Q4 2023 Kosmos Energy Ltd Earnings Call
Good day, everyone welcome to Kosmos Energy's fourth quarter and full year 2023 conference call. As a reminder, today's call is being recorded at this time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Kosmos energy.
Jamie Buckland: Thank you operator, and thanks to everyone for joining us today.
Jamie Buckland: Morning, we issued our fourth quarter and full year 2023 earnings release.
Jamie Buckland: Release, and the slide presentation to accompany today's call.
Jamie Buckland: The bolt on the investors page of our website.
Jamie Buckland: Joining me on the call today three of the materials are Andy angles, Chairman and C U E.
Neil Mehta: Neil Shah Yeah.
Neil Mehta: During today's presentation, we will make forward looking statements.
Neil Mehta: That's why our estimates plans and expectations.
Neil Mehta: Full results and outcomes could differ materially.
Neil Mehta: Factors that we note in this presentation and in our UK and SEC filings.
Neil Mehta: Please refer to our annual report stock exchange announcement and SEC filings for more details. These documents are available on our website.
Speaker Change: At this time I will turn the call language one day.
Speaker Change: Thanks, Jamie and good morning, and afternoon to everyone. Thank you for joining us today for our fourth quarter and full year results cool.
Speaker Change: I'd like to begin today's call talking about our purpose as a company, which defines on strategy and the characteristics that make cosmos unique.
Speaker Change: Well, then provide an update on our operational and financial progress in 2023 before looking forward to a catalyst rich year ahead.
Speaker Change: Starting on slide three.
Speaker Change: It Cosmos I'll purpose is clear.
Speaker Change: Our leading deepwater independent E&P company focused on meeting the world's growing demand for cleaner energy.
Speaker Change: With oil production from our low cost lower carbon all assets in Ghana, The U S Gulf of Mexico, and extra Allegheny, we are providing the world with the energy it needs today.
Speaker Change: At the same time, we're developing cleaner sources of energy for the future two world scale gas projects offshore Mauritania and Senegal.
Speaker Change: And finally, as we deliver the energy the world needs, we strive to be a force for good in the countries, we operate in accelerating economic and social progress across a host nations.
Speaker Change: We do this through growing production, which leads to increased revenues and royalties for the countries.
Speaker Change: We are also providing natural gas for domestic use and power generation enhancing access to more affordable and more reliable electricity, while also investing in and pulled in social programs in all countries of operation.
Speaker Change: Turning to slide four.
Speaker Change: Cosmos has a unique investment case with a world class portfolio differentiated growth and the right assets and strong free cash flow outlook.
Speaker Change: Taking those three instead.
Speaker Change: First we have a diversified portfolio of world class assets.
Speaker Change: This portfolio is comprised of the balance sheet as oil assets today counts rise by production with low cost and top quartile carbon intensity.
Speaker Change: Alongside our al assets, we're building out our advantaged gas position, which will lower the overall intensity of the products we sell.
Speaker Change: Importantly, the portfolio has longevity with the two P reserves to production ratio of over 20 years with a deep hopper of discovered resource. They can further extend the reserve life.
Speaker Change: Second we have meaningful growth.
Speaker Change: We are targeting production rising to around 90000 barrels of oil equivalent per day by the end of the AR in line with our 50% growth target in the second half of 2022.
Speaker Change: As part of that targeted gross gas is anticipated to increase from around 10% of our overall production to around 25% over that period.
Speaker Change: Beyond that we have a hopper of value accretive growth opportunities such as Tiberius, Yes, your anger and at King D that support future growth.
Speaker Change: Be it at a more measured rate as we look to prioritize free cash flow and debt reduction.
And finally, we expect to see significant improvement in free cash flow as we move out of the current development phase with Capex expected to fall with the startup of both wind style and told you this year.
Speaker Change: We those projects online, we forecast quarterly free cash flow of around $100 million to $150 million at mid cycle oil prices.
Speaker Change: We plan to prioritize the use of our future free cash flow towards debt pay down until we achieve our leverage target after which we will consider shareholder returns.
Speaker Change: Turning to slide five which looks at the first of the three Castro sticks that made cosmos unique quality of our portfolio.
Speaker Change: We have a diverse portfolio of exploration development and production assets across five countries in the Atlantic basin balanced between short cycle oil and longer dated gas opportunities.
Speaker Change: The chart on the top variety of the slide breaks out our reserves base.
Speaker Change: One P reserves of around 280 million barrels of oil equivalent provides a one P reserves to production ratio of around 12 years weighted more towards oil.
Speaker Change: The quality of the portfolio is highlighted by the warranty reserve replacement ratio in 2023 have over 100%, which reflects the strong reserve additions of Jubilee, because we drove broad Jubilee South east on the Street.
Speaker Change: On a two P basis, we have our reserves to production ratio of over 20 years, which is slightly more to gas and oil demonstrating the direction of travel over the coming years with gas set to play a growing role in the outlook for the company.
Speaker Change: The chart on the bottom right of the slide shows the importance of the diversity in the asset base with all business units, playing an important role in the delivery of the company's future.
Speaker Change: So you see resource base, which includes some contribution from me I can try and get as well as upside in Jubilee and Winterfell gives the company to see reserves to production ratio of over 30 years with additional discovered resource beyond that such as Tiberius expects you to extend the production life.
Speaker Change: Turning to slide six which looks at our growth this year and beyond in more detail.
Speaker Change: The chart at the top shows the progress, we're making towards our 50% production growth target.
Speaker Change: <unk> ramp up is already contributing a meaningful staff up following the Jubilee southeast startup last summer.
Speaker Change: This ramp up is planning to continue with five additional wells expected online at Jubilee and the first half of this year.
Speaker Change: First of all the wins Val is expected early next quarter, an important milestone for our Gulf of Mexico business.
Speaker Change: After that we're looking forward to the startup of Torchy, which is expected to take companies production to about 90000 barrels of oil equivalent a day.
Speaker Change: On the bottom half of the slide is our opportunity set beyond 2024, we have a balance of high quality short cycle oil opportunities, such as Tiberius and longer dated gas and LNG opportunities like jackets or anger until she phase two.
Speaker Change: Turning to slide seven.
Speaker Change: As we deliver on our current phase of development projects and then pursue selected investment opportunities, we expect more measured growth in our free cash flow profile to improve significantly.
Speaker Change: With the targeted 50% increase in production by year end 2024 as measured against the first half of 2022, we expect our free cash flow to grow materially at mid cycle oil prices.
Speaker Change: As these projects deliver capex is expected to fall sharply.
Speaker Change: We've told you in Winterfell online, we expect annual Capex to return to a more steady state number in 2025 and beyond of around $550 million, including maintenance and some further growth.
Speaker Change: Withdrawing production and falling Capex, we're reaching an important inflection point with quarterly free cash flow are expected to be in the hundreds of $150 million range. Once the current phase of development is still at it.
Speaker Change: Turning to slide eight.
Speaker Change: Supporting our strategic and operational progress is our continued focus on our ESG activities.
Speaker Change: Supply in the energy the world needs today, and meeting growing future demand must be done in a responsible way that not only provides affordable and reliable energy, but also provide sustainable growth and benefits to our host countries.
Speaker Change: I'm proud of our progress in 2023.
Speaker Change: Starting with environment, we continue to maintain carbon neutrality for our operated scope one and two emissions in.
Speaker Change: In 2023, we announced a new term target to reduce by 25% equity scope one emissions in 2026 from a 2022 baseline and are making good progress towards that goal.
Speaker Change: Turning our attention to social we aim to be a trusted partner and good corporate citizen and a host countries and here in the U S.
Speaker Change: We continue to invest in our people and the communities. We work in supporting of just energy transition that provides greater access to power in Africa.
Speaker Change: We continue to have 100% local employment and all of our overseas offices, and we were again named the top workplace in both Houston and Dallas in 2023.
Speaker Change: We can't deeply about the people who work for and with Cosmos and this is an important part of our success as a company.
Speaker Change: And lastly governance.
Speaker Change: Cosmos is a very experienced and diverse board with a wide range of backgrounds.
Speaker Change: This was further enhanced in 2023 with the addition of three new board members that bring unique perspectives and new ideas that help continue to sport Cosmos is growth.
Speaker Change: In summary, ESG credentials are a core part of our strategy.
Speaker Change: This commitment was once again recognized by MSCI, one of the leading ESG rating agencies, which ranked cosmos AAA, the highest possible rating, which puts us in the top 20% of companies in our sector for the second yeah. So.
Speaker Change: Hello, ladies Newsweek and status.
Speaker Change: Named Cosmos, one of America's most responsible companies for the fourth consecutive year.
Speaker Change: Our ability to effectively execute our strategy relies on our commitment and focus on operating responsibly.
Speaker Change: That commitment starts with the talk with our board of directors down through leadership and to all of our employees and supports our ability to deliver long term value to all of our stakeholders.
Speaker Change: Turning to slide 10, and a recap of our achievements in 2023.
Speaker Change: 2023 was another year of continued delivery.
Speaker Change: We continue to operate safely with lost time injury rates and total recordable injury rates significantly below industry averages a trend we had maintained for several years.
Speaker Change: As discussed earlier and the materials production is growing with fourth quarter production of 66000 barrels of oil equivalent per day up 12% year on year.
Speaker Change: Our development projects are progressing the Jubilee southeast online and ramping up Winterfell, Zhu online shortly and tortured phase, while making good progress with startup expected later this year.
We continue to build out our future growth opportunities with the discovery of the on Friday, Tiberius ilex prospects and by increasing our working interest in jackets, Ranga and assuming operator ship.
Speaker Change: As discussed on the previous slide our continued ESG focus was recognized by MSCI as we maintained our AAA rating.
Speaker Change: I'll now, let Neil run through the financial results for the quarter and the year.
Neil Mehta: Thanks, Andy turning to slide 11.
Neil Mehta: Production for the year was in line with the updated guidance, we provided last quarter with four key production at the lower end of the range due to the water injection issues at Jubilee flagged earlier.
Neil Mehta: These issues have now been resolved and Andy will give an update on current operations in Ghana shortly.
Neil Mehta: Opex for the quarter was higher than anticipated due to higher workover costs or the initial rig activity and Equatorial Guinea before the operator terminated the rig contract for safety issues, which we'll also talk about in more detail shortly.
Neil Mehta: Other costs, including DD&A G&A and tax all came in below guidance, helping to drive today's EPS beat versus consensus.
Neil Mehta: We did record an impairment at 10, reducing the carrying value down to zero.
Neil Mehta: <unk> and anticipated reduced activity set together with well performance.
Neil Mehta: Positive one P. Reserve addition that you believe more than offset the downward revision to 10, one P reserves during the period.
While we still see future potential value at 10, both in oil and gas the realization of that value is contingent on the approval of the plan of development and the activity set has to compete for capital with other opportunities we have in the Kosmos portfolio.
Neil Mehta: Capex for the quarter was higher than expected largely due to the timing of inventory related to the EG drilling program.
Neil Mehta: Inventory arrived earlier than expected and therefore was recognized as capex in the fourth quarter.
Neil Mehta: I'll now hand, it back to Andy to go through the outlook for the year ahead.
Andrew G. Inglis: Now, let's turn to slide 13.
Andrew G. Inglis: 2023 was a pivotal year in Ghana with the startup of Jubilee southeast with more to come in 2020 for full year guidance from the operator for Jubilee and 10 is around 116500 barrels of oil per day, gross which equates to around 40000 barrels of oil per day.
Andrew G. Inglis: Yes, Cosmos with a further 6000 barrels of oil equivalent per day net of gas.
Andrew G. Inglis: At Jubilee operated guidance is for 100000 barrels of oil per day gross with production expected to grow through the year as new wells come online so.
Andrew G. Inglis: So far one water injection and won't produce had been brought online in 2020 for a.
Andrew G. Inglis: Second produce wells expected online imminently and that should take Jubilee production back above 100000 barrels of oil per day gross with two additional wells do online thereafter.
Andrew G. Inglis: In addition to the infill drilling program our focus with the operated this year is our management of the production base targeting 100% bought his replacement.
Andrew G. Inglis: We've had a good start to the injecting record levels of water into the field and plan to continue optimize injection support this year.
Andrew G. Inglis: As production rises the reduction in Opex per barrel, we saw last year should be maintained as the partnership continues to drive through efficiencies and fixed costs are spread over more barrels.
Andrew G. Inglis: On gas the interim gas sales agreement with GE belief has been extended through the end of may at around $3 per M. M Btu.
Andrew G. Inglis: On 10 operated guidance is around 16500 barrels of oil per day gross through 2024.
Andrew G. Inglis: The 10 plan of development, we are awaiting government approval and therefore not plan any major activity on the sale this year.
Andrew G. Inglis: Turning to slide 14 in the Gulf of Mexico, 2024 is expected to be another busy year.
Andrew G. Inglis: Full year guidance is 15500 to 17000 barrels of oil equivalent per day net and includes our estimate of hurricane downtime in the second half of this year.
Andrew G. Inglis: Starting with our production optimization activities the odd job subsea pump project is on track for startup mid year with the Kodiak workout of a planned around the same time.
Both of these are high return projects, we should accelerate future production.
Andrew G. Inglis: Which found first oil from the first phase of development is expected in early two Q with two wells expected online in the second quarter and a third expected later in the year.
Andrew G. Inglis: The project has gone well so far with the first two wells has in line with expectations and we remain excited about the future potential of the great Winterfell area.
Andrew G. Inglis: On the Tiberius discovery, well Cosmos is the operator, we have received the lab analysis of the rock and fluid samples, which supports the production potential of the development wells and is in line with analog wells in the Wilcox.
Andrew G. Inglis: We are now progressing a phase development solution with a subsea tie back plan to the Lucius platform six miles away.
Andrew G. Inglis: She is operated by oxy upon their inside areas.
Andrew G. Inglis: And finally, the Tiberius expected later this year with a development timeline of 18 to 24 months similar to wind itself.
Andrew G. Inglis: On the map on the bottom right of the slide in lease sale 261, Cosmos and Oxy added the block to the west of Tiberius and two blocks to the southeast which contained the Logan discovery.
Andrew G. Inglis: These adjacent or nearby blocks provide additional near failed upside beyond the Tiberius discovery and can support the phased development of the greatest Tiberius area.
Andrew G. Inglis: It's an exciting time for our Gulf of Mexico business with expected near term production increases from Winterfell now production optimization activity to be followed by an hour Friday Tiberius development, providing the next leg of growth.
Andrew G. Inglis: Please turn to slide 15.
Andrew G. Inglis: An extra again a base production continues to be steady with full year production guidance of approximately 8000 barrels of oil per day net.
Andrew G. Inglis: This guidance does not contain any contribution from the planned infill drilling campaign, which has been deferred after the operator terminated the rig contract due to safety concerns Cosmos fully supports your pricing decision and will not compromise the safety of operations.
Andrew G. Inglis: The partnership is now evaluating alternatives the rig options that would allow for the infill drilling campaign to recommence later in the year, followed by the King the infrastructure exploration well.
Andrew G. Inglis: We will update the market with news on a replacement rate when appropriate and they are included potential capex, assuming the resumption of the EG drilling program and the high end of our Capex range.
Andrew G. Inglis: Turning to slide 16.
Andrew G. Inglis: On Torchy phase one the key work streams continue to progress.
Andrew G. Inglis: The hub terminal is complete and has been handed over to operations.
Andrew G. Inglis: <unk> LNG vessels arrived on location. The mooring is now complete in connection to the hub terminal is.
Now ongoing Golar continues to work with the operator to advance commissioning.
Andrew G. Inglis: The subsea work scope is progressing in line with expectations with completion expected by the end of the second quarter.
Andrew G. Inglis: And finally the F. P. S. I. It's currently in Tenerife, a planned inspection and repair of the salaries.
Andrew G. Inglis: Following completion of this work the basketball then moved to its location asset sale early in the second quarter and begin final hookup and commissioning activities.
Andrew G. Inglis: The CSI remains on the critical path for first gas, which is expected in the third quarter of 2024.
Andrew G. Inglis: Elsewhere on Torchy, we expect to have a ruling on the arbitration regarding future cargo optimization around the middle of the AR.
Andrew G. Inglis: In addition, BP on behalf of the pond agree.
Andrew G. Inglis: The previous subsidy contract with a claim notice and initiated the process under its agreement to recover the losses and cat.
Andrew G. Inglis: We estimate <unk> share of the potential recoverable damages to be up to $160 million.
Andrew G. Inglis: So cheap progresses towards first gas as we look to bring in a partner on Yankee stronger industry interest in the assets has risen.
This may provide an opportunity in the future to crystallize some value from our gas portfolio and accelerate our financial resilience.
Andrew G. Inglis: With that I'll hand back to Neal to take you through the financial envelope.
Neal: Thanks, Andy turning to slide 17.
Neal: Randy mentioned, we remain focused on enhancing the financial resilience of the company as production rises over the coming months and Capex falls.
Neal: In 2023, we repaid the Gulf of Mexico, a term loan which means we have no debt maturities this year.
Neal: On the RV L represented by the dark Blue blocks on the chart the refinancing process with our bank group is going well with completion expected in the first half of the year.
Neal: The aim is to push out maturities by approximately three years, which would push the final maturity to almost 2030.
Neal: On leverage we exited 2023 at one nine times and have a long term target of one five times or below at mid cycle oil prices.
Neal: With capex anticipated to be higher in the first half of this year the cash generation, we expect once production has ramped up.
Neal: Should come through in the second half of 2024 and would be used for debt pay down.
Neal: Leverage should then start to fall quickly towards our targets.
Neal: Yeah.
Neal: Turning to slide 18, our capital allocation priorities for the year.
Neal: Capex for full year 2024, it is expected to be $700 million to $750 million just over a third of which is maintenance capex.
Gross capex is anticipated to be around 60% to 65% of 2024 total primarily related to completing winterfell in phase one of GTA.
Neal: It does include some duplicative subsea costs incurred as a result of the switch in subsea contractors made last year.
Neal: We hope to recoup this through the recovery of damages from the process mentioned earlier.
Neal: Looking beyond 2024, we expect normalized annual capex to be around $550 million with around $300 million to $350 million of maintenance, capex and $200 million to $250 million of growth Capex.
Neal: As Capex falls in free cash flow increases, we have three clear priorities.
Neal: First enhance our financial resilience as noted on the previous slide we wanted to absolute debt leverage down sharply and this will be the first call on free cash flow generation.
Neal: Second we want to invest selectively in compelling opportunities will support the continued growth of the company, albeit at a lower rate than what we expect in 2023 and 2024.
Neal: And third and Leverages in the right place, we will look at shareholder returns.
Neal: I'll now hand back to Andy to conclude today's presentation.
Andrew G. Inglis: Thanks, Neal turning now to slide 19.
Andrew G. Inglis: 2023 was a year of continued delivery for Cosmos, we achieved along with production growing through the second half of the year is the first of our major development projects came online at Jubilee Southeast and we remain on track to achieve our production growth target by the end of this year.
Andrew G. Inglis: We made this time various discovery and we took over operator ship Avianca charanga.
2024 is a catalyst rich year for the Jubilee ramp up in Windsor valve first so both expected in the coming months.
Andrew G. Inglis: Later in the year first gas from torture it will be a major milestone for both the company and the countries of Mauritania and Senegal.
Andrew G. Inglis: Rising production and falling Capex drive strong cash generation through year end into 2025 with rapid deleveraging towards our target debt levels.
Andrew G. Inglis: The Cosmos team is excited about the year ahead, and energized to deliver on our strategic objectives.
Speaker Change: Thank you I'd now like to turn the call over to the operator to open the session for questions.
Speaker Change: Operator.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is another question on queue you.
Operator: You May press Star two if you would like to remove your question from the queue.
Operator: For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Operator: Please while we poll for your questions.
Operator: Yes.
Operator: Our first questions come from the line of David round with Stifel. Please proceed with your questions.
David Round: Great afternoon, guys. Thanks for the presentation I've got a couple please the first one Andy you mentioned a he made a comment there about potentially crystallizing value from the gas portfolio could you elaborate on what you meant by that plays and whether it's something you're actively looking at or whether that's just in relation to.
David Round: To potential you can comment on your car.
Speaker Change: The second question, we've obviously seen that the pause in U S. LNG export approval was recently how has that changed any conversations youre having.
Speaker Change: Or at least impacted any of your assumptions going forward or is it too early thank you.
Speaker Change: Yeah. Thanks, David.
Speaker Change: Well, let me, Jason and time for Cosmos in Mauritania and Senegal.
Speaker Change: Perhaps a broader agenda.
Speaker Change: As I said in my in my comments. So what's your first gas is now in sight.
Speaker Change: We're making real progress with at her side and on the concept for Yakka triangle.
Speaker Change: And I'm also pleased that we're making progress with the MLC as an E. P O.
Speaker Change: Yeah.
Speaker Change: Concept to accelerate time to head of the P. P. Previous timeline. So you put all that together and we're building material LNG business.
Speaker Change: But it's coming at the right time, it's coming at a time or in the long term value of gas is being recognized and its role in the energy transition.
Speaker Change: And as you say the external context is changing.
Speaker Change: There is a pause in U S LNG and I think that is one of the drivers why source new sources of gas.
Speaker Change: Being more highly valued and you know today.
Speaker Change: You've seen gas a step forward with its own announcement about building a larger business, so theres, probably pluses and minuses on the supply side, but I think one thing that's clear is the supply the future supply is getting very concentrated and therefore new sources.
Speaker Change: Supply that add diversification for customers are going to be valued. So you put all of that together and we have no interest in any extra anchors as you mentioned as we said it at our third quarter results were looking to bring in a path with the right skills and balance sheet to help because <unk>.
Speaker Change: Yes.
Speaker Change: And that is our priority.
Speaker Change: But whilst it's apparent from the.
Speaker Change: The conversations on Yankee triangles, they're all a.
Speaker Change: Parties that are interested in potentially a larger stake than just why it's a and in our other assets in Mauritania and Senegal. So.
Speaker Change: That's something that we will consider as part of the sell down process and jackets or anger and why would we do then ultimately it allows us to accelerate our strategic agenda and how we can look forward to growth and we've got a very rich hopper, but what's the right working interest for that and can.
Speaker Change: We find alternative ways to accelerate the delivery of a more resilient balance sheet that enables our shareholder returns. So we see it as being a I.
Speaker Change: And another point another way too.
Speaker Change: So access and accelerate that outcome.
Speaker Change: Sort of early days.
Speaker Change: <unk> is primarily around Jack it's Ryan.
Speaker Change: We kind of finished the pre feed and then start the process, but if there is an option of a larger deal involving told you then that is something we would consider it for the reasons that I've laid out.
Speaker Change: Okay. That's very helpful. Thank you I'll hand, it back thanks.
Speaker Change: David.
Speaker Change: Thank you. Our next question is come from the line of Neil Mehta with Goldman Sachs. Please proceed with your questions.
Neil Mehta: Good morning, Anthony and team. Thanks. Thanks for doing this is the first question is just about the free cash flow inflection you talk about 110 or $50 million a quarter once we get to run rate.
Neil Mehta: Can you talk about what pricing set that that Thunder and just as you think about going into 2025 as you get to this this.
Neil Mehta: This major free cash flow inflection.
With the priorities for cash are in terms of where we go from here.
Neil Mehta: Yes.
Speaker Change: And it will pick up the question and just in terms of the the.
Speaker Change: The metrics there.
Speaker Change: That drive it but I think it's an important.
Speaker Change: Important important yeah, we're aware of.
Speaker Change: We're completing the.
Speaker Change: Two major projects Winterfell, and torture and that enables US then to get to that free cash flow inflection point.
Speaker Change: Yes.
Speaker Change: The delivery of the projects.
Speaker Change: It's an important point in the journey.
Speaker Change: Company It allows us to.
Speaker Change: Strengthen the balance sheet pay down the debt and at that point, then move forward to shareholder returns, but it also enables us to continue to grow but it's important it's a much more measured pace than we've obviously delivered over the past two years. So I think you know as we go through 'twenty four 'twenty five.
Speaker Change: It is about that dual agenda, the prioritization of free cash flow to enable the debt pay down but actually you know it will there will be growth, but it's going to be at a much slower pace, but nail the fundamental network metrics behind the free cash flow, yes, I mean, that's based on our service.
Current estimates at sort of 70 T I 75 ish Brent.
Speaker Change: Okay. That's helpful. And then as we think about 2025 couple of cost structure questions. One is is it fair as a placeholder to be using something in the $5 50 type of Capex range, recognizing youll put.
Speaker Change: Some more.
Speaker Change: Meat on the bones here in the next couple of months and then and then.
Speaker Change: So in the footnote that you talk about operating.
Speaker Change: Costs are $115 million to $130 million for greater towards too is that the right run rate Capex. Once the project comes online. Thanks Neal.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Yeah, sorry, if I come to your second question first Neil just on the operating cost.
Speaker Change: I mean, I think it'll be slightly higher because that sort of phased in overtime.
Speaker Change: Yeah as the development Rasp ramps up then we'll get this year, there's a couple of moving parts in terms of yeah.
Speaker Change: The ramp up commissioning costs et cetera.
Speaker Change: Albeit a little higher than that on a regular basis, but the per metric barrel metrics per tcf metrics will work.
Speaker Change: More attractive on.
Speaker Change: On that basis.
Speaker Change: On a <unk> 25 from the regular run rate.
Speaker Change: Going forward and then just sorry, what was your first question again, you Alright. This is Neil.
Speaker Change: Or do you think of Capex for 'twenty, five rough rough rough rule of thumb, recognizing youre going to you know.
Speaker Change: Yeah, No and again I think.
Speaker Change: As we said on the call today 25, 50 is what we're targeting for the next several years, including 25 beyond today I think it's a good sort of number to have penciled in for your models.
Speaker Change: And that number basically underpins our maintenance Capex about 350, a long term basis, and then go out with a sort of 250, so they're much more amazed with drive ultimately a solid 50 long term capex you can sustain that free cash flow of 100 to 150.
Speaker Change: Eight per.
Speaker Change: Quarter.
Speaker Change: Thanks, Tim.
Speaker Change: Thank you. Our next question is come from the line of Matt Smith with Bank of America. Please proceed with your questions.
Speaker Change: Yeah.
Matt Smith: Hi, there thanks.
Matt Smith: Hi, Neil.
Matt Smith: First question on the on the capital allocation front.
Thanks for laying out the.
Speaker Change: I'll end the presentation I think the inflection point is clearly a very important one for colon small so I guess I just wanted to come back.
Speaker Change: Is that 550.
Speaker Change: Million Capex.
Speaker Change: An indication.
Speaker Change: Sort of a steady state tourists a day commitment from <unk>, because I think it's clear that you know very opportunity rich I mean, it's great to see that sort of phase two taught you might be coming.
Speaker Change: Coming back onto the table sooner than previously anticipated that you talked about yucca tractor as well I guess.
Speaker Change: Just wanted to understand whether the 515 indication don't really whether that's a commitment to shareholders that's sort of what whatever the plan whatever the working interest.
Speaker Change: That's the sort of level of capex that yoga to be comfortable sort of spending over the next few years I just wanted to sort of understand.
Speaker Change: Where the priority is really.
Speaker Change: Really I'm not sure if that's okay and then the second question would be on the U S. P. S. So intense as to what you think.
Speaker Change: Yeah really confirming the news we've heard elsewhere in terms of the line first gas to.
Speaker Change: The third quarter now I, just wonder whether you'd be able to talk about it.
Speaker Change: Intervals.
Speaker Change: Yeah in terms of reaching that milestone this time round place.
Speaker Change: Alright, great Matt.
Speaker Change: Questions.
I'll take the first one.
Speaker Change: Around capital allocation you know.
Speaker Change: 24 important yeah, we're delivering growth through the delivery of Jubilee southeast continuing growth went to trial in and told you are online.
Speaker Change: And as you look beyond that you're right. We do have a rich hopper and the important point I think for for shareholders is we're really selective about the projects that we do.
Speaker Change: And we have choices around the.
Speaker Change: The timing the phasing and we have choices as I indicated we have around David's question around the level of our participation in those projects. So.
Speaker Change: It's a positive but we have to offer it as a positive, but we have greater control through through operator ship.
Speaker Change: And we want to work within a framework, where we can deliver that long term growth as I said in my remarks, it'll be at a much more measured pace than we've experienced over the last two years, but the cosmos portfolio does have longevity and therefore, it does have a terminal value, but we have to do that.
Speaker Change: While delivering the free cash flow that shareholders want ultimately yeah. The first half the first priority for that will be debt pay down and then once we breach the leverage targets it will be around shareholder returns.
Speaker Change: So the framework, we're using going forward or is that 550.
Speaker Change: Confident that we can sustain the base production, which is a couple of cities.
Speaker Change: An important element, but I think on the Gulf of Mexico at actual Guinea in that 350, which is our Naples, you'll have that 250 to pursue those selected growth projects.
Speaker Change: Yeah, that's the frame going forward and therefore, the free cash flow targets that we've.
Speaker Change: Talked about.
Speaker Change:
Speaker Change: On torture.
Speaker Change: You asked a specific question about the P S.
Speaker Change: Maybe if I just sort of stand back because it is gonna be a question that's kind of come up where are you with the project. Yeah. A lot has been achieved in the quarter you know prior to the quarter. Obviously, all drilling done hub terminal finished but in the quarter give me bass was arrived at the uptime of its more than it is now being connected.
Speaker Change: That's the connection for the gas in and then to the connection to the Offloading. So that work is progressing well.
Speaker Change: On the subsidy.
Speaker Change: Real progress I think all seem to put out a notice to the market that can play to that.
Speaker Change: The deep water pipelines, the tonnage and the 16 inch in fact all of that works Gotta crews now is now completed which is a significant milestone what remains in the sub sea now is installation of the jumpers.
Speaker Change: That's the Saipem work scope.
Speaker Change: And that works out to be finished broadband.
Speaker Change: Second quarter.
Speaker Change: So itself there is work being done in Tenerife.
Speaker Change: At a shipyard in Tenerife to prepare the inspection repair and families.
That's essentially the mooring device for the vessel when it's on location visit.
Speaker Change: Visited myself about a month ago that work is going well, we've inspected families. Now so we know the level of repair and golf will be modest and so yeah. So it was targeted to leave the beginning of next quarter be on location and then we sell the more again.
Speaker Change: That process, they're all of that will enable first gas in the third quarter, which then leads to LNG in the fourth quarter. So it is definitely a.
Critical path as you go through all that and given the progress that's been made on the subsea remains on the U S. P. S O.
Speaker Change: The operators, obviously strongly focused on that but I think it is now and as you bring a large project like this to completion. Each milestone you achieve is an important milestone because it de risks the Eagle Ford program and I think we're good.
Speaker Change: We achieved quite a lot in the.
Speaker Change: In the last three months and look forward to those milestones being knocked off as we go forward through the year.
Speaker Change: [laughter] alright, thanks, Andy ill pass it on.
Andrew G. Inglis: Great. Thanks, Matt.
Speaker Change: Thank you our next questions come from the line of Charles Meade with Johnson Rice. Please proceed with your questions.
Charles Meade: Good morning, Andy and Neil and until the rest of the Cosmos team there.
Charles Meade: Andy I Wonder if you could you could this question about E G.
Charles Meade: I I believe I heard in your prepared comments that the upper.
Charles Meade: Or the upper end of your guidance assumes that you are you do you do get a rig back in there and you get some work Darden in 'twenty four I Wonder if you could speak to what the chances of that are in and perhaps if that's a if you have some if there's any kind of special capability of the rig that you need to procure to do that work or whether it's up more but.
Charles Meade: The other thing that has a higher probability of happening.
Speaker Change: Yeah. Thanks, Joe So I think it's a little early to give you a lot of insight on how we're clearly just going out to the market as we speak so look out available rigs you could have in terms of the spec of the rig it's not all.
Speaker Change: Thing out with.
Speaker Change: You know what a sixth Gen can fifth sixth Gen can do today. It's the only issue is it has to be sort of completion ready because obviously you're on the infill wells, we're drilling and completing.
Speaker Change: You can take while it was purely an exploration well.
Speaker Change: It's a little early Charles to.
Speaker Change: I'd say exactly how that processes is going to shake out, but I think we just wanted to make sure that in our guidance, we were able to sort of play around with covet.
Speaker Change: Covered with spectrum and I say, we haven't included any contribution from the in total programming our production guidance, but we have included the.
Speaker Change: Do you have a potential outcome of the rate being are included in our activity set in 2024. So I think that you know the dust.
Speaker Change: That's an appropriate way to look at the situation today and obviously, we'll update you as we make progress in the and the investigations.
Speaker Change: The market in terms of available rigs.
Speaker Change: Got it and then.
Speaker Change: Then the follow up question, along the same lines, but and garner it at 10.
Speaker Change: Can you give us a sense of of you. So you've submitted app a new proposed work scope to the government can you give us a sense of.
Speaker Change: The timeline for weather when that might be approved and then acted upon it and you know order of magnitude what it might what it might do to production.
Speaker Change: Or that those fields.
Speaker Change: Yeah, Hello can get a gig.
Good question, Charles I think that you know maybe the write down on on time was fundamentally around that's what a couple of issues. The first was you know the well performance of recent wells have been drilled that have delivered quite well what wed hoped.
Speaker Change: And then confidence around the future work program, which would require approval from the government in terms of.
Speaker Change: The plan of development so as of today, we haven't included.
Speaker Change: Any significant future work scope and in turn.
Speaker Change: Yeah equally well.
Speaker Change: If that was a breakthrough on to pare back capital expenditure would have to compete for capital within our <unk>.
Speaker Change: Framework that we set out in our prepared comments so.
Speaker Change: You know I'm comfortable with where we are today.
Speaker Change: You know predicting when the P O D could be approved it's tough it's clearly working.
Speaker Change: Actually you got I think that makes life, a little tougher to to be confident about when the next things might happen, but I think the most important thing from our Cosmos perspective is actually.
Speaker Change: As we commented earlier, it's very rich help us after you've actually got a very rich set of opportunities in the base between extra we'll get a.
Speaker Change: Gulf of Mexico, I'm actually gonna injury belief.
Speaker Change: We actually have the reserves replacement ratio of 104%. This year it was driven by the performance.
Speaker Change: Jubilee are more than offsetting the downside and in time.
Speaker Change: Yeah.
Speaker Change: There is a strong opportunity set there in Djibouti Jubilee is a figure or.
Speaker Change: A big fields get bigger and therefore, you know I I can see is prioritizing capital there so.
Speaker Change: Did I have tenants sort of they're not waiting and I'm fine with that I think you know for us it's about ensuring that we're putting a base capital to our best opportunities and certainly Jetblue would run very highway.
Speaker Change: Alright, thanks for the detail.
Speaker Change: Right. Thanks, Joe.
Speaker Change: Thank you our next questions come from the line of Bob Brackett with Bernstein Research. Please proceed with your questions.
Bob Brackett: Yeah. Good morning, returning back to the G. T. A L. P S O and the issue around repair a fair leads has that F. P. S O been turned over from the contractor to the operator.
Is there some sort of recourse in the same way as they.
Bob Brackett: Toured issues true belief or even the size of the pipe lay vessel issues will you go back to that contractor and say you didn't deliver the F. P. S O on time and on scope.
Speaker Change: Thanks, Paul.
Speaker Change:
Speaker Change: The the detailed answer to your question is it has not been turned over.
Speaker Change: Okay. So I think what's ultimately honestly subsequent questions yeah.
Speaker Change: Fair and an easy follow up contrasting the challenges around.
Speaker Change: GTA with sort of the process of getting winterfell up and online in the Gulf of Mexico and talk to your relative conviction there.
Speaker Change: Yeah.
Speaker Change: Again, great question Bob.
Speaker Change: It's clearly a different scope.
Speaker Change: And you're doing something which is sort of establishing a first phase of the larger projects with G. T. A it is a greenfield project.
Speaker Change: Got both Governor Scott Wells, and it's got a hub to hub, Qatar LNG facility and its got enough P. S. So yeah multiple segments.
Speaker Change: Segments of the project, Yeah, winterfell, much more simple and sort of tie back.
Speaker Change: It's in our base and that has the supply base and that find access to equipment easier and.
Speaker Change: It's wells subsea tie back to an existing facility. So I just had one come up.
Speaker Change: If an order of magnitude and I think you know it's a great question because it sort of brings you back to the fundamentals of the company.
Speaker Change: We're investing in short cycle fast payback I L Ax type opportunities on the oil side.
Speaker Change: No.
Speaker Change: The deliberate very different.
Speaker Change: Economic downturn, but actually a risk profile, but you're correct. The longevity for the business in terms of building out our gas business and you know now having established towards your phase one.
Phase two is a brownfield it comes with a very different execution risk.
Speaker Change: So you know it's hard to get started and I think.
Speaker Change: Clearly you would have struggled with.
Speaker Change: Torture, you forget it that.
Speaker Change: But where they are with the end in sight you know the next phase is a torture. He is he's got a very different risk profile. So yeah.
Speaker Change: Yeah relative confidence, which is all starting out yes, you have a little bit.
Speaker Change: At the beginning of the quarter fly button, but the wells are a component of that was the third well to follow and I actually think the interesting thing about winterfell is not just that first phase of development at subsequent places I think everybody ultimately be a much larger resource pool. So it's got not only a short time.
Speaker Change: Fantastic Alright, Buddy pass that development opportunity to to follow up.
Speaker Change: Very clear thanks.
Speaker Change: Thank you our next questions come from the line of Sebastian Challenger with Benchmark Company. Please proceed with your questions.
Sebastian Challenger: Yeah. Thanks, everyone can you reiterate I might've missed it.
Sebastian Challenger: Torture volumes, what if any are included in the 24 guys.
Sebastian Challenger: Neil if you want to cover that yeah. So yeah, we've got a yes basically we're assuming that it's in line with the detailed guidance that sit within the presentation, which is there something happening at Williams and three kids.
Neil Mehta: And then closer to full rate in the <unk>, which works out to you know call. It two.
Neil Mehta: Two to 3000 barrels a day.
Neil Mehta: Net a forecast so they're not full year and the full year average, but again, yeah, that's getting close to full rate.
Neil Mehta: Within the fourth quarter.
Speaker Change: Got it. Thanks, So I was just curious so.
Speaker Change: Should we is that Opex in included in the guide I was just confused on the footnote versus the guide for the year.
Speaker Change: Yes.
Speaker Change: Opex you say, it's not included in the per barrel.
Speaker Change: Patrick So the per barrel is basically on the base business with the Opex just for the EMS portion.
Speaker Change: The reason we've done that is because it really is as you go from the from the project to the operation There that's quite a large commission elements of that so that will be absolute number including plagued that transition that's sort of the some of the commissioning.
Speaker Change: And then the operating costs associated with the sale of as it comes online.
Speaker Change: Okay got it thank you and finally, I guess just apples to apples.
Speaker Change: For for Capex last year versus the 24 guide.
Speaker Change: How much cap interest is included.
Speaker Change: It's about $25 million a quarter so bosch.
Speaker Change: We certainly.
Speaker Change: Got instead of that we're only assuming it happens in the first half this year and then it goes away in the second half of the year or so.
Speaker Change: We have an interest in.
Speaker Change: The 25 day kit.
Speaker Change: Person to the full year 159 God.
Right and so last year was that or was that a $100 million of cap interest.
Speaker Change: Yeah, it's about the same yes.
Speaker Change: Yes.
Speaker Change: Okay perfect. Thank you.
Speaker Change: Thank you our next questions come from the line of Matt Cooper with Peel Hunt. Please proceed with your questions.
Matt Cooper: Thanks, and thanks for the presentation I'm. So just firstly I wonder if you could comment on the current Jubilee production rates.
Matt Cooper: Another two wells brought online in warm Q performing per our expectations.
Matt Cooper: Yeah.
Speaker Change: Yeah, my sort of step back on Jubilee.
Speaker Change: I think the key points to note.
Speaker Change: And our performance in the year will be dependent on two issues.
Speaker Change: First is <unk>.
Speaker Change: Maintenance of the base, which is about bodies replacement.
Speaker Change: We struggled to do that really in the third quarter of last year, but really from about sort of November time onwards, we've been injecting water a collateral levels and they've been at 100% bodies replacement, you know and they publicly the prior three months so that it was as low as 40%.
Speaker Change: The water injection was down so I feel good about the way that the base has been a it's been performing as we are as we enter the year and I answered them sort of being through the first two months.
Speaker Change: Then you're sort of adding additional well stone, we've we've added a one one water injector and one for chase.
Speaker Change: We literally had I probably today.
Speaker Change: We're adding the second Virginia.
Speaker Change: I'll start out so once that produces a online will be up at around sort of the 100 thousands of holiday back up above 100000.
Speaker Change: Uh huh.
Yeah, they're bound under a thousand sorry, yeah, that's an important milestone for us when you got two more wells to follow so you've got an additional projects and an additional an injector.
Speaker Change: If we look to the underperformance in the you know I think that the wells have delivered.
Speaker Change: Where actually when you look at the overall program was the operator side, we're probably deliver the wells six months ahead of time, which is why we're going to take a break.
Speaker Change: Slightly earlier than we would've anticipated so allow us to rebuild that whilst though but the fundamental thing to sort of figure out what focusing on there is the ease of water injection and therefore, the voltage replacement the sustain and surpass.
Speaker Change: Great. Thanks, and just to confirm so the first two hours.
Speaker Change: They went in the wrong too.
Speaker Change: The injection and production that you're seeing from those is inline with expectations and the mountain yes. It's in line with expectations and you know you can.
Speaker Change: Yeah. They were in line with expectations of base is probably doing better than we saw but fundamentally in line with expectations.
Speaker Change: And then with the second well the second part is starting up now the objective was to be above that 100000 barrels a day and in basketball, we anticipate to be so yeah. It is it's it's you know the stop he has.
Speaker Change: Been sold it yeah.
Speaker Change: The unique thing.
Speaker Change: But actually on about it but getting the base.
Speaker Change: Property support it is the key thing that we need to focus though.
Speaker Change: Right. That's helpful. Thanks, and just finally, just wanted to ask on E. G windows how much.
Speaker Change: Stripping infill drilling out reduce 2020 full production I'm, just kind of thinking about how much upside there could be there. If you do I hear a rig this year and that kind of a flip side about how much risk is that the new rig will be a higher cost.
Speaker Change: Yeah, So if I sort of it didn't never come back to the production numbers yeah. Yeah on that contract was probably done at a more advantageous time and the market side, Yeah, I think you'll probably see a slightly higher rig right, but again with all of you know.
Speaker Change: I know it tends to be a headline number you look at it but you've got to remember that it's a it's a relative you know probably a third of the cost of the overall spread right. So even a small and increment that against I alerted on on that basis, and then you've got to figure out you know how you deliver low N. P. T. So the old somebody that well of course.
Speaker Change: Yeah.
Well cost doesn't go up so yeah, you know, we will see a slightly higher or great costs, but it's not something that is ultimately.
Speaker Change: Interfered with the capital guidance or with the economics of the AR.
Speaker Change: The wireless.
Speaker Change: Yeah, and then just on the production yet.
Speaker Change: The guide we have for AG is around 8000 barrels a day.
Speaker Change: Net for the year, if we'd sort of drilled as as planned we are closer to instead of 11. So it's about a 3 million go a day impact that we can get.
Speaker Change: And I think some of that there is some upside if we do end up drilling this year, but that's not included in the guidance.
Speaker Change: Okay, well, thank you very much.
Speaker Change: Thank you. Our next question is come from the line of Mark Wilson with Jefferies. Please proceed with your questions.
Mark Wilson: Yes. Thank you.
Mark Wilson: Clearly on the catalyst for this year and the Capex once you get through Oh too. So we're still just getting an idea of the physical work within that 550.
Mark Wilson: Yeah, and the maintenance but.
Mark Wilson: Are you expecting to be.
Mark Wilson: Do we would have for instance, an ILEC swell in the Gulf of Mexico.
Mark Wilson: Each year from 2025, given the success you've seen we went to southern Tiberius as one part of that is that Capex and also are you assuming.
Mark Wilson: 10, or all of your rig do you believe in 2025 and onwards. That's my first question. Thanks.
Speaker Change: Yeah no. Good yeah. It's a good good question. So if you sort of conceptualize that yeah.
Speaker Change: You know if you look at the pace and the maintenance of the base. We're looking at you have three quarters of our rig yeah and.
Speaker Change: In Jubilee now clearly you know.
Speaker Change: That's where you sort of roll over so yeah. The rig would return in 25 or maybe drilling 26, and then Brian can sell one yet did you sort of figure it out there's probably three quarters of a rig year that right that makes sense, where whereas actually this year, we will have the top of our gear and.
Speaker Change: So yes. It does include that it includes a similar sort of yeah, our drilling program and an extra or getting any going forward.
Speaker Change: Yeah about once every 18 months about once every 18 months or maybe a package of sort of three wells yeah.
Speaker Change: Those are the primary device pieces that made in the Gulf of Mexico, Yeah, probably at a sort of you know.
Speaker Change: 30% working interest sort of onex, one ILEC as well, yeah sort of runs at 20 or $30 million.
Speaker Change: In the garage breaks up into that two to 250 <unk> first is the three to 350 and maintenance, which you really cover the jabil EG and occasionally some dumb.
Speaker Change: That's true.
Speaker Change: Okay got it no that's fair.
Speaker Change: Helpful and then over to talk to them just want to confirm that.
Speaker Change: The physical things for the startup have been discussed.
Speaker Change: Are there any commercial arrangements to be finalized before those first LNG and maybe tie into that.
Speaker Change: What are the outcomes or any kind of impact from that you said that the contractual.
Speaker Change:
Speaker Change: Discussion or debate should the retina.
Speaker Change: In the middle of the year it does not.
Speaker Change: What should we look at around that.
Speaker Change: Okay.
Speaker Change: Yeah, Yeah, so cognex divisions, the timing of the arbitration is.
Speaker Change: Around midyear decision will be around midyear. The arbitration itself will be held in the second quarter and you know typically you get a ruling so a couple of months afterwards publicly around our around midyear.
Speaker Change: Yeah.
Speaker Change: In terms of you know so you know the.
Speaker Change: Yeah.
Ultimately you need to have it.
Speaker Change: The contractual arrangements all I'm gonna slowed down the completion of the project.
Speaker Change: Actually you're executing the physical work, it's a thing that is driving the timeline.
Speaker Change: Uh huh.
Speaker Change: A question on the call someone asked it about a phase two potentially coming back into here is that is.
Speaker Change: Is there any update what's giving on a go to place to versus.
Speaker Change: Other projects in Senegal, though longer term timeline, yeah, not looking at it.
Speaker Change: As we've said in the past you know where the phase one it's about building out the infrastructure I think what I would say is there's a real push from me and I say used to find them.
Speaker Change: The right mix concept for phase two that fully utilizes the infrastructure that's been laid in.
And in that count that as a new conversation that's occurring now with the with the Nics say, partly on the back of the work that we're doing on.
Speaker Change: On the anchor to Ranga.
Speaker Change: You know both the SMA and Petro Sun are interested in seeing how we can accelerate the timeline for phase two which is clearly in the country's interest in actually the interests of a partnership.
Speaker Change: Out of the day that pretty happy pretty it previously guided so that's a conversation that's going on there mark.
Mark Wilson: Got it okay. Thank you.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time I would like to bring the call to a close thanks to everyone. Joining today you may disconnect your lines at this time.
Speaker Change: Thank you for your participation.
Speaker Change: [music].