Q3 2024 Talos Energy Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Telus Energy third quarter 'twenty 'twenty four earnings conference call. At this time all lines are in a listen only mode. Following the presentation you will conduct a question and answer session if any.
Time during this call you require immediate assistance. Please press star Zero 40, operator. This call is being recorded on Tuesday November 12, 2024, I would now like to turn the conference over to Clayton on head of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to our third quarter 2024 earnings Conference call.
Clayton: Joining me today to discuss our results are Joe Mills, interim President and Chief Executive Officer.
Clayton: Sergio My word executive Vice President and Chief Financial Officer and.
Clayton: And John <unk>, Executive Vice President and head of operations.
Clayton: For our prepared remarks, we will refer to our third quarter 2024 earnings slide presentation that we have prepared to accompany our discussion today. It is available on palaces website under the Investor Relations section and we encourage you to review this presentation for a more detailed look at our results and operations update.
Clayton: Now, let's start on slide two cautionary statements I'd like to remind you that our remarks will include forward looking statements actual results may differ materially from those contemplated by these forward looking statements.
Factors that could cause these results to differ materially are set forth in yesterday's press release, and our Form 10-Q for the period ending September 32024, which will be filed.
Clayton: You see on Tuesday November 12, 2024.
Clayton: Forward looking statements are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
Clayton: During this call we may present, GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in yesterday's press release, which was filed with the SEC and is available on our website.
Speaker Change: And now I'd like to turn the call over to Jeff.
Jeff: Thank you clay good morning, ladies and gentlemen, and thank you for joining US. This morning, I'm excited to be speaking with you today and proud to be here, serving as Paolo as interim CEO since.
Jeff: Since joining tell US board in March of 2024, as part of the quarter North acquisition.
Jeff: Been impressed by the highly talented <unk> team.
Jeff: The board and I are working closely together and continue to be very focused on delivering long term value to our stockholders.
For today's call I'll discuss some of the operational highlights for the quarter and then I'll discuss some corporate matters.
Jeff: First I'm pleased with our overall results, especially considering the challenges we faced during the quarter, including managing through four different named Hurricanes affecting the Gulf of Mexico.
Jeff: If youll turn to slide five we're happy to report another consecutive quarter of record production totaling 96500 barrels of oil equivalent per day, which was 70% oil and including the NGL barrels a total of 80% liquids.
Jeff: Despite disruptions from the Hurricanes, we managed to navigate the effects of those storms and achieved production that was at the high end of our third quarter guidance range.
Jeff: We reported EBITDA of $324 million, which equates to an EBITDA netback margin of about $37 per Boe.
Our netback margin was slightly lower quarter over quarter due primarily to lower oil prices. However, we believe we rank in the top quartile among public E&P companies in this important category.
Jeff: We spent $119 million of capital expenditures, excluding plugging and abandonment, which in turn led to positive free cash flow generation of $122 million during the quarter.
Jeff: With that free cash flow, we were able to continue paying down our debt, we paid down $100 million of debt and lowered our leverage ratio to 0.9, hitting our leverage target of one or below ahead of schedule.
Jeff: Sergio will give more color on our debt pay down in a few minutes.
Speaker Change: Looking at slide six I want to highlight that Telus continues to deliver on key expectations.
Jeff: Our third quarter results are building on the track record of our previous two quarters. This year as we delivered record production results and strong EBITDA and free cash flow growth.
I am proud of the work and dedication of the towers team as we continue to execute on our base business.
Jeff: Including our integration of the quarter, north assets and employees into the Telus organization and culture.
Jeff: We believe we're on track to realize our estimated synergies of $65 million in 2025.
Jeff: Moving to slide eight and nine we are focused on our 2024 and 2025 drilling program, which we finally have underway.
We have a robust drilling program starting with the drilling of our important katmai west number two delineation well in the Ewing Bank area, followed by the drilling of the high potential to narrow as exploration well, which will be located in the Walker Ridge area, followed by the Helms deep prospect in the Green Canyon area.
Jeff: Our plan is to utilize the sea drill west Vela seventh generation drillship to drill these wells.
Jeff: In addition to the West Vela rig we've also committed to the Transocean deepwater Conqueror, which has lined up for our son spirit completion in early 2025.
The Sun spear well is expected to commence production during the second quarter 2025, and then we anticipate using the cargo a rig to complete the katmai West number two well beginning later in the second quarter of 2025.
Jeff: Now I'd like to touch on our discovery at Ewing Bank 953, which is on slide 10.
Jeff: In September we announced that we logged approximately 127 feet of net pay which was better than expected going into the project.
Jeff: Preliminary assessments indicate an estimated recoverable resource potential of approximately 15 to 25 million barrels of oil equivalent from a single subsea tie back to the Mcdonnell Dawn platform, which talose, partially owns and which we believe should lead to a production flow rate of between eight to 10000 barrels.
Jeff: Oil equivalent.
Jeff: Tell us owns a 33% working interest in the well and we expect first production by mid 2026.
Jeff: Next is our katmai west number two well, which is on slide 11 of your presentation.
Jeff: We recently commenced drilling of the Katmai West number two well in late October as a down dip delineation well to further appraise the field and potentially add additional proved reserves.
Jeff: Our original plans were to spud this well earlier this year, but the rig was delayed by the previous operator and the various hurricanes in the Gulf of Mexico. This past summer.
Jeff: Notwithstanding our rig campaign is underway and we still expect first production from the well around midyear 2025.
Jeff: Our cat my field is a major asset and a key focus area for US we continue to evaluate the reprocessed seismic imaging of this area and see even more upside within the broader cap my area.
Jeff: We estimate potential resources in the greater kept my area of up to 200 million barrels of oil equivalent gross recall, we own a 50% working interest and operate the katmai field.
Jeff: <unk> also owns 100% and operates the host facility, which we call tarantula.
Jeff: In order to further increase throughput capacity at our <unk> facility in late October we started additional topside work on the platform, which should enable us to increase the daily throughput from 27000 barrels of oil equivalent per day to 35000 barrels of oil equivalent per day.
Jeff: We recently completed the topside work and are currently bringing the platform back online and ramping up the volumes. We look forward to sharing more with you regarding the katmai West number two well results in early 2025, once we have the well down.
Jeff: Turning next to our generic prospect on slide 12.
Jeff: We are looking forward to drill and evaluate this high impactful way sub salt Miocene prospect and seating areas as another potential katmai size opportunity with estimated gross resource potential between 100, and 300 million barrels of oil equivalent.
Jeff: We expect to spud to narrow in the first quarter of 2025, following the drilling of Katmai.
Jeff: <unk> is also the operator of Daenerys with a 27% working interest.
Jeff: If successful generic could be another key project to tell as long term organic growth potential.
Jeff: Another exciting area for Telus is the Wilcox trend in the ultra deep waters of the Gulf of Mexico, which we highlight on slide 13.
Jeff: This geological trend has already produced over 1 billion barrels of oil equivalent out of 10 existing fields and is producing over 250000 barrels of oil equivalent each day.
Leading the way in this trend or the majors like Chevron, which are developing the successful adoption of high pressure technology that is weighted to safely operate at up to 20000 Psi equipment and subsea trees.
Jeff: <unk> recently announced the successful startup of their anchor field utilizing 20, K equipment, which is key in helping to unlock the potential in this lower Wilcox trend.
Jeff: Tell us has a significant acreage position in the lower Wilcox trend and we believe this represents a growth opportunity for us with prospects like Coronado enterprise and done Harrow being actively evaluated using current seismic technology.
Jeff: Back in August we acquired a 21, 4% interest in the monument discovery operated by Beacon offshore energy.
Jeff: Looking at slide 14.
Jeff: It was drilled and discovered with two well penetration and was for development back in February of this year.
Jeff: We estimate proved plus probable gross reserves of approximately 115 million barrels of oil equivalent and expect to flow production back to the Shenandoah production facility, which beacon is expected to start up by mid 2025.
Jeff: We expect first production of monument by late 2026 with incremental upside of another 25 up to 35 million barrels of oil equivalent from an additional prospective drilling location on the SaaS side of the main trapping fault in the field.
Jeff: Telus is well positioned to be a key player in this growing Wilcox play and we intend to leverage our broader acreage position to drive future production and reserve growth.
Jeff: Now before turning the call over to Sergio I wanted to touch on the stockholder rights agreement that the board put in place at the beginning of October.
The rights agreement was implemented in response to control it Prasad <unk>.
Jeff: <unk> accumulation of shares resulting in a significant ownership stake of about 24%.
Jeff: The rights agreement is meant to protect all of our stockholders by preventing any single stockholder from taking actual or effective control of tell us without paying a premium for that control.
Jeff: We will continue to work with Grupo Carso, which is controlled by control adverse audio on our mutual investment in the Zama field in Mexico.
Jeff: We will continue to have open and constructive conversations with their team.
Jeff: Now I'll turn the call over to Sergio to address some financial details for the quarter.
Sergio My: Thank you Joe and good morning, again, everyone I'm very pleased to be working closely with Joe and his role as interim CEO.
Sergio My: Before I start I would like to comment on the <unk> Audit Committee internal review, we announced with our earnings release, which has no material impact to our financial results.
Sergio My: In September of 2024, the company received a notification from a third party, suggesting that a mid level employee was engaged in an appropriate procurement practices.
Sergio My: In response, the audit committee of the company's board of Directors conducted a review of the matter with the help of independent legal counsel.
This thorough review did not identified or implicate any other current or former employees.
The employee question is no longer with the company.
Sergio My: The audit Committee also concluded that there were no material financial impact to the company. However in the course of this review the company identified two material weaknesses in our control environment.
Sergio My: First was due to our inability to rely on the review controls performed by the subject employee with respect to the estimated future asset retirement obligations recognized on the balance sheet.
Sergio My: This is an internal controls issue only we concluded that the numbers we have presented in the past can continue to be relied on.
Sergio My: The second material weakness identified was due to an inappropriate segregation of duties without designing and maintaining effective monitoring controls over the timely review of expenditures.
Sergio My: Again, no numbers previously disclosed have changed as a result of this identification.
Sergio My: <unk> plans to file an amended Form 10-K, a to our annual report on Form 10-K for the year ended December 31, 2023, and then amended Form 10-QA for each of the quarterly reports on Form 10-Q for the quarters ended March 31, 2024 and June 32.
Sergio My: <unk> 24, respectively to amend and restate the disclosures to address the material weaknesses identified at the end of 2023 in our internal controls.
Sergio My: We expect to file these amended documents today after market in conjunction with the filing of our third quarter 10-Q.
Sergio My: I want to reemphasize that the numbers have not changed at all these amendments only address new disclosures around internal controls and investors can continue to rely on our previously disclosed numbers.
Speaker Change: As Joe emphasize we continue to be laser focused on executing our business as demonstrated by our strong performance in the third quarter.
Speaker Change: We had another quarter of beating expectations across the board and reported strong results.
Looking at Slide 15, if you take the $122 million of free cash flow in the third quarter and add that to what we achieved during the first half of the year that ramps up to $347 million of free cash flow.
Speaker Change: And as shown on slide 16 during the third quarter, we repaid $100 million of debt our leverage metric reach 0.9 times and we've achieved our long term leverage ratio of below one times are ahead of schedule.
Speaker Change: Our total debt at the end of September stood at 1.3 dollars 75 billion.
Speaker Change: I wanted to point out that the $550 million of debt that analysis repaying this year equates to a value accretion to shareholders of over $3 per share.
Speaker Change: In my opinion. This is a very robust form of value creation for shareholders.
Speaker Change: Finally, as I mentioned, we are on track to fully pay off the revolver by year end and the board continues to evaluate possible increases in capital returned to shareholders, which will be compared to other investment opportunities of the company may have engineered term to generate outsized returns to shareholders and as always is subject to market.
Speaker Change: Conditions.
Speaker Change: I would now like to turn the call back over to Joe to wrap up about <unk> key takeaways.
Speaker Change: Thank you Sergio before concluding I want to touch briefly on the CEO transition and search I'll then address my key initiatives a few comments regarding the fourth quarter outlook and how we're gearing up for 2025.
Speaker Change: First the CEO transition and making the decision to change Ceos. The board determined after extensive deliberation that his talents looks to the future and enters its next phase of growth a new leadership approach and a different skill set was needed to align tallo strategy and execution with the board's view of the best path forward.
Speaker Change: I want to reiterate that the board and I recognize Tim significant achievements advancing <unk>. During his tenure, we all thank him for his contributions as CEO.
Speaker Change: The board in partnership with a nationally recognized external search for us moving forward in a deliberate process to select a new permanent CEO and is interviewing some very impressive and seasoned executives.
Speaker Change: The board is looking for someone with strong offshore exploration and production experience running large operations in the deepwater Gulf of Mexico, and international arenas with a demonstrated track record of disciplined execution and value creation.
Speaker Change: The board is also seeking a CEO, who can build on <unk> existing strengths and aligns with <unk> focus on high margin oil weighted assets and deepwater operations will provide.
Speaker Change: An update once the board has reached a final decision.
Now turning to my key initiatives following our successful post merger integration of quarter doors, we expect to realize significant cost savings and synergies totaling more than $65 million, surpassing our initial expectations as we look to the future I have prioritized continuously assessing <unk> for further opportunities to reduce.
Speaker Change: Costs and improve efficiencies across our operations.
Speaker Change: As interim CEO I am also prioritizing a strong focus on execution and capital discipline to generate significant free cash flow.
Speaker Change: Advancing <unk> drilling program is a key priority with specific emphasis on optimizing existing infrastructure and expanding capacity. Additionally, we are continuing to pursue business development opportunities and invest in high value and high impact assets with potential production and reserve growth similar to what we did with our <unk> acquisition.
Speaker Change: <unk>.
Speaker Change: Now, let's quickly look at the fourth quarter I want to provide an update on the estimated impact on our production from last week's hurricane Rafael in the Gulf and the previously discussed planned downtime at our torrential facility. Unfortunately, we're not free from Hurricanes, just yet hurricane season last from June through his latest beginning of December.
Speaker Change: Fortunately Hurricane Raphael did not have a material impact to our volumes and facilities given the uncertain trajectory of the storm, we did take precautions to evacuate all nonessential personnel and it did have to suspend our drilling activities at katmai a.
Speaker Change: A few of our facilities were shut in for a few days, but we're bringing everything online as we speak so we do not expect any material downtime from the storm.
Speaker Change: Despite the weather impact and planned shut in of Tarantula <unk> capacity expansion, we have improved our 2024 production guidance with a revised estimate of 91 to 94000 barrels of oil equivalent per day.
Speaker Change: And lowered our 2020 for total capital expenditures guidance to $510 million to $530 million.
As we approach the end of the year and reflect on Telus progress Slide 18 is a scorecard that points out how our strong performance and commitment to long term value creation for our stockholders.
Speaker Change: Our focus on capital discipline strategic growth and generating significant free cash flow has not only allowed us to achieve meaningful financial milestones, but also set the stage for an important drilling campaign in 2025.
Speaker Change: As we gear up for our 2025 capital program, we are considering various scenarios that factor and a possible softer commodity price environment.
Speaker Change: Our team is in the process of finalizing the 2025 budget carefully evaluating project mix and capital expenditure plans, which will be heavily dependent on commodity price trends.
If oil prices decreased significantly we have the flexibility to reduce discretionary capex in the latter half of 2025, while continuing to generate meaningful free cash flow even at lower commodity prices. We plan on announcing more detailed information on our capital budget in early 2025.
Speaker Change: Wrapping up I also want to reemphasize, the board's commitment to creating long term stockholder value and ensuring we have the right leadership to make that happen.
Speaker Change: Here to ensure a seamless transition while continuing tireless focus on executing as drilling programs and generating free cash flow until a permanent CEO is selected.
Speaker Change: I have the utmost confidence in <unk> management team its board and the future direction and strategy of the company.
Speaker Change: While the board continues its search for a permanent CEO, who shares telos long term vision and strategy the team and I, we will keep focusing on disciplined execution and doing our very best operationally.
Speaker Change: On a final note I want to thank all the <unk> employees for their focus on safe operations dedication and unwavering commitment to <unk>. During this period of transition. Your efforts are crucial to our continued success and I personally. Thank each of you.
With that we'll now open the lineup for Q&A.
Okay.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by number one on your Touchtone phone.
Speaker Change: If you have a problem that Johan has been reached.
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Youre using a speakerphone please lift the handset before pressing any piece.
Speaker Change: One moment. Please for your first question.
Speaker Change: Yeah.
Speaker Change: Your first question comes from the line of Leo Mariani from Rod. Your line is now open. Please ask your question.
Speaker Change: Hi, everyone why don't you follow up a little bit on the production here.
Speaker Change: Just wanted to get a better sense. If you guys could quantify what the downtime was in <unk>.
Speaker Change: From the storms.
Speaker Change: And it sounds like obviously, the last storm Raphael had fairly limited downtime in fourth quarter, but you guys did mentioned shutting down tarantula. So do you have kind of an estimate of what youre, assuming for downtime in fourth quarter and thats baked into the guidance.
Speaker Change: Hey, Leo good morning, Thanks for the question.
Speaker Change: So we did have some downtime in the third quarter, but we have multiple named storms and hurricanes coming through the Gulf. So we did have to shut in some of our facilities from time to time, we have not disclosed that publicly yet.
Speaker Change: But suffice it to say that the asset base is performing incredibly well.
Speaker Change: Even with those shut ins, which were more or less in line with what we were estimating internally.
Speaker Change: The assets outperformed and ultimately we ended up with a much better production number in the third quarter than than what everybody was expecting so we're very pleased with the way the assets are performing.
Speaker Change: In the fourth quarter as Joe mentioned.
Speaker Change: We did have to shut in a few of our platforms for the for the Hurricane Raphael we had to reevaluate some nonessential personnel because the the direction of the storm was it was very uncertain during various times there, but ultimately the.
Speaker Change: The impact is not going to be at that high I think we are still very confident on the 91 to 94 for the full year that was after we analyze the impact of Rafael So we feel very very good about fourth quarter, even with that.
Speaker Change: Even with that storm and even with the shut in and our Tarantula facility, which is now complete by the way.
Speaker Change: Okay.
Speaker Change: And then with respect to activity as we roll into 225, I mean, it sounds like Thats at West Vela rig is going to be running on the majority of the year next year, just looking at kind of the.
Speaker Change: The drilling plan for the next three wells here.
Speaker Change: Just wanted to kind of get a sense I mean directionally as a result of that I'm, assuming that you guys think capital will be up 25 versus 24.
Speaker Change: Hey, Leo this is Joe I'll take that one so yeah look obviously as I've mentioned earlier.
Speaker Change: The drilling program was delayed.
Speaker Change: Due to the previous operator, and the Hurricanes this summer.
Speaker Change: So that we got started with our drilling program a little bit later, so that means some of the shift of capital from this year moved into next year. So I think it's fair to say that our capex will be a little higher next year.
Speaker Change: And particularly because of the West Vela right now we've got a commitment to maintain the west Vela basically through kind of the Helms deep program than we have an option that we can exercise to keep it if we want to keep going or let it go at that time. So I think it's fair to say that westfalia will be with us probably until at least the end of the second quarter, possibly even too.
Speaker Change: Into the beginning of the third quarter as I mentioned earlier, we have committed to pick up the conqueror rig.
Speaker Change: Trans Ocean, so that'll allow us to complete <unk>. Our intention is now to use that to also complete katmai.
Speaker Change: We are in discussions with transocean or whether or not we can keep that rig for the completion of katmai. If we can't then we will have to use the west Vela to complete katmai. So it's a little bit of a timing issue here. So we're going to have to.
Speaker Change: Manage through that but yes. So I think it's fair to say, we will keep the west Vela certainly through the end of the second quarter probably into the third quarter.
Speaker Change: Okay appreciate that thanks.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of <unk> from Goldman Sachs. Your line is now open. Please ask your question.
Speaker Change: Hi, Good morning, Tim and thank you for taking my question I was just wondering if you could speak a little bit about the outlook for M&A in the Gulf of Mexico.
Speaker Change: On a kind of broader basis advertising, specifically, how do you view the opportunity set for incremental acquisitions for towers from here do you expect the Gulf of Mexico to continue to be a strong area of M&A activity. Thank you yeah. Thank you <unk>. Good morning, I. Appreciate that question, Yeah look obviously, the Gulf of Mexico, as our backyard and we.
Speaker Change: We know it extremely well and remained very active in it I think M&A activity well first off the financial assurance.
Plan that the bite administration rolled out certainly has put a little bit of a chilling effect on M&A in the Gulf.
Speaker Change: Certainly the.
Speaker Change: Some of the uncertainty around how that program is going to be administered I think has caused some of the majors to pull back in terms of some of their divestitures. Obviously, that's been a big source of opportunity for us and others is a major selling off non core assets that we see opportunities on you know now with the Trump administration coming in.
Speaker Change: It is a little unclear, how thats going to affect the financial assurance plan I suspect that there'll be changes potentially even rolling it back some I don't think they will eliminate it but potentially roll. It back. So my hope is that we'll free up it will start to see some more M&A activity come back into the golf, which I think would be a good thing obviously.
<unk> has been a consolidator we've grown through acquisitions.
Speaker Change: As I mentioned in my in my prepared remarks, we certainly are looking for additional business opportunities similar to.
Speaker Change: What we did at monument right. We think there are some real opportunities out there for us to continue to grow and look I don't need to.
Speaker Change: Paint the picture for you. So today at our size you know producing 90000 barrels plus a day.
Speaker Change: We're going to produce 33 34 million barrels a year. So it's incumbent on us certainly to be looking for larger projects larger targets similar to what we did at katmai very similar to what we're doing at dinner as you know, we're chasing bigger objectives now.
Speaker Change: And that would include doing some larger M&A type projects.
Speaker Change: We obviously with our <unk> acquisition last year in quarter, North which have been both very highly successful for us I don't think youll see us take down another big company, obviously, there's not a whole lot left in the Gulf, but we are trying to really focus on what we think are more high impact.
Speaker Change: High growth potential type acquisitions very similar to what we did at monument. So those are the types of things that we're focusing on and I do think youll see hopefully more opportunities out there look I mean as you know the Gulf is not a place that anybody can do alone not even the majors can do things alone everybody's got a partner up we all know each other we all.
Speaker Change: Worked well together, so I think there'll be continued opportunities for us in the Gulf of Mexico next year.
Speaker Change: That's very helpful. Thank you and then my second question also is on <unk>.
Excuse me that the leverage target ahead of schedule and congratulations on that point I was wondering if you could speak a bit on your appetite to further allocate free cash flow towards incremental debt reduction from current levels into next year and then any thoughts on how you weight that relative to other applications of that capital. Thank you.
Speaker Change: Hey, Greg this is Sergio.
Can answer that so I can start answering jochen.
Speaker Change: Can come in as well. So we are still focused on kind of repaying the revolver by year end and we feel very confident that we can get there. So that is the near term focus and beyond that the board will continue to evaluate how we can deploy capital deploy free cash flow, whether that's going to be towards.
Speaker Change: Share repurchases or any other sort of or any other form of capital return to shareholders. We also need to weigh that to kind of the commodity backdrop, and whether we should preserve liquidity versus actually actively buying back our stock and also look at other investment opportunities that we might have in the near term, we have a pretty robust pipeline of things.
Speaker Change: So we could do.
Speaker Change: So all of those things will all are being considered actively by the board, but I would say in the near term. The focus is to continue to repay the revolver, which we believe we're gonna be successful that by the end of the year.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Your next question comes from the line of Mike <unk> from Stifel. Your line is now open. Please ask your question.
Speaker Change: Good morning, Joe wanted to ask you about the CEO change as you and the board look to fill that position.
Speaker Change: The company has historically focused on acquiring assets in the Gulf of Mexico, exploiting them in drilling and occasional high impact well, there's obviously a big disconnect between the PV 10 value your reserves net of the debt.
Speaker Change: <unk> price.
Speaker Change: Do you expect to.
Change that strategy at all I guess, what are you what are you looking for specifically with the new CEO and where do you see that CEO, taking the company.
Speaker Change: Yes, no great question. Thanks, Michael Yeah look you know as I said earlier I mean, the board is being very deliberate.
Speaker Change: Look we are talking to and interviewing a number of really really high.
Speaker Change: A very impressive seasoned executives.
Speaker Change: But I would say our individual I would say that have real gravitas and it had been a part of building large organizations.
Speaker Change: Again as I said earlier <unk> is now a large company producing a.
Speaker Change: 33 to 34 million barrels a year. So we're going to have to chase bigger bigger targets and look it's fair to say, we have to even look beyond our shores international arenas to continue to.
Speaker Change: Pursue larger targets so so.
Speaker Change: In terms of change of change in the strategy I don't see the new CEO altering the strategy materially, meaning we will still continue to be an acquirer.
Speaker Change: But we also are going to have to pursue larger projects.
Speaker Change: And so the ultra deep water.
Speaker Change: Plus even into the International Arena, you know historically the company has not done that.
Quite frankly, it has not had the opportunity to really pursue more international type projects. Obviously, we have Mexico, great discovery in Zama <unk>.
Speaker Change: Seven years into it and still still have not eat it. So there's a lot of frustration there as you can imagine a world class asset but.
Speaker Change: We don't get any credit for it today. So so we definitely stepped on some land mines, there and that's going to be part of what the new CEO is going to help us avoid stepping on landmines as we think about international projects. So so fundamentally I don't see the the strategy changing dramatically I think if anything there is an advancement of the strategy but.
Speaker Change: We have to be chasing bigger objectives now so that's where the new CEO will come in to help us.
Speaker Change: I appreciate that detail.
Speaker Change: About capex Directionally being up next year I guess.
Speaker Change: Kevin My two coming on SUNS spear. This recent Brutus re completion.
Speaker Change: Obviously, you haven't given guidance here on 25 production, yet, but just relative to 'twenty. Four can you say directionally, where do you think that'll be yes look I mean so.
Don: Don we are I'm, a big believer in building budgets that you focus on what's discretionary and what's non discretionary.
Don: We are concerned about it potentially softer commodity price environment.
Well, you know as well as I do that you know everything we do is long lead times right. So it's not like there are some like some of the onshore guys that can pivot on a dime.
Don: We have to make long term decisions.
Don: Kind of almost regardless of price.
Don: Just because these projects take one to two to three years to develop so but we have tried to or are working on a budget that we've got a pretty fixed program in the first half of the year, obviously with the West Vela rig committed we're looking at really the second half of the year, which really impacts more of the 2026 profile. So in terms of what I see.
Don: Today, I mean, I think volumes will probably be in the flat to up and thats kind of where we're focusing on right now.
Don: Obviously, we're doing everything we can to accelerate where we can if prices.
Don: <unk> stay where they are let's call it something with a seven in front of it I think youll see us hopefully accelerate if you see prices drop back into the six or even fives youll definitely see us look to slow activity down in order to protect the balance sheet and.
Don: Maximize free cash flow.
Speaker Change: I appreciate it thank you.
Speaker Change: Your next question comes from the line of Paul Diamond from Citi. Your line is now open. Please ask your question.
Paul Diamond: Thank you and good morning, all thanks for taking my call just wanted to touch quickly on facility expansion. A tarantula you mentioned going from 27 to 35 I just wanted to get some idea of I guess, how how reasonable is that further is there what type of constraints would be to expand that facility or any others.
Speaker Change: Incrementally.
Speaker Change: Thank you Paul I'll take that yeah look.
Speaker Change: We spend a lot of time talking about that.
Speaker Change: We so first off.
Speaker Change: The turnaround is basically complete we're starting to bring the volumes back up and slowly ramping them. We do have to commission a new vessel. So we won't be able to really hit kind of the full rate until in full rate right. Now is probably around 32000 barrels a day until sometime in early December.
Speaker Change: We will have to when we drill <unk> number two.
Speaker Change: And right now you know obviously were going to bump up both cat, one east, which is our east east well.
Speaker Change: As well as Cat My West number one we're drilling the number two well, which again, we hope to be online.
Speaker Change: Half of next year at that point, we will be able to hopefully bring all up to full rate at 35 between now and then we certainly are trying to figure out if there is incremental ways for us to debottleneck.
Speaker Change: That facility part of our challenge really is the flow line between the manifold I E. The ocean floor back to the host facility. That's part of our constraint is that pipeline itself is kind of limited about how much volume we can push through it you know.
Speaker Change: As I touched on we are continuing to work our seismic.
Speaker Change: <unk> reprocessing in this area, we are seeing additional opportunities.
Speaker Change: That if they materialize, we think there could be incremental drilling in this area. If that's the case then probably one of the things that we're going to have to evaluate and we are actively looking at it is laying what we call a loop line right.
Speaker Change: Additional flow line.
Speaker Change: From the manifold back to the torrential facility. In addition to that we will have to expand tarantula expanding tarantula somewhat of our problem is we are.
Speaker Change: Constrained by the deck space Theres only so much room on the facility for us to be able to add additional equipment. We have you know I came via the quarter North acquisition. So I was on that board and we had evaluated even building a sister kind of host platform next to it.
Speaker Change: Quite frankly that that's more capex that we want to spend the right answer is trying to figure out if we can maximize the deck space at tarantula.
Speaker Change: We have plenty of export pipeline.
Speaker Change: Pipeline capacity to get off the tarantula, our real problem is just the deck space and how much equipment can we put on the facility itself. So a lot of work is going into that as we speak I mean literally we met on it we made earlier about every week as we're trying to figure out how we can ramp up the facility. There you know one of the challenge we always face though.
Speaker Change: And and really our philosophy is.
Speaker Change: We hate to build overbuild, a facility right, where youre building a facility for a kind of a peak rate that will only last six months or less or a year and that's a lot of capital. So we tend to try and not build to the maximum but we try and build to a longer term.
Speaker Change: Trying to hold the facility flat for a longer period of time, we think that's a better use of capital a better return on our investment and quite frankly, sometimes better for the reservoir. So all of that is going into our analytics as we think about how we can expand that facility and bring on incremental capital or incremental production look I'd love to get the facility up to.
Speaker Change: About 40000 barrels a day and if I could hold it at 40000 barrels a day I think that would be an absolutely excellent outcome for us. So trust me when I tell you.
Speaker Change: There's a lot of smart people here working on that challenge.
Speaker Change: But again I think ultimately for us to really ramp up the production even more will have to consider laying an additional flow line, which I will tell you is not a cheap endeavor.
Speaker Change: Okay.
Speaker Change: Understood I appreciate the clarity and just one quick one on the hedging book.
Speaker Change: As you guys look out towards an uncertain pricing environment in 'twenty, five and beyond I guess, how does that or how do you see that impacting your rate of pad you're willing to do so and should we expect to see any modulation of up or down from where we currently sit.
Sergio My: Hey, Paul This is Serge thanks for the question so I mean, we.
Sergio My: We are fairly consistent with our hedging practices. So I don't think we're necessarily going to deviate that much from it we have a fair bit of 'twenty fives production already hedged in the seventies.
Sergio My: We're always going to look to continue.
Sergio My: <unk> continued to add to the hedge book as we are as we go along so like I said I don't think we're going to change materially how we do it.
Sergio My: I think it's got fairly consistent way and it's been very successful in the past. So we're going to continue to do that but as I said, we have a fair bit almost half of our 2025 production already hedged into <unk> and a little bit of 26, not too far from there.
Speaker Change: Understood I appreciate the clarity.
Speaker Change: Okay.
Speaker Change: Once again, ladies and gentlemen to ask a question.
Speaker Change: Please press star followed by number one on your Touchtone phone, you'll have a problem that you had this race.
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Speaker Change: <unk> fallen.
Speaker Change: Your next question comes from the line of Michael Rowe of Bickering Energy Partners. Your line is now open. Please ask your question.
Speaker Change: Hi, good morning.
Speaker Change: I'd like to go back to your comments, Joe surrounding the capital flexibility in the back half of 'twenty five.
Speaker Change: And a softer pricing environment. So recognize these are some long term projects, but at some point a decision needs to get made whether to go forward with that discretionary spending. So my question is when does that decision get made.
Speaker Change: And does that look like a specific projects gets pushed out in time or is this sort of the.
Speaker Change: Cutting of the high risk projects from the 25 plan, yes. That's a great question. Thank you Michael Yeah look.
Speaker Change: So yeah.
Speaker Change: I would describe it I think you've heard us talk about this before.
Speaker Change: We always.
Speaker Change: We're moving forward with every project that we think we would want to drill next year and that includes getting permits and.
Speaker Change: Even spending capital on some long lead items the projects that would be discretionary kind of in the second half of the year I would describe those kind of as the mid market rigs. So these are going to be.
Speaker Change: Not your big Drillships that we need to bring in but kind of what we call. The mid market and there are certainly more rig availability in that market. So these tend to be projects that are off of existing infrastructure that we can tie back to our existing infrastructure fairly quickly.
Speaker Change: Or to other other host platforms that we either have pahs or we are already in discussions with those oh.
Speaker Change: Host operators. So in terms of timing look we pretty much have to start making decisions really by the end of the first quarter for those projects to kind of be go or no go.
Speaker Change: So it's not like we can pivot we've got to commit to the rigs. So I would say by the time, we get to call. It March were either were either committing to some of that capital or we're not there's probably a little bit of it may drag into even the beginning of the second quarter that we can make some of those decisions, but we can't.
Speaker Change: Drag it out too long so again, unlike my onshore counterparts, where they can kind of pick up and drop rigs pretty quickly. We have to we have to work a little closely with the existing rig.
Speaker Change: Providers in order to get those rigs secured.
Speaker Change: Great. Thank you that's helpful color.
Speaker Change: With my next question is just on the.
Speaker Change: Impacts of Hurricane season look it's good to see the assets performing at the upper end of guidance and beating consensus oil production estimates despite such a busy hurricane season.
Speaker Change: We always ask about the impacts that shut ins and evacuations have on production, but sort of like to take a different approach and ask how it impacts sort of the financial costs of evacuations and production shut ins. So if theres any color you can provide on sort of.
Speaker Change: The operating or capital costs that are tied to.
Such frequent evacuations during the hurricane season would be great.
Speaker Change: Yeah, No. That's a great question, Michael and I May ask Jon's Bath to give you a little bit of color, but I'll take a first cut at it yeah look you know.
Speaker Change: Every time, a a storm brews up.
Speaker Change: John and his team we've got a whole group of guys that we pull together.
Speaker Change: Very quickly to evaluate decisions around shut ins and evacuations.
We always err on the side of conservative and being safe.
Speaker Change: We never want to put people at risk.
Speaker Change: In case, the storm and you know how these storms are I mean candidly hurricane Raphael I'm not sure in my lifetime I've seen a category one category two store and we saw erratic and just kind of float around the golf. So it was highly frustrating.
Speaker Change: We were trying to make decisions about shut ins and obviously, we had to suspend drilling operations at katmai because of the sea states.
Speaker Change: But look there is a real cost every time, we have to evacuate I mean case in point.
Speaker Change: I mean honestly.
We've had over 500 people non essential people on some of our platforms over the past couple of weeks in particular around the torrential turnaround. So you can imagine when we say we're evacuating nonessential personnel that is not a minor statement. Okay that is involving a lot of helicopters and a lot of boats having to get.
Speaker Change: People off of these platforms and take them onshore and a lot of times put them up in hotels. So that we can bring them back as soon as the storms are over so there is a real cost every time, we have one of these storms. So so that's that's kind of where we are in terms of quantifying. It I mean, it varies obviously from storm to storm. So it's hard for me to give you a number.
Speaker Change: But I wanted to give you a little sense that it is not inconsequential number.
Speaker Change: Michael did I lose you.
Michael Rowe: No you got me thank you.
Michael Rowe: That's good detail.
Michael Rowe: Okay.
Speaker Change: Thank you we do not have further questions at this time I would now like to turn back the call over to John Mills.
Speaker Change: Please go ahead.
John Mills: Thank you alright, well, ladies and gentlemen look first off I really really appreciate everybody's time I.
John Mills: I Hope this was helpful. Obviously as I said earlier, you know I'm really.
John Mills: Cited and really proud to be here.
John Mills:
John Mills: Just tell US is just an extraordinary oriented organization. The employees, we have some really high talented employees here and I couldnt be more proud to be a part of this organization.
John Mills: I do want to thank.
Speaker Change: Thank the employees they've really embraced me a welcomed me into the organization. We have a lot to do here. We're super excited not only about what we've got going on now but really into 2025. So so again, thank you Sergio and I definitely plan on being on the road hopefully we get a chance to see some of you while we're on the road.
Speaker Change: Can answer more questions in the future.
Speaker Change: That will let everybody, we'll let you go.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Yeah.