Q3 2022 Kosmos Energy Ltd Earnings Call
Greetings and welcome to the Kosmos energy third quarter 2022 earnings call.
Time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentations if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the call over to Jamie Buckland, Vice President of Investor Relations. Thank you you may begin.
I used to operate that bank.
The room for joining us today.
This morning, we issued our third quarter earnings release.
This release and the <unk>.
The presentation accompanies today's call.
On the investors page of our website.
Joining me on the call today through the material on the NGO government M C.
Yeah.
And Neal Shah Yeah.
During today's presentation, we will make forward looking statements.
That's our estimate.
And expectations.
Actual results and outcomes.
If a materially due to factors. We note in this presentation and in our U K U S. H E filing.
Please refer to our annual report.
Exchange announcement, and SEC filings for more detail.
These documents are available on our website.
At this time I will turn the call.
Or like this one.
Thanks, Jamie and good morning, and afternoon to everyone. Thank you for joining us today.
It was cool.
I'll start today's presentation, but if you could comment on the macro environment and the role of the Cosmos I'm buying the dressing.
The challenge is well spacing.
I'll then give an update on this board.
Oh on the oil and gas development projects, we have across the portfolio.
I'll, then hand over to Neil.
Financials before I wrap up today's presentation, and we have some Nicole Q&A.
Turning to slide three.
Well grappling with the need for affordable secure and clean energy with a balanced approach required to address the trees dimension.
Cosmos has the right strategy and portfolio.
The right time to be part of the solution.
We have a strong oil weighted portfolio that can supply more of the energy the world needs today.
Investing in growing oil supplies and each spot coal production hubs with an emphasis on high grade project.
Low cost lower carbon barrel.
Highly cash generative.
At the same time, but what we without partners big new sources of natural gas into production.
These projects to address affordability and increase energy security by supplying more got it.
The energy market.
As well as the domestic market in Africa.
This should benefit all of those.
In Chile.
First the revenue from the export of LNG can be invested in critical infrastructure to promote economic development.
Second providing baseload domestic gas supply well how's that expand access to electricity a key go niche of the country, where we work in Africa.
Over the next two years.
The increase oil and gas production by about 50%.
As we optimize chairman production and bring new projects online.
The cosmos, the cash flow from monarch horizon.
And then lastly.
Reinvestment in the most compelling opportunity and all these natural gas pool, Oh, yeah, which can help meet demand and support the energy transition for decades to come.
Longer term, we plan to continue shifting the balance debacle.
From oil and natural gas and LNG to help meet the world's energy needs.
Cleaner natural gas displacing coal heavy fuel oil and biomass as a primary source of energy in both developed and emerging economies.
Well demand for energy continues to grow, particularly in Africa and few E&P companies are investing to meet this demand.
Given the quality of our asset base and the wealth of opportunities within our differentiated full Oh, yeah. We believe cosmos has an important role to play in responding to these global energy challenges.
The next slide highlights the characteristics that differentiate cosmos.
<unk> side of the slide we identify the distinctive feature debacle.
Yes.
We have a high quality long dated asset.
G P.
That should lie about 'twenty yet.
Second on.
Our low cost high margin asset the highly cash generative, particularly at current commodity prices.
We forecast around 50% growth in production from now until 2020 people from three development projects, which are progressing well.
The largest portion of that growth is expected to be driven by <unk>, which increases the gas content about portfolio materially just some things wrong with the launch of transition.
As we deliver subsequent phases now rather than gas project in Mauritania and Senegal.
On the rights of the embedded value policies of the company.
And our strategy.
We have a strong focus on capital discipline.
During the most compelling value added projects in the portfolio.
Sure the balance sheet remains robust.
We continue to reduce absolute debt and Brian's on leverage and Neil will talk about the progress we've made this year.
We have a highly experienced management team have the energy to deliver our strategy.
The challenges, we see across the industry today.
And finally, we have a strong track record across the U S. G back from the mid <unk>.
You shouldn't reduction target.
Contract transparency the funding social programs in our host countries.
MSCI one of the leading E N G rating agencies recognize the commitment and the progress we are making and has recently right cosmos the AAA its highest possible rising.
The combination of these policy.
What's unique and supports our ability to drive substantial shareholder value over the short medium and long term.
So to summarize I strongly believe cosmos is well positioned for the future.
With a clear compelling strategy and we continue to progress on our strategic piracy each pool.
Turning to slide five.
Looking at <unk>. It was another quarter of solid execution, the cosmos as highlighted by the boxes on the slide.
Our production assets are performing as expected.
For the quarter in line with guidance.
We continue to grow the value of our oil portfolio.
At the Jubilee southeast and wins about development and.
And we have high graded on lilac.
Our next years drilling activity.
We are also growing the value of our gospel yet, but the continued execution of the Sochi projects and that's where our web when you signed the new PSC with the government policy.
And finally, the balance sheet continues to improve as the portfolio generate cash which drives down leverage with our year end target leverage of one and a half times achieved.
That progress expected.
We'll dig into each of these themes in today's presentation.
Jenny mindset.
On the performance of our production assets during the quarter.
In Ghana, the Jubilee field continues to deliver production for the quarter around 89000 barrels of oil per day.
Following the excellent drilling performance year to date, which has seen wells drill safely quicker than planned. We have now started drilling the first of the three Jubilee southeast well ahead of schedule.
We have completed the handover the Jubilee yesterday of operations and maintenance for mode.
Any of the third quarter and the results so far have been encouraging with multiple opportunities again and start driving further efficiencies and reduce costs.
So as Sean mentioned, the operating performance the strong with no recordable safety incidents and facility uptime of over 98 cents.
On costs, we've identified potential saving direct contracting focus what scopes and compassionate re tendered.
A 10 gross production of around 2000 barrels of oil.
For the quarter was in line with expectation.
<unk> and 'twenty, one well was brought online in late September that's since been choked back awaiting pressure support in the injected pad, which we expect to see you soon.
The partnership also thrilled with the rise of base well during the quarter, which encountered approximately five majors that okay.
But with poor quality reservoir than I expected.
They don't have to rise the Bates wells will be incorporated into the expansion plans.
Which will now be focused on proved accumulation in areas, where we have existing well control.
And next we will gain a gross production has been consistent and stable.
Around 30000 barrels of oil per day for the quarter again in line with expectation.
In late August the partnership entered into a rig contract for next year's drilling campaign.
Activity scheduled to begin in the second half of 2023, when the partnership makes banks really simple and well well Gee, followed by an ILEC as well.
The Gulf of Mexico, net production of 14700 barrels of oil equivalent per day was slightly below expectations due to an extended downturn house turned around and leased talents impacting production. So neither after the planned dry dock of the production vessel.
The Delta House, there was an unplanned shutdown for around two weeks last month due to an average of the gas capacity.
The issue has been resolved and factored into our <unk> guidance for the Gulf of Mexico, and the appendix slide in the back of the material.
On Covid, yeah. The number three well came online in mid September .
Well results and initial production were in line with expectation. However is one of our partners clients and their results last week.
Productivity has declined and work.
Something about.
So there have been a few issues with unplanned downtime.
Last couple of months, but we're now back at around 18000 barrels of oil equivalent per day net and five.
On Brian knock on production.
Work also began on the odd job subsea pump project during the quarter. Following sanctioned in June which is an important step and sustaining long term performance of the field.
Turning now to slide seven.
As we move on to development projects forward, we continue to grow the value of the portfolio.
This slide looks at the recent progress we've made growing the value of our oil portfolio.
On cheaply Southeast project is now over 50% complete with the drilling of the first well now underway.
Initial production is expected in mid 2023, and the partnership and targeting a ramp up in gross Jubilee production around 100000 barrels of oil per day.
It winds out old partners signed a field development plan in September and the operator has signed the rent commencement last time to drill and complete three well starting mid 'twenty three.
I would say some of the tea production handling agreement and midstream export agreements are also expected to be completed within the next several months supporting our target of first order yeah first of all.
Okay in 2024.
Given the scale of the potential resource with approximately 200 million barrels of recoverable oil. We remain excited about this project within the quarter acquired an additional interest.
Overall interest in the project up 25%.
In addition, we are targeting further drive drilling to high grade opportunities in Ohio.
We expect to drill the time various one off in the Gulf of Mexico, mid 2023, and the King deep while an extra again a around a year later.
Both projects are targeting over 100 million barrel of oil growth would be high return tie back project its success.
Now that I've talked about on near term upside in oil I'd like to switch gears here on slide eight.
It looks at how we're growing the long term value of bond gas portfolio.
But still she phase one Oh LNG project in Mauritania and Senegal.
Oh bloodstream continue to make good progress with the project is approximately 85%.
At the end of the third quarter.
The hub terminal is now largely complete with the living quarters platform installed and the commissioning activity now convert.
On drilling four wells have been drilled with total capacity of around 700 million standard cubic feet a day.
We recently completed the first full well not quite as back to the right ratio of cleanup period.
Combined the Constable wireless we now have significantly more capacity in the 400 million standard cubic feet.
Today, you required in supplying that liquefaction volumes the phase one.
On the floating LNG vessel, which is being constructed in Singapore, we remain on track for sail away in the first half of 2023 as communicated by Golar in their most recent results.
On the subsidy the shallow water gas export pipeline yeah yeah.
And all have been installed.
What the pie play basketball has arrived in the region.
Final testing is being conducted by the bond nation in the coming week delay the deepwater pipeline in the in situ.
Sure.
On the <unk>, so the timing of the sea trials I'm sorry. The line was impacted by the time, we swept through the on in mid September and caused the basketball divest away from the <unk> side.
Brian two weeks later, the basketball was retained in peacetime.
Spansion carried out today that continues to be no material damage reported.
With a record inspections and additional what Scott dosing from the typhoon impact on the.
Schedule has been around a month.
As a result, we expect to stabilize the basketball around year end.
Stepping back and looking at the projects overall, yeah, operator is working hard and making good progress to overcome the challenges COVID-19 supply chain constraints and more recently any time soon luisa.
We expect first gas around nine months from Sps that fade away and continue to target first LNG around year end 2023.
On the call guys sounds like you talked about last quarter a process of engagement has commenced the significant interest we see today.
So the major trade it.
We will provide further update as we.
The rest of the process and remain focused on crystal lines and additional value for our shareholders in this opportunity.
Elsewhere in Mauritania, and Senegal, we continue to move the various projects cool.
Until she phase two we're in advanced discussions with our partners BP Pakistan SMA.
Government, including their respective president.
On the right concept to accelerate the second phase of the project.
In light of the change going from market conditions, falling you'd banking of Ukraine, and the continuing volatility.
Aim is to agree the best concepts in the coming months, which will enable us to advance at pace with the right expansion.
This is taking longer than initially envisaged as we work to obtain the full agreements with both governments, who are rightly considering the importance of that.
That gas resource and the opportunity to build new government to government partnerships.
Overall, I'm pleased with the level of alignment on the route forward.
That's a sharp focus on building the Ryan's notes also inching leveraging synergies with phase, one and accessing attractive pricing opportunity given behind demand.
Umbrella, we've now signed PSA, where they've got all the Canadian it's flags in last quarter's results.
We're working with BP on our future development content and the PSC allows us up to 13 months to reach out.
That said with Paul on that project.
We expect this project thank you.
Based approaches told team to manage both costs and patents.
In Senegal, we continue to progress the domestic gas scheme with the operator of the government.
There was a large and growing need for domestic gas in Senegal, and the government intends to move this forward quickly.
With that I'll hand that with Neil take you through the financials.
Thanks, Andy turning to slide nine.
Third quarter saw continued progress as we further enhanced our financial position we.
We are taking advantage of higher oil prices to continue to strengthen our balance sheet with net debt down approximately $400 million year to date.
EBITDAX in <unk> was around $301 million up almost four times compared to the third quarter of 2021 on higher production and higher realized prices.
This is a significant under lift in the quarter, which we expect to reverse in the fourth quarter of this year.
We generated around $30 million of free cash flow in the quarter takes us up to around $320 million for the year to date.
Strong EPS performance.
To drive leverage to the one and a half tons target, we set out to achieve by year end.
Further progress on this expected.
The chart on the right shows the quarterly progress, we are making on both EBITDA and leverage.
As our production has grown on a year on year basis.
I would expect around $1 5 billion and EBITDAX for 2022 at an average oil price of around $100 per barrel.
Liquidity has grown consistently over the last year and remained over $1 billion.
Looking forward with expectations that the business continues to generate strong levels of free cash at current commodity prices. We plan to continue to prioritize debt pay down in the near term.
Turning to slide 10.
I talked about the financial highlights on the previous slide the plan to just cover the key items on this slide.
As Andy mentioned net production of around 61000 barrels of oil equivalent per day was in line with guidance.
In particular, our strong performance at Jubilee.
It makes some weakness in the Gulf of Mexico.
With the continued higher unplanned downtime in the Gulf of Mexico in September and October full year production guidance has been tightened.
63 to 65000 barrels of oil equivalent per day.
We've realized price of approximately $81 per barrel of oil equivalent, including the impact of hedging.
Excluding hedging realized prices around.
$97 per barrel of oil equivalent.
So January came in line with guidance, However, opex was lower than forecast due to lower operating expenses.
<unk> projects in Equatorial Guinea.
Looking forward, we expect an increase on the flooding that cost as interest rates rise. However, this is anticipated to be offset by reducing the amount of our floating rate debt and as a result overall interest cost should remain largely flat into next year.
On capital, we expect <unk> to be broadly in line with the third quarter, which includes some slightly higher capex I'm winterfell, reflecting costs associated with the acquisition of additional working interest.
On the greater Turkey project. There's also some uncertainty on the timing of the cool around the end of the year, which could either accelerate or the FERC capital between 2022 and 2023.
So to conclude the financial section of today's presentation.
It was another good quarter of progress.
We continue to fund, our differentiated growth and deliver excess cash, which helps further reduce debt and improve our balance sheet.
We expect more of the same in the fourth quarter.
I'll now hand, it back to Andy to close today's presentation.
Thanks, Neal turning to slide 11 to wrap up today's presentation.
Cosmos has had another solid quarter of strategic and operational delivery.
Our production assets continue to perform well.
We are growing the value of our own business to advancing developments and Don on the Gulf of Mexico with additional potential from high grade Xilinx opportunities that we plan to start really next year.
We're also growing value across our gas portfolio with further progress towards U the signing of the rollout.
In Mauritania.
Our financial position continues to improve with another quarter of free cash generation.
This has put leverage a multiyear license with further progress as planned.
And finally.
We have to run low cost lower carbon portfolio at the right time.
Providing the energy the world needs today, and supporting a just transition and address the trilemma energy security and energy affordability and climate change.
Right.
Thank you we will now be conducting a question and answer session.
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Our first question is coming from the line of Neil Mehta with Goldman Sachs. Please proceed with your questions.
Yes, good morning, Andy and team thanks for taking the time.
First question is really around.
The sale date for the Fps. So obviously there was.
The weather impact there it sounds like you guys have been able to work through it quite effectively so any more detail that you can provide in and.
Based on the tests that you've done on the asset.
Any structural damage or.
No no real impact thank you.
Yeah, Hi, Oh, yeah, thanks for the.
So the question.
Yeah, you know, we we obviously suffered.
Impacts of the of the typhoon going through the yard.
Memorial lines compromised vest.
Vessel moved 200 meters away its now been packet T side now and as I said on my remarks, you know all of the inspections to date have not.
Revealed any significant damage and then no no structural damage and.
Really suffered about a month's delay from that work the additional inspections the that were required.
Yes.
Because it was required to address the minor damage.
Okay. So the upright is targeting sail away around.
At the end of the of the.
And with that and we can talk more broadly if you want around the overall schedule, but that still puts us in the place where by year end 2003.
We can be delivering the first LNG, so as with all big projects.
It's a question of us.
Dealing with the sometimes the challenges that are put your way and clearly you know BP is being been a big challenge with the Covid shutdowns and where the typhoon, but they've done a really good job of overcoming those and making progress the projects made a lot of progress in the quarter. We're now at 85% complete.
With progress across all dimensions, and clearly you know overcoming the latest issues with the FDA. So it's been an important piece of delivery in the quarter.
Yes, I think that's going to be an important catalyst for.
For the story and that's the follow up which is as far as the investment community as we track where you are right now to ultimate completion, what are the milestones we should be watching between now and year end 2003 to determine if everything's on track.
No. Thanks, Phil Yeah, as you know again, it's it's a it's good to be able to talk about it if you sort of go through this time.
Work streams.
And in the project and obviously the integration of those five work streams is important.
With the wells.
Drilled four wells, we just done the first completion flowed the well back.
With a good clean up so you know one completion done three more to do and that's the wells are finished and we expect together that will all of that done by the end of the first quarter.
U N sort of moves to the hub terminal essentially complete a very high level of completion actually the pack that we distributed.
This morning has a picture of the current state of the terminal you can see from that picture the level of completion that's there.
We expect to be fully commissioned and ready for the LNG vessel by the end of the first quarter of next year F. LNG vessel as the as.
<unk>.
Declared in their own disclosures.
Should the pot.
<unk> in the first half and a 60 day 90 60 to 90 day transit. So it should be scheduled to arrive in hook up through the third quarter.
And then finally, you've got the sort of the subsea.
As I said in my remarks that the shallow water line as it is being done.
Deepwater pipe lay vessel is in the vicinity and I expect it to start work later this quarter and have finished all the deepwater pipe lay in flow lines.
By the second quarter, and then and then.
Critical path through the peso.
Sales around year end are expected to arrive.
90 days later.
We do the hookup of the S P.
So the connection of the subsea when all the equipment is light, which is sort of the end of the third around the third quarter. So therefore, you know your stock.
Introduce gas around that timeline, which leads you to first LNG by the at the end of the year. So you know all the component pieces of that and.
We continued to deliver on those milestones as we go as we go big projects.
There will be challenges around the integration of all of that but there was a clear.
Way forward and a lot of energy now in the delivery of that timeline.
Okay.
Okay.
Okay. Thanks, Thank you.
Yeah, great. Thanks, Rob I'll go to the next question.
Thank you. Our next question is coming from the line of Bob Brackett with Bernstein Research. Please proceed with your questions Hey, Good morning, I'm curious about 'twenty three capex, but I'll leave that question for somebody else and instead focus on GTA phase two I hear your language around government to government and I recollect high level.
Visits between the president of Germany, and Senegal, and could you provide some color on that to the extent that governments get involved does it change the scope of the project the timing or perhaps the assurance of Counterparties, how do I think about that.
Yeah. Good question, Bob and then there is sort of all of the above.
We've gone through a process of sort of revisiting the right concept for a size too.
We've done that with full engagement of all of the partners, obviously with BP, leading that that piece of work.
And the ministries involved in actually both president's involved and for them, it's about ensuring that they've got the right project, which enables them to position you know that gas as it.
It is an important.
Relationship with with Europe , and you mentioned the visits.
Hum.
Schultz to Senegal.
That's part of actually the whole the whole issue of energy security and Africa being an important new source of LNG. So the right problems that Ryan scale right timing as the government is thinking about that governments government relationships is factored into this piece of work. So it's more than just the engineering, it's actually about them.
Having to rethink their approach really as a result of everything that's happened in the last the last six months, but I think you know.
It's been appropriate for them to do that and of course, it's slightly more complicated because you've got two governments involved and that's always been the challenge with GTA that said, we have an important piece of of.
Of delivery here.
We have a project, which is which is truly low cost, which has lower low carbon gas is no C. O two and therefore is an important.
Piece of new supply for Europe , and I think as a result of those conversations I think we've made real progress I think I'm optimistic that the operator will put forward a proposal honestly. This month that incorporates all of that feedback we saw enable us to agree the concept, which enables us to do the work.
To optimize that concept and then move the project forward into around that that concept into feed and ultimately construction. So I think we are making real progress.
You know the the challenge has been around a changing world.
Actually ensuring that we create alignment around.
Both government positions.
Very clear and if you had your choice if you controlled the path would you prefer a smaller but quicker phase two as had been recently envision versus what potentially could be larger, but maybe not any slower scale project.
Yeah, but you know and I think I'm only one voice in this so I need to be careful about what my view singular view is it's not about what <unk> today and as well what cosmos. Once you. This what's best for the partnership I think the partnership really understands that we have an opportunity to deliver truly low cost.
Project by leveraging fully the infrastructure that we've invested in phase one I think is clear alignment around that therefore really the debate has been around what's the best liquid faction solution that fully utilizes the infrastructure that we've laid in and therefore, how do you build out that liquefaction.
That gives you the best opportunity as you think about that.
The largest scale, but at the best timing right and that's really where the edge of that that's been the debate, but I think there's really good alignment around the fact that we have essentially a brownfield expansion now and how do we optimize fully the investments that we've made in phase one.
Very clear thanks for that thanks, Bob.
Thank you. Our next question is coming from the line of Charles Meade with Johnson Rice. Please proceed with your questions.
Good morning, Andy to you and your team there I wanted to ask just a follow up about about phase two but perhaps from there.
From a financial perspective, I think when you have spoken about this.
Phase two in the past the idea would be that.
Correct.
That the cash flows from phase one would essentially make your pathway to through building phase two cash neutral.
I have to imagine that that is you guys have gone back and reexamine. Your your contracting strategy for phase one that youre shifting more to.
Two our free cash flow positive position in Mauritania and Senegal.
You can actually you know even once you begin phase two was that is that the right sense or maybe if there's any more detail you could offer on that.
Yeah, No no you know share the answer with Neal Yeah, I think overall, Charles I think youre right. So when we talked about it.
And about the phasing of the projects. It was always about ensuring that we have a really capital efficient phase two by fully leveraging the size, one and we talked about a very sort of <unk>.
Modest upstream investment is sort of less than $1 billion.
And I think that absolutely holds true and I think we have the opportunities to do better than that and.
And therefore ultimately.
The question is how do you deal with the Capex on the midstream.
That we know we will have sort of financing or leasing options. So I don't think anything sort of changed on that and I think youre correct in saying that.
I think probably from a cash flow perspective, there could be an opportunity to be slightly more positive as a result of that yeah. I mean, I think the environment for low gas prices and oil prices will clearly be positive versus the long term debt that we put out in terms of creating that wedge Charles and so there's some upside there and clearly around the cargo sales opportunity those additional <unk>.
That will give us some more cash in that near term periods.
Yes, I think it's definitely moving in.
Positive direction versus just a neutral position.
That's helpful detail. Thank you meal and then if I could ask a question about this.
<unk> Tiberius prospect in the Gulf of Mexico, I guess I've been operating under the impression that there aren't a lot of.
Untested for ways still out there in the Gulf of Mexico, but the.
Perhaps that's not the that's not correct I mean can you give us a little bit the provenance of this.
This prospecting and timeline for testing.
Yeah, No you're right Charles is there aren't many full ways left in the outer Wilcox. This is maybe the you never say the loss, but this is one of the the remaining few I think they're all of that.
And so we really like the prospects because as you know that.
Yeah that genre prospects at off always.
The outer world costs have been have been.
Highly successful so we like the we like the prospect.
<unk>.
We're targeting on drilling it.
Maybe a.
Move outs.
Securing a rig as we speak so it's a hot.
It's a high quality prospects and I think from a geologic perspective, it's got scale.
Over 100 million barrels of resource.
It is a tie back so it absolutely fits our strategy and as you rightly you know I think implicit in your question is this idea about quality how did you get to the very best and I think as we look at the prospects that remain in this play. This is one of the very best.
That's helpful detail. Thank you Randy.
Great. Thanks, Joe.
Thank you. Our next question is coming from the line of Alex Smith with Investec. Please proceed with your questions.
Hi, guys.
Thanks for the call just a quick question on the results of the 210 strategic wells.
Both have been fairly disappointing from maybe expectations can you comment on that.
A short to medium term impacts this will have a 10 well.
<unk> plan of action is is it the case of re analyzing the data and reassessing medium term plans or you mentioned targeting prevent accumulation. So could you provide some detail.
Those areas that you'll be targeting as opposed to the intermec prospect.
Yes, no. Thanks, Thanks, Alex.
Look the the purpose of the two wells that were priced wells it was to test.
The greater enzyme area and allow us to calibrate the seismic is to ensure that we have a solid development plan.
Going forward just remember this is new resource that we're bringing to 210. So this is sort of new resource obviously when developed becomes new reserves. So this is about bringing more rather than what we have to today I think you know we.
The appraisal wells of.
<unk> I think to get a better understanding now of the quality of that greater enzyme area and I think as we look we can see the potential to bring new resource across that area.
But we will be targeting.
Accumulation is why we have well control.
And therefore has lower risk.
And that's the process, we're in now with the operator.
To bring our plans together that has that characteristic.
It will be a mix of sort of oil and gas associated gas and non associated gas, but so there is new resources to be broad.
Appraisal wells have served the purpose in terms of properly defining the opportunity set so that we can bring something forward that is of the right risk profile and competes for capital within the.
Within our overall allocation. So so it has done what we wanted to do and.
We're now sort of fully integrating the results of those wells.
To the plan and this is something that we will be debating with the operator over the turn of the year.
Great very clear maybe just another quick one you've hit the gearing target that you had tons for year end.
Does the question of potential dividends or buybacks that went to the realm and maybe when should we hear an update on that.
Yes, Greg why don't I'll get pass that I was familiar with and he will give you our thoughts on that.
Yeah, Hey, Alex.
We've made good progress in terms of the debt reduction, which we've been clear that that has been our key focus that we brought net debt down from $2 5 billion at the beginning of this year to $2. One leverage has come down from two and a half to one and a half.
<unk>.
We've been consistent in saying you are.
Our near term objective is to get leverage down to one five times in the sort of sustainable oil price and that will require us to continue to push.
Yes that down further than where we are today.
So the good thing is we continue to get closer to that point. So it's an issue of timing and.
Oil prices are a big driver within that.
Within that outcome and sale.
If oil prices were to stay where they are I think we can get to the right place yeah in the back half of the next year.
To start having that discussion around shareholder returns based on the discussions we've had with our shareholders in the past and I think we're continuing to lean on the side of buybacks versus dividends.
Dividends.
But.
And so we're in a good place to continue the path is a path forward on continued debt reduction and then when we get to the right time.
Push on the shareholder returns.
Great. Thank you.
Thank you. Our next question is coming from the line of James Hosie with Barclays. Please proceed with your questions.
Hi, there I have just got a question on Guyana there.
Petabyte monetizing gas resources could you give us an update on where the partnership isn't gathered with securing your off take agreements for the associated gas and does command gas play any part in your 50% production growth by 2024.
Yeah, Thanks, James Yeah, no yeah.
Great question.
Yes, Craig today, we're producing around one.
100 million Scuffs, a gas from from Jubilee, we're coming to the end of the foundation volumes and so therefore, we were starting a conversation with the government.
Our gas sales contract for that gas integrated with that.
Is the development of <unk>, which I talked about on the prior question, which will be an integrated gas and oil development with gas, but it's both associated gas from the from the oil and non associated accumulations and putting in the infrastructure that enables us to.
To optimize that so.
Thank you.
The way you should think about it really is.
Gas will.
We'll be a part of that growth and in turn.
The approval of that plan by the government will then gave the government are important sources of domestic gas.
At a at a price which is competitive with our current cost of.
Gas so as you're starting to think about the growth target I think.
The big chunks of it clearly torchy.
Which is the biggest chunk.
You then have the growth in Jubilee Jubilee southeast.
Then winterfell and then there is some growth there is some growth in <unk> and it's going to be a mix of oil and gas so a piece of it.
<unk> is going to be 10 gas but.
Overall, it's a minor part of the contribution to the 50% growth.
That's great. Thank you very much alright, thanks James.
Sure.
Okay.
Thank you. Our next question is come from the line of James Carmichael with Bahrenburg. Please proceed with your questions.
Hi, guys.
Just a quick one on Jubilee.
Mentioned in the release.
Some options for potential cost reductions just wondering if you could provide.
A bit more color on that.
And then I guess nobody else in sort of picked up on Bobs 'twenty 'twenty three capex questions.
A bit early precision and you can say on that.
Yes sure.
Good Thanks, James Yeah, I think.
Clearly what's caused the created the opportunity as the as the transfer of the <unk>.
The responsibility for the operations and maintenance from from <unk>.
It's given us a really a direct line of sight.
To that and I think that we're seeing opportunities coming from <unk>.
Really optimizing the work scope.
And because you're coming in with a different mindset I think from somebody who is a sort of third party operator to one is that is now a 100% focused on that.
So and obviously entity from from work scope optimization I think there is some work to do with the with the contracting strategies and how we can get better value from those so I think the combination of those two things on the things that are allowing us to will allow us to make.
Reductions in terms of the cost base now clearly there is a more inflationary environment of that but I think we have real opportunity to mitigate that and then you saw a piece of that come through in Q3.
Production costs were I think.
<unk>.
Below where we guided primarily because we had a shift in the the operational activity in extra organic from <unk> to <unk>, but there was an underlying piece of self help from from Ghana in particular in Jubilee and we expect more more of the same.
Going forward.
And it is just all about getting to top quartile performance. Both in terms of reliability of the facility, which has been excellent.
The operating costs, where we have I think greater access to those opportunities and again I think I do want to comment on how good that drilling performance has been.
And that has delayed enables us to accelerate the Jubilee southeast wells So good performance to today.
In Jubilee and I think on the cost side, there's probably a little more to go.
James I'll just take the second part of your question around 2023 I think.
You are right. It is still a bit early because we're still finalizing the activity within the <unk>.
Within the various partnerships that we have but I think generally we're looking to stay broadly flat.
Into 'twenty three things that are the last date capital year for us as we finish out the development projects and.
Being able to manage sort of the inflationary pressure through as Andy mentioned, even on the work scope side, making sure. We're efficient around every dollar we spend across the capital and as well as the operating end of the business and set that let's just keep things in generally.
Flat area.
Great.
It's Ken.
Just a quick follow up on where youre seeing the most inflationary pressure.
Yeah, you know its interesting you know again what is different from the from the lower 48 in terms of the timing of the contracts. So.
We've got some good contracts in place in Ghana.
We've benefited from those.
If you look out to sort of where the areas of capital.
Capital spend.
We are seeing it in.
Deepwater rig contracts.
We've.
I'll try to I think did a really good job on when to file and getting sort of ahead of the market and getting that.
Greg at a very good price.
We are following.
As the rig on on Tiberius and I think.
We are getting a fairly high utilization rates for quality equipment I think we are seeing.
And those rig rates.
And I think that's probably for us the biggest variable other things well locked in.
Clearly.
Yes, still stuff to finish on torture on the edges of contracts, which have to be.
Be finalized access to some of the work boats as we get into the installation campaign that will be an issue for us.
You know we've talked about Jubilee southeast the rig is contracted equipment was on long term orders, we don't see a lot of inflation.
Pressure there and then finally on Winchester, while I talked about really want the operator has been doing to get ahead of it. So it brought us a nice sort of been a big comp headlines.
We're focused on is securing the rig for.
Four type areas.
Great. Thanks, a lot.
Thanks James.
Thank you our next questions come from the line of Mark Wilson with Jefferies. Please proceed with your questions.
Hi, good morning, everyone.
<unk> taken a lot of questions here and then focus on the gas and you're going to have a good clarity on the <unk> side of things, but maybe looking beyond that to bear island and Jaco Ranga you've got the 30 months extension.
So ranga bear out of that so my question is should we consider cosmos sustaining and those two projects through to development to do you see them more as monetization monetization options and also would those to require further drilling ahead of a development decision.
Yeah, no great questions I think just start I'll see that from the biggest sort of strategically different projects. I think is really a good barometer in controlling I look at <unk> I think this is about.
Another.
It's a new source of gas in particular.
Europe . It has the attributes of being lower carbon barrel or is the same as CJ gas essentially no C O two in it.
And it is about coming forward with the development scheme that is that is low cost I think it will be phased and then can we get.
A cost competitive gas into into Europe , where we see an enduring market need. So the work is ongoing at the moment as you said, it's a 30 day call to 30 months to get to two.
<unk> in fact Cosmos is doing the concept work on that and it will be about a low cost phase development targeting.
Our marketing in Europe , where we are geographically.
Advantage and so on.
And I'm optimistic that we can come forward with something Thats really incredible and I think the inherent value of the project has been developed and I think subsequent decisions would follow but for me I mean, our first objective is to generate something which is truly value added and as you look to the strategy of that.
Company I believe gas is as I said in my remarks is something that is core to our future. It creates longevity and quality to the company building out GTA is a piece of that following it with a project like barilla is entirely part of that so I don't think were.
Not questioning that the relevance of that.
And the portfolio, but clearly we have work to do to come up with something where we truly have a compelling cost competitive project.
And then with regards to further appraisal.
<unk>.
How can you come forward with a scheme now where you're not getting caught up in the timeline of putting a lot of money into appraisal, which generally has only gone to destroy returns and the extended timelines on Yankee touring or it's a different story I think.
The country's right clear about its needs a significantly larger population than the Mauritania growing population they have they're burning heavy fuel oil today and for power generation displacing that with gas not only brings economic benefit it brings climate benefits and so how can we accelerate the development of your assets around.
It will be a modest domestic gas project as they convert those.
Our stations, but warm, which is serving a real need for the country that creates a great investment opportunity for us and then the follow on to that can come from that if you like early gas scheme to one where I think there is an export component to that as well. So that's all twin focus on these projects.
How do we create a really cost competitive Elena.
LNG export opportunity in Mauritania, and then getting on with the domestic gas project, which the country does need and then how do you create optionality from the <unk>. So you know we focused obviously a lot of our energy on phase one and then getting phase III moving but I think you rightly talk about the van.
That's in our portfolio from these two projects because I genuinely believe they are competitive gas sources globally and.
Both <unk> and exports and from a domestic.
Oh, great. Thanks for the.
Country.
Good Thanks, Paul anything else you're good.
Yes.
Right got it.
Yes.
Alright. Thank you. Our next question is come from the line of Bob Brackett with Bernstein Research. Please proceed with your questions.
Thanks, just coming back with a fairly minor question was trying to understand the strategic or financial logic around the panora farm in Equatorial Guinea, what sort of consideration did you receive and what sort of drove that decision.
Yes no.
You know, it's interesting Bob but yeah I won't go again, we can do it offline in terms of the exact numbers, but not.
Not big.
The overall scheme of things, but I think most important thing is to create alignment across the partnership.
Panera, obviously came in and picked up the <unk>, so they're going to decide when it came back.
We haven't talked about it but the big upside that and Sheila and so again, we tend to.
The asset is performing well, we're seeing the extension of production profiles from good production engineering, particularly around the VSP program, but the real upside is going to come from from the opportunity and the Albion and untested place, but some Google for a very very strong for ways.
And.
<unk> I wanted to get access to that opportunity, which is great because it's sort of the decimals on quiet right. But then we have alignment between the exploration potential and the ownership and the infrastructure. So it was really around getting alignment around that rather than us not liking as it were the the.
<unk> I think.
Charles asked the question around tie various what we liked about it.
It is a compelling fall away.
The Albion play in.
And <unk> is equally interesting because its got really strong.
Geology. These are solid for ways, there's clear source.
And.
We have a.
Fundamentally a very good.
Good initial prospects and then real play extension now with the with the acreage around it.
Great Thanks for that.
Great. Thanks, Bob.
Thank you there are no further questions at this time I would now like to turn the call back over to management for any closing comments.
Well. Thank you everyone for joining us today and that concludes today's call. If you have any follow up questions. Please reach out to.
Jamie Thank you.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.