Q4 2022 Talos Energy Inc Earnings Call
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Speaker 2: participants will be in listen only mode. Should you need assistance? Please signify conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch tone phone.
Speaker 2: to withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Sergio Maywam, Vice President of Finance, Investor Relations, and Treasurer. Please go ahead.
Speaker 3: Thank you, operator. Good morning, everyone, and welcome to our fourth quarter and full year of 2022 earnings conference call.
Speaker 3: Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer, Shane Young, Executive Vice President and Chief Financial Officer, and Robin Fielder, Executive Vice President, Low Carbon Strategy and Chief Sustainability Officer.
Speaker 3: Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements.
Speaker 3: Actual results may differ materially from those contemplated by these forward-looking statements.
Speaker 3: Factors that could cause these results to differ materially are set forth in yesterday's press release and in our form 10K for the period ending December 31, 2022, filed with the SEC yesterday.
Speaker 3: Any forward-looking statements that we make on this call are based on assumptions as up today and we undertake no obligation to update these statements as a result of new information or future events.
Speaker 3: During the SCAL, we may present both GAAP and non- GAAP financial measures. A reconciliation of GAAP to non- GAAP measures was included in yesterday's press release, which was filed with the SEC, and which is also available on our website at talusenergy.com.
Speaker 3: And now I'd like to turn the call over to Tim.
Speaker 4: Thank you, Sergio. Good morning and thanks for joining our call. 2022 was another transformative year for TALUS, with key milestones across our upstream and CCS businesses.
Speaker 4: Our team is advanced to catalyst to drive future value creation.
Speaker 4: These accomplishments have only been possible with our employees hard work and focused.
Speaker 4: So thank you first and foremost to our Toulos employees for a job well done over the past year.
Speaker 4: In 2022, we attained record-setting financial performance, completed a major M&A addition to our business with the Invent acquisition, and advanced our carbon capture and sequestration business from Memphis to one of the largest carbon storage portfolios in the United States.
Speaker 4: We meaningfully strengthened our credit statistics and liquidity profile throughout the year with free cash load generation, and today our credit position is the best in our history. These strategic accomplishments were achieved while maintaining our high safety and environmental performance standards.
Speaker 4: Before addressing the fourth quarter of full year 2022 projects and results in detail, I want to take a moment to address four very important topics.
Speaker 4: First, the value of our year in reserves. Second, our 2023 guidance and long-term outlook that Jane will discuss in more detail later.
Speaker 4: Third, our capital allocation framework and how we intend to balance investments in our highly cash flowed generative upstream business and our high gross CCS business while also providing a path towards returning capital to shareholders.
Speaker 4: And fourth, the solid results of our ongoing drilling program.
Speaker 4: Starting with the value of our year in reserves. On a pro-forma basis for the Invin transaction, we ended 2022 with a larger, more diverse and more liquid-weighted reserve base. Towsas Pro-Reserves are 190 million barrels of oil equivalent, which is approximately 70 percent oil. The PV-10 of our Pro-Reserves is approximately 7.2 billion.
Speaker 4: at SEC prices, assuming a flat $75 per barrel price deck, which is more in line with today's prices. The PV-10 of our Pro Reserves is $4.8 billion.
Speaker 4: The PV-10 of TALUS's Proof Developed Producing Reserve Base, or PDP, is $3.5 billion still at $75 per barrel.
Speaker 4: The PV-10 of our current production alone is approximately 5% greater than our current enterprise value and 45% higher than our current market capitalization.
Speaker 4: I bring that up because I believe investors are able to get extraordinary option value for all the investments we are making in the business outside our current production.
Speaker 4: It is also why we are extremely focused on bringing the value of key catalysts forward from our ongoing drilling program to reaching FID and ZAMA to continue to be an active acquire of assets in the Gulf of Mexico and substantially growing our CCS business. The runway for upside in our stock is tremendous.
Speaker 4: Turning to our 2023 guidance we provided yesterday in the earnings release, TALUS is estimating production between 72 and 76,000 barrels of oil equivalent per day for the year.
Speaker 4: That expectation is based on our very conscious decision that we made to focus the business on 2023 free cash load generation and long-term shareholder value creation.
Speaker 4: But that in mind, we decided to remove the gas-weighted Lisbon prospect from our 2023 drilling calendar despite its near-term potential gross production impact of approximately 8 to 10,000 barrels of oil equivalent per day. Instead, we will preserve Lisbon in inventory for a subsequent year.
Speaker 4: When the economics of gas-weighted projects are more attractive?
Speaker 4: That decision was also made as we will incur additional success-based development capital in 2023 to accelerate our recent VINISN line-rock discoveries to first production in early 2024. We knew this decision could cause some short-term volatility to our 2023 production, but we firmly believe this is the right decision to position talismos.
Speaker 4: for long-term value creation for our shareholders.
Speaker 4: Longer term, Tows is healthier than it's ever been.
Speaker 4: Because of our recent successes in our development and exploitation drilling program, most of which will come online throughout 2023 and 2024, and our bullish outlook on several of the projects we're planning to drill this year. We expect our production will grow 20 to 25 percent between now and 2026.
Speaker 4: That's a compound Daniel Gross rate of approximately 6 to 8 percent per year.
Speaker 4: We also expect to generate cumulative free cash flow of 2-2.3 billion during the same period between 2023 and 2026 at a flat $75 per barrel price forecast.
Speaker 4: That is a very healthy business and one that we're really excited about. Concerning our capital allocation framework, our priority continues to be free cash load generation in paying down debt.
Speaker 4: Over the last two years, we have paid back over 480 million in debt, bringing our leverage metric near its lowest level in our history.
Speaker 4: In the last 12 months alone, we have transferred firm value to shareholders by repaying $4.77 per share worth of debt.
Speaker 4: But we think there's still a bit more we need to do. In addition to leverage metrics, we're also paying attention to the overall quantum update on our balance sheet.
Speaker 4: As a catalyst rich company, we fundamentally believe in the equity growth projects that we have in our portfolio.
Speaker 4: We intend to continue to invest in those projects, whether it's in our oil and gas business or our CCS business, because we believe they will create substantial value to our shareholders. After we prioritize continued debt reduction and continue to appropriately reinvest in our business,
Speaker 4: We are also prepared to return incremental free cash load generation to our shareholders.
Speaker 4: primarily through opportunistic sharey purchases subject to further approvals of our boarded directors.
Speaker 4: We expect to be in a position to accelerate this return of capital once we meet our debt reduction goals.
Speaker 4: In addition, TALUS will consider participating in share repurchases in connection with any potential private equity shareholder monetization event that could occur over the next several years, subject to approval by our board. We believe this could help alleviate the technical overhang in our stock and significantly benefit TALUS' broader shareholder base.
Speaker 4: Finally, looking at our ongoing drilling program and on a pro-forma basis, including the recently acquired Invin assets.
Speaker 4: We have drilled six successful development and exploitation wells.
Speaker 4: We look forward to the positive impact those wells will provide throughout 2023 and into 2024.
Speaker 4: In Puma West, we commit drilling of our appraisal well in late 2022, which we subsequently followed up with a sidetrack of the appraisal well bore.
Speaker 4: The project has had mixed results today. As the appraisal wells did encounter hydrocarbons in multiple sands, however, our preliminary analysis suggests that additional hydrocarbons from a subsequent well or a side track well would be necessary to move forward with a full scale development.
Speaker 4: With that said, we have temporarily suspended a current well bore, which provides us the flexibility to drill a future sidetrack.
Speaker 4: We are actively working to incorporate the data from the appraisal wealth to determine the best path forward. Our teams are studying the data now and will continue to provide important updates as available.
Speaker 4: For the remainder of my prepared remarks, I'll quickly address our financial results for the full year. Highlight our drilling program, comment on our value of creative in-vend transaction, discuss our advancements in CCS, and conclude with a few remarks about our safety and environmental performance.
Speaker 4: For the full year of 2022, our production was approximately 59,500 B.O.E. per day, weighted at 67% oil and 75% liquids.
Speaker 4: We achieved the Justin Ibadat of more than 840 million.
Speaker 4: We generated a record 261 million of adjusted free cash flow.
Speaker 4: which allowed us to end the year with the highest liquidity and near the lowest leverage in our company's history.
Speaker 4: Shame will provide more details on this shortly.
Speaker 4: Regarding our previously mentioned drilling successes, the second half of 2022 and early 2023 have been very busy with drilling projects across the Gulf.
Speaker 4: I'm very proud of our team for our successes thus far, totaling six successful projects to date.
Speaker 4: Our previously announced Lyme Rock and Venice discoveries located near Talysis 100% owned and operated Ram Power Platform and Mr. Bicanion were both successful.
Speaker 4: Those projects could deliver a combined 15 to 20,000 barrels of oil equivalent per day gross once they come online in the first quarter of 2024, contributing to the highest gross production rate achieved in the Rand Powell facility in over 15 years, which is exactly what our strategy of infrastructure-led drilling is expected to achieve.
Speaker 4: The existing infrastructure grants us the ability to flow our newly discovered barrels in a subsie environment, which has a much lower emissions footprint than other oil-producing
Speaker 4: This highlights why the deep water Gulf of Mexico continues to be a leader in low emissions barrels.
Speaker 4: The talus operated Mount Hunter prospect and the pompin of field was successful.
Speaker 4: And we expect this project to deliver gross production rates of 2000 to 4000 barrels of oil equivalent per day, but first production expected by the second quarter of 2023.
Speaker 4: Mben's Loftsner platform rig program also generated solid results toward the end of last year, discovering pay and multiple field horizons and achieving fresh production in the first quarter of this year.
Speaker 4: Our non-operated projects are also achieving a high degree of success with recent discoveries from the Gunflint No. 1 side track and the Spruance West Wells. The rig on our open water program has moved to a completion project at our bullet discovery.
Speaker 4: After that the rig will move to the riglies prospect, our third exploitation target in the open water rig program.
Speaker 4: If successful, regaletes would flow via subsea tieback to Talus' pompinoplatform. We could see gross production rates of about 8,000 to 12,000 barrels of oil equivalent per day at regaletes.
Speaker 4: With first oil reached by the second half of 2024, Tows owns a 60% working interest in this project.
Speaker 4: Following rigolites, we plan to drill the sun-spear prospect. This is a great prospect from the Invent portfolio, and we are excited to drill it in this second half of the year. If successful, we expect to tie it back to the Prince platform that we acquired in the Invent Transaction.
Speaker 4: Gross production rates are expected to be between 8,000 to 10,000 barrels of oil equivalent per day. We own a 48% working interest in this project.
Speaker 4: Another project we are very excited about is Pancheron. Pancheron is a high impact project we own with Oxy. Following the completion of a 46,000-acre continuous track,
Speaker 4: we are very excited about is Pancheron. Pancheron is a high impact project we own with Oxy. Following the completion of a 46,000-acre continuous track, we were able to combine with them.
Speaker 4: Oxy is the operator of the project and we expect to spud the well in the first half of 2023. Talus owns a 30% working interest.
Speaker 4: Overall, we are excited about the potential material production growth in cash flow in 2024 and beyond that these discoveries in our drill campaign will add. We pride ourselves on utilizing our core technical and operational skills to optimize projects across our portfolio while leveraging infrastructure we own or acquire through active business development.
Speaker 4: That strategy has led to successes at Lyme Rock, Venice, and Mount Hunter just in the last quarter, with Rigolese, Sun Spear, and others on the immediate horizon. This is a strategy that is generating solid results, which leads me to our in-vend acquisition.
Speaker 4: As previously announced, we closed the Invent Transaction in mid-February. The transaction expands our Gulf of Mexico operations with high margin, oil-weighted assets and ample infrastructure, is accreted to tell us its shareholders and further improves our outstanding credit position.
Speaker 4: With the acquisition, TALUS is better positioned to accelerate organic value creating activities through both our upstream and CCS businesses, as well as any subsequent M&A and business development activities.
Speaker 4: The integration of our companies is on track and we will work to realize the valuable synergies that we expect to generate for the combination.
Speaker 4: We will continue to update the market on this integration and our synergy realizations later this year.
Speaker 4: Turning to our CCS business. I want to first reiterate the incredible progress the team made in 2022.
Speaker 4: This included securing multiple major sequestration sites, bringing in key partners across the portfolio, and building out a team that will drive those projects and more to maturation.
Speaker 4: I'm incredibly proud of our early leadership position and our advancements in the business along the US Gulf Coast. There is an extraordinary level of enthusiasm about the promise of what CCS can become after the expansion of the 45Q tax incentive structure in 2022.
Speaker 4: We have often said that a CCS is going to work anywhere in the world. It has to work in the Gulf Coast of the United States. Here we have the combination of the right economic incentives, a large, concentrated industrial emissions market, existing mid-stream infrastructure, and the superb geology required to permanently sue plaster.
Speaker 4: and monitor the injected CO2.
Speaker 4: Having the right geology that can store large amounts of CO2 in close proximity to the emissions is going to be critical to the success of this business.
Speaker 4: that will allow us to be competitive from a price standpoint. And to continue to complement our already strong acreage position across our portfolio. Yesterday, we announced the TALES elected to participate alongside Chevron in an onshore CO2 sequestration leasehold in Southeast Texas that.
Speaker 4: combined with our Bayou Bend CCS project, will give us a gross storage capacity of more than 1 billion tons of CO2 in this project alone.
Speaker 4: That will allow us to be very competitive for emissions in the Houston Ship Channel, as well as the BOMOP Port Arthur Industrial Corridor.
Speaker 4: Additionally, earlier this month, our Coastal Band Carbon Management Partnership, which includes TALUS, Howard Energy Partners, the Port of Corporate's Christie Authority, and the Texas NM University System. We're selected for a $9 million grant from the U.S. Department of Energy's Carbon Storage Assurance Facility Enterprise.
Speaker 4: also known as carbon safe. Under the terms of the award, grant funding will directly reimburse a majority of the upcoming technical and economic feasibility cost, including a stratigraphic evaluation well, feed studies, and other key project work streams.
Speaker 4: The Grand Award is subject to final negotiation with the Department of Energy.
Speaker 4: Additionally, Tallas and the Howard teams finalized in February definitive documents for the 13,000 acre lease with the Port of Corpus Christi team, securing the poor space for that regional project with additional potential opportunities to expand in the future. For TLCS.
Speaker 4: Our 2023 goals are straightforward.
Speaker 4: Grow our existing portfolio and increase storage capacity in existing project areas, expand partnerships in existing project areas, progress the permitting and front-end engineering design work streams, advance and execute commercial contracts,
Speaker 4: existing portfolio and increased storage capacity in existing project areas, expand partnerships in existing project areas, progress the permitting and front-end engineering design work streams, advance and execute commercial contracts, and develop additional point source projects.
Speaker 4: We look forward to providing more exciting updates throughout the year as we continue to grow the business. Our record-setting trend continued in the categories of safety and environmental responsibility.
Speaker 4: 2022 was another historic year for reducing our lost time incident rates and greenhouse gas emissions intensity. Over the years, Pallus' proactive and continuous evolving approach to HSE management has improved our incident rates, resulting in a 25% reduction from our previous years TRIR.
Speaker 4: In 2022, we reduced our scope 1 GHG emissions intensity by 30% from the company's 2018 baseline year.
Speaker 4: achieving the company's initial goal three years sooner on a pro-forma basis including the end-to-end assets.
Speaker 4: With that, I'll turn the call over to Shane to address our financial details for the fourth quarter and the full year, as well as an overview of our 2023 operational and financial guidance.
Speaker 3: Thank you, Tim, and good morning, everyone. Today I'll focus my remarks on four key areas.
Speaker 3: First, the highlights of our financial performance for the fourth quarter and full year 2022.
Speaker 3: Next, the strength of our Proformal Balance Sheet. Third, I will cover our 2023 guidance.
Speaker 3: Finally, I will discuss our capital allocation priorities for our adjusted free cash flow and summarize our financial goals before turning the call back to Tim for his closing remarks. During the fourth quarter of 2022, our production volumes averaged 56.6 thousand barrels equivalent per day.
Speaker 3: Realized prices before hedging during the fourth quarter were $80.87 per barrel of oil.
Speaker 3: NGLs were at 30% of our realized oil price.
Speaker 3: and $6.10 per 1,000 cubic feet of natural gas. This resulted in revenues of $342 million for the quarter. That income for the fourth quarter was $2.8 million for three cents per deluded share.
Speaker 3: Adjusted net income was approximately $17 million or $20 per diluted share. We generated adjusted EBITDA of $185 million during the court.
Speaker 3: On a per barrel of oil equivalent basis, this translated to an adjusted EBITDA margin of about $36.
Speaker 3: Adjusted EBITDA excluding realized hedge losses was $242 million and a margin of approximately $47 per barrel of oil equivalent.
Speaker 3: This represents 65 and 71 percent margins respectively.
Speaker 3: Capital expenditures and plugging and abandonment were approximately $156 million for the quarter.
Speaker 3: and were below our previously provided guidance range.
Speaker 3: This is the result of Timing Shifts and our capital program from the fourth quarter into the 2023 program.
Speaker 3: Starting the full year 2022.
Speaker 3: Talos generated production of 59.5 thousand barrels equivalent per day and again was highly liquid weighted at 75%.
Speaker 3: Realize prices for our production during the year were $93.75 per barrel of oil.
Speaker 3: NGL's average 35% of our realized oil price.
Speaker 3: and $7.6 per thousand cubic feet of natural gas. This resulted in full-year revenues of approximately $1.7 billion. Net income for the full year was about $382 million or $4.56 per diluted share. Adjusted net income was approximately $244 million.
Speaker 3: and unallocated overhead, respectively. Which means that was upstream business generated approximately $860 million of adjusted even in 2022.
Speaker 3: You will note that in our 10K file last night we have begun to break out selected items, including a just-ed by reportable segment.
Speaker 3: The strong results were supported by the team's continued vigorous focus on cost controls throughout the year as both LOE and GNA expenses finished the year within our original 2022 guidance.
Speaker 3: Capital expenditures of approximately $456 million for the year were at the low end of our guidance range and equated to a 54% reinvestment rate for the year.
Speaker 3: As a result, the ballot generated adjusted free cash flow of $261 million before changes in working capital.
Speaker 3: In 2022, we used our adjusted pre-cash flow to repay borrowings under the company's credit facility, as well as the repurchase of a portion of our second-line notes for a total debt reduction of $393 million for approximately $4.77 per share in total debt reduction for the year.
Speaker 3: was our highest ever while leverage was near our lowest in the company's history.
Speaker 3: Upon closing the Invent acquisition on February 13, our borrowing base under our RBL increased by 36 percent to $1.5 billion, and our bank commitments increased by 20 percent to $965 million. In addition,
Speaker 3: The maturity date of the credit facility was extended to March 2027 from November 2024, among other favorable changes.
Speaker 3: Maintaining low leverage and high liquidity has been a long-standing core financial principle for Talos. With the close of the Inven transaction, we assumed $258 million of their notes and used a $130 million draw on RRBL along with cash at Inven to fund the cash consideration and other closing costs.
Speaker 3: We intend to continue to focus on deleveraging and repayment of outstanding debt in 2023, which we'll discuss in more detail as part of our capital allocation guidance.
Speaker 3: Additionally, as of April 15, both sets of notes will be callable.
Speaker 3: And we will monitor the attractiveness of market conditions over the balance of 2023 as we consider central refinancing opportunities for one or both of the notes. Now let's turn to our operational and financial guidance for 2023.
Speaker 3: Starting with production, we expect the full year to average between 72,000 and 76,000 barrels of oil equivalent per day, of which approximately 80% will be liquids.
Speaker 3: And this represents an increase of approximately 21 to 28 percent from our 2022 production levels.
Speaker 3: This is inclusive of the impact of approximately 10 and a half months of the production from the Invent Acquisition.
Speaker 3: Also factored into our production expectations and capital allocation plans for the year is the deferral of our gas-weighted Lisbon project.
Originally planned to be drilled and online in mid-2023 with an expected average daily rate contribution of 8 to 10,000 barrels of oil equivalent per day gross. We will instead keep this opportunity in our inventory until natural gas prices are more favorable.
However, tabling this prospect gives us increased flexibility to generate meaningful 2023 adjusted free cash flow while continuing to focus capital on our most value of creative opportunities in the portfolio.
For instance, this would include capital spending to complete and tie back the Lyme Rock.
and Venice discoveries, as well as continuing to invest in our higher impact drilling projects such as rigalites and our non-operated pantheron.
that would both start production beyond 2023. For the year, we expect the first quarter to be the lightest production quarter with a 50% contribution from the Inven assets. The second quarter is expected to be relatively clean with the third and fourth quarters reflecting weather-related risking, planned maintenance, and the overall
and the removal of the platform rig at our Pompano facility. We expect our cash operating costs and general administrative expenses for the full year of 2023 to be between $410 to $430 million and between $90 and $95 million.
respectively as we reflect a partial year capture of anticipated synergy realizations from the Invin acquisition.
as we reflect a partial year capture and anticipated synergy realizations from the InVin acquisition. However,
We do anticipate hitting a full initial energy realization run rate in late 2023. Interest expense is expected to be between $155 to $165 million, including cash interest expense on our two second-line notes in our RBL.
The interest component of the HP-1 financials, as well as non-cash financing expenses and surety bond premiums. Cups foring capital expenditures for the year are expected to be $650 to $675 million.
while plugging in abandonment expenses are expected to be $75 to $85 million.
Total CCS investments are expected to be an additional 70 to 90 million dollars.
and will be a mix of capital, G&A, and other income statement expenses.
For the year, we anticipate the first quarter will be the heaviest capital quarter, with the balance of the capital spread relatively evenly over the final three quarters.
This year's capital program is an exciting one for TALIS as we continue our successful open water rig program from 2022 into 2023.
Tim briefly addressed this earlier in his remarks, but in yesterday's earnings press release, we outlined some key measures of how this 2023 guidance unfolds in 2024 and beyond.
from 2023 through 2026 while simultaneously reducing our capital reinvestment rate from implied 2023 guidance levels. From 2023 through 2026, we anticipate adjusted free cash flows before working capital and cash taxes.
of between $1.7 to $2 billion at the current strip, or two to two and a half billion dollars at 75 and 350 flat price decks. Those figures amount to over two times our total debt post-invent closing, and anywhere from 75% to 110%.
of TALIS's current market capitalization. Our 2023 plan is an important step in achieving those long-term results as we invest in bringing new resources to production while exposing TALIS to additional prospects that contribute to that growth rate despite not providing 2023 production volumes.
Importantly, yesterday we also outlined a capital allocation framework that we incentive to deploy at the beginning of 2023.
First, we intend to focus on reducing leverage by at least $100 million this year, most likely through pay down of our RBL. Having taken on the Inven notes and drawing approximately $130 million as part of the Inven closing, we are prioritizing debt reduction with initial adjusted free cash flow. Second.
We intend to be opportunistic with our CCS business and we'll deploy capital accordingly to best position Talos Low-Carbon Solutions for long-term success in line with project milestones and a creative expansion opportunities. Finally,
Incremental adjusted free cash flow beyond these projects will be allocated towards a blend of debt reduction and shareholder returns. We'll further define this blend at the appropriate time. Separate from this framework and subject to Board approval at the time, we may look to mitigate outside selling impacts and capitalize on the strong long-term value proposition in our shares through participating in potential financial statements on personal and financial decisions. However, this bond on behalf to a provider and Operating Officer, can change this Macedonia end Senator
secondary offerings by private equity shareholders. In closing, we fundamentally believe that talismas' opportunity sets are unique among US energy companies in many ways. To advance our differentiated position and our key catalysts, our capital objectives for 2023 are clear. Remain focused on adjusted pre-cash flow generation.
Invest in growing our resource base and production footprint. Invest in our growing, Gulf Coast leading CCS portfolio, and continue to strengthen our healthy credit position. With that, I'll now hand the call back over to Tom.
Thanks Shane. 2022 was a highly successful and busy year. 2023 is going to be a foundational year for our future growth plans across both upstream and CCS businesses.
and we believe we're well positioned to capitalize on our rich portfolio of opportunities. That operator will open the line for Q&A.
We will now begin the question and answer session. To ask a question you may press star then one on your touch tone phone. If you are using a speaker phone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question please press star then two.
At this time, we will pause momentarily to assemble our roster. Our first question comes from Nate Pendleton with Steve-Fool. Please go ahead.
Good morning and thanks for taking my questions. Good night. My first question, now that the Invent acquisition is closed, do you expect a change in your M&A strategy going forward and can you characterize the M&A market in the GOM?
Yeah, Hey, Nate, thanks for the question. I don't think it changes. I mean, you know, we're always in the market. We're always trying to find the right deals to hit the right characteristics. You know, do we understand the assets? Does it overlay with what we're trying to do from a technical and operational standpoint? Do we see the upside potential? Ultimately, does it make us a more sustainable business and then create it to our shareholders? Sometimes that can happen.
questions and so we just have to be thoughtful on how we approach the market. You know look I think the majors some assets were starting to come to the market whether that gets accelerated this year it's hard to tell. Obviously these owners of assets can wait another year you know put those in the market.
We just have to be active, we have to be disciplined, and we have to just keep checking the right boxes. Thanks. And regarding the addition of storage capacity in Southeast Texas near Bayou Bend, can you speak to your views on how important high quality poor space will be in the future? And the competition you're seeing in the market today? Yeah, I'll start and then Robin can add a couple comments. I think our
the right geology that can really be attractive ultimately to that customer. That's the basis and Robin can talk about some of the highlights of what we're trying to do in that portfolio.
Yeah, we're excited over the last couple of years we've been building out this leasehold position. Since middle of last year, we've basically nearly doubled the amount of CO2 storage. We're approaching 1.6 billion metric tons across our Texas and Louisiana Gulf Coast portfolio. As Tim said, it's exciting for us because it's really, we've got some.
on their sustainability goals and getting these underlying emissions into our storage sites. You know, Nate, what we talked about in the release with respect to Chevron and participating in their acreage expansion, you know, I think that also underscores, you know, again, what we bring to the table, we think is a depth of understanding around the geology. Obviously, Chevron has that as well, but we also then get to...
pair that with their own ambition and i think that's meaningful for us and it speaks to i think what we've done as a team to build out the right portfolio so you know we're we're just super excited where that's going and and just those twenty twenty three priorities of continuing to find the right storage infrastructure in the in our core areas and continuing to enhance these partnerships is only going to deliver the long term value of what we're trying to build here
Thanks, and if I could sneak in one quick follow up regarding the CCS investment guidance for 2023. Can you speak to how much of that is related to Porespace acquisitions and how you expect that overall CCS investment to trend beyond 2023?
I mean the leasehold acquisition and even some of our annual renewals is a portion of that, but we are planning to be drilling some of these strat wells. So this year we will be collecting data including some addition of some seismic data, drilling the stratographic test wells where we'll collect both logging and core data. All of this is to supplement what we hope to be a very robust EPA Class 6 permit application.
I will also be engaging in some pre-feed and front-end engineering design that Tim mentioned in his prepared remarks. So it's really all these activities that help advance the project, help develop the storage site.
Get us set up for these permits that give our customer base the comfort that you know these projects are going to make it and that they're going to be highly successful in these regions. Great. Thanks. Take my questions. You got it. Our next question comes from Sue Bash Chandra with Benchmark Company. Please go ahead. Yeah, I can make it up. I love space.
on CTS. You know, broadly speaking, how would you handicap, you know, 2023 if you had to, you know, sort of favor one project versus another for a mid or contract, so you might, you know, see And secondly, I guess on Chevron specifically, is there a mystery partner in the works there? Do you need one there? Um.
And then I'll follow up. Hey, I'll jump on that Sue Bosch. Thanks for the question. Broadly, I'll say that we're actively participating in RFPs with industrial partners across our portfolio, also in some one-off negotiations, on some term sheets, on also both brown field emissions and potential green field new investments.
So that's very exciting for us. I think as you just kind of look at these industrial regions, one of the reasons we're so excited about this additional leasehold in East Texas is its ability to address two industrial corridors, so not only the Beaumont-Port Arthur region, but now also the Eastern Houston Ship Channel. So we think there's going to be a lot of good progress made across this portfolio.
And so that's why we're excited about that on shore with Chevron. They certainly have capabilities all across the value chain. They've got Chevron pipeline and power. One of my predecessor companies, the mobile midstream partners got folded into that entity. So we haven't decided yet. They certainly can take that on. We can work with third party midstream companies that are all thinking about how they're going to position themselves, Moose CO2 for the future. Yeah, you know, one way to think about this subash, at least as I think about it is.
You know, you look at the core areas that we've been focusing on, the Corpus Christi area, the Southeast Texas, which is kind of the Ship Channel and Beaumont-Port Arthur and then around the river in Louisiana. And you have to ask yourself, look, is there an inevitability that this market can make? You know, is there an emission source? Is there a will? And then from there, you ask the questions, where are they going to put it? Who are you going to partner with? And we've tried to, you know, first show that inevitability by making sure people understand the breadth of these markets. And then now you look at the accumulation of storage infrastructure. And so your question is a good one on the midstream. Certainly, we're trying to take that off the table with the different partnerships we have in different areas. And then, of course, Chevron just themselves can play a part. So, you know, we're checking the boxes where you can kind of look out three years from now, five years from now, say, look, I can see how this works.
And so we're proud of that and we just got to keep pushing and keep advancing and Robin's teams doing that. Okay, good color thanks. And then the second is on Puma West, I guess. You know, what do you think now of timing of a determination or proceed? And when you talk of full development, or is there a distinction here between a tieback or standalone, or are we still sort of, you know, do we drill more or don't we?
Yeah, no, I think it's making sure you have everything you need to make that kind of commercial decision. I mean, if you think about, you know, the Mad Dog field, you know, it's just an enormous resource. And what we were always trying to do in Puma West was take the characteristics of that field and see if they were present to the West. And, you know, the characteristics you're looking for is, does it have the right geology? Does it have those sand, those middle-missing sandstones? Are they present to the West?
Do you have source in charge is that present and do you have the full connectivity? Do you think you have to have to go ahead and make a commercial decision? You know, I think we've checked a couple of those boxes, but not all the boxes and you know We have sand or we wouldn't talk about multiple pays obviously there's charge or we wouldn't say there are hydrocarbons You know, but we want to see the connectivity and the things you need to make that commercial decision and look I think the view of the partnership is it probably needs another well-bore to really understand that and so it's it's not
Full development, this was never intended to be something where people were trying to spend a billion and a half dollars into a full development. There's ample infrastructure in the area. But these are still very expensive projects and you want to make sure you get them right and it's going to require another well to do that. We have time to make that decision. You know, you have another year anytime you drill a well like we did to kind of think about your next steps and I think the partnership is going to absorb the data and think about what the right next moves are.
Okay, got it. So, for clarity there, Kenzo, there's nothing here in the next three or six months that you would think that's probably more about study than maybe a 24 event? Yes, that's exactly it. Can you Explain why your search hours look soom spent over the last 16 months?
Okay, got it. So for clarity there, I can tell, there's nothing here in the next three or six months that you would think that's probably more about study and maybe a 24 of them. That's exactly right.
Our next question comes from Jeff Robertson with Water Tower Research. Please go ahead. Thanks, Tim. On the heels of the Inven acquisition and the amount of free cash flow that you all laid out between now and 2026, does that change at all how you think about allocating capital in assessing risk across the upstream portfolio in the Gulf?
Well, you know, I'll start there and Shane, you get some other comments. One thing to keep in mind, you know, that's maybe not fully understood in what we're talking about in our prepare remarks is we did have six straight exploitation and development well successes. And what happens there, if you can think about Lyme Rock and Venice and what we talked about earlier,
That's why we're very bullish about 2024 and 2025 and 2026. It's also why we don't have to add another project specifically in 2023 that was gas weighted, put that later into our portfolio when the market's more constructive. I still think though we want to continue to have a portion of our capital allocated towards things that can be really high impact.
of the things we're doing going forward. Yeah, Jeff, and I would just say, you know, I think the advantage of that and having sort of the size and scale and the ability to deploy a capital program that's diverse and has different risk characteristics is we're trying to develop a bit of a conveyor belt. So as we get to the end of this year, beginning of next year, we've got a Lime Rock, we've got a Venice coming online that's going to add fresh production to the mix.
You know, we're drilling a rigolete, some tanks around this year. That would hopefully do the extent we have success begin to come on kind of in the next stage beyond that. I think each and every year we'd like to be in a position to expose the shareholders to that kind of opportunity. You know, and I think what Shane just brought up to is we always have to understand is our cycle times are different than what you see sometimes in the auditorium commensibles. What might take...
three, four months to bring a well online and the onshore can take 12 to 18 to 24 months. And so, you know, that's why we wanted to make sure we were reiterating a broader compounded annual growth rate on the production side, even if, again, some years you are taking a step back to move forward. It's just the nature of the cycles of how we bring on subsea wells. Along those lines, Tim, the Inven assets also added a lot of infrastructure that has a lot of unused or...
currently unused capacity. Right. How do you assess the opportunities to either add third party volumes through those if there's third party activity in the area? And as you all now look at those assets and start to try to define or develop prospects, is that more of a type of 2024, 25, 26 event? No, actually, I don't think so. I would tell you just
from a business development standpoint, I think the pace is picked up as other operators in the area know that we're controlling those assets and we're looking at other opportunities. And so, you know, we hit very hard as soon as we closed. For example, do we launch some additional reprocessing projects around those platforms, which is exactly what we did around RAMPOW that led to the Venice and Lime Rock discovery. So, you know, the approach we took to the strategy of our infrastructure in the past is exactly the approach we'll take to these. And look, they had some inventory going in that we're trying to firm up as well. So we're
extremely bullish on it and again it's consistent with the strategy and what we talked about. It creates a lower carbon emitting barrel. You're using the infrastructure. We're focused on subsea tiebacks. I would expect prints, lobster. You're going to see, hopefully, Brutus Glider. You're going to see these assets be a part of the discussion.
on where we're drilling locations in the next two to three years. I'm fully confident that. One question if I can on CCS. Does the acreage expansion at Beaumont Port Arthur and there's one billion tons of storage capacity?
Is that a real is that a important aspect both in terms of cost and being able to show potential emitters that you've got the sink to take their CO2. Does that help advance some of those discussions with emitters or either Tim or Robin? Absolutely, it's great to have.
built-in backup storage sites that is an ask from our customer base to show that we've got multiple places in our portfolio where we can take the CO2. And certainly having it situated close to those two markets is very important. It's the low cost nature that we're trying to be competitive here.
Yeah, I think Rob has talked about in the past operational assurance as a criteria for the customer base And so when you can show you have redundancy when you can show you have multiple options You know that turns that takes some risk off the table for the emitters well And so you know, yeah, it's important that we have a leadership position both You know in the strength of our partnership and the size and capacity of our storage asset when we're talking to you know The broader marketplace in these big hub areas Thank you
about in the past, operational assurance is a criteria for the customer base. So when you can show you have redundancy when you can show you have multiple options, that turns, that takes some risk off the table for the emitter as well. So it's important that we have a leadership position both in the strength of our partnership and the size and capacity of our storage asset when we're talking to the broader marketplace in these big hub areas. Thank you. Thanks. Thanks.
Our next question comes from Leo Mariani with MKM Partners. Please go ahead. Guys, I was hoping to see if we could get a little bit more of a full sum update on the ZAMA. I guess in a handful of weeks you guys are kind of approaching the deadline for FID here. I know you guys have been talking about potential joint operator ship, that project for a while. Does that seem like it's going to come to fruition here? Yeah, it's getting closer. I mean, look, there's probably more collaboration than we've seen in a long time, which we think is great for partnership. You know, it took some time to get a PEMEX fully caught up in what we were doing is when we were the operator and look, we were supporting them in every way we can to get them prepared to put in the final development plan. So just to kind of a little point there Leo, just to make sure we have it accurately, the deadline is for the partnership through PEMEX to put in the final development plan. Then it goes through
regulatory and C&H approvals and then after that you can reach out by these. So, you know, this step, which is a huge step, is to get everything in front of the government. And then, yes, we've been focused on integrated project teams and I think as we can get everything put in place and get everything rolled out, we can talk to the market about ultimately what it all looks like. But, you know, I think the level of collaboration is fairly strong and again all that's positive for the project.
Okay, it's good to hear. Can we get a little bit more information on panchiron? Do you guys have any type of pre-drill estimate in terms of how big that can be? I know it's 30% interest for y'all, which is I think pretty close to what your target is on these exploration type prospects. But just trying to get a sense, is this something that could be a couple hundred barrel and barrel type of gross project here? I'm assuming this is oil as well. Yeah, that's the case. I mean, look, you're in a fair way where there's...
You know, Oxi has a large position. Your Oxi has a large working interest. You know, we have to work with the partners on what we, you know, kind of feel like or think it's appropriate to disclose before we drill it. And in this case, I think what I would tell you is it's certainly high impact. It's got large geological structures. It's underneath salt. And so, you know, you can kind of imagine what type of project that would look like to be of interest to certainly Oxi.
you know, again, not every project is something that we're got out specifically with that range. We'll be obviously we have one internally, but you know, I think we put this one on the kind of the high impact ledger if it works.
That's helpful. And then just turning to CCS here, you guys spoke about this a little bit in terms of your prepare remarks, but I think you guys had always kind of said, hey, you know, if things work out, potentially might secure a deal with the midter kind of around year end 22. I guess we're a couple months in to 23 at this point in time.
Maybe just kind of talk about confidence levels and getting a couple deals with emitters this year. Is that generally what we should expect? Do you think those are more likely to be first half, 23 events? Obviously, you've got the bigger facility now, which provides a redundancy. But just hoping we get a little more detail around how some of these conversations with emitters are going.
Yeah, no, I think the discussions are moving along quite well. Recall that the inflation reduction act was signed last August . And so those who were thinking about it really jumped in to see the ability studies on the capture for their various facilities. And so some of those are even moving into pre-feed now. And so while that works ongoing, we're starting to see some more of these. Like I said, the plan's request for...
I think there's a lot of new energy in this whole space right now after the Inflation Reduction Act. We are seeing a lot of...
A lot of peers come in wanting to also participate in different projects, but it really puts focus back on the US versus some of these other international opportunities. So it's heated up the dialogue and I think it's just giving people some more data to look through as far as completing some of these studies and understanding their cost of capture. And look, somebody in death field mayors are running more full-sum processes as well, which is totally understandable. I think the good news for us.
As I mentioned, some of those customers are several that are seeking some funding or loans from the Department of Energy. So they're engaged in some of those processes. Tim mentioned and we put in our press release that we participated in a DOE project with the Port of Corpus Christi. We were receiving a grant there to do a feasibility study on our storage location.
to start off a CCS solution for that region, which is really right for additional investment and export out of the port itself. So again, we're putting everything in the right order, getting the right steps made to make sure that we've got the transport and storage solutions ready to go as the customer base starts to make their call. So. So.
Okay, that's helpful for sure. Can I get just on your new CCS project in Southeast Texas? I guess that's fairly contiguous with Bayou Ben. I think you guys have a 25% interest in Bayou Ben. Is it kind of the same interest and kind of this new sort of much larger add-on piece here?
So this is all onshore. So what we're talking about East Texas onshore, so it's separate from Baye Bend, but we like the opportunity there to be able to move volumes to different areas. I mean, that's going to be a key feature of many of these storage locations in our portfolio whereby we can have agreements to move volumes to different storage. Again, it's about that operational assurance that our customer base is looking for that that we can...
back to the group and come back to the market and finalize all that. I think, you know, Chevron talked about it yesterday on your analyst day. I think there's a quick slide out there on the acre set. But it's an exciting development and I think it's an exciting partnership and it's a leadership position. So it checks all the boxes and then as everything gets tightened up, we'll come back to the market. Thanks, guys.
come back to the market and finalize all that. I think, you know, Chevron talked about it yesterday on your analyst day. I think there's a quick slide out there on the acre set. But it's an exciting development. And I think it's an exciting partnership and it's a leadership position. So it checks all the boxes and then, as everything gets tightened up, we'll come back to the market. Thanks, guys. All right, thanks, Leo. Thank you.