Q3 2023 Talos Energy Inc Earnings Call

Hello, and welcome to the Telus Energy's third quarter 'twenty twenty-three earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone. Please note. This event is being recorded I would like now to turn the conference over to Sergio My warm Chief Financial Officer, and Senior Vice President. Please go ahead.

Thank you operator, good morning, everyone and welcome to our third quarter 2023 earnings Conference call.

Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer, and Robin fielder Executive Vice President low carbon strategy and Chief Sustainability Officer.

Before we start I'd like to remind you that our remarks 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 our most recent annual report on Form 10-K, and our quarterly reports on Form 10-Q filed with the SEC.

Forward looking statements 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, GAAP and non-GAAP financial measures.

Reconciliation of GAAP to non-GAAP measures is included in yesterday's press release filed with the SEC and available on our website.

And now I'd like to turn the call over to Tim.

Thank you Sergio and welcome everyone to our call. We appreciate you listening in.

I plan to briefly cover some of the key operational highlights of the quarter and then turn it over to Sergio for final commentary ahead of Q&A.

During the third quarter, we were pleased with our advancements on several aspects of our business.

We continue to advance our lime rock and finished discoveries toward first production. We closed our previously announced zama transaction in Mexico with Grupo Carso, we reached a new milestone with our first EPA classics permit application and filed our second EPA classics permit application for two additional wells.

So quite a bit was accomplished since our last call and we are excited about the direction of our business.

On the drilling and completions capital program. We're in the process of completing the venison lime rock wells before bringing them online in early 2024.

Additionally, we are drilling another development well from our lobster platform, which if successful could bring your incremental production late in 2023 and help contribute to production growth in 2024.

Beyond our operated rig program. We're also participating in several interesting non operated projects with our partners in the basin.

Tomorrow, Lord well operated by Murphy found pay and was successful over this past weekend, we expect production to commence in the first quarter of 2024.

Job subsea pump project operated by Cosmos continues to progress and remains on track to be in service by mid 2024, Lastly to Claiborne number one well operated by Beacon is scheduled for a rig intervention in the fourth quarter of 2023 to reinstate production in early 2024.

The third quarter is typically a quarter impacted by weather related events, and even with a quiet hurricane season loop currents. Unfortunately impacted our production and drilling operations during the quarter, requiring intermittent shut ins of the HP, one and associated infrastructure and the Phoenix and tornado field.

The impact of these loop currents caused the deferral of approximately $2 4000 barrels of oil equivalent per day for the quarter and the Phoenix deal or 0.8 thousand barrels of oil equivalent per day for the full year of 2023.

The issue said since abated and production from the field is back online.

The Claiborne non operated well was also shut in during the quarter contributed to an additional $1 2000 barrels of oil equivalent per day of downtime in the quarter as we mentioned the operator hopes to reinstate production in the coming months. So we should expect this downtime in the fourth quarter as well.

Even with this downtime as Sergio will discuss the oil weighted nature of our assets allowed us to maintain extremely competitive margins and with several key wells being restored or added in the near term. We are looking forward to a strong exited 2023 and exciting start to 2024.

On the exploration front Tolleson Repsol signed a joint venture agreement to Reprocess seismic data over 400000 acres of which close to 100000 acres is controlled by tell us in a prolific area in deepwater Gulf of Mexico.

We hope to develop an inventory of prospects to drill over the next few years could be tied back to Alex's infrastructure.

This is an important development that we hope will generate significant value over time.

In Mexico, we are excited about our partnership with Grupo Carso that conglomerate publicly listed in Mexico.

In late September we closed a previously announced sale of a 49, 9% minority equity stake and our tell US Mexico subsidiary, which holds a 17, 4% working interest is up for approximately $75 million in cash at closing with an additional $50 million due upon first production for an aggregate price of $125 million deal.

Established a baseline valuation metallic Mexico of approximately $250 million, while preserving significant upside to Dallas This remaining 51%.

We expect house's strong operational track record combined with car says critical local presence and global commercial reputation will enable us to further advance zama towards FID and first oil.

We're working hard to progress towards <unk> following completion and final review of the engineering design work or feed securing project financing and final approvals.

We have always understood. The importance of this project has for local stakeholders in Mexico, and we are optimistic about the incremental value of this project will create for our shareholders.

Turning to our tell us low carbon solutions business. We are pleased that our first EPA classics permit application submitted in August for our harvest has been Ccs project, where <unk> owns a 60% interest received administrative completeness status in October.

This first step of the Epa's permitting process determined that the permit application contains all the required information. The next step is the technical review.

Also in October TLC S filed its second class six apricate permit application for two additional wells and it's harvested Ccs project <unk> aims to file additional classics permit applications in 2024 towards Bayou been Ccs harvest been Ccs and coastal Bend Ccs projects.

Our first tell us operated offshore stratigraphic well at Bayou Bend is expected to spud during the fourth quarter of 2023.

As previously announced the Bayou been partnership also expects to drill a chevron operator onshore stratigraphic well in the first half of 2024, we also welcomed Ecuador to the Biogen partnership following its purchase of a 25% interest from Harvard at transaction to further underwrites the quality of our carbon storage portfolio in southeast Texas.

Okay.

We are pleased with the news by the department of energy that they will invest up to $1 2 billion and a regional hydrogen hub in Texas with the investment expected to be matched by key partners.

This announcement outlines the benefits unique to the U S Gulf coast, and an unexpected and unprecedented growth in blue hydrogen production from the region, which will require a permanent C. O. Two sequestration Bayou Bend is in an advantaged position to help bring this secret this sequestration ambition to reality.

We are continuing to explore capital raise for TLC, Yes, we will continue to update the market as that process advances while that is ongoing we believe the operational execution in the carbon storage portfolio will help create long term value for shareholders and enhance the marketing process.

Lastly on the M&A front, we will 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 tactical business development bolt on opportunities and larger strategic transactions.

In summary, it was a busy quarter and we're pleased with the advancements we have made driving shareholder value creation in both our upstream and low carbon solutions businesses in.

In addition by focusing on operational execution, we successfully manage through the production and operation challenges associated with loop currents, while continuing to use the excess free cash flow plus the proceeds secured and a partial sale of Mexico to keep our balance sheet and a healthy position.

With these key updates in our 2023 plans and goals I will turn the call over to Sergio to address our financial details for the third quarter.

Yes.

Thank you, Tim and good morning again, everyone.

As a quick reminder, that our consolidated results include the results of our upstream and low carbon solutions businesses as further covered in our 10-Q filed yesterday.

Where appropriate I will highlight these impacts in these different businesses in my discussion of the financials.

During the quarter <unk> generated production of $63 7000 barrels of oil equivalent per day, which was 76% oil and 83% liquids.

This led to $383 million in revenue and $255 million in adjusted EBITDA in our upstream business alone.

That equates to an EBITDA netback margin of close to $45 per Boe.

Which we believe ranks very high amongst public E&P companies.

The company also reported net loss for the quarter of approximately $2 million or <unk> <unk> net loss per diluted share.

Our adjusted net income during the quarter was approximately $19 million or <unk> 15 cents adjusted net income per diluted share.

Capital expenditures, including plugging and abandonment and settle decommissioning obligations during the third quarter were $181 million in our upstream business.

We also invested about $14 million in our Ccs business, leading to a positive free cash flow generation of about $9 million in the quarter.

Additionally, we received approximately $75 million in cash from the Grupo Carso when we close the partial sale of <unk> Mexico in late September.

Capex in the third quarter, including spending on a few key items.

First we had ongoing operations related to completions installation and hook ups for Ventas and lime rock.

As laid out in our 10-Q this spending in the third quarter completed most of our book liabilities in this category and we do not expect the spending trend in future quarters.

Turning to our balance sheet at the end of the third quarter net debt stood at roughly $1 billion.

The drawn balance on our <unk> was $215 million on September 30th and liquidity remained very high at over $750 million.

As we mentioned before in September we closed on the partial sale of <unk>, Mexico and received approximately $75 million in cash and those proceeds were used to pay down the revolver.

The increased investment activity in 2023 continues to drive an increased working capital requirement in the business, which we expect to abate in the fourth quarter and into 2024, as we significantly slow our capital investment pace.

I'll address more of that slowing down in just a few minutes.

As of September 30th our leverage metrics stood at approximately one one times.

I also wanted to provide a high level overview of how we see the final months of the year progressing and how we're seeing 2024 shaping up.

As outlined in our earnings release, we expect production for the fourth quarter to be between 6% to six five and $68 5000 barrels of oil equivalent per day, which puts us within guidance range for the year, but towards the low end of our full year 2023 production guidance of 66 to 71.

One barrels of oil equivalent per day.

For the full year of 2023 cash operating and G&A expenses are tracking toward the lower half of the current range of $410 million and $430 million and 90 million to $95 million respectively.

Capex, including plug and abandon settle decommissioning obligations and Ccs investments are expected to be within our current guidance range.

Specifically, our upstream capex, including drilling and completions asset management and other spending is tracking at the low end of the guided range of $650 million to $675 million.

Our Ccs investments are projected to be at or below the low end of the current range of $70 million to $90 million due to timing shifts of spending into 2024.

As I mentioned in our last earnings call plugging and abandonment spending for the full year on our portfolios coming in higher.

It is now estimated to be between 120 million to $130 million, primarily driven by inflationary pressures in that market as well as additional third party decommissioning spending activity.

We expect this category will normalize some in 2024, but we will continue to fine tune those estimates over the next few months.

I'd also like to talk about how we're seeing 2024 starting to shape up.

It's too early to go into specifics, but philosophically, we see next year's capital investments substantially lower than 2023.

We continue to evaluate the right levels of Reinvestments into our business and we believe that taken our foot off the gas on the Capex side and taken a breather is likely the right path for tablets next year.

Despite this reduced investments, we still expect solid production growth next year, albeit with a tempered long term growth trajectory.

That allows us to increase near term optionality for shareholder return debt reduction as well as organic and inorganic growth opportunities.

When Wayne these options. We think this approach creates the most value for our shareholders.

Overall I am very excited about the trajectory of the business as we look to 2024.

Our credit position remains very strong and we are excited about new production early next year from Venice, and lime rock as well as attractive investment opportunities in both our upstream and Ccs businesses.

We believe the combination of attractive future investment a solid balance sheet and an ever present focus on M&A opportunities in line with our track record will deliver and accelerate long term value to <unk> shareholders.

With that operator, we'll open the line for Q&A.

We will now begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Okay.

The first question comes from Nate Pendleton from Stifel.

Please go ahead.

Good morning.

Can you.

Any.

Good morning can you provide any thoughts on the further delay of lease sale 261 announced last week, specifically, how this impacts the industry and your expectations for any resolution there.

Yes.

Look it's interesting it's we have part of the script and part of what we're talking about earlier is some progress from the department of energy on the Ccs side and it speaks to a little bit of a broader frustration. When you have I think a government the super supportive of one part of our industry and what we're doing to Decarbonize and less supportive on the traditional forms of our energy what we.

What we want and what we hope out of our regulators is theyre not picking winners and losers and so the frustration obviously on the offshore side of the house again, that's interior.

Is that it feels like they're doing that now again, the inflation reduction act an IRR a requires us having lease sales coinciding with entertain the same year timeframe is when sales and we know this government wants to have wind sales and we certainly.

We're supportive of that and then we so we fully expect to have these lease sales, but very frustrating to see.

This particular issue around the Rices whale in the idea that there is kind of the migration paths of the whales moves from the eastern Gulf of Mexico, which are typically found to the western Gulf of Mexico, and arbitrarily drawing a line across the basin and then pulling out leasing and so that's being fought by our trade groups is appropriate for them to do so.

We expect that to come back and we hope it will I think.

Further frustration is around the broad five year leasing plan, where traditionally that plan as always in place when the previous five year plan Rolls out. This one was delayed three years into the administration and then its been.

Reinstated with less lease sales in the traditional plant so.

Look I think energy policy is important I think it needs to be balanced I think we all see and applied some of the things happening on the low carbon side and I think we are equally frustrated at what feels punitive on the traditional side, but again part of that part of the inflation and reduction Act mandated. These lease sales were prepared to lease in the upcoming lease sale and kind of when it happens.

We just got to go through this process.

Got it thanks for the detail and on the partnership with Repsol can you provide any details about the earliest we could see any news from that reprocessing campaign and if there are other opportunities similar to to that one across your acreage yeah. It will look at and I'm glad you brought that up I can.

Go on long dialogues around federal government energy policy and not bring it back to where what do you do about it and what you do about it. These things are what we're doing with repsol and so what's interesting about that particular partnership.

Is <unk> coming to the table not just wanting to participate financially and have a working interest in these projects they want to actually participate in the geological interpretation of what's happening they want to bring their expertise to bear and join us and trying to map through all this acreage and we have a host facility in Neptune. This is a combination of invent acreage in telos acreage settle.

The way that we're trying to pull value out of a transaction in an acreage set that we didn't allocate value in when we bought the transaction. So all of those are very positive.

Look I think this is more longer term portfolio generation. These are types of prospects you see more in kind of the 2025 range and beyond.

But it's absolutely the type of work that you need to do to make sure you're building inventory in the Gulf of Mexico, and when you have a built in partner that's got that level of technical expertise that's great.

Second part of your question, which is are there more to do yes, I think there's two types of JV. How do you find partners with the acreage you have and again when we closed and then we were almost up to $1 5 million gross acres and then how do you pull acreage from other parties that also want to say look I've got an acreage position you have an acreage position, let's pull that together.

And then let's try to build inventory out of our pooled acreage and we're working some of those as well and hopefully those will come to fruition in the coming months. So two ways to play it when you. When you are trying to manage upcoming leasing or a lack of leasing but you have a large acreage position everybody else's as it has.

Kind of similar challenges and opportunities how do you find built in partners and how do you pull acreage and we're trying to do both and our business development activities.

Hi, Thanks for taking my questions.

Got it.

The next question comes from Michael <unk> from Stephens.

Please go ahead.

Yes, good morning, everybody I wanted to investigate your decision to slow down here a bit you were talking.

At one point about high single digit.

Production growth for a three year plan, you said, you're tempering that a bit but you still expect growth so I want to see it.

Or what's your thinking there.

Low single digit growth and maybe any indication on what the lower activity might lead to relative to.

Oh, what youre doing this year in terms of spending.

Yeah, Let me let me give you some initial thoughts on that Michael Sergio can follow up with any any of his thoughts look this year.

Really spent a lot of effort when you think about something like the nissen lime rock.

We discovered that less than 12 months ago, so installing all of that infrastructure doing that inside a year, it's been fantastic, but it's also a material amount of capital where you don't see any revenue and production generation out of that for a subsequent 12 months and so I think we've had a rig on contract for.

For the better part of the last 15 months that we'll start to roll off when we wrap up this work with Venice, and lime rock and I think we want to see 2024 to be a material cash flow generation year, and we think the first thing the first step in that is as we bring this new production on.

Kind of take our foot off the gas have a breather from a rig perspective, particularly in the first half of the year and then as we kind of think about the second half of the year right now list kind of reinstate some of our operated drilling kind of opportunities. You also have a rig market is tightening and I do think is as we think about that.

If we look at one reason, we've always kind of been a survivor in this basin and someone who has grown and thrived in this basin as you look at those in the past who didn't make it and sometimes it's because they didn't hedge sometimes just because they took on too big of a working interest in our projects. Sometimes they just took on a bad rig contract over a long period of time and the commodity turnaround. So we haven't wanted to.

Walk into a two or a long term rig contracted these inflated prices and so we might have to work with where theres rig opportunities in rig openings and so between wanting to take a breather. After a long dated rig contracts rolling off getting new production online, taking our time and thinking about what's the right way to play the rig market when it's.

I think that just speaks to coming off the capital program substantially year over year, and making sure we're really spending our effort to generating free cash flow.

Which we can use to pay down debt ahead of potential refinancings. So all sorts of ways to think about it look as we wrap that up and those thoughts with the board in the coming months and kind of rollout guidance for next year, we will think about how that impacts kind of broader production growth just on an absolute basis, but I think it's really around free cash.

Cash flow generation in the near term.

Got it okay.

And I guess.

On your production realized.

Fourth quarter is impacted by.

Non operated well just wanted to.

And get some more color on that if could.

Is that intervention.

The operators talking about there is that something thats fairly routine or do you see that as yes.

Seeing some risk.

Could affect that will come back online in the first quarter of 2004.

No look it's fairly routine I mean, you have these big wells in these big completions and from time to time, you might have something happen downhole that requires you to repair a sidetrack.

Obviously, a little different because you've got a recycled that planning if that happened in shallow water if that happened in onshore you can get on that pretty quick it's pretty easy to move around resources and do that when you do it a deepwater it's just a different planning exercise. It takes more time <unk> got to figure out how that typically fits in an intervention vessel or the rig youre using.

So it's just a different dynamic, but the idea that hey look we've got to we've got a large resource base and we want to either repair well or sidetrack, well look that happens I think in everyone's portfolio through the course of the year and so.

I think we're fully confident that comes back online but.

You know my part of the guide onto fourth quarter, and we could have we probably should have been a little more specific about this was when we looked at bringing on Venice and lime rock in the first quarter. There is downtime related to ramp up to get those wells online, we're trying to accelerate that or actually.

Seeing if theres a possibility we can sneak a little bit of that into the last parts of this year, which then pushes that downtime into this quarter. So there's a little bit of certainly a non op well that we want to get back online. There is 121 3000 barrels a day net to our interest on a full quarter run rate. There and then there is some downtime related to ramp how.

That if we can push that really early into 2024 are pushed at production sneak a little bit into the exit rate that downtime shifts into the fourth quarter.

Okay. That's helpful and I wanted to just ask one last one on zama.

Do you stand with the feed work there now and I know that at one point you were debating between the peso and fixed platform, whereas the.

How does that look at this point.

Yeah look it is an active discussion I mean I think.

Part of the challenge in this has been time was loss and it's unfortunate in.

The struggles around the initial formation of the unit our views on that obviously fairly well documented frustration that we were giving up operator ship and then how do we kind of claw that back into the partnership to wear.

We can we can build we can build an integrated project team and again, we've talked about that keep in mind.

When we are operator, we had a different development plan that Pemex was proposing when they took over operator ship and then we had to come up with a blend of that ultimately the government reviewed that.

And they approved the new blended plan, but there is some engineering details that underneath that we had to start over with and so part.

Part of the part of the pulling in the full unit and going through the process.

Ultimately led to changes in the design and some of that has to be kind of brought through the feed and then now now it has to be thought through as we think about.

Total capital and financing so.

Some time was lost there frustrated around that happy though that we're back on track happy to have car. So in I think we're probably in a better place with that asset and what that partnership than we've ever been.

Certainly some of the debates and some of the frustration is behind us and so now it's really more about a key focus on what do we need to wrap up so still a little work. There look next year is an important year for that asset. It's been certainly been long enough. It's time to kind of get that thing to have.

It's time to get the ball moving on that it's important to a lot of stakeholders to support to our shareholders. We're glad we've been able to monetize and realize some value, but we've we've got some work to do to get that kind of in the right spot and then again I think we're in a better place with that asset than we've been over the last couple of years.

Okay, great. Thanks, Tim.

Thanks, Mike.

The next question comes from Sebastian <unk> from the Benchmark Company. Please go ahead.

Hey, Good morning, Tim just curious as you have these.

<unk> events these wells plus of course.

<unk>.

What are you sort of anticipate as a base level of production one that.

Mike.

Not be subject to downtime.

Some of the <unk> hurricane effects et cetera, but it's sort of a number that you might bounce around office.

Well.

<unk>, thanks for calling.

It's difficult to.

I always find that perfect run rate in the Gulf of Mexico, I've always kind of said in the past.

It's a basin, where just by the nature of and we entered into last kind of question a little bit you have something that when you have downtime the ability to bring that back online isn't as quick as you see with some of the onshore operations or even back 20 years ago.

Kind of the predominant around of our portfolio is in shallow water. So it's a little bit.

That answered obviously.

Second quarter was a cleaner quarter, we were in the low seventies there.

Good weather and typically a little cleaner.

We know what a clean quarter looks like I think we know what projects. We're trying to add on and then you kind of have these downtime so sometimes that downtime can be.

Two 3% in the quarter, sometimes it can be 10% in the quarter. The third quarter is always tricky.

And what we're learning is loop currents were generally around El Nino or.

That's now going to be forecasted into weather related downtime and so.

I think the second quarter was relatively clean quarter. It's a good way to anchor things and then you have kind of what's the decline and then how do you stack on from there.

And again, we have some things we're stacking on in the near term more than just Venice and lime rock. The reason, we put in some of those non ops, although smaller impact smaller working interest, but we have three or four different operators out there actively in these activities. We had a nice little development well work over the weekend that also stack on into 'twenty, four which is another reason why we think we should focus on free cash.

Regeneration and don't feel compelled to have to go at the pace, we've been going at for the last two quarters in the first half of next year.

But I think second quarter was a good place to start and then <unk>. It's really what are we adding on in the next whatever call. It three or four months, but as we look out in the total year as we pull capex down next year. It may change, how we think about the full year outlook, but we got to really wrap up that that program.

Right.

So.

The I guess the outlook for substantially lower capex.

Is that a sort of an upstream comment that might be partly offset by a ccs.

Or is that a.

In enterprise comment.

I think more look at it more of an enterprise comment I mean look I think this year as we last year in 2022, we generated significant amount of free cash flow pay down our debt at close to $45 a share something of that nature. This year, we knew we weren't going to generate as much as we really focus the capital program on putting some things online.

And then we saw a little bit of a bubble and PNA with some non op related stuff kind.

Kind of associated with some bankruptcies and so when.

When you have a year, which I think we've done a pretty good job managing expenses in a pretty good job managing capital and you know so I want to make sure I make that point, but when you have a year, where you are not generating as much free cash flow you want to see yourself go back to that and so thats the focus and I think thats the focus somewhat mutually exclusive in Ccs Robin and her team and we're happy to take questions around that are executing that and Theres a processor.

Around monetizing and bringing some value forward on that business as well.

I would call those separate I think I think broadly from an enterprise perspective.

Do we make sure the upstream business is generating the right levels of free cash flow knowing that this was a year, where we're going to really accelerate capital into some development. We don't have to do that next year, you've got a rising rig market. How do we want to manage all that and make sure that we're putting our shareholders in a place where we can be opportunistic as we were in some moments this year on buybacks and things of that nature.

Hey, Tim just one final one if I can.

Number one question out there onshore is M&A.

We'd like to give you an opportunity as well our A&D.

To comment what the offshore outlook Luxor.

I mean look we get it we understand how people are thinking about it.

It starts with that free cash flow generation comment I mean, we want to have a business to generate material amounts of free cash flow. We want as we grow that business to have as we add assets to be accretive to that goal.

We want to scale and size is going to deliver capital back to shareholders. I mean, I think we all as executives understand what the model is an M&A ultimately fits into that model. If he can add the appropriate types of scale and diversity to our skill set is conventional geology. Its offshore operations. Its full lifecycle <unk> step back from that and you think about our basin we think.

Our basin is filled with sellers ultimately they may not be sellers into next six months, but the majors may not want to own some of their assets across the lifecycle. They may want to decarbonize. They may not be reinvesting at the rates. They did 10 years ago and so we actually think the Gulf is a is a great rollout play and they've got to have a trusted counterparty and we think we've passed that test. These guys are partners with us in our.

Our wells, we just can't predict when that's going to be we've talked about looking outside the Gulf of Mexico, because again I think there's other companies thinking about this the same way we are and so I would say when you look at our our skill set and you look at where we can transfer that skill set I think it's in a pretty broad and diverse set of opportunities that are sustainable over the long run.

One versus being in one unconventional play where you can see the ceiling of what's available for you to roll up so I'm bullish long term on how we think about M&A relative to our strategy and relative to our skill set from quarter to quarter and year to year, you just can't predict exactly how that's going to go.

Okay.

Our next question comes from Jeff Robertson from Water Tower Research. Please go ahead.

Thanks, Good morning, Tim a follow up question on the Repsol joint venture I think Pallas is contributing 90 about 97000 acres to the 400000 acre.

Joint ventures as Repsol contributing acreage is in <unk> in the area you all identified prospects Youll go and try to get the acreage is can you talk about the mechanics of that.

Alright, it's combination of of really more and more our acreage and more of an Ami concept. That's exactly right. That's how you should think about it. So we put a big halo around where our acreage is and where our key facilities are and we say look amongst this area, let's go out and think about generating.

Generating inside that acreage set and then let's think about finding new opportunities around that broader ami's. So it's a simple concept.

I believe I should double check they are contributing acreage, but really it's we have close to 100000 acres, we put a halo around that and part of that.

Commensurate with how you think about reprocessing seismic data. So you got the appropriate coverage from just from a from an imaging perspective, and then how do we want to kind of develop inventory around that entire kind of area of mutual interest or am I for those that are familiar with the concept. So.

That's our that's how this comes together Jeff.

With respect to M&A are you seeing things or do you not.

Certainly seeing things today, but with some of the consolidation.

This is taking place in the industry do you think that opportunities will present themselves in the Gulf of Mexico.

That <unk> wants to have the strongest balance sheet possible to just have options yes.

Yes for sure I mean look I mean part of wanting to make sure that we keep the leverage debt where it needs to be we try to have the appropriate levels of liquidity I think even next year I think once the first use of proceeds on free cash flow is going to make sure we pay down debt.

And then we can think of all the other capital allocation ideas of reinvesting in the business, having liquidity available for M&A, even look at some of these combinations, they're speaking to her directly and so we don't know where that plays out.

For example, chevron and hedges that fascinating combination of them on the Hess alumni.

I think they certainly.

The Gulf of Mexico, as a core area for Chevron, but ultimately what is the right asset mix for a company like Chevron for a company like Exxon you.

You don't know the answer to that but you do know that if and when they might want to think about M&A, particularly on the asset side. They are probably going to want cash and theyre going to need a counterparty that they trust in what we have to do is be available to pass that test. While we look at other M&A idea that might M&A ideas that might have more flexibility on sources and uses so.

We're thinking about it look we certainly understand why you see the current trends, we're not rushing into anything but we have to be prepared.

To be thoughtful on how we build out the firm and get to where we have a platform that's got more scale and diversity and ultimately these two it is shareholder return model that's sustainable.

And then a question on the Ccs business does Ecuador add anything that.

That project more marketable to potential anchor customers and can you just or maybe Robin could you just provide an update on.

We're a commercial discussions are with with potential emitters.

Let me, yes look I'm going to hand over to Robin I think real quick on on the conversation around <unk> and then Robin will take it and provide her thoughts when we set this up I think the initial idea was setting it up in a way that it attracted the strategics if you will not too different than what we just did.

And acreage we can put together an extra position, but we're not going to go drill that $100 million sub salt well, we wanted a strategic involved in that with us to share that risk with us and so chevron came and now we're gonna what came in so it's great to have the strategics, there and Robert can talk about the benefits. They bring when we think about conversations with the mirrors execution, yes.

Both partners have projects that are ongoing around the world I mean, <unk> is one of the pioneers in Tcs there in the North Sea is certainly bringing that.

Long term experience and expertise to the project and is it really great and encouraging thing.

Both of our large partners to have the ability to go and invest in some of these other commodities as well. So I think that's exciting the announcement I E.

Department of energy.

He is a high velocity, which is surround.

These taxes in southwest, Louisiana region is very encouraging as we think about.

The counterparties here the customers what that grant we will do is basically providing that integrated hydrogen ecosystem, where we've got more investment coming into not just.

Green hydrogen, but also being able to retrofit existing great hydrogen facility.

An encouraging additional investment in new blue hydrogen facilities.

Cit's after is actually designed on the front end.

And so we're having discussions with folks.

Both categories as we're thinking about brownfield facilities being able to address their <unk> and some new Greenfield investment.

And so does that those conversations are ongoing and we've got quite a few of those.

Very excited about continuing to advance.

That project and as we mentioned in our release still expecting to get drilled that first stratigraphic well later this year and the offshore portion which will help.

Supplement our first permit for that project hopefully sometime in 2024.

Thanks.

Timber Robyn how long does it take to gather the data once you drill the strat well to.

That you need to put in our permit application.

Some of that data will be captured on site will be logging the well itself and collecting from core data will take some of that core that.

Participating in the Ccs consortium that core lab pad.

There'll be reviewing some of that that we will get some of that data in real time as we are on the location and again, it's more supplementary Q E filing.

We already have the seismic coverage, we've got a model built back.

That was part of our initial bid on that offshore General land office lease back in 2021, and we've got a great data set out there. This is more confirmatory into really help supplement that application process as it goes into EPA and then hopefully eventually the Texas Railroad Commission at the state and Chief Pharmacy.

On the road.

The next question comes from Noel Parks from Tuohy Brothers. Please go ahead.

Hi, good morning.

Good morning, good morning.

So just a couple of things.

One thing I was.

Thinking about it is Jeff.

The tie backs.

You have so attractive from a capital efficiency standpoint.

I Wonder if you just for looking at planning over the next few years.

What sort of inflation have you baked in our assumed as you as you look at some of your prospects I Wonder if you.

Even my marketing Venice, where they pretty much set in motion contracted before.

The impact of the most recent inflation or are the examples of something else with it.

That might also be burdened by them.

No I think look a lot of it's largely driven by rig in the ancillary services around those rigs you need to rigs to drill them you need to rigs.

Obviously to complete them and then somebody ancillary services around vessels related to subsea projects.

And things of that nature, and look theres, a theres demand around global subsea infrastructure installation youre seeing it in areas like Guyana Youre seeing it in areas like West Africa. So we certainly have to adapt to the market I do think.

These these time frames are typically when you think of these projects youre thinking about them in somewhere.

Somewhere between 18 months Windows 24 month Windows, now again, Venice, and lime rock, we accelerated we did that because and we had long leads and so once those are secured youre not thinking about the inflation of tubular and things of that nature. So I do think one of the reasons, we want to be thoughtful around the next round and when we have an inventory that's got some quicker hookups from development.

And then some broader exploitation and exploration you've got to adjust to where that's going and I think for us to say hey look while we've been working really hard this year and had rigs on contract for the last 15 to 18 months, let's just step right into.

Where the rig market is going I think our idea is hey look lets take a pause in the first half of the year theres going to be some activity, but not as much operated activity and then let's think about.

Where this rig market is going and how do we play in it and I don't think we play in it by being afraid of slowing down and feeling like we have to speed up and then we have to go take a contract over multiple multiple years at a rate we haven't seen in the last 10 years, that's not probably the right responsible risk management decision for a company our size. So we do think.

That inflation, we think about where we're going to spud something in 'twenty, five where do we think the market is going to be in 'twenty five.

And so we do that from a planning perspective, sometimes you want to see look if we take our foot off the gas and maybe others is that does that create maybe a flattening of that market, but there is a little why don't we wait and see and if by waiting and seeing we got to grab some windows instead of grabbing two year contracts and we grab some windows.

Alright, well, thanks, I hadn't even been thinking of.

Of.

Sort of cooling next year of your spending.

Around uncertainty and the service environment, but.

As you said, it's like it seems like we're clearly entering one of the most uncertain environments. We've seen in a while because we have this huge run up.

And then now sort of unprecedented interest rate environment.

Shift.

With US now looking ahead and with.

With China and everything.

Some pretty serious concern about maybe now as long as the recession hit so yeah all of those combined certainly.

Certainly makes sense.

I think maybe you or maybe even ahead of some of the club.

Some other players in the industry with that thinking.

Well I mean look I think it's just more what are the things what are the risks that you need to manage again we're.

We're not a large cap we don't have 250000 barrels equivalent a day, we don't that's what we aspire to become ultimately, but we are where we are we're a company that was founded.

10 years ago.

As we built these things in the Gulf of Mexico, We know where that risk management needs to look like you needed to have appropriate hedges, we've layered on some in the fourth quarter. When we had a run up in prices and we still have a constructive price environment, but you need to protect yourself from a commodity perspective, you need to protect yourself.

From a capital allocation perspective in a contract risk perspective, and dose that haven't in the past have been made it and we've seen that and thats not an offshore phenomenon. That's in onshore and offshore phenomenon. We've talked in the past I think there has been over 300 bankruptcies in the last decade. Since we started this company. So we think about that risk management, a lot and again I don't I think we have to be.

Mindful of where the market is and if that changes a little bit of the trajectory of production growth ultimately brings down capex, but still generates meaningful cash flow. That's the right risk management strategy. If you do have a little bit of uncertainty on what the fed is doing and things of that nature, but I think generally we are constructive around the commodity I think this is just what's appropriate.

Management.

Alright, well, thanks, a lot for the perspective.

Yes, you got it.

The next question comes from Kyle May from Sidoti <unk> Company. Please go ahead.

Hey, good morning, everyone.

Good morning, a couple of questions around.

A couple of questions around the Ccs business for timber Robin you mentioned, the first class six permitted to harvest ban reached administrative completeness can you give us an update on the overall expected timeline for a class six permit now and then what are the next steps for harvest Ben.

Yeah sure I appreciate the question.

So yes, we filed our first application that harvest and in October we were seeing that administrative completeness and so now it's entering withheld technical review.

So we think that can that can last probably the next 12 or so months as they go through the details of that first permit.

Did receive some early comments back on that first format that we were able to incorporate some of that feedback into our second permit which is for an additional two wells and we now have three well sitting with EPA.

But also keeping in mind, we coast admitted that through the Louisiana Department of natural resources can play as well so all set up and hopefully as the state achieve pharmacy sometime next year.

After a very smooth transition over to that regulatory agency again.

The classes of primacy is you've got a state that knows their geology, very well lots of resources.

And we've seen demonstrated and the two states that have at the speed of that turnaround to really increase North Dakota has actually a Ccs project that just started up this past week after our permit made it through in less than six months. So we're very encouraged that when the states takeover, we can get these onto a more timely.

Timeline, but regardless, even if it's two or three years to process through EPA it fits within our overall project timeline.

Got it got it and then if I you Bend your planning to spud another plenty of spud the first well in the fourth quarter.

What's the estimated cost for a well now and how long do you think thats going to take.

Yes, there will be starting that first stratigraphic test. While this is a data acquisition, while where we're going to be doing pretty extensive logging and core collection.

To help calibrate our model that really supplement that first application that will go to EPA and also eventually into the Railroad Commission.

And we'll take a similar approach there keeping both agents.

In the loop.

As far as the cost there I mean, it's just it's going to depend for that one being offshore obviously theres a little bit more costly to get a jackup rig to go drill that that's what we're waiting on right now as the rig is still with another operator.

As you disease onshore.

Fairly straightforward well bores, we're talking of vertical wellbore from the range of six to 8000 feet and so nothing nothing very sophisticated and that's the main cost difference will be if we decide for these wells to become keeper wells, where we're going to re utilize that level or for either monitoring an injector.

If we do that we'll run a corrosive resistant pipe and then sections or if it's just a pure data acquisition, while you can Jim.

Sustained while N DNA that would be much less costly.

So it will it will really depend on where we're at and what that is and as far as the overall.

Investment in the Ccs projects and drilling of the wells is one of the smaller pieces.

Okay, great. Thanks Robyn.

Okay.

This concludes our question and answer session I would like now to turn the conference back over to Tim Duncan for any closing remarks.

Thanks, and thanks for joining the call everybody I think one of the themes of this quarters is obviously third quarter is always a noisy quarter with respect to potential downtime related whether we saw that we're trying to have a strong exit we're pulling as much value for it as we can we're trying to get some wells online we're trying to pull value forward in our <unk> business, we pull value forward in our in our Mexican asked.

And so I think it's been a year of.

Really trying to do the blocking and tackling that is going to take to create long term value and so you talked about next year next year I think we're going to focus our attention on materially more free cash flow generation. This year is we've had what I would call a moving year. So.

I think we're happy with where the businesses. There's a lot of work to do there is a lot of things to get online a lot of more value to pull forward, but I think we're trying to do the right things and as we think about joint venture structuring on building long term long term inventory development as we think about the initiatives again to pull value forward on these catalysts I think the team is doing the things that needs to be is going to generate value.

And we're looking forward to kind of a strong exit and a robust start to 2024 and being in touch with the investor community on how that's going so thanks for joining the call.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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