Q1 2023 Talos Energy Inc Earnings Call
Good morning, and welcome to the Telus Energy's first quarter 2023 earnings conference call.
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I would now like to turn the conference over to Sergio Moro warm Vice president of.
Finance Investor Relations and Treasurer. Please go ahead. Thank you operator, good morning, everyone and welcome to our first quarter 2023 earnings Conference call.
Joining me today to discuss our results are Tim Duncan President and Chief Executive Officer.
Young Executive Vice President and Chief Financial Officer, and Robin fielder Executive Vice President low carbon strategy and Chief Sustainability Officer.
Before we get started I'd like to take this opportunity to remind you that our remarks today will include forward looking statements.
Actual results may differ materially from those contemplated by these forward looking statements.
Factors that could cause these results to differ materially are set forth in yesterday's press release and in our Form 10-Q for the period ending March 31, 2023 filed with the SEC yesterday.
Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
During this call we may present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures was included in yesterday's earnings press release, which was filed with the SEC and which is also available on our website at palace energy Dotcom.
And now I'd like to turn the call over to Tim.
Thank you Sergio this quarter was a busy one for Telus.
Strategic level I'm proud of the major strides we've made in the first 90 days of the year in our upstream and Ccs businesses.
We started the year off announcing two key discoveries do we are currently working to tie back to our existing Ram Powell facility, which we expect to complete in the next eight to 10 months.
We closed a 1.1 billion acquisition that is strategically sound and accretive to our shareholders. We executed on multiple major Ccs lease acquisitions.
And launched our first ever return to capital program. These are accomplishments that we're very proud of and set the stage for long term value creation.
But I'll acknowledge head on that we also started to face unexpected operational challenges late in the quarter in early April through a combination of existing well underperform it selected drilling results and unplanned downtime expectations.
These challenges are expected to last for several months and have led us to take the more conservative approach, which led to revising our production guidance for 2023.
I can assure you we are not taking these 2023 production revisions lightly but I still believe this level of transparency with the market is the right approach and you can always expect that from us.
Having said that I'd like to stress that our 2023 expensing capital guidance remains unchanged as does our outlook for the 'twenty 'twenty four 'twenty 'twenty six growth in production and free cash flow, we disclosed last quarter.
We are seeing the production underperformance in three areas, namely our most recent drilling results steeper decline from selected existing wells and additional unplanned downtime.
While each category in isolation represents a relatively small impact collectively we felt this was necessary time to update the market in real time on how we see our production operations for the remainder of the year.
We will continue to evaluate every option to enhance production rates across our asset base and optimize costs to minimize the financial impact of this revision.
But we're taking a more conservative approach with our revised guidance and not including the potential upside.
With respect to the first quarter Telus generated production of $63 six thousands of barrels of oil equivalent a day, which led to $323 million in revenue and $203 million and adjusted EBITDA.
We reported an adjusted net loss of one cents per share capital expenditures during the quarter were 190 million in our upstream business, while we invested $21 million in our Ccs business.
Our leverage stayed on track at around 0.9 times, which includes the pro forma effect of the last 12 months EBITDA contribution from invent prior to closing.
I'll now turn to discussing somebody important recent upstream and Ccs developments since our last market update.
In our upstream business, we spud the high impact pinch or an exploration well in April and are looking forward to results by mid year. This project followed a 40000 acre business development deal with Oxy to which BP. Subsequently joined the project ahead of drilling. This is an exciting sub salt prospect, even though it carries significant geological risk and we will provide.
Further updates to the market as they become available.
And the recent March federal lease sale, we were high bidder on for deepwater blocks covering 23000 acres.
Based on our analysis. These blocks include multiple exploitation subsea tieback projects that will further increase our inventory of robust drilling opportunities.
More recently, we completed a separate transaction to combine another 23000 acres in the Walker Ridge area of the Gulf, where tell us will operate the nearest exploration well, which we plan to drill in the second half of 'twenty 'twenty four is yet another high impact sub salt project, and we estimate a gross unrest recoverable resource potential.
Between 100, and 300 million barrels of oil equivalent.
But these projects and others like them will continually fine tuning our long term drilling calendar and reevaluating our inventory of opportunities to develop annual capital programs to balance risk and reward balance cycle times and also offer exposure to the high impact opportunities in deep water to make are based and unique in the United States.
And our Zama project in Mexico, we announced during the quarter that we filed the unit development plan with the industry regulator in the country.
We also announced the formation of an integrated project team or I P T.
As part of that I P. T tell us will have a more active and visible role in executing offshore activities, such as drilling wells and constructing and installing the offshore infrastructure we.
We see these two steps as significant towards bringing this assay closer to final investment decision and a line of sight to first oil.
Because of this progress I'm more encouraged we are going to be able to crystallize value for this important asset.
And our Telus low carbon solutions business, we've been extremely busy we have more than doubled our C. O two storage capacity so far this year across multiple projects.
Most recently, we expanded our acreage position in the Baton Rouge, and New Orleans Industrial corridor with an additional 21000 acres. This brings our sequestration footprint in the region one of the country's dentist industrial regions to approximately 110000 gross acres under lease or option.
That equates to over 620 million metric tons of C O two storage capacity.
In a market with over 80 million metric tons per year of industrial emissions, we believe that we're very well positioned in that market.
This acreage expansion follows our previously announced by you been acquisition of nearly 100000 onshore acreage in South East, Texas located between the Houston ship channel and the Beaumont Port Arthur region. This transaction puts our total gross acreage position at over 140000 acres and up to 1 billion metric tons of C O two storage.
<unk> to service such a critical industrial corridor in southeast Texas.
We're also preparing to drill our first stratigraphic well offshore at Bayou been later this year. This test well will provide critical data to support our permitting application process. Ultimately, we expect to file multiple classics permit applications by year end.
As we continue to be successful in this space, we are seeing even more opportunities to accelerate the growth of our Ccs business. Therefore talus is currently evaluating the possibility of bringing a financial partner into T. L. C. S to provide additional growth capital.
We're seeing tremendous market interest for this type of investment, but it's still early days for us and we will update the market on our progress at the appropriate time.
As I've said before there is an extraordinary level of enthusiasm about the promise of what Ccs can become for our shareholders.
<unk> owns a leading C O two storage portfolio with a superb geology that is required to permanently sequester and monitor the injected C O two.
Our footprint is located in large concentrated industrial emissions markets with existing midstream infrastructure and we have a market that provides the right economic incentives to make these projects economic and viable.
Finally on the M&A front as a logical partner in the Gulf of Mexico, We continue to actively evaluate business development opportunities that fit our skill set and strategies.
Are accretive to our shareholders.
And preserve or improve our strong credit position.
This spans both tactical business development as you saw recently in the pantry or an engineer as prospects as well as larger strategic transactions such as <unk> with.
With respect to that transaction were actively progressing our integration activities and are encouraged by the progress we've made to date.
We are highly confident in our ability to achieve the original estimate of annualized 30 million of synergies by year end and may even exceed that amount.
As we advance the integration work will continue to update the market on our cost rationalization progress.
With these key updates on our 2023 plans and goals I'll turn the call over to Shane to address our financial details for the first quarter.
Thank you, Tim and good morning, everyone.
My remarks today I will address four key topic areas first I'll review the highlights of our financial performance for the first quarter.
Second the continued strength of our balance sheet, including our leverage and liquidity positions.
Third I will reiterate our capital allocation priorities and finally I'll provide an update on our full year 2023 guidance.
As a reminder, Arkansas dated results include both the results of our upstream and Ccs businesses as further covered in our 10-Q filed last night.
Where appropriate I will highlight these impacts in my discussion of the financials.
During the quarter, we produced 63 6000 barrels of oil equivalent per day, including production from the inland acquisition from the mid February closing date.
Pricing for our production in the quarter reflected the general softening in the commodity markets with realizations of over $70 per barrel of oil.
Ngls at approximately 31% of our realized oil price and over $2 80 per Mcf of natural gas production.
This resulted in total revenue of $323 million.
Okay.
Net income for the quarter was approximately $90 million or 84 cents per diluted share.
Net income was impacted by a tax benefit during the quarter of approximately 46 $5 million primarily related to the partial reversal in our valuation allowance, which we hold against our deferred tax asset.
Our adjusted net loss during the quarter was approximately $1 $3 million or one cent per diluted share.
During the first quarter, we generated adjusted EBITDA of $203 million or $215 million before the cash impact of hedge settlements.
These were inclusive of approximately $6 million of expenses related to P. L. C S.
On a per barrel of oil equivalent basis. This translated to adjusted EBITDA margins of approximately $35 per barrel of oil equivalent and adjusted EBITDA margins, excluding realized hedge losses of approximately $38 per barrel of oil equivalent.
This represents 65% and 67% margins respectively.
Upstream capital expenditures for the quarter were $190 million, including plugging and abandonment capital.
This is lower than we anticipated for the quarter due to certain lower than expected drilling costs and the delay of an outside operated well, which spud in the second quarter rather than the first.
Additionally, Ccs spend of approximately $21 million was lower than expected during the quarter.
As we expected with only half quarter of inland production combined with a high activity capital quarter free cash flow before working capital was slightly negative at <unk>.
$46 million inclusive of total Ccs spend of $27 million.
Turning to the balance sheet at.
At the end of the first quarter net debt stood at $1 billion $45 million.
This includes $258 million of notes that we assumed with the closing of the inland transaction.
Additionally, our RV L balance stood at $165 million outstanding on March 31, which included both the closing consideration for envision as well as the cost of our recently announced share repurchase program.
As of March 31, our leverage stood at approximately <unk> nine times.
Inclusive of our pre closing EBITDA contribution from inbound.
Liquidity at quarter end remained very high at approximately $805 million with $800 million available under our revolving credit facility.
As previously announced our bank commitments increased by 20% to $965 million upon the closing of the <unk> acquisition in February .
We are currently undergoing our semiannual borrowing base redetermination process and expect results from this process in the second quarter.
Okay.
Turning to our capital allocation framework, which we announced in February we think of it in two ways, a systematic approach and an opportunistic approach.
Systematically we will continue to focus near term on reducing leverage most likely through pay down to the RVO as the primary use of our free cash flow until deleveraging targets are met.
However, opportunistically, we are focused on supporting our shares when they are under undue selling pressure such as we saw recently when the banking system came under pressure.
As such in March, we announced $100 million stock repurchase program, and we've repurchased approximately $27 million in the first quarter or one 9 million shares equating to roughly one 5% of total shares outstanding.
We will continue to monitor the markets and be opportunistic when it comes to share repurchases.
Our share repurchase program provides an impactful opportunity to return capital to shareholders and we will continue to balance our priorities are investing in catalysts remaining mindful of our credit quality and providing returns of capital to shareholders.
Turning to our financial guidance for the full year 2023, as previously outlined in our earnings release and as Tim discussed from an operational perspective, we.
We now expect annual production to be between 66, and 71000 barrels of oil equivalent per day.
We have taken a measure twice cut once approach to this range.
While production results for January and February of 2023 were in line with original expectations for both Dallas and invent beginning late in the quarter, several new and existing wells began to perform below original expectations.
While the company will continue will continue to evaluate ways to restore production levels. After Chris review, we determined that the revised range best captures current expectations for 2023 production.
For the balance of the year, we expect the second and fourth quarters to be similar to one another with the third quarter, most heavily impacted by weather related downtime risky.
Apart from these revisions.
All other previously guided expense categories remained unchanged from prior guidance.
In fact, many of these categories are tracking at the lower half of the guidance ranges and we still expect to be free cash flow before working capital generative for the full year 2023.
We remain excited about the overall growth trajectory of the business. So as we look forward to reaching or exceeding 80000 barrels of oil equivalent per day early next year. When two recent discoveries are turned online.
Meanwhile.
Even with the debt assumption in cash component required to close the <unk> transaction, our credit position remains strong and near its all time best.
Lastly, we continue to be excited about the investment opportunities in both our upstream and Ccs businesses for 2023 and beyond and we believe these investments will deliver and accelerate long term value to <unk> shareholders.
With that I will now turn the call back over to Ted.
Thank you Shane with that summary, let's open up the line for Q&A.
Thank you well now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two.
Today's first question comes from Michael Schiavone with Stephens. Please go ahead.
Okay.
Yes, good morning, everybody.
Jane You said you want to be opportunistic with share repurchases I guess with the stock Oh, So you're getting hit today anything blocking out from buying stock at.
At the moment.
You know until we got to earnings are where we were in a bit of a block a blackout for the last couple of weeks in terms of what we do going forward look.
And everything I, just said just reiterate now we will be opportunistic and we very well could.
Get into the market.
Got you.
Wanted to ask on <unk>.
Your potential bringing in a partner on the Cc U S.
See if you could add some color. There are you looking to get a marker out there on what the business is worth or are you looking more for a financial partner or maybe another one like chevron, which could bring some operational capabilities I noticed chevron highlighted.
Highlighted by you've been on its with its opening statements on its first quarter call and sort of expected to be one of the largest.
Storage projects in the U S. So just wondering if you're looking for another partner like that or just any more color you can provide about around what youre looking for with the.
Ccs Pardon me, Michael It's Tim Yeah look Hey, it's Tim Let me, let me start by stepping back and I'm going to hand, it over to Robyn to give her thoughts on the market and thoughts on the business as well because I think that's a big part of it and that project is an example, but if you step back we set up this business says an unrestricted subsidiary we always wanted to maintain some flexibility that if they grew in it.
Grew and exceeded our expectations on how it could grow we would have some flexibility about bringing in a financial partner. So it was set up to kind of see where the market would go.
The IRA has really opened up an addressable market and you mentioned Bayou Bend.
A fantastic project I think what we're looking at is potentially multiple projects of that Robin maybe talk a little bit about the portfolio and why it's exciting and why we think this could be really helpful.
Yeah, I'll just reemphasize, we always built this with the opportunity to bring in partners at the project level, which we have a number of them that we've discussed in the past, but now we're talking about a broader partner.
And it's really because the portfolio has grown so much and we see so many incremental opportunities you know we added a 100000 acres in our body then.
For onshore last quarter, we talked about being able to access not just at Beaumont Port Arthur Industrial corridor, but now opening up the Houston ship channel as well.
On this call, we announced that we added some incremental acreage and equally Vienna, and so as we continue to grow there's.
Known projects. We've also been approached by some other opportunities and even looking into the Greenfield space and we want to make sure that we're well positioned to capitalize on that yes. It will be an added benefit to have a read through value on the business as well as we know the market is trying to understand how to how the value.
Low carbon portfolios and we are certainly proud of the one that we have built in and I think I would stress. It look it's also appropriate capital allocation and it allows the business to stand on its own two feet of business that ultimately will always about the conversation that the pie can to buy if the pie could be bigger than what we even anticipate owning a smaller portion of that may makes sense, particularly if you can.
Execute at the speed that we want to execute so well see where the market is I think it's a robust and deep market. Its got all sorts of players in that market as you alluded to but.
And we'll see what the process yields or maybe a decision to just continue to forge ahead.
No that's helpful. I appreciate that.
Then just one last one.
You reiterated your long term outlook through 2026.
Stock, obviously getting hit today on the 23 guidance revision how are you thinking about those long term growth projections and I guess why not you know you had to take.
Take things down why not just take everything down.
Due to the out years and no because I think people want to see a beat numbers going forward obviously.
Were there any thoughts about doing that or I guess white reiterate the initial 2026 outlook.
Yeah like we talked about it. It's it's interesting on you take something like <unk>, where we had a dry hole and you hate that but that was represents that exploitation style of project that subsea tie back in really right before there we announced two discoveries. So that's kind of a two out of three project and we hit two out of three you know those two that we did had been it's in lime rock we've talked about that.
Coming on line at 15% to 20000 barrels a day between them and so the model that we deploy is a is a tide things back to our infrastructure and get those shots on goal hit those at a rate that's acceptable and then add those volumes and that's not going to change I mean, we're still going to try to utilize our infrastructure we've got prospects.
We are drilling at the remainder of this year that utilizes that infrastructure twenty-four to utilize that infrastructure.
You know it looks somebody's downtime issues, we need to correct I mean, I think we're trying to figure out how to solve some of these issues. Neptune. For example is an enormous asset it's got a large tank in place. It's got a lot of opportunities and we just got to figure out as this asset matures the right flow assurance to keep those volumes up so you've got a little bit of Hey, we've got to fix some of these downtime.
And focus on those and then the plan yields itself you know in the model and the strategy yields itself to utilizing that infrastructure and building out an inventory that can utilize that infrastructure. So we've got confidence in the strategy and what we're doing.
Look when you have near term.
Setbacks. It can it can certainly cause pause and it has caused a pause but I think we're optimistic about the strategy that we've deployed in the space and for the last 20 years, and it's and it's a it's served us well.
Yeah.
Pretty good thank you.
Thank you and our next question today comes from Leo Mariani with Roth Partners. Please go ahead.
Hi, just wanted to.
Ask a little bit in terms of where do you. What do you think kind of current production is today.
Given the disappointment just trying to get a sense of kind of where you are today relative to that guidance here in 'twenty three.
Well look we.
If you look at where we guided there are you know kind of the year and you think about the rest of the year and you think about you know typically in the third quarter, we might have a little hurricane risk in there I think that puts you.
And I think a spot certainly north of where we were in the kind of first quarter. So.
You know look I think we feel good about.
Where we guided the rest of the year I think you know the business is running generally the way we want to run I think we got to solve some of these downtime issues and we've got to keep executing the program and get these wells on line that we talked about but.
I think it's all right there.
Okay.
And I guess just in terms of the Ccs business.
Thank you folks had spoken in the past about hopefully getting some emitter deals.
<unk> here.
I guess, where I think there was an expectation that perhaps somewhere plus or minus a few months around year end 'twenty. Two it's now kind of may and I guess theres no emitter deals on the board. So can you just kind of update us in terms of how you're kind of thinking about that I mean do you think there are some deals that are advanced.
She Asia and kind of getting closer I mean, how would you sort of characterize that now.
Yes. Thanks for the question, we continue to work with our various partners on the projects that have already been announced and looking at the existing brownfield in nature.
Community and have participated in some requests for proposals and a few of those.
But I'll say, we're also talking to folks as we're getting more and more interest on additional new greenfield opportunities.
<unk>.
Nothing that's been announced as of yet that's part of the reason we're excited about the growth opportunities here as more and more of those opportunities are being explored that it's just it's more on the early stages again some of it as a response to that the inflation reduction act kind of middle to late last year and instead, there's those plans are being <unk>.
<unk> right now.
Okay, and then just can you talk about oil price realizations, if I'm kind of looking at the numbers correctly I.
It looks like Youre depth kind of widened.
Last three quarters here.
Much tied down down down in the last three quarters in a row and my math is right I am seeing somewhere around a 13% discount to Brent hair.
On the first quarter, which was certainly wider than expected can you kind of talk about what's going on with oil realizations, given they've kind of continued to kind of widen the deaths and what should we be expecting here going forward.
Yeah.
Hey, Leo Shane here listen I think.
On LLS and HOS and Mars I mean, we're sort of in there with where everybody else is on.
On overall realization that they've been a little bit softer as of late.
For for all of US I think the one thing that you need to keep in mind is our realizations are generally after transportation as well in that transportation is a little bit of a fixed component. So as pricing comes down that fixed component, it's a little bit higher percentage.
As we go.
But that's just due to the nature of the way our contracts are configured.
Okay. Thanks.
Thank you and our next question today comes from Sebastian Anja.
<unk> company. Please go ahead.
Hey, Tim Good morning could you give us maybe a unofficial view.
What capex.
Could potentially look like in Mexico, and Ccs next year.
Well I don't know if there's any unofficial views on these calls she bus.
Right.
But but but look I think Mexico.
We've reduced our interest there I think we're going to try to get the F. D that first year out of out I bet by D. There certainly could be some spending.
It's going to be several years to get that project online and again, we're looking at 17%. So you've got to think about.
The way that project is managed so if you kind of think about next year I think on the oil and gas side I think what we've talked about is that spending is generally flat to down and the new volumes come up and that's why we're generally very optimistic about free cash flow generation over the next several years because this is a higher spending years, we're accelerating getting those volumes online <unk>.
<unk> could certainly increase I think we've talked about just the pace at which those projects work.
Are you know are coming along and that's one of the reasons, we're thinking about bringing in a potential financial partners, so oil and gas side of the house down Ccs side of the house potentially up Mexico, probably fills in that gap oil and gas comes down and so and then again.
I'm just encouraged by the fact that we're getting that project closer to F idea I'm encouraged by the fact.
That the things are moving there its the type of project and when it comes online it will generate significant volumes at very low reinvestment rate. Once it comes online you're getting benefit of the PSE contract, where you get a disproportionate amount of those volumes. So there is a reason that project for the size and scale of that project generate such attractive buyer ours, but so youre getting some offset on the oil and gas.
S side complemented by the Mexico side, Ccs could grow but I think we've got a plan in place to manage that.
Do you have any thoughts robin yeah on the Ccs growth I'll, just say our funnel of opportunities there's still a large lease with positioning ourselves to continue to be a first mover and to take advantage of that but you also see we've brought in partners and to all of our projects that we can stretch out a little further and so that's another reason with all the excitement in the space.
The opportunity to explore a funding partner.
Okay, great so to confirm.
One offset the other including Mexico and.
This year is the peak capex year, or maybe run flat next year with all the moving pieces.
Look let's rollout more detailed plans that made you know which by the way some of my stuff's a confirmation on an unofficial question but.
But well look let's rollout more players, but I think as a general sense you know, we see the oil and gas side flat to down and in certainly at Mexico would then have to offset that if we stay on the pace, we hope to stay on and then Ccs.
We can manage capital allocation appropriately that's very exciting and we would expect capital growth there, but I think we have a plan in place to manage it.
Okay, great and maybe this one's for Robyn.
So looking at the Ccs.
So you got to you got the storage you know you've got a core space you got the midstream partners by and large.
And and you're out there you know.
Talking to customers, possibly are seen what the process might be.
Where do you think the customers right now.
Are they mostly price sensitive or what are the.
The blocks to getting and emitter contract at this point.
I'll characterize it that I think that the IRA really encouraged us to put the pen to paper and to really start to do the pre feed and feasibility studies to better understand the capture cost on the upfront piece and.
And so that's where we're starting to see more work being put into place you know the other piece is when you are talking about Greenfield opportunities. Obviously these are all pre F. I D and so there's a lot of work that goes into that before any one's ready to announce that and so there's just a little bit more diligence being worked on on some of those.
But we're very excited about what that opportunity set looks like especially when you look at some of these strategic regions, where you're already and on the coast you've got some major export capabilities.
And that's what we're talking about when we're talking about moving into a blue economy.
Goodbye, we're helping decarbonize either existing products or that help enabling some of these new bluefield.
Okay. Thanks, guys.
Thank you and our next question today comes from Nate Pendleton.
Please go ahead.
Good morning regarding the bullet well can you speak to the potential impact of the planned well intervention and can you speak to the next steps at the Neptune facility to return to run rate capacity.
Yeah. So just two things on bullet in each of these even even Mount Hunter for that regard when you set up these projects projects Nate Youre trying to find Hey look do I have to I have to say in packaged rock properties that I think I've looked for in both those projects. The answer was yes, and then how do we set up to completion and then what are our expectations in bullet.
I actually had two completions, an upper and a lower we got contribution from the upper we werent seeing contribution from the lower we're going to take the rig that was out on the rig lease and bring it back to that location and see if we can intervene and we think that could increase the rate we had a big impact now that risk because it's an operation and so it doesn't really flow through the guide.
Since.
That could be upside to the guidance. It flows in there a little bit but on a risk basis same with mountain Hunter were not getting the results that we thought we would get again, we saw the sand we got the pressures that we thought we would want.
The rigs on top of that in Pompano, we gotta deconstruct that rig and get in there and into the well and see what's going to you know if theres ways to improve that so in both of these were going to look to ways to improve them in both the dose there is modest impact that runs through this plan and there could be some upside.
What was the other question.
Neptune Yeah. It looks so Neptune is interesting it's again big field. They started having some downtime issues you know after we signed the deal before we closed it.
You've got just kind of a it's a classic mature flow assurance and its chemical treatments and things of that nature and you got to try to figure out when you have with mature fields, increasing water, it's a little heavier oil.
You've got different subsea systems entering the facility it's just.
Just really kind of trying to manage what's the long term right flow assurance plan for that facility and look the team is working very hard on that and look we're going to shut some things and voluntarily why we figured that out so you've got to take a longer view at that asset to make sure you develop the right plan and then once you develop the right plan hopefully what you get is the return of that asset with <unk>.
Consistent uptime and so.
New for assets that have this level of maturity.
See this from time to time and you just got to try to manage through it and so I think our team is.
Vigorously trying to figure out what is the right long term plan because theres a lot more life in that asset, it's a facility, but when a tie back opportunities to sort of the.
Team is going to work on that and again clawing back that downtime is upside.
Thanks, I really appreciate that detail and then going back to how the market is trying to value. Your Ccs business can you provide an early indication of the potential revenue such as what margin per ton or IRR, you'll be targeting for fixed offtake volumes.
Yeah.
Hey, Nathan the way I always have people characterize it as these are large infrastructure projects. These arent going to be E&P type of returns because we're talking about setting. This business that have long term basically contracted service fees right. If you think about it it's more of a midstream model. So you can kind of think about it is as those type.
<unk> returns that much longer.
Duration by nature, because we're talking about doing the Ccs for in many cases, many decades and so it's a little bit different model, but I think it's complementary to what we do in A&P. When you start to think about folding that into the broader portfolio.
Look and I think that the folks that are going be interested in participating in this with us are going to understand that and I think that's.
That'll be I think good broadly as we roll that out as youre going to have I think very sophisticated partners really understand what we're trying to do here over the long haul and how those economics work and how they should be valued so I think it'll be an interesting process.
Alright, thanks for taking my questions.
There's another one that was a reminder, if you'd like to ask a question. Please press Star then one today's.
The next question comes from Tom Roderick with Keybanc capital markets. Please go ahead.
Good morning, everybody and thank you for taking my question.
My first question was getting back to the production reset.
You've talked about unplanned downtime and underperformance issues.
If you could kind of decompose that a different way and kind of explain how much of that is on legacy <unk> assets and how much is on kind of legacy and vans and then kind of what.
The issues that maybe let's just sort of and then production not being what you thought it was.
Okay.
It's a little bit of a combination of both.
I think the Neptune one you know you get some of those operational issues on on those mature assets that can happen and the timing of that is pretty close.
And again, it's not something that the operational team hasn't hasn't worked on before its not we had tried to optimize flow assurance and flow assurance and chemical treatments change over time, and it's something we're just going to have to attack with this particular asset.
The amount of Hunter and the bullet wells are ours and so those are you know.
New wells and in a lot of how you build these businesses is the contribution of those new wells, where we hit the sand we wanted to hit we hit the pressures we wanted to hit and we're not getting the performance that we want now there's potentially opportunities to enhance both of those wells.
But those are on the tower side of the house and so we're not running away from it timna.
It's it's a little bit on both portfolios, but but I do think we're going to try to figure out which of these we can solve in the near term and then continue to plough away at the right prospects and look this is a team.
And it's and it's hard you can get Michelle and forget sometimes that you had the discovery of the year on the planet.
They haven't forgotten how to find oil and gas and theyre. Good at they haven't forgotten how to get wells online and certainly how to fix challenges that come along the way. So I have a ton of confidence in the team, but you got to you got to hit them head on and in these particular issues in the near term or a little bit of both portfolios.
Okay I appreciate that and then as we look forward to 2024, obviously.
The linchpin assets for that growth outlook is that into the lime rock and from my understanding there's equipment being built now and it'll be installed after hurricane season. So.
Right now the market would appreciate kind of as much specificity as you could provide.
As much confidence that you have on kind of what's happening there and then when you think those assets will start producing.
Producing for Dallas, Yeah look I think one of them is what I said in the release is that you take early next year. This production gets back already and that is in concert with the contribution of those assets and so.
It could be sneak one of those into an exit rate for this year. We hope. So we're trying very very hard to do so we're accelerating our plans to try to do that I think it would be tough to get both of those in but.
But I do think you are both producing into the first quarter of next year.
I'm signing purchase orders every day I can tell you that and the team's working really hard and again. This is capital. We're spending this year that you don't see the benefit of this year you see really see the benefit of when you get into early next year.
Okay. So everything is on schedule.
Sounds good.
Okay. Thanks, Tim I appreciate it.
Yes.
Thank you and our next question comes from Jeff Robertson and Waterfowl Research. Please go ahead.
Thank you Tim you mentioned, the A&D market in the Gulf of Mexico, and Denarius project that you all put together for 24 can you give us just some color on what.
How would you characterize that market today is in both in terms of putting deals together liked in areas, but also just in the asset market for things you might be interested in.
Yeah, I mean look I think the one thing on that particular deal it just shows.
The kind of the inorganic and the organic side, that's more of an organic opportunity. We've got a large lease positions others have a large lease positions. We've got a lot of facilities, you're looking at where you can enhance your portfolio and where you can continue to look at good ideas and that's an idea that if you look at public records to bid on that lease was substantial.
It's a large project, we're not going to overweight our capital program with that but you want some of those kind of in the capital program every year and we're looking at the same thing on different land trades and different ideas with different operators and so we pulled off several land trades will always going to look to do that from a portfolio an inventory standpoint on the more traditional.
Kind of.
Inorganic side of the house there is several things that we can do weekend.
<unk> talked about our balance sheets and a very good spot. We can look at things that are additional working interest in our assets that are performing well.
We can look at bigger M&A ideas, and so we're going to have to be prudent about it.
Again strike the right deals at the right price.
But scale and diversity helps for all the reasons that we've talked about.
As you try to build a business in the Gulf of Mexico.
You want that scale and diversity and I and I think it's something we're always keeping an eye on.
A question on Ccs with all of the business development that you all have done since starting that business.
Jim Robin can you talk about what kind of scale do you think is critical on these projects to make the economics really work and tell us this favor.
Well, what I'll say is I think each project is a bit unique.
Our strategy was to go out and seek.
Hum sizable floor space as adjacent to the emissions as possible to minimize that transport piece.
But we have been successful as you are indicating on building it and scale, where it's not just the phase one phase two and that's where you really get into some efficiencies. We are leveraging that backbone gathering system and just basically adding some incremental emissions since the network and so that's kind of the long term strategy for each of these is to start with.
With a single pore space that really built out a full hub and you know that said we're also looking at some single opportunities where youre working directly within a matter that we call those our point source opportunities, where youre, starting with the emission source and helping them uniquely with our solution and so we're approaching it both ways, we feel like we're really well positioned to do.
Is that.
And it's really been a part of our strategy to get in early and then attract some of these other partners to help us move each of these.
Projects in parallel and so that kind of to the capital question earlier as we advance these and get closer and take F. I D. You'll have you'll have more need there.
But again, we feel like we've allocated our capital across these various projects and have very mindfully and strategically brought in partners that we're not taking on too much we're not allocating too much capital to any one opportunity.
Thank you.
Thank you and ladies and gentlemen. This concludes our question and answer session I would like to turn the conference back over to the management team for any final remarks.
Yeah. Thanks.
Look I'm glad we were able to work through all the questions on the call I think as I mentioned, maybe in one of my responses. When you have near term difficulties you can you've got a balance managing and being upfront on those and how to improve those but you don't want to lose sight on the long term goals and long term objectives and the things that our team is doing to put shareholders in the best position possible. So.
There's a lot of positive things going on in the business. Yeah. We will work through some of the near term challenges and we look forward to keeping the market abreast of the progress we make so thanks for joining the call and we'll talk to you soon.
Thank you Sir This concludes today's conference call. We thank you all for coming and today's presentation. You may now disconnect your lines and have a wonderful day.