Q4 2023 Vermilion Energy Inc Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Vermilion Energy Q4 conference call. At this time, all lines are in a listen-only mode.
Good morning, ladies and gentlemen, and welcome to the Vermilion Energy Q4 conference call. At this time all lines are in a listen only mode.
Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, March 7, 2024. I would now like to turn the conference over to Mr. Dion Hatcher. Thank you.
During the presentation, we will conduct a question and answer session.
Tom joined this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on Thursday March seven 2024, I would now like to turn the conference over to Mr. D. On hatchery. Thank you. Please go ahead.
Anthony Hatcher: Thank you. Morning, ladies and gentlemen, thank you for joining us. I'm Dion Hatcher, President and CEO of Vermilion Energy. With me today are Lars Glemser, Vice President and CFO, Darcy Kerwin, Vice President International and HSE, Brandon McQuaid, Vice President North America, Jenson Tan, Vice President Business Development, and Kyle Preston, Vice President of Investor Relations. We'll be referencing a PowerPoint presentation to discuss our 2023 Q4 and year end results. The presentation can be found on our website under Invest with us and events and presentations.
Thank you.
Morning, Ladies and gentlemen, thank you for joining us on Hatcher, President and CEO really energy.
With me today are large dumpster, vice president and CFO Darcy curve, Vice President International and HSE, Brandon Mcquade, Vice President North America, Jessica Tan Vice President business development call Preston Vice President Investor Relations will be referencing a powerpoint presentation to discuss our two.
23, Q4 and year end results presentation can be found on our website under invest with us and events and presentations.
Anthony Hatcher: Please refer to our advisory on forward-looking statements at the end of the presentation. It describes forward-looking information, non-GAAP measures, and oil and gas terms used today, and outlines risk factors and assumptions relevant to this discussion. Production during the fourth quarter averaged 87,597 barrels per day, which was at the midpoint of our Q4 guidance range of 86,000 to 89,000.
Spur to our advisory on forward looking statements at the end of the presentation describes forward looking information non-GAAP measures and oil and gas terms yesterday and it lines risk factors and assumptions relevant to this discussion.
Production during the fourth quarter averaged 87597 used per day, which was at the midpoint of our Q4 guidance range of 86 to 89000.
Anthony Hatcher: This represents a 6% increase over the prior quarter, prominently driven by the WANDU platform in Australia and Corp Gasfield in Ireland, which were online for the full quarter, following maintenance downtime in the prior quarter. Bondu and Korb are high-margin assets and both continue to perform quite well in Q1. We generated $372 million of fund flow and $225 million of free cash flow in Q4, which represents a 38% and 59% increase over the prior quarter, respectively. With this amount of free cash flow, we were able to reduce net debt by $164 million and return $45 million to shareholders during the quarter, comprised of $16 million in dividends and $29 million in share buybacks. Transcribed by https://otter.ai Looking at the full year results on slide three, we achieved the midpoint of our annual production guidance of $84,000. We achieved it despite wildfire-related downtime in Western Canada and unplanned maintenance downtime in Australia.
This represents a 6% increase over the prior quarter, probably driven by the wandoo platform in Australia.
Gastro in Ireland, which are online for the full quarter, all that maintenance downtime in.
In the prior quarter.
Onto a core of our high margin assets and both continued to perform quite well in Q1.
We generated $372 million of funds flow and $225 million of free cash flow in Q4, which represents a 38 and 59% increase over the prior quarter respectively.
With this amount of free cash flow, we were able to reduce net debt by $164 million and returned $45 million to shareholders during the quarter.
Rice of $16 million of dividends and $29 million in share buybacks.
Yeah.
Looking at the full year results on slide three we achieved the midpoint of our annual production guidance of 84000.
We achieved it despite wildfire related downtime in western Canada, and unplanned maintenance downtime in Australia.
Anthony Hatcher: Our ability to meet annual production guidance despite these issues illustrates the strategic advantage of operating a diverse portfolio, as we're able to reallocate capital to offset production impacts in Canada and Australia. We generated over $1.1 billion of funds low in 2023; this represents the second strongest year ever for the company. Capital expenditures of $590 million were in line with guidance and resulted in free cash flow of $550 million.
To meet annual production guidance. Despite these issues illustrates the strategic advantage operating in diverse portfolio as we're able to reallocate capital offset the production impacts in Canada and Australia.
We generated over $1 1 billion of funds flow at 23. This represents the second strongest year ever for the company.
Capital expenditures of $590 million was in line with guidance and resulted in free cash flow of $550 million. This free cash flow was used to fund it.
Anthony Hatcher: This free cash flow was used to fund closing costs associated with a core acquisition and asset retirement obligations while also allowing us to reduce net debt by $266 million and return $160 million to shareholders, which represents about 30% of our free cash flow. We exit the year with net debt under $1.1 billion, which is the lowest level in a decade and represents 0.9 times our annual fund flow. This is a key milestone for the company as it aligns with our internal leverage target of 1x net debt to fund flow or less and positions us for increasing shareholder returns. Moving on to the operational updates for the quarter, production from our North American operations averaged 54,216 BUs per day in Q4, a decrease of 4% from the previous quarter due to natural decline.
Hosing costs associated with the <unk> acquisition asset retirement obligations, while also allowing us to reduce net debt by $266 million and return $160 million to shareholders.
It represents 30% of our free cash flow, we exited the year with net debt under $1 1 billion, which is the lowest level in a decade and represents nine times our annual funds.
Yes.
It's the key milestone for the company as it aligns with our internal leverage target of one times net debt to funds flow or less and positions us for increasing shareholder returns.
Moving on to the operational updates for the quarter production from our North American operations averaged 54216 be used per day in Q4, a decrease of 4% from the previous quarter due to natural declines and the deep basin, we drilled and completed five wells brought on production four manville liquids rich gas.
Anthony Hatcher: At Deep Basin, we drilled and completed five wells and brought on production four Manville Liquors Rich gas wells. At MICA, we drilled the initial four Montigny wells on our BC lands as part of our winter drilling program in advance of the expected completion and start-up of our A-33 BC battery in mid-2024. Slide 5 includes a map of our Monty position.
Falls it might get we drilled the initial four montney wells on RPC lands as part of our winter drilling program in advance of the expected completion and startup of our 833 P. C battery in mid 2004.
Slide five includes a map of our montney position.
Anthony Hatcher: As you can see, our land is in the oil window, and the results for our first two BC wells validate our geological assessment and development plans. On slide six, you can see the 16 to 28 wells continue to produce at a very strong rate, 800 B.E.W.E.s a day per well after 11 months on production. These two wells went on production March 23 and produced nearly 700,000 Buoys combined to the end of February, including over 250, 215,000 barrels of liquids, which is mainly oil. Given the relatively shallow decline profile, we also believe this presents an opportunity for downspacing, which could add further drilling locations, something we will be testing this year. Eleven wells we plan to drill this year will be on or offsetting the 16 and 28 pads.
As you can see our land is in the oil window and the results of our first two B C wells validate our geological assessment and development plans.
On slide six you can see the 16 to 20 wells continue to produce at very strong rates 800, Boe's a day per well after 11 months on production.
These two wells were brought on production in March 23, and produce nearly 700000 boe's combined to the end of February including over 250 to 215000 barrels of liquids, which is mainly oil.
Given the relatively shallow decline profile. We also believe this presents an opportunity for downspacing, which could add further drilling locations and that's something that we were testing this year.
The 11 wells, we plan to drill this year will be on or offsetting the 16 to 28 pad we drilled six wells on the first pad commenced frac operations on this pad in late February.
Anthony Hatcher: We have drilled six wells on the first pad and will commence frac operations on this pad in late February. We expect these wells to be ready for production and tie-in in Q2, in time for the mid-year start-up of the AIDA-33 battery. We're also currently drilling the second pad, which we expect to finish in mid Q2 and should complete fracking operations on that second pad. Transcribed by https://otter.ai, Slide 7 shows a picture of the new 16,000 VBD battery being constructed on our Micah-Montigny lands. Construction is progressing as planned and remains on schedule for mid-year start-up. Once operational, this battery will more than double our Montanit infrastructure capacity to approximately 20,000 BBs a day and allow us to move forward with the growth phase of our mica acid.
These wells will be ready for production that tie in in Q2 in time for the midyear startup of the $8 to 33 battery.
We're also currently drilling our second pad, which we expect to finish in mid Q2 as you complete fracking operations on that second Pat in Q3.
Slide seven shows a picture of a new 16000, bpd battery being constructed or Micah Montney lands construction is progressing as planned it remains on schedule for midyear startup.
Once operational this battery more than double our montney infrastructure capacity to approximately 20000 Boe's a day allows us to move forward with the growth phase of our Micah asset.
Anthony Hatcher: Production from our international operations averaged 33,381 BUs per day in Q4, an increase of 29% over the previous quarter, mainly due to the full quarter of production from our Australia and Ireland operations following maintenance downtime in the prior quarter, as well as increased production in the Netherlands due to new production from our 23 drilling program being brought online in the quarter. We continue to advance our deep gas exploration plans in Germany. Mass Drilling of our first deep gas exploration well at the end of November and expect to reach total depth in the upcoming weeks. Transcription by Transcription Outsourcing, LLC.
Production from our international operations averaged 33380 <unk> per day in Q4, an increase of 29% over the previous quarter, mainly due to a full quarter of production from Australia, and Ireland operations following maintenance downtime in the prior quarter as well as increased production in the Netherlands.
Due to new production from our <unk> drilling program, we brought online in the quarter.
Okay.
We continue to advance our deep gas exploration plans in Germany, we commenced drilling of our first deep gas exploration well at the end of November we expect to you reached total depth in the upcoming weeks. These wells over 5000 meters deep and typically take 100 plus days to drill we will then move the rig to our next location for the second well of our program will be drilled.
During Q2, we are excited about the exploration plans in Germany as we see this as a natural extension of the successful drilling campaigns, we have executed over the past two decades in the Netherlands.
Anthony Hatcher: We have approximately 700,000 net acres of undeveloped land in Germany, located approximately 300 kilometres east of our producing fields in northern Netherlands. The exploration targets in Germany are on trend to our Netherlands, please, where we have drilled 29 gas wells over the past two decades with an average success rate over 70%. The German exploration targets are deeper and higher risk, but have a much larger resource potential than the Netherlands.
We have approximately 700000 net acres of undeveloped land in Germany, located approximately 300 kilometers east of our producing fields in northern Netherlands. Thanks.
The exploration targets in Germany, or a trend toward Netherlands plays where we have drilled 29 gas wells over the past two decades with an average success rate over 70%.
Germany exploration targets are deeper and higher risk, but have a much larger resource potential in the Netherlands, I believe or land base can support at multi year drilling campaign, providing vermillion years of organic production growth of high valued European gas.
Anthony Hatcher: We believe our land base can support a multi-year drilling campaign, providing Vermilion with years of organic production growth of high-valued European gas, www.vermilion.com. In Croatia, installation of the gas plant on the SA-10 block is progressing as planned. It remains on schedule for start-up. A 15 million day gas plant will facilitate production from the SA-10 block. We have gas behind pipe from previous discoveries.
In Croatia installation of the gas plant on the SA 10 block is progressing as planned it remains on.
Scheduled for startup mid year.
<unk> million dollars gas plant will facilitate production from the SA 10 block, we have gas behind pipe from previous discoveries.
Anthony Hatcher: Subsequent to year end, we commenced drilling on the first exploration well on the SA-7 block and reached a total measured depth of 2,371 meters of rediscovered hydrocarbons in multiple zones. We are currently evaluating the results and plan to test the well during the second quarter by commencing drilling operations on the second of four wells planned on the SA-7 block. In addition, we recently signed a firm rate agreement with the ENA Group to jointly develop the SA7 block. ENA is the second, sorry, largest integrated oil and gas company in Croatia.
Year end, we commenced drilling our first exploration well on the seven block and reached total measured depth of 2000, and 371 meters discovered hydrocarbons multiple assaults.
We're currently evaluating results and plan to test the world here in the second quarter by commencing drilling operations on the second of four wells planned on the SA seven block.
In addition, we recently signed a primary agreement with Eni group jointly developed seven block.
It's a second sorry.
A large integrated oil and gas company creature brings local expertise and access to existing infrastructure that will play a critical role developed asset.
Anthony Hatcher: It brings local expertise and access to existing infrastructure that will play a critical role in developing gas. We're excited about the future European gas potential in Germany and Croatia and look forward to providing an update as the year progresses. We included our updated reserve evaluation with our Q4 release. Our 23 PDP reserves decreased by 8% from the prior year to 173 million POEs.
We are excited.
Future European gas potential in Germany, and I look forward to providing updates at the year progresses.
We included our updated reserve evaluation with our Q4 release, our 'twenty three PDP reserves decreased by 8% for the prior year to $170 million $173 million.
Anthony Hatcher: For our total proof plus probable reserves decreased by 18% from the prior year to 430 million, decreases primarily due to dispositions, production, and technical revisions, including technical revisions resulting from capital allocation decisions. Transcripts provided by Transcription Outsourcing, LLC. Unknown Executive, Robert Michaleski, Laique Arif, Unknown Executive, Robert Michaleski, Approximately 40% of the 2P technical revisions relate to the capital allocation decisions, and therefore some of these reserves would be recognized at a future date, if they align with our capital allocation parameters at that time. In addition, we expect to recognize additional reserves over time from our Mica, Montni, and Germany exploration programs as we develop these assets. Our Mont A potential multi-year German exploration program is largely unbooked at this time.
Our total proved plus probable reserves decreased by 18% from the prior year to $430 million.
Decrease was primary due to dispositions production and technical revisions, including technical revisions, resulting from capital allocation decision.
<unk> the divestment of noncore assets in Saskatchewan other noncore assets in the U S. And also incorporates updated capital allocation decisions as a result of our asset high grading.
Past couple of years, given the greater focus on or Mike Montney development at Germany exploration program, we have removed or divested reserves associated with the undeveloped locations that are not prioritize for investment on our current plans assets. Most impacted by these capital allocation revisions are located in our U S and Saskatchewan and operating regions.
<unk>, 40% the <unk> technical revisions.
Right to the capital allocation decisions and therefore, some of these reserves could be recognized at a future date.
If they align with our capital allocation parameters at that time.
In addition, we expect to recognize additional reserves over time from my Mic Montney in Germany exploration program as we develop these assets our montney asset is in the early stages of development and is considerably book today quite a potential multiyear chairman exploration program is largely on booked at this time.
Lars William Glemser: The PDP and 2P Reserve Light Index as of December 31st, 2023 is 5.6 and 14 years, respectively, both of which are in line with our long-term average and reflect the conventional composition of our asset base. I will now pass this over to Lars to discuss our financial outlook and updated return to capital target. Thank you, Dion. We released our 2024 budget in early December, and the execution of our capital program to date is progressing as planned. Our 2024 full-year guidance remains unchanged.
PDP two P Reserve life Index as of December 31, 2020, 356, and 14 years, respectively. Both of which are in line with our long term average and reflect the conventional composition of our asset base I will now pass it over to Lars to discuss our financial outlook and updated return of capital targets.
Thank you Dion, we released our 2020 for budget in early December and the execution of our capital program to date is progressing as planned.
Our 2020 for full year guidance remains unchanged and we are also providing Q1 production guidance is up 83% to 85000 BOE a day.
Lars William Glemser: We are also providing Q1 production guidance of $83,000 to $85,000 BOE a day. As a result of progress made on debt reduction, we are pleased to announce an acceleration of our return to capital. As you recall, we previously planned to increase our return on capital target to 50% of excess free cash flows starting April 1st, but we will now apply that 50% target against full year excess FCF. To date this year, we have purchased 1.4 million shares, and we plan to increase the pace of buybacks going forward to align with this increased ROC target.
As a result of progress made on debt reduction we are pleased to announce an acceleration of our return of capital.
As you recall, we previously planned to increase our return of capital target to 50% of excess free cash flow was starting April one.
But we will now apply that 50% target against full year excess Fcs.
To date. This year, we have purchased one 4 million shares and we plan to increase the pace of buybacks going forward to align with this increased <unk> target.
Lars William Glemser: We continue to believe share buybacks represent a very compelling return of capital option, which will result in the majority of our return of capital for this year going towards share buybacks. We have updated our internal forecast with the latest strip pricing and are forecasting annual FFO of approximately $1.25 billion, with resulting free cash flow of approximately $650 million. Under current strip pricing and applying our new ROC allocation target, we would expect to return approximately $250 million to shareholders through our base dividend and share buyback, representing approximately 10% of our market cap, while continuing to reduce debt, which is also an indirect form of returning capital to shareholders. We believe this is an appropriate allocation of capital as further debt reduction will make us an even stronger and more resilient company.
We continue to believe share buybacks represent a very compelling return of capital auction, which will result in the majority of our return of capital for this year going towards share buybacks.
We have updated our internal forecast with the latest strip pricing and our forecasting annual <unk> of approximately 125 billion with resulting free cash flow of approximately $650 million.
Under current strip pricing and applying our new <unk> allocation target, we would expect to return approximately $250 million to shareholders through our base dividend and share buybacks, representing approximately 10% of our market cap.
While continuing to reduce debt, which is also an indirect form of returning capital to shareholders.
We believe this is an appropriate allocation of capital is further debt reduction will make us an even stronger and more resilient company.
Lars William Glemser: Looking back on our FCF allocation over the past three years, we will have reduced debt by over $1.2 billion by the end of 2024, and this is value that accrues directly to our equity shareholders. At the same time, we have increased our return of capital to shareholders each year over this time frame. We believe a 50% return of capital target is appropriate for our business, as it will allow us to provide rateable annual dividend increases and buyback shares while also creating excess capacity on our balance sheet to be opportunistic. With that, I will pass it back to Dion.
Looking back on our Scf allocation over the past three years, we will have reduced debt by over one 2 billion by the end of 2024 over the time period shown here.
This is value that accrues directly to our equity shareholders at the same time, we have increased our return of capital to shareholders each year over this timeframe.
We believe at 50% return of capital target is appropriate for our business as it will allow us to provide ratable.
Annual dividend increases and buyback shares while also creating excess capacity on our balance sheet to be opportunistic.
With that I will pass it back to Dr.
Anthony Hatcher: Thanks, Lars. Our discipline focused on strengthening the balance sheet and hydrating the acid base, along with Diligent Capital Allocation, has made Vermilion a much stronger and much more resilient company. We ended 23 with a strong balance sheet, and that continued our operational momentum from the fourth quarter into 2024. Our 24 Capital Program is well underway, and we're very pleased with how things are progressing on our three growth initiatives in Canada, Germany, and Croatia. The development of our gas prospects in Germany and Croatia will increase our exposure to premium price European gas, but expansion of Vermont and the infrastructure in Canada will set the stage for long-term development and growth of this asset. We're excited about Vermilion's outlook and believe we have a robust portfolio capable of generating strong compound returns to our shareholders through a combination of modest annual production growth. Resilience and Growing Dividends and Share Buybacks.
<unk>.
<unk> focused on strengthening the balance sheet and high grading asset base.
Along with diligent capital allocation has made vermilion are much stronger and much more resilient company. We ended 23 with a strong balance sheet and our continued our operational momentum from the fourth quarter into 2024.
Our 24 capital program is well underway and we're very pleased with how things are progressing on our three growth initiatives.
Canada, Germany and Croatia.
The development of our gas prospects in Germany in Croatia will increase our exposure to premium priced European gas, but expansion of our Montney infrastructure in Canada will set the stage for long term development and growth of this asset.
We're excited to be Vermilions outlook, I believe if we havent robust portfolio capable of generating strong compound returns to our shareholders through a combination of modest annual production growth at <unk>.
Zillions and growing base dividend and share buybacks, while that concludes my prepared remarks with that we'd like to open it up for questions.
Operator: Well, that concludes my prepared remarks. With that, we'd like to open the floor to questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the 1 on your telephone keypad. Should you wish to cancel your request, please press star followed by 2. If you are using a speakerphone, please leave the handset before pressing any button.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your telephone keypad.
Ms to cancel your request please press star followed by the two.
If you're using a speaker phone please keep your handset before pressing entities.
Operator: One moment, please, for your first question. And once again, that is star and one to ask a question. Your first question comes from the line of Greg Pardee from RBC Capital Markets. Please go ahead. Yeah, thanks. Good morning.
Please for your first question and once again that is star and wanted to ask a question.
Your first question comes from the line of Greg Pardy from RBC capital markets. Please go ahead.
Yes, thanks, good morning, and thanks, Dion worse for the rundown.
Greg Pardee: And thanks, Dion and Lars, for the rundown. A couple of questions for you, but maybe the first one is just on the net. Hello, maybe I have Mr. Craig.
Couple of questions for you, but maybe the first one is just on the.
On the net.
I think the loss rate.
Hello, Matt.
I have Mr. Greg.
Operator: Party to press star 1 again. Thank you, and your line is now open. Can you guys hear me?
Party to press Star one again.
Thank you Anne.
Your line is now open.
Can you guys hear me.
Greg Pardee: Okay, all right, listen, listen, Lars, Lars Dion, thanks very much for the rundown. A couple of questions. First one, maybe just on net debt thresholds in terms of opening up, and return of capital. So I know a billion dollars was the first trigger. Have you thought about what net debt floor you'd like to achieve for the business and then what the implications might be? You know, is it possible that you could see yourselves going to 100% payout? That would be question number one.
You bet you, we got okay, alright listen listen.
Lastly on thanks, very much for that for the rundown.
Couple of questions first one maybe just on.
Net debt thresholds in terms of opening up.
Return of capital So I know a $1 billion, which was the first trigger have you thought about what net debt floor you'd like to achieve.
In that business and then what the implications might be is it possible that you could see yourself going to a 100% payout that would be question, one and then I've got a follow up.
Lars William Glemser: And then I've got a follow-up question. Okay, well, thanks, Greg. I'll pass it over to Lars to discuss our debt levels and return of capital. Yeah, no. Thanks for the question, Greg.
Okay, well, thanks, Craig I'll pass over to Lars to discuss our debt levels and return of capital Yes, no. Thanks for the question Greg.
Lars William Glemser: And, you know, we're quite excited to get to this point here where we will be targeting that 50% for 2024. I would say at this point, we're comfortable not putting out guidance in terms of the next net debt level that would trigger a higher return of capital. I think what you're going to see here in 2024 is that 50% target still allows us to return potentially up to 10% of our market cap through the dividend, but primarily through the share buyback. The way we think about absolute debt levels is that $500 million to $1 billion range we're quite comfortable with.
We're quite excited to get to this point here, where we will be targeting that 50% for 2020 for I would say at this point, we're comfortable not putting out guidance in terms of the next net debt level that would trigger a higher return of capital.
I think what you're going to see here in 2024 is that 50% target still allows us to return potentially up to 10% of our market cap through the dividend, but primarily through the share buyback.
The way, we think about absolute debt levels is that $500 million $2 billion range, we're quite comfortable in as you get closer to the $500 million level that represents the amount of debt that we have termed out to 2030 and so we started to approach that that may be a catalyst to rethink the 50%.
Lars William Glemser: As you get closer to the $500 million level, that represents the amount of debt that we have termed out to 2030. And so if we started to approach that, that may be a catalyst to rethink the 50% of ESCF at this point. But I think we're very comfortable with the 50% now. Okay, that's great. That makes a lot of sense.
FCS at this point, but I think we're very comfortable with the 50% now.
Okay. Okay, that's great that makes a lot of sense.
Anthony Hatcher: Unknown Speaker, I mean, you know, basic question: how fussed are you with the reserve provisions and then maybe just related to that. Given, you know, the shift in capital allocation that you're looking at to, you know, areas like the US or even, you know, portions of your ops in, Transcribed by https://otter.ai you know, become non-core or could those areas become non-core? I'm just curious as to maybe what the medium to longer term...
Any.
Basic question, how fast are you with the.
With a reserve revisions and then maybe just related to that.
Given the shift in capital allocation that you are looking at two areas like the U S or even portions of your ops in Saskatchewan.
Become noncore or could those areas become noncore I'm, just curious as to maybe what the what the medium to longer term planning might be with those areas.
Anthony Hatcher: I can take this one, Greg. Thanks for that. As you know, over the last couple of years, we put a lot of focus on debt reduction, asset high grading with Corb and Micah in particular, and actually selling some assets in the US, sorry, in the US and Saskatchewan most recently. And what we're excited about is we're able to advance these growth opportunities in Germany, in Croatia, and as well as Micah, where we see a lot, a lot of running So, you know, at this point, we're happy with our portfolio and, as we look out to the running room, being able to deploy capital in those key growth areas. As to the actual reserves themselves, as noted, 40% of that is capital allocation as we work through our permitting process, our budgeting process, and now our reserves process.
Yes, I can take this one great thanks for that.
Over the last couple of years, we put a lot of focus on debt reduction.
Asset high grading with corvid, Mike in particular, and actually selling some assets in the U S. Saar in the U S and Saskatchewan most recently.
And what we're excited about is we're able to advance these growth opportunities in Germany, and Croatia, and as well, Mike It where we see a lot of running room. So.
At this point, we're happy with our portfolio as we look out to the running room, even able to deploy capital in those key growth areas.
As to the actual reserves themselves as noted 40% of that is capital allocation as we've worked through our permanent process, our budgeting process and know our reserves process and in Saskatchewan, We still have a rig going there we go.
Anthony Hatcher: And in Saskatchewan, you know, we still have a rig going there. We've got a lot of inventory still in the book that we quite like, and the inventory that, you know, moved out of reserves has the potential to come back should we find ourselves changing our capital allocation in the future. So, you know, we like the option; we like the exposure to oil in Saskatchewan. In the US, you know, what excites us about the US is that oil stack. There are four oily zones. We continue to look at all four zones, in particular the Nile, where there's been a lot of industry activity and its material.
Got a lot of inventory still in the book that we quite like and the inventory that moved out of reserves has the potential to come back should we find ourself.
Changing our capital allocation in the future. So we like the option like the exposure to oil in Saskatchewan.
You know what excites us about the U S is that oil stack theres for all these zones.
We continue to look at all four zones in particular denial, where theres been a lot of industry activity and it's material.
Anthony Hatcher: This year, we did hit the pause button on drilling in the US, so we can really work through those four zones, where we see competitor activity in all four zones to determine, you know, how best to develop that asset. So, at this point, you know, there are no changes to our portfolio with respect to the US and Saskatchewan, and we've made these technical revisions, partially due to capital allocation and then partially due to performance. And you're right about the performance issues. We in the US and Saskatchewan have made those changes. Yeah, thanks. Thank you very much. Thanks for that, Greg. Transcribed by https://otter.ai. Thank you.
This year, we did hit the pause button on drilling in the U S who can really work through those four zones, where we see competitor activity in all four zones to determined.
How best to develop that asset so at this point no changes to our portfolio with respect to the U S. In Saskatchewan and we've made these technical revisions partially due to capital location and then partially due to performance and you're right.
The performance issues were in the U S in Saskatchewan, where we've made those changes.
Okay. Thanks.
Great. Thank you very much.
Okay. Thanks for that Greg.
Okay.
Thank you once again should you wish to ask a question. Please press Star then the number one on your telephone keypad and your next question comes from the line of <unk> from National Bank Financial. Please go ahead.
Operator: Once again, should you wish to ask a question, please press star then the number one on your telephone keypad. And your next question comes from the line of Travis Wood from National Bank Financial. Please go ahead. Yeah, thanks for taking the question. One question, but it's the same question for both Germany and Croatia.
Yes, thanks for taking the question.
One question, but it's the same question for both Germany and Croatia.
Travis Wood: Dion, in your opening remarks, you talked about a kind of 70% risk profile as you look at drilling these exploration wells. What, as you think about the size of the prize and the impact of wells, how should we think about that potential production impact on success? Can you remind us of the cost to drill and tie in these big wells? Are there any kind of analog wells in proximity that you guys are using to kind of de-risk that, whether it's tests from yourselves or other operators in the area? Thanks, Travis.
Don in your opening remarks, you talked about kind of 70% risk profile as you look at drilling exploration wells.
As you think about the size of the prize in the.
Packed from wells, how should we think about that potential production impact on success.
Whats the can you remind us on the cost to drill and tie ins.
Big Wells.
And then are there any.
Kind of analog wells in proximity that you guys are using to kind of derisk that whether it's.
Tests from.
Yourselves or other operators in the area.
Okay. Thanks, Travis so definitely we can get excited to talk with Germany upside potential when we look at that land base and the teams working at four.
Anthony Hatcher: So definitely, we can get excited to talk about Germany's upside potential. When we look at that land base and the teams working it for, five, six years, you know, we see a TCF of gas on our land base. We've got 700,000 net undeveloped acres. We've got 3D seismic across that land base, and we've got two decades of drilling similar formations just 300 kilometers away in the Netherlands. So we like the size of the prize.
Five six years, we see a tcf of gas on our land base. We've got 700000 net undeveloped acres, we've got <unk> seismic across that land base.
And we've got two decades of drilling similar formations, just 300 kilometers away in the Netherlands.
So we like we like the size of the prize. We also like the jurisdiction in which Germany is working with us to develop these wells as well as still are very much needed gas to replace about a third of their.
Anthony Hatcher: We also like the jurisdiction in which Germany is, you know, working with us to develop these wells, as well as still very much needing gas to replace about a third of their energy, which comes from coal and lignite. As to the targets themselves, what we see are targets that are in that range of 30 to 40 bees, typically, and costs that are in similar $35 to $40 million wells to drill. And so if you zoom out, how I think about it, it's a buck an MCF.
Energy, which comes from coal and lignite.
As to the targets themselves what we see are targets that are in that <unk>.
30 to 40 bps.
Typically and costs that are in similar $35 million to $40 million wells to drill and so if you zoom out how I think about it it's a bucket mcf.
Anthony Hatcher: If we can drill these wells and get exposure for a buck an MCF, and then sell that gas still at five to six times the eco at, you know, 10 to 12 bucks in Germany, we like that trade-off on the risk reward. Of course, the dry hole costs, if you're not successful, are much lower than the total, you know, $35 to $40 million to drill. So what we see right now, and we see, you know, two wells per year, we see a multi-year program on that. With success, we could more than double German production. And we're quite excited to get these first couple of wells drilled and to be able to come back to provide an update later this year. If there is an element of exploration here, we want to make sure that, and we talked about that with our success rate in the Netherlands, it's been about 70%. And we think that's a reasonable number to use for a German program.
We can drill these wells and get exposure for bucket Mcf and then sell that gas still at five to six times equal at 10 to 12 Bucks in Germany, we like that trade off on a risk reward of course, the dry hole cost if youre not successful are much lower than the total 35 to 40 million to drill so what.
We see right now.
And we see two wells per year, we see a multi year program on that Alex with success, we can more than double the German production.
And we're quite excited to get these first couple of wells drilled and to be able to come back to provide an update later this year.
There is an element of exploration here, we want to make sure that when we talk about that with our success rate in <unk>.
Netherlands, it's been about 70% and we think that's a reasonable number to use for a drill program.
Anthony Hatcher: As for the analog wells, I mean, we're drilling in pools; we're offsetting wells within those pools that have done 30, 40 bees. And so we're surrounded by producing wells or producing plays that are very similar and have wells in the structure. And so that gives us more confidence to be able to put this capital to work and assess that upside.
<unk> analog wells, we're drilling in pools, where were offsetting wells within those pools that have done 30 40 bps.
So we're surrounded by producing wells are producing.
Plays that are very similar and add wells and the structure and so that gives us more confidence to be able to put these this capital work and assessed that upside. So we're excited but we do recognize that it's.
Anthony Hatcher: So we're excited, but we do recognize that, you know, it's, we're going to have to look at this as a program versus individual wells, and we look forward to providing more updates in the next couple months. Okay, and would that be similar commentary as you think about derisking and exploring Croatia? Crazy.
We're going to have to look at this as a program versus individual wells and we look forward to providing more updates in the next couple of months here.
Okay and would that be similar commentary as you think about de risking and exploring Croatia.
Anthony Hatcher: Yeah. Okay. Shifting to Croatia. You know, Croatia is interesting.
Craig Yes, okay shifting to accretion crazy it's interesting we've got two blocks. So 10 is.
Anthony Hatcher: We've got two blocks. So SA-10 is the area where we've drilled and tested, and we've got gas behind the pipe. And with the gas plant that you can see in the pictures, the unit is built, we're just finalizing the pipeline tie-ins, gas behind pipe, and this will be basically dry gas that will go into that unit. That's the SA-10 block. The SA-7 block is an area where we're surrounded by known producing fields, oil, and gas. And we did the partnership with ENA, who has a lot of that infrastructure and offshooting production.
Is the area, where we've drilled and tested and we've got gas behind pipe and with the gas plant that see the pictures.
That is built and we're just finalizing the pipeline tie ins gas.
<unk> pipe and this will be basically dry gas.
That will produce into that unit.
The SA 10 block the SA seven block is an area, where we're surrounded by.
Known producing fields oil and gas and we did the partnership with <unk>, who.
<unk> has a lot of that infrastructure and offsetting production.
Anthony Hatcher: So we're in the first of four wells that we've drilled there. The first well looks encouraging. We've seen hydrocarbons in multiple zones.
We're in the first of four wells that we've drilled there first of all it looks encouraging we've seen hydrocarbons multiple zones, we will drill the next three wells and then progress after that.
Anthony Hatcher: We'll drill the next three wells and then progress after that. As for the size of the prize, you know, it's really early days in SA-7. So I would say it's too early to comment, but we can come back once we get these four wells in the ground. SA-10, you know, it'll be a couple thousand barrels a day of high net back gas that we'll produce through that compressor.
As for size of the prize it's really early days in NSC seven so I would say too early to comment, but we can come back once we get these four wells in the ground.
10, it'll be a couple of thousand BS a day of high netback gas that will produce through that compressor.
Travis Wood: Okay, appreciate all that color and detail. I'll turn it back. Thanks, Travis. Thank you, there are no further questions at this time, Mr. Hatcher, please proceed. Okay, well, again, we want to thank you for participating in our year-end results conference call. Enjoy the rest of your day. Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may all disconnect.
Okay I appreciate all that color and detail I'll turn it back.
Thanks Travis.
Thank you there are no further questions at this time Mr. <unk>.
Please proceed.
Well again, we want to thank you for participating in our year end results conference call enjoy the rest of your day.
Thank you, ladies and gentlemen that does conclude our conference for today. Thank you all for participating you may all disconnect.
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