thank you J good morning, welcome to our third quarter conference call today, I will share some thoughts about the oil markets and then review our progress and executing our strategy.
Greg Hill will then discuss our operations and John Reilly will review our financial results.
Global oil demand has returned to pre COVID-19 levels of approximately 100 million barrels per day.
As we look to 2000 twenty-three, even with a recessionary environment and a slowing world economy, We expect global oil demand to grow by at least 1 million barrels per day, driven by China reopening its economy and an increase in global air travel.
Oil supply on the other hand continues to struggle to keep up with global demand.
Global oil inventories are approximately 300 million barrels less than pre COVID-19 levels and there is very little spare production capacity in the world.
Oil markets were tight even before Russia invaded Ukraine and are expected to get even tighter this winter with a potential for further sanctions on Russian oil exports.
The world is facing a structural supply deficit and significantly more global oil investment is needed. According to the international Energy agency, a reasonable estimate for the global oil and gas investment needed for supply to meet demand is approximately $500 billion each year over the next.
<unk> 10 years.
The last five years have seen significant under investment, which will tightened supply is global oil demand grows in the years ahead.
The International Energy Agency's World Energy outlook provides multiple scenarios for addressing the dual challenge of growing global energy supply by about 20% over the next 20 years and reaching net zero emissions by 2050.
In all of these <unk> scenarios oil and gas will be needed for decades to come.
So to ensure an affordable Justin secure energy transition, we need to invest significantly more in oil and gas and we also must have government policies that encourage investment rather than discourage it.
In a world that will need reliable low cost oil and gas resources for decades to come <unk>.
<unk> is very well positioned our strategy is to deliver high return resource growth, a low cost of supply and industry, leading cash flow growth and at the same time maintain our industry leadership, and environmental social and governance performance and disclosure.
Are successful execution of this strategy has uniquely positioned our company to deliver significant value to shareholders for years to come by growing both intrinsic value and cash returns.
By investing only in high return low cost opportunities, we have built a differentiated and balanced portfolio focused on Guyana, Bakken deepwater Gulf of Mexico, and southeast Asia with multiple phases of low cost of oil developments coming online in Guyana, and a robust inventory of high returned.
Drilling locations in the Bakken.
We can deliver highly profitable production growth of more than 10% annually over the next five years.
As our high quality resource base expands we will steadily moved down the cost curve are for sanctioned oil developments in Guyana have a breakeven Brent oil price of between $25 and $35 per barrel.
In terms of cash flow growth, we have an industry leading rate of change story and durability story, providing a unique value proposition based upon a flat Brent oil price of $65 per barrel or cash flow is forecast to increase by approximately 25% annually between 2002.
21 and 2026.
More than twice as fast as our top line growth and.
In our balance sheet will also continue to strengthen with that to EBITDAX expected to decline to under one time in 2024.
As our portfolio becomes increasingly free cash flow positive in the coming years, we are committed to returning up to 75% of our annual free cash flow to shareholders with the remainder going to strengthen the balance sheet by increasing our cash position or further reducing our that we.
We continued common stock repurchases during the third quarter repurchasing $150 million of stock as part of the 650 million dollar stock repurchase program announced earlier this year and we intend to repurchase the remaining $310 million of stock in the fourth quarter.
Looking ahead, we plan to continue increasing our regular dividend to a level that is attractive the income oriented investors, but sustainable and a low oil price environment.
As our free cash flow generation steadily increases in the years ahead share repurchases will represent a growing proportion of our return of capital.
Key to our strategy as Guyana, one of the Indian industries highest margin lowest carbon intensity and highest growth oil and gas prospects. According to wood Mackenzie data.
On this day broke block in Guyana, where has has a 30 per cent interest and Exxon Mobil is the operator.
We continue to see the potential for six floating production storage and offloading vessels or F. B S O as in 2027 with a gross production capacity of more than 1 million barrels of oil per day and up to 10 F. P. S. O is to develop the discovered resources on the block.
In terms of our sanctioned oil developments on the block the Lisa Phase one and Lisa Phase two developments are currently operating at their combined gross production capacity of more than.
360000 barrels of oil per day.
Our third development, the pie or a field with a gross production capacity of approximately 220000 barrels of oil per day remains on schedule for startup at the end of 2023.
Our fourth development yellow tail, which was sanctioned in April will be the largest development to date on this day broke block with first oil expected in 2025.
The project will develop an estimated recoverable resource base of approximately 925 million barrels of oil and I have a gross production capacity of approximately 250000 barrels of oil per day.
[noise] front in engineering and design work for our fifth development or wall rose well underway with a plan of development expected to be submitted to the government before year end.
In terms of exploration and praise will and guy on them. This morning, we announced to new discoveries on the block it Yarrow and Sailfin, bringing our total this year to nine these discoveries will add to the previously announced gross discovered recoverable resource estimate for this day broke block of approximately 11 billion barrels of oil equivalent and.
We continued to see multi billion barrels of future exploration potential remaining.
And surname, we recently drilled the Xander I, one well, whereas is a 33 per cent interest in shell is the operator, the well demonstrated a working petroleum system and encountered oil pay.
The well results are being evaluated and further exploration activities are being considered.
Turning to sustainability, we are proud to be recognized as an industry leader in our environmental social and governance performance and disclosure.
Has has once again achieve level for status and the transition pathway initiatives recent management quality assessment.
Which is the highest level of awarded to companies that demonstrably manage climate related risks and opportunities from a governance operational and strategic perspective in line with a task force on climate related financial disclosures T C up the recommendations.
In summary, we continue to successfully execute our strategy and deliver strong operational and ESG performance, we truly offer a unique value proposition to grow both are intrinsic value and our cash returns by increasing our resource base delivering a lower cost of supply.
And generating the best cash flow growth among our peers major oil companies in the top quartile of the SMP 500.
As our portfolio becomes increasingly free cash flow positive we will continue to prioritise. The return of capital to our shareholders through further dividend increases in share repurchases I will now turn the call over to Greg Hill Foreign operational update.
Thanks, John <unk>.
In the third quarter, we delivered strong operational performance.
Company wide net production averaged 351000 barrels of oil equivalent per day, excluding Libya <unk>.
Compared to our guidance of 330000 335000 barrels of oil equivalent per day. This production beat reflects strong performance across our portfolio.
For the fourth quarter, we expect company wide production to average approximately 370000 barrels of oil equivalent per day, excluding Olivia.
For the full year 2022, we now expect company wide net production to average approximately 325000 barrels of oil equivalent per day, excluding Olivia.
Up from our previous guidance of approximately 320000 barrels of oil equivalent per day.
Turning to the Bakken third quarter net production averaged 160 66000 barrels of oil equivalent per day. This was above our guidance of 155000 to 160000 barrels of oil equivalent per day, and primarily reflected strong execution in recovery.
Following the challenging weather conditions in the first half of the year.
For the fourth quarter, we expect back in that production to average between 165000 and 170000 barrels of oil equivalent per day for the full year 2022, we now forecast pocket net production to average approximately 155000 barrels of oil equivalent per day, which is the.
Hi end of our previous guidance range of 150000 to 155000 barrels of oil equivalent per day.
In the third quarter, we drilled 20 wells and brought 22 wells online.
For the fourth quarter, we expected grill, approximately 30 wells and to bring approximately 25, new wells online.
And for the full year 2022, we expect to drill approximately 90 wells and to bring approximately 80, new wells online.
In terms of drilling and completion course, although we continue to experience cost inflation, we are maintaining our full your average forecast of $6.3 million per well in 2022.
Given the improvement in oil prices and a robust inventory of higher return drilling locations. We added a fourth Reagan July move.
Moving for rig program will allow us to grow net production to approximately 200000 barrels of oil equivalent per day in 2024.
Which will maximize free cash flow generation optimize or in basic infrastructure.
Drive further reductions in our unit cash cost.
Now moving to the off shore.
In the deep water Gulf of Mexico third quarter net production averaged 30000 barrels of oil equivalent per day, which was at the high end of our guidance range of 25000 to 30000 barrels of oil equivalent per day, primarily reflecting the successful startup of the shell operated Lotto six.
Tie back.
For the fourth quarter and full year 20, twenty-two we forecast Gulf of Mexico net production to average approximately 30000 barrels of oil equivalent per day.
In Southeast Asia.
Net production in the third quarter was 57000 barrels of oil equivalent per day.
Above or guidance of approximately 55000 barrels of oil equivalent per day.
Plan maintenance work was successfully completed in both the north and lay base and and J D assets during the third quarter.
Fourth quarter and full year 2022, net production is forecast the average between 60060 5000 barrels of oil equivalent per day [noise].
Now turning to Guyana.
In the third quarter net production from Elisa phase, one and phase two developments average 98000 barrels of oil per day, including tax barrels of 7000 barrels of oil per day above or guidance of 90290 5000 barrels of oil per day.
Both Elisa Destiny and leaves the unity floating production storage and Offloading vessels delivered strong operating performance and high facility uptime during the quarter.
[vocalized-noise] Guyana net production is forecast to average approximately 110000 barrels of oil per day in the fourth quarter, including tax barrels of 20000 barrels of oil per day.
For the four year 2022.
<unk> production is forecast to average approximately 77000 barrels of oil per day, including tax barrels have 7000 barrels of oil per day slightly above our previous guidance of 75000 barrels of oil per day.
Turning to our third sanction development and <unk>.
Top sides insulation in development drilling are under way.
The overall project is approximately 88% complete.
Yep P O M. P. S O prosperity will have a gross production capacity of 220000 barrels of oil per day and is on track to achieve first oil at the end of 2023.
Our fourth sanction development yellow tail will utilize the one guy on a F. P. S. So with a gross capacity of approximately 250000 barrels of oil per day.
Fabrication of topside modules kicked off in September and the hall is expected to arrive in Singapore in early 2023.
The overall project is approximately 29% complete and is on track Tucci first oil in 2025.
With regard to her fifth development <unk> the.
The operator plans to submit a plan of development to the government before the end of this year with approval expected by the end of the first quarter of 2023 the.
The plan utilizes an F. P. S O with a gross capacity of approximately 250000 barrels of oil per day with first oil targeted for the end of 2026.
As John mentioned this morning, we announced discoveries it <unk>.
The euro one well located approximately nine miles southeast of the Barreleye, one well encountered 75 feet of high quality oil bearing sandstone reservoir.
The sale fan one well located approximately 15 miles southeast of the turbot, one well encountered 312 feet have high quality hydrocarbon bearing sandstone reservoir.
The banjo, one well did not encounter commercial quantities of hydrocarbons and was expense than the third quarter.
On block 42 and surname, we recently drove the Xander I, one well where has has a 33 per cent interest and chill as the operator.
The well demonstrated a working petroleum system and encountered oil pay.
The well results are being evaluated and further exploration activities are being considered.
Looking forward fourthquarter exploration and appraisal activities on the stable block in Guyana.
Will include the Fang to southeast one well, which is a deep test located approximately eight miles southeast of the Fangtooth one discovery well.
We will also drill the fish one expiration well located approximately 62 miles northwest of Lisa one <unk>.
This well will target multiple stack reservoir intervals.
In addition, we plan to drill the lancet face one well located approximately three miles west of the Lisa three well, which will target deeper reservoir.
In closing our execution continues to be strong the.
The Bakken is on a strong capital efficient growth trajectory.
Are Gulf of Mexico in Southeast Asia assets continue to generate significant free cash flow.
And Guyana continues to get bigger and better all of which position us to deliver industry, leading returns material free cash flow generation and significant shareholder value and I will now turn the call over to John Reilly.
Thanks, Greg and my remarks today I will compare results from the third quarter of 2022 to the second quarter of 2022, we.
We had net income of $515 million in the third quarter of 2022 or $583 million on and adjusted basis net.
Net income was $667 million in the second quarter of 2022.
Turning to E&P.
E&P adjusted net income was $626 million in the third quarter compared with $723 million in the second quarter the.
The changes in the after tax components of E&P earnings between the third and second quarter of 2022 were as follows.
Higher sales volumes increased earnings by $370 million lower realized selling prices decreased earnings by $314 million.
Higher DD&A expense decreased earnings by $70 million higher cash costs in midstream tariffs decreased earnings by $55 million <unk>.
Higher exploration expenses decreased earnings by $22 million all other items decreased earnings by $6 million for an overall decrease in third quarter earnings of $97 million.
In the third quarter, we sold eight cargoes of crude oil in Guyana up from six cargos in the second quarter for.
For the third quarter are E&P sales volumes were under lifted compared with production by approximately 1 million barrels, which decreased or after tax income by approximately $50 million.
In the fourth quarter, we expect to sell nine cargoes from Guyana.
Turning to midstream.
The midstream segment had net income of $68 million in the third quarter of 2022, compared with $65 million in the second quarter <unk>.
Midstream EBITDA before Noncontrolling interest amounted to $252 million in the third quarter of 2022 compared to $241 million in the previous quarter.
Turning to our financial position.
At September 30th excluding the midstream segment cash and cash equivalents were $2.38 billion in total liquidity was $5.73 billion, including available committed credit facilities, while that and financed lease obligations totaled $5.6 billion.
In the third quarter, we continued our common stock share repurchases with the purchase of approximately 1.4 million shares for $150 million we.
We intend to acquire the remaining board authorized amount of $310 million in the fourth quarter of this year.
Total cash return to shareholders in the third quarter amounted to $265 million, including dividends.
Net cash provided by operating activities before changes in working capital was $1.4 billion in the third quarter compared with $1.5 billion in the second quarter, primarily due to lower realized selling prices.
In the third quarter changes in operating assets and liabilities decrease cash flow from operating activities by $66 million.
E&P capital and exploratory expenditures were $701 million in the third quarter and $622 million in the second quarter.
Now turning to guidance first free N P.
Our E&P cash costs in the third quarter of 2022, where $13.19 per barrel of oil equivalent, including Livia and $13.64 per barrel of oil equivalent excluding Libya.
We project E&P cash cost, excluding Libya to be in the range of 13 to $13.50 per barrel of oil equivalent for the fourth quarter and in the range of $13.50 to $14 per barrel of oil equivalent for a year, which is unchanged from our previous guidance.
DD&A expense was $12.56 per barrel of oil equivalent, including Libya and $13.03 per barrel of oil equivalent excluding Libya in the third quarter.
DD&A expense, excluding Libya is forecast to be in the range of $13 to $13.50 per barrel of oil equivalent for the fourth quarter and $12.50 to $13 per barrel of oil equivalent for the full year, which is also unchanged from our previous guidance.
This results are projected total E&P unit operating costs, excluding Libya to be in the range of 26 to $27 per barrel of oil equivalent for both the fourth quarter and full year 2022.
Exploration expenses, excluding dry hole costs are expected to be approximately $40 million in the fourth quarter and approximately $155 million for the full year, which is down from our previous full your guidance of $160 million to $170 million.
The midstream tariff is projected to be approximately $310 million for the fourth quarter and approximately $1.205 billion for the full year, which is within the range of a previous full your guidance of $1.190 billion to $1.215 billion.
E&P income tax expense, excluding Libya is expected to be approximately $210 million for the fourth quarter and approximately $560 million for the full year, which is up from our previous pull your guidance range of $540 million to $550 million.
We expect non-cash option premium amortization, which will be reflected in our realized selling prices will be approximately $165 million for the fourth quarter.
Our E&P capital and exploratory expenditures are expected to be approximately $800 million in the fourth quarter and full year guidance of approximately $2.7 billion remains unchanged.
For midstream, we anticipate net income attributable to has been in midstream segment to be approximately $65 million for the fourth quarter and approximately $270 million for the full year, which is the midpoint of our previous full your guidance range of $265 million to $275 million.
For corporate corporate expenses are estimated to be approximately $35 million for the fourth quarter and approximately $135 million for the full year, which is down from our previous full year guidance of approximately $150 million.
Interest expense is estimated to be approximately $85 million for the fourth quarter and approximately $345 million for the full year, which is at the lower end of our previous full year guidance range of 345 to 355 $350 million.
This concludes my remarks, we were happy to answer any questions I will now turn the call over to the operator.
Thank you ladies and gentlemen, if you have a question. Please press star followed by one one <unk> iPhone questions will be taken in the ordinary receive police <unk> one one to begin one moment. Please.
One moment for our first question.
I first questions come from their line of I'm, Yeah, I'm with a J P. Morgan <unk>.
Yeah. Good morning, a rune <unk> from J P. Morgan.
Morning.
Morning, guys. John I know you guys are are pretty knee deep in your planning and budgeting process, but I was wondering if you could offer any soft guidance commentary for 2023, as we think about volumes in capex and in what is obviously in a little bit more of an inflationary environment.
And particularly you know off shore.
Sure <unk>. Thanks for the question as usual, we will provide to your point or 2023 capital guidance in January but I'll try to give you some high level information now compared to 2022.
So if we're gonna start with Guyana in 2022, we have $1 billion of development spending as you know that includes two projects <unk> and yellow tail.
So in 2023, we will continue spending on <unk> and yellow tail, but we will add subject to government approval, a third development project at <unk> and to a lesser amount of gas to energy price as well.
So while the <unk> project is going to have industry, leading returns and a low cost of supply the cost of the <unk> project. You know as you mentioned will be higher reflecting the current market conditions as well as additional scope to reduce greenhouse gas emissions. So with that we currently expect our Guyana spend to increase by.
Approximately $500 million to $700 million in 2023 so.
The mid point of that would be going up from 1 billion to 1.6 billion.
In the Bakken, we're spending approximately $850 million this year and you know we added the fourth rig later in the year. So we expect an additional $250 million of spending 2023, reflecting a full year of a four rig program and that that for Rick program as well as the expected in.
Industry inflation drives that 250 million dollar increase their in the bucket and a Gulf of Mexico. We are still Finalising, our 2023 program, but we do see the potential for two well tie backs and also one hub class expiration opportunity. So with that is approximately $150 million increase.
In the Gulf of Mexico, So therefore, adding those up taken the midpoint of the Guyana number we expect our 2023 capital explore to expand it again, it's preliminary to be approximately $3.7 billion or about 1 billion more than 2022.
Great and and any thoughts on just overall volumes are too premature at this point.
It is is premature at this point then I mean again think about us from a longer term standpoint up production growth. We've seen a we can grow our top line production growth and it's just an output of the great opportunities that we haven't Guyana that over the long term you we can grow it greater than 10% cause you just think.
About 2024 now as Greg mentioned early will get the backing to 200000 barrels a day and then we'll have pie are on as well. So that's gonna add another 50 to 55000 barrels. So right then add those two together you almost up 25% absolute from where we are right now so again.
As we move into next year will give that production guide early in the year, but you know.
The growth is going to be lumpy basically when the F. P. S. OS come online. So that's how you should think about it as we move into next year.
Great and does my follow up I wanted to.
Getting some biocide queries on exxon's release today, and maybe you could just help clarify they mentioned in their release that they expect diana's oil productive capacity to to be more than a million barrels by the end of the decade. John today, you mentioned you to <unk> by 2027, which is in.
In line with.
The consortium's previous outlook it anything in that you know comment and exercise or at least that you can click to clarify.
No you have to ask Exxon about that but our comment about bi twenty-seven having productive capacity gross of over a million barrels of oil per day. That's very consistent Exxon has said the last several years and that's the <unk> that's the correct.
Okay, great probably just semantics, thanks, a lot John .
Thank you one moment for our next question. Please.
Next question comes from the line of Doug <unk> with Bank of America. Your line is open.
Oh, I I love the pronunciation good morning, everybody good morning, <unk> <unk>.
I guess I would like to <unk>, sorry to be open. This last point road mentioned, but I know of US you on the bus X on this before and anyone who has listened and those are excellent as answer is they're basically being conservative but tell me why with a long flexible is that you're clearly gonna have a nice.
So the production capacity of an additional five and six at 220 doesn't get you close the 1.3 over 1 million just seems to me is getting a bit old pardon pardon the expression, but it looks towards that you'd at least 30 per cent over that with what you've got line of sight on why is that alright.
Doug you know I I think the 2027, a number of six F. P. S OS and at least a million barrels a day of gross production is a good number it's a conservative number and is there some upside.
To that yes, there certainly is.
My math wrong.
No well as opposed to talk to your mouth, let's talk about our math were saying a million barrels a day six F. B S. O's 2027, there's upside to that number.
Okay, [laughter], alright, sorry, depressed alright, my my follow up is.
As you look into Jones, obviously walk through the topics story, obviously, the the <unk> the the recovery of the cash flow of cutbacks in Guyana.
Makes a lot of that obviously.
Somewhat to the the overall cush with torn story I guess given that quickly you get the money back. So so I guess my question is that the 75 per cent of free cash flow target you clearly logging dot this year <unk>.
What can we expect by way of an inflection cashed returns in 2023 at <unk>.
Yeah, Doug Eh, Thanks for the question.
It is an excellent one as we look to 2023, our financial priorities remain first to invest in our high return opportunities, especially in Guyana in back in the John talked about the 3.7 billion dollar capital program.
Second to maintain a strong cash position and balance sheet to ensure that we can fund these high return opportunities and investments through the cycle. Then we would give strong consideration next year or two further increasing our regular dividend.
And then following that in line with a capital return program, where are we have committed to returning the remainder of our free cash flow up to 75% through share repurchases and and similar to this year, we have the flexibility to return in excess 75%.
You'll recall at the end of the quarter, we had 2.38 billion of cash on the balance sheet. So we have flexibility for next year, so depending upon market conditions oil prices financial prices, where the recession and the economic slowdown come out will be.
<unk> to increase are are a return of capital further, but that's gonna be decision that will make as we go into next year first to make sure that we can fund our high return programs second keep the strong balance sheet third increase the dividend than than anything left over as we go out not you.
Yeah next year, but in the years ahead, and we deliver increasing levels of free cash flow. We expect share repurchases will represent a growing proportion of our capital return program in the years ahead.
So you'll just to be clear you've got a debt maturity next to your home with us.
It it's actually in 2024, and it's $300 million in 2024, and we do and it goes back to Yeah, Hey, Doug I, just Wanna make sure. What you said earlier because this year, we are actually returning more than our 75% in our in our framework. So just remember a framework we did our debt reduction of 500 million.
And as John mentioned are framed my has the flexibility when oil prices are strong to do more than 75% and that's what we are doing this year and as John mentioned will will complete to $310 million in the fourth quarter. So again, we have that flexibility to stay strong and John said, depending on market conditions will will do 75% or.
Or more we'll see.
Thanks, so much guys.
Thank you one moment for our next question. Please.
Our next question comes from Stephen Richardson with Evercore. Please go ahead.
Good morning morning.
Thank goodness for easy to pronounce names could I was wondering if I could ask Greg a couple on exploration on one it seems that if you're gonna success at euro and and banjo one it sounds like it wasn't you know our our recollection was that this was testing through the inboard oil play.
To the southeast could you maybe talk about a little bit more to the extent that you're able in terms of those two and what was confirmed and what wasn't and and what we should take away from that.
Yeah sure. So first of all you know I would say the inboard oil play has been very successful because we've had for discoveries.
In the area. So recall barrel I had 230 feet of high quality pay C. Bob at 131 feet of high quality pay as we announced this morning, Yarrow had 75 feet of high quality pay and finally, <unk> had 115 feet of high quality pay so all of those.
Those you know will will help to underpin a future development and even though banjo was dry had noncommercial qualities of hydro quantities of hydrocarbons had had added garbage that went through it.
We've got more wells to drill in that area. So if I step back and say four successes, one one noncommercial and more calm I still feel very optimistic about I still feel very optimistic about the input inboard play and I also think it's important to know that banjo was the western most.
Prospect that we drilled.
In that inboard play as well.
That's helpful and maybe Greg I mean, this whole genetics around a million barrels or the or the or the six boats or the 10 boats or whatever it may be could you. Maybe you know at what point should we be thinking that we'd get more clarity in terms of the length of <unk>. So.
Versus additional books is this is this something that we're gonna be you know get some additional clarity on the next 12 24 months or is this a longer then as he kind of smelled the reservoirs react in production, but it seems to us. It that's the the as we think sure recovering 11 plus billion barrels, though those are kind of it to various.
<unk>.
Yes, Steve I want I want Greg to answer that but you have the clarity what production is gonna be it's gross a million barrels a day at least in 2027 I think that's really important so people don't get confused by other releases that is the number and there's upside connect now great can talk more about tie backs and <unk>.
My toes, but that million barrels a day very good number that people should use in terms of having clarity and visibility of the production growth trajectory.
Okay, great. So.
So I think you know the plateau what rates are lengths I should say are gonna vary by vessel. You know however, you know given the high resource Dan City, and the potential for near field tie backs and that's in both the upper campaigning and add the deeper place because remember the deep play underlies.
You know the shallower upper campaigning reservoir. So we expect to see these production plateaus main for a longer period than what would be typical for other deepwater development. So.
I'm pretty optimistic about the length of the plateaus, but again each one O b bespoke based upon the reservoir density you know in and around each vessel.
Thank you.
Thank you one moment for our next question. Please.
Next question comes from the line of Neil <unk> of Goldman Sachs. Please go ahead.
Good morning team first question is around morning, Jan first question is around the back and really good quarter for you guys here. After some weather issues earlier this year and just.
Refresh us on how we should be thinking about the trajectory in the back in 23 and then.
As you get into 24 as well.
Sure. So you know fit we guided 165 to 170, you know in the fourth quarter of this year and that really reflects a couple of things one is.
Most of the wells are gonna be completed at the back end of the quarter.
We also looked at our historic kind of weather performance in the fourth quarter, we increased our contingency a little bit in the fourth quarter to reflect that if you think about you know where we're headed in the back and you know with the four rigs that's gonna allow us to increase production to about.
200000 barrels a day in 2024 and with our you know extensive inventory of higher return wells, we expect a whole this plateau for nearly a decade, and then generate significant free free cash flow and during that period of time, you can assume that the oil percentages. The wellhead is gonna be broadly flat.
At around that 65% so you can almost.
And point this year and pretty much straight line to the end of 2024, assuming the end of 2024 would be 200, and that'll give you a reasonable approximation of what the trajectory will be.
Alright that that's a good color here and then John John If I could ask you to step.
Step back and talk about your view on the macro you always have a good reason on the oil markets and it gets your perspective on where we are in terms of the rebalancing as you go into 2023, and how that feeds into your framework around hedging given the backwardation liquor.
Yeah, I'll give some remarks on you know further detail on how we see the oil market and then John Reilly I'll talk about our hedging look at the impact of high interest rates strong dollar inflation, obviously is being felt in the financial markets now you know better than <unk>.
Anybody from your perspective, it's already being felt not only in the financial markets in the pull back but also in certain parts of the economy, but I have to say, even though you know we've seen a swelling of demand in China and in Europe overall.
Global oil demand continues to be pretty resilient and we're not seeing a major impact from inflation in the high dollar in oil demand itself and in fact, as we look out to next year between China reopening its economy and <unk>.
Genuine to increase overall global air travel, we see upside to current demand globally of a million 100 million barrels of going up a million barrels a day next year I don't think if there is a pullback in the economy, where does affect oil them.
Man I don't think it's gonna be anywhere near what it was during the world financial crisis, which was upwards of 2 million barrels a day, but you know I think part of what's going on here you know there's been a a slow but steady increase in demand recovering from Covid and we haven't completed that recovered yet and that's the major <unk>.
And while demand we think as you go into next year will go up at least a million barrels a day from the hundred million a day right now the risk I think is the upside you know, what's gonna happen with Russia oil supply, what's gonna happen, Russia gas supply how do we get through the winter I think you know how cold is the.
Winter that anything could increase that million barrels a day that I just talked about you know as you know there's oil substitution for gas supply Bud industrially some residential commercial both in Europe and Asia, obviously on the electricity.
<unk> sighed, how much that's feel substitution remains to be seen as well. So you know we we see the market if anything having strengthening impact tailwinds going into the winter and as such you know I'd say, there's more upside to the price.
From where we are now than there was downside, but with that sort of as a backdrop, John how 'bout are hedging.
Sure so with that backdrop, I mean, Neil you know <unk>, what we do is we use put options for our hedging strategy and with all the.
All the variables that John just mentioned you know and the time value here.
The volatility levels right now putting on the puts would be too expensive. So we do plan to get the similar level of of of hedge protection that we had this year now will we will continue to watch the market will try and get some on in fourth quarter, but it could be early next year that we get the.
These hedges on so you should expect us to get that that are similar hedge position on it'll just be a matter of timing when we do it and again, just with put options and and again to underline what Johnson that's to protect the downside and still give our shareholders the benefit of the upside. Thanks.
Makes a lotta sense. Thank you <unk>.
Thank you one moment for our next question. Please.
Our next question comes from their line of a rug I read with Wells Fargo. Please go ahead.
Yeah good morning.
Come back I guess, a little bit on the Capex and I know you you're hesitant to get you know any more than what you've had but I'm just a little curious as you look across the various regions you operate onshore.
So I assure you ask <unk> like how much of when you look out you can say is fairly well commit.
Committed or contracted signed you know where there's not a lot of risk of of a surprise as we think about 23 on the Capex front.
You know the underlying inflation that we're just kind of see everywhere.
Yeah.
So on the on the inflation you know like our competitors were seen upward pressure cross you know both are onshore and offshore businesses and steel prices labor cost rig rates. So let's talk about the Bakken first regarding in the back and now what we've seen this year the.
History is seen overall inflation of 15% to 20% versus 2021, you know however, as you know our teams have been able to reduce this to 8.5%.
And we've done that through lean manufacturing strategic contracting and technology and that's enabled us to deliver that DNC cost of $6.3 million per well in 2022. So our our net inflation has been about the half of what the industry has seen in the back and if you will now.
Now if we looked at 2023.
In broad terms.
We're anticipating a further 15 to 20 per cent inflation and oil.
Country to the other goods, even though steel prices are moderating the meals are still add capacity and demand is very strong.
We also expecting 15, 20 per cent potentially and drilling rigs and 5% to 10% inflation and frack spreads frack sand and labor. So that kind of gives you an idea now of course, we're working to mitigate some of these further increases in will guide will cost in.
In the back and in January 2023, as usual and recall in Guyana.
The first four F. P. S. O's are contracted and have have limited exposure to inflation and I should add the operator has done an excellent job of offsetting any inflation oilcup country tubular goods et cetera through the efficiency gains that they've realized in Guyana.
That was already mentioned the <unk>. So cost is going to reflect current mark condition market conditions as well as scope.
<unk> changes and you know, we'll give an update on while we're once the project has been approved and sanction, but it'll still be world class still have world class Breakevens.
Yeah. It's it's it's certainly something to watch down there and the only other question I had is related to <unk> has there been.
Any update any change to the thoughts of gas development down there long-term I mean, I know we have the pipeline to the onshore but anything else is you've had these additional discoveries and as you're thinking about you know out to the 2027 period with six F. P. S. S.
No I think you know in the short term, it's all about the gas gas pipeline to shore slipped <unk> Slipstream 50, 900 million off of you know Lisa and you know supply of onshore clean power plant that the government will build beyond that Barry Longterm, you know in terms of L. N.
G or anything like that that's way down the road, we are focused on optimizing the development plan to move those oily developments forward [noise].
John said, we have clear visibility six in the seventh as likely just around the corner there'll be an oily boat as well.
Great. Thank you.
Thank you one moment for our next question. Please.
Alright. Our next question comes from the <unk> Research Your line is open.
Everyone, Joan Hess, while you're on the subject of oil markets could you give me an update and that looks Libya. Please. Thank you.
Paul Thanks for the easy question look Libya is still having political unrest political divide between the east and the west.
And you know there are some encouraging signs that they're gonna start coming together for the leadership of the country, but it would be premature for me to comment further on that you know, we're still hopeful that we're gonna be able to.
Conclude our sale of our assets there to <unk> hotel and Conoco Phillips, but it needs.
Leadership approval from the government and that's a work in progress.
[noise] understood another thing, which is a little bit inside the school, but maybe an opportunity to talk about a big theme.
Is the us at retirement obligations that you had in the courtroom.
Is that is that is sort of a one and done payment that you're making in the Gulf Gulf of Mexico's is there an outlook.
More of the same or is that sort of.
Putting it into it and could you comment on the overall attractiveness and and positioned in the Gulf of Mexico, New plans that we don't talk much about it, but obviously, where it where you've got a pretty big decision.
So I'll start with the <unk> retirement obligations, then I'll I'll hand, it over to Greg for the for the Gulf. So the actual retirement obligations that we had that we took the charge on this quarter. It was basically for Nonproducing properties that we just updated our estimates on on those wells that are being <unk>.
<unk> and this is really kind of near term wells that we're going to be working on so that yes is more of a one time now overall like we've got you know a lot of wealth that will come to be abandoned but over the long term and the change in the estimate for for all those wells were not that much but.
What happens from an accounting standpoint is when they are producing you increase the liability increase the asset. So again I would say you don't have to think about it more as a recurring type thing. This is kind of a one off for these nonproducing properties that we have in the near term.
And Paul Let me talk about you know kind of where we're headed you know in the Gulf. So you know as as you kind of intimated. The you know the Gulf of Mexico remains in a really important cash engine and platform for growth for us and so our objective is is that is to sustain or grow production there through both tie backs and.
And have class expiration opportunity so we'd been selectively.
Rebuilding our Gulf of Mexico portfolios, you know in the last six years and we've acquired more than 60, new leaf blocks in and have a really good balance of both types of opportunity. So I make a good planning assumption is that we would drill two wells per year for the next several years and then if we kind of hone in on 2023.
We're still Finalising the program, but we're seeing the potential next year for to tie backs and one hub class expiration of opportunity based upon the success of our of our here on well this year and also in most of these prospects that I talked about our our part.
<unk> shell and Chevron so.
<unk>, we're in with you know a a very good partnership in the Gulf.
Got it in Alaska, leading question is is government policy made the difference to the way you've lived through the Gulf of Mexico, and I'll leave it there.
No it hasn't.
Thanks.
Thank you one moment for our next question. Please.
Next question.
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Our next question comes from their line of about bracket with Bernstein Research your nineties open.
Good morning, Thanks for the color on the water development, you mentioned 250000, a day I'd seen third party report the 275, a day and it sort of begs the question given that standard all how large could you get in terms of what's the capacity limit for an F. P. S O of that class.
Oh, Thanks, Bob [noise], you know I think.
You know the the opportunity to kind of Debottleneck.
He is going to be bespoke. So it's gonna be vessel by vessel Mail you recall with Debottlenecked phase one. It from went went from 120 to 140 based on the early production performance of phase two it looks likely that we will probably have some debottlenecking potential there you know as these were.
As these vessels come on.
You know based upon the early production history call. It the first year or so that is when you'll decide you know where you pinch points are and and how much debottlenecking capability. There is on each vessel. So it's gonna be bespoke and we'll just have to wait and see what that early production data shows.
Yeah in terms of the maximum capacity any.
Yes.
Well I think you know 10% to 15% is kind of what would be typical you know if you look at phase one and maybe potentially a phase two 275 you know.
Don't know you know I I, just don't know again every vessel is going to be different and I think it would be premature to throughout numbers like that yeah and Bob. Obviously this is all subject to government approval, we're gonna be putting our planet development in and now assuming something in the range conceptually of 250, a day is proper.
Really a good planning assumption, but again, it's subject to government approval.
Very clear follow up there and this has been your biggest year of sort of deeper San Antonio exploration Guiana any update on progress in learning thoughts about this antonio.
Well I think you know the results speak for themselves I mean, you know the deep is very promising.
And I think we will continue as I said my opening remarks, we will continue to really understand the deep potential with many of the wells that we're gonna be drawing.
In the in the fourth quarter.
You know Fangtooth Southeast for example, located eight miles southeast Fangtooth is Candice Bud.
And then you know that you know Fangtooth has a very high quality very large reservoir system and putting another well eight miles southeast of their will tell us a lot.
So I am very optimistic about the deep.
And there are a number of other prospects that when you had a recent review on one's called Lancetfish, which.
East of Ah Ah Fangtooth than we have fish, one and fish too that are you know a reasonable distance to the west and northwest of bank too. So there's a lot of prospectivity to come as we get more success and finding these deeper horizons, our ability to correlate the seismic new prospects are lighting up.
So so there's a lot more upside that Greg is talking about that hopefully in the next six months will be able to give updates on and Bob just to remind you that you know the fish. One is 62 miles northwest the leaves the one so that gives you.
An idea of the extent of some of these deep reservoir of our systems, what we see.
And then of course Lance had fish is tucked close to Lisa it's about three miles west of the Lisa three well and it's targeting deep sands that underlie that leaves the complex.
Thanks for that.
Thank you one moment for our next question. Please.
Alright, and our last question is Sunday line of no parks with Chili Brothers. Your line is open.
Hi, good morning.
Good morning.
I was wondering at at banjo, if you could just talk a bit about.
How the results there sort of maybe ripple through urinalysis it <unk>.
Maybe the fries and the interpretation or if there is anything else you you learned about the Andre yoga aerial extent of of.
The resources there.
No I you look again I I think we already talked about the significance of banjo I think the you know the question is really about the inboard oil play [noise].
And recall we've had for discoveries.
This area barrel icy Bobby Arrow, Luca 90, 990, which all had <unk>.
Significant amounts of oil pay.
Banjo was the western most well so in that area. It was a bit of an out stabbed if you will from the fairway, we've got a bunch more wells to drill in that area. So I don't think he should read anything negative into the banjo result at all.
Okay.
Fair enough and I, just wanted to turn to the the parking for a minute and uhm.
Just wondering if you had any updated.
Thoughts on our experience with Recompletions up there if I recall.
Had done some work going back to some of the the oldest vintage wells worth that sort of with it.
Original.
Much lighter completions out there.
And so and if you have been doing anything out there what.
I guess about what the returns might look like for and that sort of work.
Well, the we have been doing a number of refracts and the results have been very good and in some cases. The wells you know the I P rates that we're seeing.
R. As good as you know some of the new wells and that's not surprising because these were kind of vintage 001 completions. We have several hundred wells that we could read <unk> and we will fit them in our program. You know you know as as we go forward.
One of the advantages of Refract program is it allows allows you more continuity with a frat crew.
So we've been sort of dovetailing some refracts into our program just to maintain continuity of a second <unk>. So you'll see more of that activity next year, but so far so good. The results are good and the returns are very good because you know all the infrastructure are there the wealth there so.
Okay. Thanks, a lot.
Yep. Thank you one moment for our next question. Please.
Our next question comes from the line of Ryan Todd with Piper Sandler. Please go ahead.
Oh and Mister taught remove himself.
So thank you very much. This concludes today's conference. Thank you for your participation and you may now disconnect.
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