Q4 2022 Hess Corp Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Good day, ladies and gentlemen, and walk through the fourth quarter 2022, Hess Corporation Conference call. My name is Kevin and I'll be your operator for today at this time all participants are in a listen only mode. Later, 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 call over to Jay Wilson, Vice President of Investor Relations. Please proceed.
Thank you Kevin Good morning, everyone and thank you for participating in our fourth quarter earnings Conference call. Our earnings release was issued this morning and appears on our website Www Dot has dot com <unk>.
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 Hess is 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.
On the line with me today are John Hess, Chief Executive Officer, Greg Hill, Chief Operating Officer, and Sean Reilly, Chief Financial Officer, I will now turn the call over to John Hess.
Thank you Jay.
Good morning, and welcome to our fourth quarter conference call today, I will share some thoughts about the oil markets and then discuss our continued progress in executing our strategy.
Greg Hill will then cover our operations and John Riley will review our financial results.
Oil and gas will be needed for decades to come and are fundamental to ensure an affordable Justin secure energy transition.
World faces a massive dual challenge, we will require approximately 20% more energy globally by 2050 and over the same period, we need to reach net zero emissions.
At the end of last year, the International Energy agency or IEA published its latest world energy outlook that offers three scenarios and they are scenarios not forecast for how to meet this dual challenge in all three of the IEA scenarios. The world is facing a structural deficit.
In energy supply and significantly more investment is required both in oil and gas and also in clean energies. According to the IEA a reasonable estimate for the global oil and gas investment required to meet demand growth is approximately $500 billion each year for the next 10 years.
As compared with approximately 300 billion to 400 billion invested annually in the last five years in terms of clean energies and annual investment of between three trillion dollars four trillion dollars is needed each year for the next 10 years significantly more than last year's investment of approximately 1.2.
Dollars.
Business leaders and government officials must have a sober understanding of this investment challenge, especially since capital is becoming more scarce and more expensive in the current financial environment. The.
Energy transition is going to take a long time cost a lot of money and require many technologies that do not exist today to have an orderly energy transition policymakers must have climate literacy energy literacy and economic literacy.
Our strategy is to grow our resource base deliver a low cost of supply and generate industry, leading cash flow growth and at the same time maintain our industry leadership in environmental social and governance performance and disclosure.
Our successful execution of this strategy has uniquely positioned our company to deliver significant value to shareholders for years to come both by growing intrinsic value and by growing cash returns.
In terms of cash flow growth, we have an industry leading rate of change story and an industry, leading duration story, providing a unique value proposition.
Based upon a flat Brent oil price of $65 per barrel.
Our cash flow is forecast to increase by approximately 25% annually between 2020, one and 'twenty 'twenty six more than twice as fast as our topline growth and.
Our balance sheet will also continue to strengthen with our debt to EBITDAX ratio currently under one time.
As our portfolio becomes increasingly free cash flow positive 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 are further reducing our debt to ensure that we can fund our high return investment opportunities through the cycle.
Executing this strategy in 2022 we decreased our debt by $500 million increased our regular quarterly dividend by 50% and completed a $650 million stock repurchase program.
Looking ahead, we plan to continue increasing our regular dividend to a level that is attractive to income oriented investors, but sustainable in a low oil price environment as our free cash flow generation steadily increases in future years share repurchases are expected to represent a growing proportion of our return of cash.
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By investing only in high return low cost opportunities, we have built a differentiated and balanced portfolio focused on Guyana.
Deepwater Gulf of Mexico, and Southeast Asia.
Key to our strategy as Guyana, which is home to the Stabroek block one of the largest oil provinces discovered in the world over the last 20 years, where Hess has a 30% interest and Exxonmobil is the operator.
Since 2015, we have had more than 30 discoveries on the block, including nine last year underpinning a gross discovered recoverable resource estimate of more than 11 billion barrels of oil equivalent with multibillion barrels of exploration potential remaining.
We are pleased to announce today, a significant new oil discovery at the bank to South East one well located approximately eight miles southeast of the original thank tooth one discovery.
The phase two south east, one well encountered approximately 200 feet of oil bearing sandstone reservoirs and was drilled to a 5397 feet of water.
Thank tooth was our first standalone deep exploration prospect on the Stabroek block and this area has the potential to underpin our future oil development.
Our fourth sanctioned oil developments on the Stabroek block has a breakeven Brent oil price of between $25 and $35 per barrel. We have line of sight to six floating production storage and offloading vessels or <unk>.
$7 billion.
All of which more than 80% will be allocated to Guyana and the Bakken our financial priorities are to continue to allocate capital to our high return low cost investment opportunities.
To keep a strong cash position and balance sheet.
And to grow our dividend and as market conditions and our return on capital framework provide to increase share repurchases.
In Guyana, the Liza phase, one and Liza phase two developments are currently operating at their combined gross production capacity of more than 360000 barrels of oil per day.
Our third development Pi Ara remains on schedule for startup by the end of 2023 with a gross production capacity of approximately 220000 barrels of oil per day, our fourth development yellow tail is expected to come online in 2025 with a gross production capacity of approximately 250000 barrels of oil per day.
A plan of development for a fifth development at war room with a gross production capacity of approximately 250000 barrels of oil per day was submitted to the government of Guyana in November and final approval is expected by the end of the first quarter.
We also will continue an active exploration and appraisal program in Guyana with approximately 10 wells planned for the Stabroek block in 2020 three.
In the Bakken, we plan to continue operating a four rig program, which will enable us to generate significant free cash flow lower our unit cash costs and further optimize our infrastructure. We have a robust inventory of high return drilling locations to enable us to grow net production to an average of 200000 barrels of oil.
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Greg and his team continued to do an outstanding job of applying lean manufacturing principles to create a culture of innovation improve efficiency and manage inflationary cost pressures.
We will continue to invest in our operated cash engines offshore in 2023, where we also see attractive investment opportunities in the Gulf of Mexico, We plan to drill two infrastructure tieback wells and two exploration wells and in Southeast Asia, We will invest in drilling and production facilities at both the North Malay basin.
And joint development area assets.
As we continue to execute our strategy our commitment to sustainability will remain a top priority in December we announced one of the largest private sector forest preservation agreements in the world to purchase high quality independently verified red plus carbon credits for a minimum of <unk>.
$750 million between 2022, and 2032 directly from the government of Guyana protecting.
Protecting the world's forests, and the important role they play as natural carbon sinks is foundational to the Paris Agreement's aim of limiting the global average temperature rise to well below two degrees Celsius.
Avoiding global Deforest station was one of the major commitments made at the Cop 26 climate summit.
We're more than a 130 countries, including Guyana pledge to end deforestation by 2030.
The government of Guyana plans to invest the proceeds from our carbon credits purchase agreement and sustainable development to improve the lives of the people of Guyana with 15% of the proceeds directed to indigenous communities.
This agreement adds to our company's ongoing and successful emissions reduction efforts and is an important part of our commitment to achieve net zero scope, one and scope two greenhouse gas emissions on a net equity basis by 2050.
The agreement further strengthens our strategic partnership with Guyana, and demonstrates our long term commitment to the country and its people building upon the National Health Care initiative, we announced earlier in 2022.
We are proud to have been recognized throughout 2022, as an industry leader and our buyer mental social and governance performance and disclosure in November has earned a place on the Dow Jones sustainability Index for North America for the 13th consecutive year and for the first time was included in the Dow Jones sustainability worry.
Index in December we also achieve leadership status in Cdp's annual global climate analysis for the 14th consecutive year.
In summary, we continue to successfully execute our strategy, which offers a unique value proposition both to grow our intrinsic value and to grow our cash returns by increasing our resource base, delivering a low cost of supply and generating industry, leading cash flow growth as our portfolio becomes <unk>.
Increasingly free cash flow positive, we will continue to prioritize the return of capital to our shareholders through further dividend increases and share repurchases I will now turn the call over to Greg Hill for an operational update.
Thanks, John 2022 was another year of strong strategic execution and operational performance for Hess.
Proved reserves at the end of 2022 stood at approximately 1.26 billion barrels of oil equivalent.
Net proved reserve additions of 184 million barrels of oil equivalent were primarily the result of the yellow towards sanction in Guyana and the Bakken.
Excluding asset sales, we replaced 144% of 2022 production.
At a finding and development cost of approximately $14.80 per barrel of oil equivalent.
Turning to production in the fourth quarter of 2022 company wide net production averaged 376000 barrels of oil equivalent per day, excluding Libya, which was above our guidance of approximately 370000 barrels of oil equivalent per day.
Strong performance across the portfolio more than offset the severe winter weather impacts experienced in the Bakken during the month of December .
For the full year 2023, we forecast net production to average between 355000 and 365000 barrels of oil equivalent per day, an increase of approximately 10% compared with 2022 production of 327000 barrels of oil equivalent per day excluding.
Olivia.
For the first quarter of 2023, we forecast companywide net production to average between 345000 and 355000 barrels of oil equivalent per day.
In the Bakken fourth quarter net production of 158000 barrels of oil equivalent per day was below our guidance of 165000 to 170000 barrels of oil equivalent per day, reflecting severe winter weather impacts in December which limited our new wells on online to only.
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For the full year 2022, net production average 154000 barrels of oil equivalent per day in.
In 2023, we plan to operate four rigs and expect to drill approximately 110 gross operated wells and bring online approximately 110 new wells.
In the first quarter of 2023, we plan to drill approximately 25 wells and bring 25, new wells online.
In 2020 to our drilling and completion cost per Bakken, well averaged $6 $4 million.
In 2023, we estimate injury industry inflation will average between 10 and 15%.
However, we expect to mitigate this impact through the application of lean manufacturing and technology and forecast, our D&C costs to average approximately $6 $9 million per well or about 8% above last year.
For the full year 2023, we forecast Bakken net production will average between 165000 and 170000 barrels of oil equivalent per day.
First quarter net production is forecast to average between 155000 and 160000 barrels of oil equivalent per day, reflecting weather contingencies and the carryover effects from the severe winter weather in December .
Net Bakken production is forecast to steadily grow over the course of 'twenty, three and 'twenty four and average approximately 200000 barrels of oil equivalent per day in 2025, we expect to hold this level of production for nearly a decade.
Moving to the offshore.
In the deepwater Gulf of Mexico.
Net production averaged 35000 barrels of oil equivalent per day in the fourth quarter and 31000 barrels of oil equivalent per day for the full year 2022.
For the first quarter and full year 2023, we forecast net production in the Gulf of Mexico will average approximately 30000 barrels of oil equivalent per day, reflecting normal field declines and planned maintenance.
The deepwater Gulf of Mexico remains an important cash engine for the company as well as a platform for growth in.
In 2023, we plan to participate in four wells, one infrastructure led exploration well, one hub class exploration, well and to tie back wells.
The infrastructure led exploration well will be the Hess operated pickerel prospect located in Mississippi Canyon block $7 27.
Which is expected to spud in April and will be brought online through existing infrastructure at tubular bells.
The well will target the same Miocene interval that was successfully drilled at isaacs and tied back to tubular bells in 2020.
The hub class exploration, well will be spud in the second half of the year and will be a hess operated opportunity in the northern Green Canyon area in the Gulf of Mexico targeting high quality said Salt Miocene sands in areas, where the application of our latest seismic imaging technology has improved the sub salt in.
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The two tie back wells will be spud in the fourth quarter.
Well because it will be at Stampede, and the second well will be at the shell operated Llano field.
First oil from both wells is expected in 2024.
And southeast Asia net production from the joint development area in North Malay Basin, where Hess has a 50% interest average 67000 barrels of oil equivalent per day in the fourth quarter and 64000 barrels of oil equivalent per day for the full year 2022.
For the first quarter and full year 2023, we forecast net production in southeast Asia. The average between 60060 5000 barrels of oil equivalent per day.
Turning to Guyana, where Hess has a 30% interest in this favorite block and Exxonmobil is the operator, the partnership delivered exceptional facility's reliability project delivery and exploration success in 2022.
Net production from Guyana averaged 116000 barrels of oil per day in the fourth quarter of 2022.
And 78000 barrels of oil per day for the full year 2022, both above our guidance.
For the first quarter and the full year 2022, three we forecast net production in Guyana to average approximately 100000 barrels of oil per day.
Turning to developments Liza phase one was successfully debottleneck in 2022 and has been operating at or above its revised named nameplate capacity of 140000 barrels of oil per day.
Liza phase two utilizing the Liza unity P. S. O achieved first oil in February of last year and production ramp up from start up to nameplate capacity was achieved in about five months, which is world class performance in the deepwater.
The Liza Unity is currently operating at or above its nameplate capacity of 220000 barrels of oil per day production optimization.
Optimization opportunities are currently being considered for late 2023.
The third development by Ara is approximately 93% complete.
The prosperity P. S. O is expected to depart from Singapore in late first quarter and commence hookup and commissioning activities following arrival in Guyana the.
The project remains ahead of schedule and is anticipated to achieve first oil by the end of 2023.
Yellow tail, our fourth development is approximately 40% complete and remains on track for first oil in 2025.
The one Guyana F. P. S O as whole is completed and is expected to enter dry dock in Singapore in April .
Topside fabrication activities have commenced at module fabrication sites in Singapore, and China and development drilling is underway.
The final development plan for a fifth development War room was submitted in November and we're currently awaiting approval by the government of Guyana, which we anticipate by the end of the first quarter.
Pending government approvals are six development whiptail is expected to be sanctioned early next year.
Turning to exploration the Fang T South East one well located approximately eight miles southeast of the original Fangtooth, one discovery well.
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Bank to South East, one well encountered approximately 200 feet of oil bearing sandstone reservoirs and further appraisal activities are underway.
We continue to see multibillion barrels of additional exploration potential on this paper block and in 2023, we plan to drill approximate 10 exploration and appraisal wells that will target a variety of prospects and play types.
These will include lower risk wells near existing discoveries and several penetrations that will test deeper intervals.
With regard to upcoming wells.
Operations are continuing at the Tarpon fish, one well in the northwest corner of the Staples block approximate 43 miles northwest of the Liza one well.
The wells in the first test of Crete, Cretaceous age clastic reservoirs in northwest stay broke.
The well will also test a deeper Jurassic age carbonate prospect.
Lancetfish, one is a deep play exploration well located approximately 2.5 miles northeast of the Fang to South East one well that underlies the portion of the Liza field.
Drilling operations are underway on the noble Don Taylor Drillship.
Beyond that there is a well called Bash here, which will target a deep prospect in the Fangtooth area, any well called black fan, which will penetrate and up dip upper campaigning prospect Easter Barreleye.
Moving to offshore Canada.
We plan to participate in the BP operated emphasis one well in the northern orphan basin.
The well will target a very large submarine fan of tertiary age.
And the ice Max rig is expected to arrive on location in the second quarter to spud the well.
Which is located in approximately 4000 feet of water.
BP has a 50% working interest in Hess and Chevron each have 25%.
In summary, our execution in 2022 was again strong in 2023 will be an exciting year.
What the Bakken returning to a steady growth trajectory with an active drilling program in the Gulf of Mexico, and with the advancement of our major projects and further delineation of the Cigna.
The significant upside in Guyana.
All of which position us to deliver industry, leading performance and significant shareholder value for many years to come I will now turn the call over to John Reilly.
Thanks, Greg in my remarks today, I will compare results from the fourth quarter of 2022 to the third quarter of 2022.
We had net income of $624 million in the fourth quarter of 2022.
Compared with $515 million in the third quarter of 2022.
On an adjusted basis, which excludes items affecting comparability of earnings.
We had net income of $548 million in the fourth quarter of 2022, compared with $583 million in the previous quarter.
Turning to E&P.
Adjusted net income was $591 million in the fourth quarter compared with $626 million in the third quarter.
The changes in the after tax components of E&P earnings between the fourth and third quarter of 2022, whereas follows.
Higher sales volumes increased earnings by $246 million.
Lower realized selling prices decreased earnings by $288 million.
Higher DD&A expense decreased earnings by $29 million.
Lower cash costs and midstream tariffs increased earnings by $19 million.
Lower exploration expenses increased earnings by $13 million.
All other items increased earnings by $4 million for an overall decrease in fourth quarter earnings of $35 million.
For the fourth quarter, our E&P sales volumes were over lifted compared with production by approximately 1.3 million barrels, which increased our after tax income by approximately $60 million.
Turning to midstream the midstream segment had net income of $64 million in the fourth quarter of 2022, compared with $68 million in the third quarter.
Midstream EBITDA before non controlling interests amounted to $244 million in the fourth quarter of 2022 compared to $252 million in the previous quarter.
Turning to our financial position at December 31st excluding the midstream segment cash and cash equivalents were $2.48 billion total liquidity was $5 $73 billion, including available committed credit facilities and debt and finance lease obligations totaled $5 6 billion.
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During the fourth quarter, we completed the sale of our 8% interest in the Baja concession in Libya for net proceeds of $150 million and we purchased 5 million Red plus carbon credits from the government of Guyana for $75 million.
Total cash returned to shareholders in the fourth quarter through share repurchases and dividends amounted to $405 million.
We repurchased approximately two 3 million shares of common stock for $310 million in the fourth quarter, bringing total share repurchases in 2000 $22 million to $650 million at an average price of approximately $120 per share.
Net cash provided by operating activities before changes in working capital was $1.4 billion in both the fourth and third quarter.
In the fourth quarter net cash provided by operating activities. After changes in operating assets and liabilities was one point to $5 billion compared with $1.34 billion in the third quarter.
E&P capital and exploratory expenditures were $818 million in the fourth quarter compared to $701 million in the third quarter.
Now turning to guidance.
First for E&P.
We project E&P cash costs to be in the range of 14 to $14 50 per barrel of oil equivalent for the first quarter, which includes a planned workover at the Penn State field in the Gulf of Mexico.
For the full year 2023, E&P cash costs are expected to be in the range of $13 50 to $14 50 per barrel of oil equivalent.
DD&A expense is forecast to be in the range of $13 to $13 50 per barrel of oil equivalent for the first quarter.
$13 to $14 per barrel of oil equivalent for the full year 2023.
This results in projected total E&P unit operating costs to be in the range of 27 to $28 per barrel of oil equivalent for the first quarter and $26 50 to $28 50 per barrel of oil equivalent for the full year 2023.
Exploration expenses, excluding dry hole costs are expected to be in the range of $35 million to $40 million in the first quarter and $160 million to $170 million for the full year 2023.
The midstream tariff is projected to be in the range of $290 million to $300 million for the first quarter.
And one and $1 $230 million to $1.250 billion for the full year of 2023.
E&P income tax expense is expected to be in the range of $160 million to $170 million for the first quarter and $590 million to $600 million for the full year 2023.
As of January 24th 2023, we have purchased W. T. I put options for 75000 barrels of oil per day for 2023, with an average monthly floor price of $70 per barrel.
We plan to increase our hedge position to a similar level as 2022, depending on market conditions.
Based on our current position, we expect noncash option premium amortization, which will be reflected in our realized selling prices to reduce our earnings by approximately $25 million in the first quarter and by approximately $120 million for the full year of 2023.
Our E&P capital and exploratory expenditures are expected to be approximately $850 million in the first quarter and approximately $3 $7 billion for the full year of 2023.
For midstream, we anticipate net income attributable to Hess from the midstream segment to be in the range of $55 million to $60 million for the first quarter and $255 million to $265 million for the full year 2023.
For corporate corporate expenses are estimated to be approximately $35 million for the first quarter and $120 million to $130 million for the full year 2023.
Interest expense is estimated to be in the range of $80 million to $85 million for the first quarter and $305 million to $315 million for the full year 2023.
This concludes my remarks, we'll be happy to answer any questions I will now turn the call over to the operator.
Ladies and gentlemen, if you have a question. Please press star one on your phone. If your question has been answered Western withdraw your question. Please press star one again.
The questions will be taken in the order received please press star and one to begin and we will pause for a moment really compile the Q&A roster.
Yeah.
Yeah.
Our first question comes from Arun Jairam with JP Morgan Your line is open.
Yes, good morning.
Greg I was wondering if you could give us a bit of a teach in.
On these deeper sand channels that you're exploring and they've had success at it thing tooth I know youre drilling lots of fish, but give us a sense of are.
Are you still in the campaign, but a little bit of a of a teach in on what you're what you're exploring for.
Well. Thanks. Thanks for the question Arun again, you know as we've said before if you look at the deeper interval, it's only 3000 feet below the upper campaigning, which is the majority of our discoveries and if you look at that interval. It really underlies a lot of this paper a block and and over the past couple of years, we've had a number.
<unk> penetrations in that tails of existing wells, but I think importantly.
The Fangtooth discovery was our first standalone deep prospect in the Fang tooth one well the first well had 164 feet of pay.
And I think to southeast well, which is located eight and a half miles southeast of that original discovery well it at 200 feet of oil bearing pay.
And so we're going to continue to appraise that this year, probably get a DST in it and as you mentioned there are some other channels in and around Fang too. There's one called lancet fish, that's north east to think too and there is a prospect called basher, which is actually west to think tooth and the <unk>.
Combination of all that is pretty exciting and you know as John mentioned in his opening remarks.
It could mean a potential future oil development in there. We will also continue to explore the deep as we kind of go through the next couple of years, but I think it's very encouraging and we'll just continue to add to the.
No to the discovered resource and also the significant exploration upside we see.
Got it and just a follow up I know, Greg you mentioned, you'll do D. S. T. Later this year, but what is it about fangtooth, that's kind of moving it up the development queue, perhaps maybe after whiptail to be the seventh that boat Understate broke block yeah. I think it's you know it's it's we're seeing good quality reservoir.
And again oil bearing so you know our strategy is to continue to progress the oil developments.
As quickly as we can on the Stabroek block. So you know a good good quality sand in an oil bearing so it it's coming up in the queue.
Great. Thanks, a lot.
One moment for our next question.
Our next question comes from Gena Wang with Barclays. Your line is open.
Hi, good morning, everyone. Thanks for taking our questions.
Janine.
Good morning.
Thank you Jeff.
Real quick here Youre committed to returning.
Adjusted free cash flow.
Dividends and buybacks and.
Can you talk about what determines where you fall within that range for 2023.
Yeah.
Maybe anything else I mean.
Really healthy cash balance right now.
Sorry.
27.
Yeah, Yeah, no excellent question Jeanine.
Now as I said earlier, you know where this capital budget of $3 $7 billion. You know our first priority is to continue to allocate capital to our high return low cost investment opportunities. That's really priority number one for this year along with that the next priority is to keep a very strong cash position and balance sheet you heard John say.
We bought some puts to provide downside protection still have unlimited upside our appreciation for our shareholders, but want to protect the downside, where it's a volatile market and and we want to make sure. The downside is protected and then in terms of return on capital, yes over the year 17.
5% of that free cash flow will be returned to our shareholders. As we did last year. The first priority within that Jeanine is to grow our dividend. So you know our board meets regularly and will give a strong consideration to increasing our dividend. During this quarter then as the year goes.
As market conditions, and or return of capital our framework provide a strong consideration will be to increase share repurchases as we did last year.
Okay, great. Thank you.
Yes.
Turning back to Guyana.
Yeah.
Hi, Jack.
Dissipated to be around.
Yeah.
Would you be able to comment on the moving pieces.
Sure.
For example, how much.
Are there other things that arent included in that.
Should we consider that as the baseline for future projects.
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Sure.
Thank you.
Yeah, so that the $12.7 billion is consistent with the estimate that the operator.
As part of their EIA to the to the government of Guyana and that number is gonna be finalized as the project progresses.
And once we sanction it will give the final details but.
In any case, if that the final cost of Wavra reflects a couple of things. It reflects current market conditions and then also additional scope. One example is is this surf is twice as big as yellow tail for example, because it connects a number of.
You know further away kind of reservoir systems, but we'll give you a final color on that you know once that once the project is finally sanctioned and I think Jeanine. What's also important is a war room still offer some of the best returns in the industry.
So so even though there is cost inflation, where the resource we're developing the fact that it's low cost low carbon its still offers some of the best returns in the industry.
Okay. Thank you gentlemen.
And one moment for our next question.
Our next question comes from Doug Leggate with Bank of America. Your line is open.
Oh, Hi, good morning, everyone. Good morning, Joe.
Guys I wonder if I could ask a kind of a longer term question.
So Exxon had signaled a couple of years ago with the if the deeper horizon work.
Joanne I think you've talked about this a number of times, we could be looking at double the resource potential at the time. They were talking 10, so that would be 20 billion balls. It seems crazy crazy to think that but.
My question is are you going to have enough time.
Because the exploration phases I understand that runs out in 2026.
On this thing continues to get bigger would already in 2023.
What needs to happen.
For you guys to retain everything that.
You ultimately could defined over the next several years and what does that mean for development timelines and ER.
I guess relinquishment of walk acreage and so on.
Yeah, Doug excellent question, you know, we still see multibillion barrels of exploration potential remaining a Greg made some great context remarks on the deep horizon at 18000 feet versus where most of our development efforts and exploration efforts have happened at 15000 feet. A we're still in the early.
Earnings of defining the deeper potential.
Definitely multibillion barrels potential remaining and to get after that and that's why Exxonmobil is doing an excellent job developing this block has a six rig program three of them are for development activities and three really are for exploration or appraisal. So we're going to continue to have a very.
Active exploration and appraisal program this year and future years to make sure we capture all the high value of resources that we think are on the block.
So just to be clear John you think youre going to have enough time in terms of securing the development approvals before 'twenty six or do you have an extension on not to secure the development.
The reason, we're doing the exploration and appraisal program Doug is to get ahead of that to make sure. We capture all the resources that we can and we work closely with our joint venture led by Exxonmobil in the government to do that.
Thank you Mike I appreciate that John My follow up whoever wants to take this as it's kind of a two parter. If you don't mind, because I think you did mention water Z I S. But you've also given guidance on Guyana for this year, which has got a lot of kind of cryptic comments, perhaps around.
Downtime for Diebold, Automaking, Liza and so on and so there's a lot of things going on in terms of that three four year visibility. So my question is this first of all can you give us some kind of a guide as to what the downtime on ultimate capacity would look like.
For Liza two as we go through this year.
So the trajectory I guess and then part B is a lot of people are freaking out over the $12 $7 billion number the Exxon could in there yes, yes, now we know that the absolute cost recoveries are not that big of a deal, but you guys typically come in lower than not because of contingency can you tell us what hesse's number is relative to that 12 points.
Thanks.
Yeah. Thanks, Doug So let me let me take your at your first question. So you know as I mentioned in my opening remarks, you know we're looking at a potential debottlenecking you know sometime in the latter half of 2023.
For phase two now you know as we've spoken before each one of these is going to be bespoke depending on the vessel you typically want a year of dynamic data before you engineer the project to understand where are the pinch points are on the vessel.
You know as I've said in the past I think you can expect kind of a 10% ish.
Left them in any kind of Debottlenecking I think that's in the range of possibilities here as well again, we're just in the early stages of engineering that.
So that would you know maybe come on you know in the fourth quarter. So we've included some downtime for that you know in the guidance you know for Guyana, I think you know that the quarter four of 2022 basically had no downtime.
And as we project forward to 2023 really trying to include Pigging and.
The normal maintenance downtime, some debottlenecking downtime and those production estimates for next year and also you know the tax barrels are a little bit differently, John can talk about.
And Jon can also talk about the Capex for Wawa, So John Reilly.
Yes.
<unk> seven Doug.
Now look we're going to wait for the final sanction when we come out with our estimates, but you are correct. There was always a contingency in at the beginning of these projects and rightfully so.
Several years of of construction.
What we can say is that Exxonmobil has done a fantastic job on every single project meeting or beating their estimates on cost and on time on execution.
So.
John has said it earlier this project will have world class breakeven will be world class returns there and while we're aware we're excited about that final details once the government has approved it week, we can provide.
And it's not lost on us is 30% bigger thanks, so much John appreciate it.
One moment for our next question.
Our next question comes from Paul Cheng with Scotiabank. Your line is open.
Hey, guys good morning.
A.
Couple of question I think the first two partners.
John a bond and you just to clarify.
When when you say 75070 boehner is that brand or that type of UTI and also that when you're talking about in the fourth quarter at the 75 million.
Tightened credit purchase where does it show a winter you show up in the income statement and cash flow for the fourth quarter.
Sure. So let me to your first question was on the hedges that we put on we have W. T. I put options on right now so that 75000 and like I said, we do intend to get to a similar level as last year and combined between W. Ti and Brent we had about 150.
In barrels a day hedged last year. So again, you should be looking for us to add to this position, but currently that 75 is for W. T I put options at $70.
Now I'll be on for the 120 million on the premium for the full year, yes that justify knocking not in anticipation of the increase in the put option you're going to play.
That is correct that is just for the 75000, we have.
Simple math, if you wanted to double it to get to $1 50, you could double it but we will give you updates on that as we as we increase our hedge position.
Then your second question on the carbon credits. So what we have that 75070 5 million purchase on the carbon credits, you'll see it on our balance sheet and other long term assets.
And when you look at there's nothing on the income statement because that is an asset being held and on the cash flow statement is in working capital.
Okay.
And my final question is Paul Greg Bachman.
Can you tell us what is the winter storm impact in the fourth quarter and also.
I understand the first quarter are you being conservative here contingency on the weather, but for the full year production seamlessly as a pet low campaigns are one way to that have expected even after taking into consideration of the first quarter.
As the number of wells that you plan for this year and it's going to be lighter than PV. That's me or is there anything that you can share it seems.
It seems to be low comparing to what I think payments may has been discussing.
No. So I think let me let me talk first about the snowfall so the.
The severe snowfall coupled with really low wind chill, you know significantly impacted our ability to mobilize resources you just can't put people to work.
At minus 30, minus 40, windchill and so what that did was it significantly increased our backlog of down wells.
And then importantly, it delayed bringing new wells online, we projected 25, new wells on line coming on in the fourth quarter that number was 15. So we lost 10 wells and if you assume those things come on at 11 or 1200 barrels a day you can see that's a fairly significant impact I think we're in <unk>.
Covering mode, we expect to recover in the quarter from that it just takes time to.
Build and dig out of that literally.
But importantly, Paul I think you know the Bakken now is on this steady build this steady cadence of steady build.
To get to that 200000 barrel a day average in 2025, so there'll be this regular cadence.
Probably touch 200.
Towards the end of 2024, but I think importantly, we will average 200000 barrels a day in 2025. So we're on a we're on a solid trajectory from here to 2025 and not not concerned at all about it wells are performing as expected.
You're coming in with these <unk> of 120 EUR 1.2, that's in spite of going into a little bit less quality acreage. So the reservoir is performing exactly as expected. These are just weather aberrations as you kind of go through the year. So that's all it is.
Great.
<unk> asked them a what is that exactly for this union Bakken.
No not yet and we will guide that as we go through the year, Paul and you know as.
As I.
I'm always kind of hesitant because fourth quarter is always a little odd on weather. So weak wait until we're closer and kind of look forward. It weather forecast before we like to project that far out.
Okay. Thank you.
One moment for our next question.
Our next question comes from Neil Mehta with Goldman Sachs. Your line is open.
Hey, Thanks, guys.
To follow up on <unk> question around capital returns in the fourth quarter you.
You bought $310 million worth of stock and thank you did $650 million last year.
The share prices have done really well so congrats on that has the the appreciation in the share price to your how aggressive you want to be around buying back stock and you know as we think about this year.
Recognizing you're prioritizing the dividend should we think that there'll be a ratable buyback as well.
Thanks Neil.
Just going back to what John has said a little early you reiterated our priorities invest in those high return opportunities, Guyana, and Bakken maintain that strong balance sheet. So the first thing as John had mentioned, we'll be looking at the dividend.
Because that will give strong consideration first to that dividend increase and then in line you know we're going to.
Return cash up to the 75% through further share repurchases that so as we look at as you said with the stock appreciation. We are committed to that return framework and we will return up to that 75% through both dividends and share repurchases and the way we look at it right now as we currently only have two <unk> on <unk>.
<unk> seen in Guyana, we have pie are starting in this year and remember every time an F peso comes on it once its fully ramped.
<unk> is going to be about 50, 560000 barrels a day to us and $1 billion in cash flow. So then you have yellow tail. Similarly in 2025, a little bit bigger. So you know 65000 barrels a day approximately when that's fully up and running a little bit more cash flow than that $1 billion and we've got <unk> 26, and we got up to 10 <unk> two.
Develop all the resources we have found.
So we believe in buying our shares in advance of that significant cash flow growth and NAV accretion that each of these F. P. S. O generate so we believe that will deliver significant value to shareholders by by continuing to share repurchases.
Thank you John and then the follow up is just around post 2023, capex recognizing again that there is a cost recovery element here and really just trying to calibrate our models post 2023, any moving pieces that you would point us to to help us think about or we should set those numbers.
So obviously this is really early Neal so thanks for that question.
As you move into next year, just think Bakken steady four rig program you know it shouldn't be much change is there.
Gulf of Mexico, we'll see what happens you know Greg you talked about the wells, we're drilling this year and we'll see what any follow ons is as it relates to that so it's a little early.
Southeast Asia, maybe slowly coming down you saw it came down a bit in 'twenty three from the from last year, and then Guyana, obviously, the big spend so we'll continue to have three <unk> kind of coming in line. So pyro.
We'll be on but we'll still have three F. P. S. O us that are in the development phase so with those I mean, you see what current market. So the current markets a bit up. So you can kind of take up those three fps shows a bit as compared to what we have this year and then the one other piece to add is the F. P. S O purchased.
Which we expect to have our first F. P. S O purchase in early 2024.
Yes, Thanks, Jack very helpful.
One moment for our next question.
Our next.
Comes from Ryan Todd with Piper Sandler Your line is open.
Okay. Thanks, maybe just a couple of quick ones first off I. Appreciate you talked about some of the cost inflation that you've seen and been able to mitigate there in the Bakken.
And I know you've talked about it and indirectly with the with your number but what are you seeing in terms of cost inflation on the offshore rig rates are certainly up I mean, as we look at things in Canada, and Gulf of Mexico and across your portfolio.
What type of inflation are you seeing year on year and where that worth.
The offshore.
Well I think you know it as you mentioned I mean, certainly regs are going up.
You know kind of the you know mid to high threes.
You know approaching 400, I think for offshore rigs.
You know not unreasonable now remember, we're largely insulated from that because the certainly the first three developments in Guyana.
Are actually you know already locked in for actually with yellow tail. So those costs are locked in some of the rig rates flowed a little bit.
Obviously, our oil country tubular goods are up but I will say that exxonmobil has done an outstanding job of delivering improvements to offset both rig cost increases and oil country tubular goods increases. So we're fairly insulated because of the projects we have going on.
And as as we mentioned the the costs and what route will reflect that market inflation and will will get into details of all that once its finally sanction.
But those are sort of the levels, we're seeing but again, we're largely insulated from that you know in our portfolio because of the nature of Guyana.
Okay. Thanks, and then maybe just a.
Philosophical question on the hedging and I appreciate the detail on this year's hedging as we think longer term.
As.
As production capacity continues to increase in Guyana and.
That stable cash flow kind of grows do you can do you expect to reduce your hedging.
Over time or do you view that as just kind of a strategic importance from from an insurance point of view.
We definitely view it as a strategic importance for them from an insurance point of view and I think you can clearly expect R. W. Ti hedge levels too.
Maine.
At similar levels that we have done before again, the tax and royalty aspect of it.
Percentage wise from on the Brent side as the production keeps growing each time, we bring on F. Peso as you could see maybe percentage wise that we could have a lower hedge percentage overall, but again I think you should expect us to have a good significant insurance protection each year just to protect that downside in <unk>.
Again leave the upside for foreign investors.
Okay. Thanks, Jeff.
One moment for our next question.
Our next question comes from Noel Parks with Tuohy Brothers. Your line is open.
Hi, good morning.
Hum.
I just wanted to touch base on.
Something that was mentioned earlier on you were just talking about experiencing exceptional facility's reliability.
Donna.
Could talk a little bit about.
Maybe how that contributed to results I was just curious if you had modeled some.
Maintenance or slowdown in there that you wound up not not having to do.
No I what my earlier comment was was you know if you look at Q4.
Little little maintenance at all in Guyana, and then as we look forward.
For a whole year, you have to build some of that and you'll have some pigging runs in and some facility maintenance. So we had to build that into our you know.
The downtime as we kind of look forward for a full year of Guyana production, but Q4 was was exceptional very high reliability.
Okay, Great and I apologize if you touched on this I dropped off for a minute, but the offshore Canada prospect that you mentioned I just wondered if you could talk a little bit about the geology of that and how it was identified.
Yeah sure. So we identified this prospect with the number of partners.
Really about the same time that we are identified the Guyana opportunity.
And they say very large stratigraphic trap.
Well there is only a one well commitment as we mentioned in our opening remarks, the Regal show up in the second quarter that the prospect is very shallow.
It's about 15000 feet or so and it's only in 4000 feet of water.
Total debt totaled 15000. So this is this is going to be a kind of a one well wonder and we'll see where it goes.
But it's very large.
Okay, great good to hear thanks.
Thank you.
Thank you very much. This concludes today's conference. Thank you for your participation you may now disconnect have a wonderful day.
Okay.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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