Q1 2023 Hess Corp Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the <unk>.
First quarter 2023, Hess Corporation Conference call. My name is Kevin and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes I would now like to turn the comps over to Jay Wilson, Vice President of Investor Relations. Please proceed.
Thank you, Kevin and good morning, everyone and thank you for participating in our first quarter earnings Conference call. Our earnings release was issued this morning and appears on our website Www Dot has dot com.
Today's conference call contains projections and other forward looking statements within the meaning of the federal Securities laws.
These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements.
These risks include those set that set forth in the risk factors section of <unk> annual and quarterly reports filed with the SEC.
Also on today's conference call, we may discuss certain non-GAAP financial measures a reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website.
On the line with me today are John Hess, Chief Executive Officer, Greg Hill, Chief Operating Officer, and John Reilly, Chief Financial Officer, I will now turn the call over to John Hess.
Thank you Jay good morning, and welcome to our first quarter conference call.
Today, I will discuss our continued progress in executing our strategy.
Hal will then cover our operations and John Riley will review our financial results.
We believe that Hess offers a unique value proposition for investors. Our strategy is to deliver a high return resource growth at low cost to supply and industry, leading cash flow growth and at the same time maintain our industry leadership in environmental social and governance performed.
And send a disclosure.
In terms of resource growth with multiple phases of Guyana developments coming online and a robust inventory of high return drilling locations in the Bakken, we can deliver highly profitable production growth of more than 10% annually through 2027.
On the Stabroek block in Guyana, we currently have line of sight to six floating production storage and offloading vessels or F. P. S O as in 2027 with a gross production capacity of more than 1.2 million barrels of oil per day.
In terms of a low cost of supply as our resource base continues to expand we will steadily move down the cost curve by 2027, we forecast that our cash unit costs will decline by 25% to approximately $10 per Boe.
And that our portfolio will achieve a breakeven Brent oil price of approximately $50 per barrel.
Our four sanctioned the oil developments on the Stabroek block have a breakeven Brent oil price of between approximately $25 and $35 per barrel.
In terms of cash flow growth, we have an industry leading rate of change story and an industry, leading duration story, providing a highly differentiated value proposition.
Upon a flat Brent oil price of $70 per barrel $75 per barrel, our cash flow is forecast to increase by approximately 25% annually between 2020, two and 'twenty 'twenty seven more than twice as fast as our topline growth.
And our balance sheet will also continue to strengthen with our most recent debt to EBITDAX ratio at approximately one time.
Successful execution of our strategy has uniquely positioned our company to deliver significant value to shareholders for years to come.
Both by growing intrinsic value and by growing cash returns our financial priorities are to allocate capital to our high return low cost investment opportunities.
To maintain a strong balance sheet and cash position to ensure that we can fund our world class investment opportunities in Guyana, and the Bakken, where we have allocated more than 80% of our 'twenty to 'twenty three capital budget.
And also return up to 75% of our annual free cash flow to shareholders through dividend increases and share repurchases.
In line with our return of capital framework in March we increased our annual dividend by 17% to $1 75 per share.
Looking ahead, we plan to continue increasing our regular dividend to a level that is attractive to income oriented investors, but sustainable in a low oil price environment as our free cash flow generation steadily increases in future years share repurchases are expected to represent a growing proportion of our rich.
Capital.
To manage oil price volatility, we have hedged 130000 barrels of oil per day in 2023 of which 80000 barrels of oil per day have $70 per barrel W. T. I put options and 50000 barrels of oil per day have $75 per barrel.
Brent put options, which positions our shareholders to be protected on the downside while fully benefiting on the upside.
Key to our strategy is Guyana, the industry's largest oil province discovered in the last decade, where Hess has a 30% interest and Exxonmobil is the operator since 2015, we have had more than 30 discoveries on the block, including two since the start of 2023 at bank to South.
East, one and lancetfish, one underpinning a gross discovered recoverable resource estimate of more than 11 billion barrels of oil equivalent with multibillion barrels of exploration potential remaining.
We have the potential for up to 10 F. P. S. O is to develop the discovered resources on the block.
The Liza phase, one and Liza phase two development has produced an average of approximately 375000 gross barrels of oil per day in the first quarter.
The F P. S O for our third sanction development at Pi Ara arrived on the Stabroek block earlier. This month ahead of schedule and is targeted to start up early in the fourth quarter with a gross production capacity of approximately 220000 barrels of oil per day.
The fourth sanction development yellow tail is expected to come online in 2025 with a gross production capacity of approximately 250000 barrels of oil per day.
Government and regulatory approvals are expected very soon hopefully this week for our fifth development at <unk>, which will have a gross production capacity of approximately 250000 barrels of oil per day, a plan of development for our six development whiptail is expected to be submitted to <unk>.
And for regulatory and government approvals later this year.
Turning to the Bakken we plan to continue operating a four rig program, which will enable us to grow net production to approximately 200000 barrels of oil equivalent per day in 2025, lower our unit cash cost fully optimize our infrastructure and generate significant levels of free cash flow Gregg and his team.
<unk> continued to do an outstanding job of applying lean manufacturing principles to build a culture of innovation improve efficiency and mitigate inflationary cost pressures.
As we execute our company's strategy, we will continue to be guided by our long standing commitment to sustainability and are proud to be an industry leader in this area.
Earlier this month, we announced a 50 million dollar donation over the next five years to the Salk Institute is harnessing plants initiative, which is a potential game changer in tackling the global challenge of climate change by developing plants crops and wetlands natural ability to capture and store potentially billions.
Tons of carbon per year from the atmosphere.
We are proud to once again have received a AAA rating in the latest M. S C I environmental social and governance rating assessment.
AAA, which is M. S. C is ESG is highest rating designates our company as a leader in managing industry specific ESG risks relative to peers. We received our first triple a rating in 2020, one after earning double a ratings for 10 consecutive years in February.
Has also earned a place on the 20th twenty-three Bloomberg gender equality index for the fourth consecutive year.
In summary, we continue to successfully execute our strategy, which offers a unique value proposition for our industry by growing both our intrinsic value and our cash returns with multiple phases of low cost oil developments coming online in Guyana, and a robust inventory of high return drilling.
<unk> in the Bakken our portfolio is positioned to become increasingly a free cash flow positive and as it does we will continue to prioritize the return of capital to our shareholders through further dividend increases and further share repurchases I will now turn the call over to Greg Hill for an operational update.
Thanks, John we.
We demonstrated strong operational performance across our portfolio in the first quarter.
Company wide net production averaged 374000 barrels of oil equivalent per day above our guidance.
Approximately 345350 5000 barrels of oil equivalent per day.
For the second quarter, we forecast the company wide net production will average between 355003 hundred 65000 barrels of oil equivalent per day, reflecting planned maintenance activities at Liza phase two in Guyana, several of our Gulf of Mexico fields, and at North Malay Basin and <unk>.
South East Asia.
For the full year 2023.
We now expect company wide net production to average between 365000 and 375000 barrels of oil equivalent per day, an increase from our previous guidance of 355000 to 365000 barrels of oil equivalent per day due to strong.
Performance in the first quarter of 2023.
In the Bakken.
First quarter net production of 163000 barrels of oil equivalent per day was above our guidance of 155000 to 160000 barrels of oil equivalent per day, reflecting high uptime and strong recovery from challenging weather conditions. This winter.
In the first quarter, we drilled 25 wells and brought 24, new wells online in the second quarter, we expect to drill and bring online approximately 27 new wells.
For the full year 2023, we expect to drill and bring online approximately 110 new wells.
Individual well results in terms of EUR and IP 100, Eighty's continued to meet or exceed expectations.
For both the second quarter and full year 2023, we expect Bakken net production to average between 165000 and 170000 barrels of oil equivalent per day.
Moving to the offshore in the deepwater Gulf of Mexico first quarter net production averaged 33000 barrels of oil equivalent per day above our guidance of approximately 30000 barrels of oil equivalent per day, primarily reflecting better uptime.
In the second quarter we.
We expect net production to average approximately 25000 barrels of oil equivalent per day, reflecting planned maintenance at several of our Gulf of Mexico fields.
For the full year 2023, we continue to forecast Gulf of Mexico net production to average approximately 30000 barrels of oil equivalent per day.
The deepwater Gulf of Mexico remains an important cash engine for the company as well as a platform for growth.
In May we plan to spud the pickerel, one well located in Mississippi Canyon Block 77.
<unk> is an infrastructure led exploration prospect, which will be tied back to tubular bells.
Following pickerel with plan to drill another tieback, well at Stampede, and a hub class exploration well in the Green Canyon area.
And southeast Asia first quarter net production averaged 66000 barrels of oil equivalent per day.
Second quarter net production is forecast to average approximately 60000 barrels of oil equivalent per day, reflecting planned maintenance at North Malay basin.
Full year net production for Southeast Asia. In 2023 is now forecast to average approximately 65000 barrels of oil equivalent per day compared with our previous guidance of 60000 to 65000 barrels of oil equivalent per day.
In Guyana.
Where hess has a 30% interest in the Stabroek block the operator Exxonmobil continues to deliver outstanding facility's reliability and project execution success.
First quarter net production averaged 112000 barrels of oil per day above our guidance of approximately 100000 barrels of oil per day, primarily driven by a strong facility uptime and well performance.
For the second quarter net production from Guyana is expected to average between 105000 and 110000 barrels of oil per day, reflecting reduced capacity at Liza phase two for planned maintenance.
We now expect full year 2023, net production to average between 105000 and 110000 barrels of oil per day compared to our previous guidance of approximately 100000 barrels of oil per day.
Turning to Guyana developments.
The prosperity F BSO with a production capacity of approximately 220000 gross barrels of oil per day arrived at the stable block on April 11th the.
The vessel is undergoing hookup and commissioning and is targeted to achieve first oil from pay our third development early in the fourth quarter.
Yellowtail, our fourth development is approximately 45% complete and remains on track for first oil in 2025.
250000 barrel of oil per day, one Guyana F. BSO Hull entered dry dock in Singapore on April 2nd.
Topside fabrication and installation activities F.
Have commenced and development drilling is underway.
Government and regulatory approvals are expected very soon for a fifth development at Wolverine.
At a gross production capacity of approximately 250000 barrels of oil per day finally for six development with tail. The partnership is on track for final submission of the field development plan to the government of Guyana. It later this year.
Now turning to exploration.
The Atlantic fish, one well located four miles southeast of the Fangtooth, one discovery encountered 92 feet of oil bearing sandstone reservoir.
This discovery further underpins the potential oil development in the greater Fangtooth area.
Drill stem tests and core analysis are underway at <unk>, one and further appraisal activity for Atlantic fish and thank to southeast are planned for later in the year.
In the second half of the year, we plan to drill the Bachelor one well, which is a deep prospect located approximately seven miles west of Fang teeth, one and another deep exploration prospect called Lantern fish located two miles southwest of Fang teeth one.
Moving to offshore Canada.
We expect to spud the BP operated emphasis one well in the northern orphan basin in May.
The well will target a very large submarine fan of tertiary H b.
<unk> is a 50% working interest in Hess and Chevron each have 25% interest.
In closing our execution continues to be strong the Bakken is on a steady growth trajectory, our Gulf of Mexico, and Southeast Asia assets have active drilling programs and we continue to advance our major projects and further delineate the enormous upside in Guyana, all of which position us to.
To deliver industry, leading performance and significant shareholder value for years to come I will now turn the call over to John Reilly.
Thanks, Greg in my remarks today, I will compare results from the first quarter of 2023 to the fourth quarter of 2022.
We had net income of $346 million in the first quarter of 2023, compared with $497 million in the fourth quarter of 2022.
Or $522 million on an adjusted basis, which excluded items affecting comparability of earnings.
Turning to E&P E&P net income was $405 million in the first quarter of 2023 compared with an adjusted net income of $565 million in the fourth quarter of 2022.
The changes in the after tax components of E&P earnings between the first quarter of 2023 and fourth quarter 2022 were as follows.
Lower sales volumes decreased earnings by $138 million.
Lower realized selling prices decreased earnings by $45 million lower cash costs and midstream tariffs increased earnings by $16 million lower exploration expenses increased earnings by $7 million for an overall decrease in first quarter earnings of $160 million.
For the first quarter, our E&P oil sales volumes were under lifted compared with production by approximately 325000 barrels which decreased our after tax income by approximately $15 million.
Now turning to midstream.
The midstream segment had net income of $61 million in the first quarter of 2023, compared with $64 million in the fourth quarter of 2020 to mid.
Midstream EBITDA before non controlling interests amounted to $238 million in the first quarter compared to $244 million in the previous quarter.
Turning to our financial position at March 31, excluding the midstream segment cash and cash equivalents were $2 1 billion total liquidity was $5 $4 billion, including available committed credit facilities and debt and finance lease obligations totaled $5 $6 billion.
In March we received net proceeds of $50 million from the sale of approximately 1.8 million has shown class b units to Hess midstream.
In the first quarter of 2023 net cash provided by operating activities before changes in working capital was $1 billion compared with $1 $3 billion in the fourth quarter of 2022, primarily due to lower sales volumes and realized selling prices.
Changes in operating assets and liabilities during the first quarter decreased cash flow from operating activities by $394 million, which includes premiums paid for hedging contracts.
E&P capital and exploratory expenditures were $765 million in the first quarter of 2023 compared to $818 million in the fourth quarter of 2022.
Now turning to guidance first for E&P.
Our E&P cash costs were $12 96 per barrel of oil equivalent in the first quarter of 2023, which was lower than our guidance of 14% to $14 50 per barrel of oil equivalent due to higher production and the deferral of workover spend to the second quarter.
We project E&P cash costs to be in the range of $15 50 to $16 per barrel of oil equivalent for the second quarter, reflecting planned maintenance activities at the Liza Unity, North Malay basin and several facilities in the Gulf of Mexico, and higher Workover spend in the Gulf of Mexico.
Full year cash cost guidance in the range of $13 50 to $14 50 per barrel of oil equivalent remains unchanged.
DD&A expense was $13 16 per barrel of oil equivalent in the first quarter of 2023 D.
DD&A expense is forecast to be in the range of $13 to $13 50 per barrel of oil equivalent for the second quarter and full year DD&A expense in the range of 13 to $14 per barrel of oil equivalent remains unchanged.
This results in projected total E&P unit operating costs to be in the range of $28 50 to $29 50 per barrel of oil equivalent for the second quarter and $26 50 to.
To $28 50 per barrel of oil equivalent for the full year 2023.
Exploration expenses, excluding dry hole costs are expected to be in the range of $40 million to $45 million in the second quarter.
And full year guidance of $160 million to $170 million remains unchanged.
Midstream tariff is projected to be in the range of $305 million to $315 million for the second quarter and full year guidance of $1 $230 million to $1.250 billion remains unchanged.
During the first quarter, we purchased W. T I put options for 80000 barrels of oil per day for 2023 with an average monthly floor price of $70 per barrel and Brent put options for 50000 barrels of oil per day for 2023, with an average monthly floor price of $75 per barrel.
We expect non cash option premium amortization, which will be reflected in our realized selling prices will be approximately $50 million for the second quarter and approximately $190 million for the full year 2023.
Our E&P capital and exploratory expenditures are expected to be approximately $975 million in the second quarter and full year guidance of approximately $3 7 billion remains unchanged.
For midstream, we anticipate net income attributable to Hess from the midstream segment to be in the range of $55 million to $60 million for the second quarter and full year guidance of $255 million to $265 million remains unchanged.
For corporate corporate expenses are estimated to be approximately $30 million for the second quarter and full year guidance of $120 million to $130 million remains unchanged interest expense is estimated to be in the range of $80 million to $85 million for the second quarter and full year guidance of 305 to 315 million.
<unk> remains unchanged.
This concludes my remarks, we'll be happy to answer any questions I will now turn the call over to the operator.
Thank you ladies and gentlemen, if you have a question. Please press star followed by one one on your phone questions will be taken in the order. They received please press star one went to begin one moment for our first question.
Okay.
Our first question comes from Ryan Todd with Piper Sandler Your line is open.
Okay. Thanks, sorry.
Sorry mute there.
No worries.
First off I guess, congratulations on very strong production in Guyana. This quarter can you talk about.
What you've seen on productive capacity in these first two developments both on the reservoir side. What you are seeing sub surface subsurface there as well as post debottleneck surface facility side, what should we expect these two facilities to sustainably produce going forward.
Yeah. Thanks, Ryan So first of all the wells have been performing extremely well above expectation so.
Surface going great continued to see.
Further upside in the subsurface as we kind of produce the wells and then as I mentioned in my opening remarks Exxon.
Exxonmobil and SPM or just doing an outstanding job of top sides reliability and also the.
The Debottlenecking side.
Recall that phase one was the bottleneck.
To the 140, it's actually producing between $1 40, and $1 50 sort of in that range.
And then if you look at phase two.
It has a nameplate of two 'twenty, it's on track to be Debottleneck Act towards $2 50.
By the end of the year, so again more upside.
Coming.
On phase two and it's been operating kind of $2 30, or so on a regular basis, but we will pick up that.
Up towards $2 50 by the year by the end of the year, so upside upside.
Awesome, Thanks, Greg and then maybe.
Just one on cost inflation and what you are saying it's it's.
Very topical across the space right now I mean can you can you talk about what youre seeing in the Bakken in onshore and.
And offshore as well in terms of kind of leading edge trends across.
Various silos of what what Youre seeing in service costs.
Sure Yeah, so in some areas such as the oil country tubular goods, where.
You're expecting some moderation in inflation coming onshore rigs pretty much staying flat.
But we're still seeing some pressure in certain areas, particularly labor.
Now specifically in the Bakken.
We anticipated year over year inflation of between 10% to 15% Thats about where its running.
However, remember we're mitigating about half of these impacts through the application of <unk>.
Strategic contracting lean manufacturing and technology so.
Our Bakken well guidance of $6 nine per well for the year remains unchanged. So if we look at the offshore.
Expecting year over year industry inflation, there between 15 and 20% now.
Now remember in Guyana. The first four episodes are contracted so they'll have limited exposure going forward and then in addition, Exxonmobil is just doing a fantastic job of mitigating kind of inflation effects through their outstanding execution and performance.
Using that design, one build many strategy, which is sort of like lean manufacturing in the offshore.
And then finally in our Gulf of Mexico operations, we contracted our services in 2022. So we missed some of the recent uptick so because of that our overall capital guidance of $3 7 billion remains unchanged this year.
Great. Thanks, Rick.
One moment for our next question.
Our next question comes from Doug Leggate with Bank of America. Your line is open.
Thanks, Good morning, everybody. Thanks for getting me on good morning.
James I Wonder if I could kick off with one on the somewhat rare event nowadays all dry hole in Guyana I know that's a.
A little bit flippant, but I'm curious as to where you think you are on the cleaning curve at this point. This was obviously a step heart carbonate you haven't really talked about it how many more of those do you think youre going to be pursuing I guess, so and in fact I can just do a quick add on to that when you talk about the 11 billion barrel.
What are we actually talking about is actually included in that versus the I guess north of 30 discoveries you have so far.
Yeah. Thanks, Doug So let me, let me take a co quarry first Rick.
Recall that was a that was a higher risk carbon at play that was located 37 miles from Liza one.
And it didn't encounter commercial hydrocarbons, but it did provide a lot of valuable data.
So that further improves our understanding.
Subsurface.
Going forward, Doug, we still continue to see multibillion barrels of upside that hasnt changed.
And finally in reference to your question. The 11 billion barrels the majority of that is in the upper campaigning and obviously with our exploration program. This year, we're really starting to understand the deep and what potential that that holds but across the block. This multi.
Billion barrels of additional upside remains unchanged, yes, we'll have a few dry holes as we test different things along the way, but theres still a lot more to play with.
So are we talking about two thirds of the wells at 11 billion barrels or the discoveries rather.
31 is my point, what's the.
What is not included.
What's not included in the 11 billion. So the recent discoveries that we've had are obviously not included in that.
Again, Doug it's mainly upper campaigning right. So as we get results that are lower.
The lower campaign in <unk>.
Obviously that will be incorporated but the multibillion barrels.
Additional upside encompasses the upper and the lower.
It's not just the lower it's there's still a lot of up upper campaigning to play for as well.
Alright, Thank you for that I'll I'll take the rest off line.
My follow up is just a housekeeping question maybe for John Reilly.
John you walked through the working capital moves I guess my question is when I look at the accretion math.
On Guyana, you know the NPV accretion with the potential buybacks.
Seems kind of obvious.
<unk>.
And your share price today, a lot of it is obviously not been reflected so I'm curious on what the strategy is for the buyback program.
Meaning is it work after working capital comfortable number that youre looking at or is that because that's obviously going to move around quarter to quarter.
Just how are you thinking about it because we were anticipating that you might have a little a little.
Quicker buyback pace this quarter.
Sure Doug So let me just back up and talk about our financial priorities that we have so the first priority is obviously to invest in these high return opportunities, obviously, driven by Guyana, and the Bakken because that's going to drive our free cash flow growth and as John said early.
In his comments that we can grow intrinsic value and cash returns and it's Guyana and Bakken that will allow us to do that our second priority is to maintain a strong balance sheet again, we're in a good position with that we want to also have a strong cash position and we do have $2.1 billion of cash on the balance sheet. So we're in a good place with that to <unk>.
Our high return projects.
So for US we have this capital return framework and we're going to follow that that we that we put out and so what we do is return up to 75% of our free cash flow on an annual basis. So that is after working capital that is after capital expenditures and even after that mature.
<unk>, which we don't have any this year, though we do have $300 million in 2024, and so the first thing that we'll do on that.
Return of capital framework is focused on the dividend as John mentioned in his opening remarks, we want to increase that dividend each year and we did do that in March. So we had that 17% increase that 25 cents per share increase and so that is going to be the first thing. So we did increase our returns to shareholders here in the first quarter with that <unk>.
Net increase than the remainder of that free cash flow of that 75% will be done in share repurchases and youre right. We agree with you about the.
Accretion that we'll be having with these <unk> and just to remind everybody with each F. P. S. O comes on like one where obviously we have pilot error here coming early this year that generates net to us $1 billion of cash flow. So again, you then pay our yellowtail wireless so we're getting that $1 billion kind of a year, adding to.
Our portfolio and so as we go forward more and more of our capital returns will be share repurchases and so buying our shares basically in advance of those as we get as <unk> comes on generates at $1 billion and gets in front of yellow tailing, while ROE obviously will be.
Be able to deliver significant value to shareholders. Just following this this framework that we have.
Okay, that's very clear thanks.
One moment for our next question.
Our next question comes from Neil Mehta with Goldman Sachs. Your line is open.
Yeah, good morning team and congrats on a super quarter.
John Thanks Neal.
First question for you about building downside resiliency in the business model, obviously, theres a lot of reasons to be constructive long term.
Near term is more uncertain from an economic perspective, and so just curious on how.
10 years with a lot of volatility have you built in.
Fences within the Hess business model I think you talked about one which is.
Which is the hedging strategy.
And then also improving the balance sheet.
Just any thoughts around that.
As we think about creating defense batteries.
We we are obviously focused and thank you for the question, we focused our portfolio on high return low cost of supply.
Opportunities, obviously, we think we have.
Built a highly differentiated value proposition and part of that is the low cost model you know the fact that over the next five years, we can get our breakeven at $50 Brent.
So the cash costs going down 25% as well.
I think that makes our portfolio very resilient in a low price environment.
John Reilly talked about capital discipline and also the priority on keeping a strong balance sheet and cash position our cash position at the end of the quarter was over $2 billion and we will continue to hedge.
By buying puts to protect the downside and still give our shareholders. The upside so I think relative to a lot of our competitors that are having cost pressures going up our costs are going down and we're going to keep a strong balance sheet to stay resilient through the cycle.
That's very clear that follow up is just on the Bakken can you talk about the trajectory that you anticipate over the course of the year and then when do you think we get the right talent and at what level.
Yeah. So we we exited Q Q1 in line with our forecast a little bit ahead of guidance, but it was in line with our forecast and we expect to see it build through the end of the year as we continue to steadily bring wells online.
Now it will provide.
Guidance for the Bakken as usual in our second quarter conference calls for the rest of the year.
But I think Neil just expect sort of a steady increase with a four rig program across 'twenty three 'twenty four we'll get to 200000 barrels a day.
In 2025, and then be able to hold that flat for almost a decade with the inventory that we have so steady increased 200 hold it flat for a decade I wanted to remind people that win win Bakken reaches that 200000.
Plateau, it'll generate about $1 billion of free cash flow, so steady cash flow generator for the company.
Thanks, guys.
One moment for our next question.
One moment for our next question.
Our next question comes from Paul Cheng with Scotiabank. Your line is open.
Hey, guys.
Good morning, Hi, good.
Good morning.
Two questions.
And just curious that I mean, John .
How important has mitch.
Midstream.
For the longer time off of the company I mean do we need.
Do you have the ownership over there, especially at that I mean, once you get them.
Bakken, you'll say at 200000 barrel per day, do we still need to have.
How did that shape all you can to ownership.
That's the first question.
Sure Paul.
We remain committed to maximizing the long term value of Hess midstream, Dave it's been a key strategic partner for us.
It's differentiated value to our E&P assets up there in the Bakken.
With us maintaining that operational and marketing control you said, we get provides takeaway optionality to high value markets also it's key to our gas capture and driving down flaring NRG HG emissions intensity. So I would say think about Hess midstream more of the same they've been doing there.
<unk> been executing.
Brilliantly really for us on on the ESG and also that just getting the E&P production to markets and then when you think about Hess midstream. It has a very strong credit position and it continues to generate free cash flow growth.
The Hess midstream they did outline that they have about $1 billion of financial flexibility through 2025 for capital allocation, which includes then the potential for incremental returns of capital like the recent $100 million transaction that.
<unk> did and so that $100 million is a small part of that $1 billion of financial flexibility. So Hess midstream has the potential to execute multiple buybacks basically each year through 2025. So I think you can think about it just more of the same that way Paul.
We are happy with the investment okay.
Okay.
Question I think this is for Greg.
Great.
I think thats been saying that Italians going to be 2025% oil.
And the kind of maybe a little bit.
Our window is that going to be in the first half second half or any kind of color you can provide and also Uh huh.
Exploration wells.
Appraisal well, but the exploration wells.
<unk> planned to drill between now and the.
The exploration.
Exploration basis.
Well, let me answer the exploration part for so.
Paul Remember, we've got multibillion barrels of upside the license expires in October of 2026.
We will take the next four to five years to fully understand that potential get it locked down. So I think you should think about three wells three exploration rigs a year pretty much going through 2026.
And we can drill usually about 10, or so exploration and appraisal wells a year, so think of that sort of a level of exploration prospects going forward again going after that.
Multibillion barrels of upside that we continue to see you.
Question on yellow tail.
Hello sales salaries.
That for the 10 well per year do you have a speed walk.
Meet that.
Exploration and appraisal.
No. We don't obviously, that's going to depend upon success right. So when we have an exploration success. We tend to then want to appraise that success, just like we're doing at Fang tooth.
Remember Fangtooth, one was 160 feet bank to southeast was 200 feet now Atlanta fish.
With 92 feet of pay.
Probably going to be a development. So we're going to want to appraise around that greater fangtooth area. So it's really going to depend upon success as we go forward.
What's great is yes.
Now regarding yellowtail look it's too early I mean yellowtail is running ahead of schedule right now.
Looking good but you know these are major projects. So I think just right now in 2025 is the right way to think about it and obviously as we get further down we will narrow the window.
On those dates.
Alright, thank you.
Our next question comes from Noel Parks with Tuohy Brothers. Your line is open.
Okay.
Hi, good morning.
Good morning.
I Wonder if I could get you to talk a little bit about your thinking on.
On hedging policy.
Late in the put.
So that's certainly interesting and.
You have of course big production ramp ups ahead.
New development coming online from Guyana, So I guess, just as you look ahead.
Over the years, we certainly have had periods of <unk>.
Backwardation in the curve I was just wondering if you may be just as Youre looking ahead to 2020 for what's on your radar radar screen.
But what's your balance.
Thinking about downside protection versus realizing upside and so on.
Okay.
Sure. So our philosophy on the hedging as we believe it has strategic importance just like you said from the downside protection, we view it as an insurance.
And so what we do with ensuring we buy the insurance and we use puts our strategy is to use puts to protect the full downside, but leave the upside for investors. So again, that's what we did this year and you see we have 130000 barrels a day. This year, we're very comfortable with that level, we had 150000 barrels a day lag.
Last year. So I think you can think about that let's just say approximate 150000 barrel a day level as we go forward and for your question like for 2020 for you can you can assume we'll put on insurance our hedges at that type of level as we move into 2024.
And with the put options the way we do do that is will look more to do that in the latter part of this year right because of the cost the time value of the money on the put option. So you typically would see us putting in on either towards the end of 2023 or early in 2024 like we did this year and again so.
We're trying to get obviously within our putting the insurance on trying to be as opportunistic as possible, but we will eventually get that hedge on because we want that downside protection really just as John has mentioned earlier.
Great. Thanks.
I wanted to turn to.
On the regulatory side, you mentioned that you're expecting government approval.
This year I'm, just wondering as you have.
Keep teeing up.
Each next development.
Is the approval process is it becoming pretty cut and dry it at this point from or even easier from one development to the next or I was wondering are there have you seen any shifts over time in terms of what the Guyana officials are scrutinizing sort of what their basis for approval.
For each project.
No.
Guyana government is a very rigorous and overseeing the government and regulatory approvals.
I think theres, a very good working relationship with Exxonmobil as operator, and the government itself.
I think the approval process is appropriate for.
For both sides and the fact of the matter is you know hopefully this week, we'll be getting approval on <unk>.
And I think that speaks volumes about the approval process. So now it's going on.
Appropriately.
In timing.
And also in depth of analysis by the government the government obviously has.
Their own priorities and the Exxonmobil as operator addresses those so I'd say the approval process.
Process continues to be.
One that's diligent and thoughtful for both sides.
Perfect. Thanks, a lot.
One moment for our next question.
Okay.
Our next question comes from Arun Jairam with Jpmorgan. Your line is open.
Yeah good morning.
Gregg maybe for you.
Good morning, John Greg I was wondering if you could give us kind of the path.
So first oil at <unk> I know the vessel landed in Guyana on April 11th and.
And just give us a sense of the activities you kind of required to hit that early.
<unk> startup and maybe a sense of what you have risk in terms of the guidance for.
<unk> barrels in your and your updated guidance for volumes.
Sorry, it turn.
Thanks, Irina So first oil from <unk> remember now has been brought forward.
So we were saying end of the fourth quarter to early fourth quarter now so we've already pulled it forward.
<unk> months.
In terms of what it has to be done and remember <unk> is more extensive than phase II. So it's got 30% more wells, it's got 80% more surf.
<unk> phase II and so it is expected to take a.
Bit longer to hookup and commissioning phase two is but things are well on track I think we've adequately risk things as well as the operator exxonmobil to confidently say at this point early first quarter.
Early fourth quarter of this year.
And what have you all included in terms of the updated guide for <unk>.
We have we haven't included anything yet so at the mid year, obviously as we get closer to that first oil date, we'll be updating our guidance.
Okay great.
Maybe just a follow up also in Guyana.
You've announced discoveries at Fang to think to south Eastern Lancetfish.
Greg have you all done a DST yet at <unk>.
Hang tooth and do you think theres enough resource between those three discoveries to under write a seventh boat or will you need some success at Basher and you mentioned I think lanternfish on today's call.
No I think think about the fangtooth areas as a big hub.
And as you as you mentioned.
We do have both drill stem tests and core analysis.
For Fangtooth, one and think to South east.
One is underway.
<unk> Southeast is planned for later in the year in terms of the DST.
And then we also are planning an appraisal well Atlantic fish.
So as you intimated when you add basher in and.
The other wells that we're going to drill lantern fish.
Obviously, there is there is potential for a hub there, but we really need that DST.
Data to figure out what the field development plan will be.
Great. Thanks, a lot.
One moment for our next question.
Our next question comes from Paul Cheng with Scotiabank. Your line is open.
Hey, thanks.
This is John Randy just a quick follow up.
We need to guidance. It looked like you guys have been booking some.
For the tax on that can you give us a trajectory that.
How that is going to shape up over the next several quarter or over the next several years I assume that at some point you would catch up maybe by 2026 27 and with it that that will be on the ballpark correct. Thank you.
So you're right we are booking deferred tax in Guyana, there Guyana has a 25% statutory rate. So we will be recording a 25% effective rate and it's just similar let me just say to like the U S where the tax rules for depreciation you can.
Amortized.
Fixed assets quicker for the tax basis, So you get a higher deduction for tax purposes versus book and so as a result of that your current cash tax rate is lower than the 25, and therefore, we book deferred taxes.
Paul just for guidance purposes, let's just say for the rest of this year.
Change, obviously as we continue to bring on more and more boats, but use a similar deferred tax level that you see in the first quarter for Guyana.
John how about that.
The next several years.
I don't want to go next several years because every year you know when we add the capital and it changes the depreciable base and Youre going over five years. So you get higher depreciation so it's difficult to provide that to you for the for the next couple of years. So we will we will try to guide you year by year as the boats come on.
Can we assume this way that as you scale, yes ramping up more projects.
Say, maybe two project at the same time go two or three projects and so your capex is rising so.
Are we going to see.
The deferred tax continues to be.
A person that acute that you're sort of stabilizing youll get investment.
Yes, yes, you can you can assume that.
Okay. Thank you.
Sure.
There are no further questions at this time. Thank you very much. This concludes today's conference. Thank you for your participation you may now disconnect and have a great day.
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