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spk11: Good day, everyone. Welcome to Cosmos Energy's first quarter 2022 conference call. Just a reminder, today's call is being recorded. At this time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Cosmos Energy. Please go ahead.
spk10: Thank you, Operator, and thanks to everyone for joining us today. This morning, we issued our first quarter earnings release. This release and the slide presentation to accompany today's call are available on the Investors page of our website. Joining me on the call today to go through the materials are Andy Ingalls, Chairman and CEO, and Neil Sharpe, CFO. During today's presentation, we will make forward-looking statements that refer to our estimates, plans, and expectations. Actual results and outcomes could differ materially due to factors we note in this presentation and in our UK and SEC filings. Please refer to our annual report, stock exchange announcement, and SEC filings for more details. These documents are available on our website. And at this time, I'll turn the call over to Andy.
spk01: Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our first quarter results call. I'd like to start today's presentation looking at the company's portfolio, focusing on the key characteristics which differentiate Cosmos and position as well in a rapidly changing oil and gas sector. We'll then talk about the quarter, looking at both the operational and financial progress we've made year-to-date before opening up for Q&A. Starting on slide three. This is a slide we showed with our full year results in February, updated for Tolo's preemption in Ghana. The war in the Ukraine has fundamentally restructured the global oil and gas markets, and we believe we have the right portfolio at the right time to address the challenges this irreversible change has introduced. Our production is expected to grow by approximately 50% in the next two years, helping to provide the oil and gas the world needs today. We have a strategic LNG resource needed to support a just transition in Africa while enhancing energy security. We think these attributes differentiate Cosmos and offer investors a compelling opportunity to own a company with a purpose and a portfolio. that is fit for the future. First, on the left, we have low-cost, high-quality assets. The company is underpinned by world-class fields with a combined 2P reserve life of over 20 years and the longevity to deliver sustainable high-margin cash flow. This gives us the ability to invest in our existing assets to materially grow production and free cash flow while simultaneously reducing debt. And we've made excellent progress on that during the quarter. Second, as the chart on the right shows, we're increasing our exposure to LNG at a time when both the strategic and financial value of gas is rising. We have Tortue Phase 1 expected to come online late next year and have other world-class gas development opportunities in Mauritania and Senegal that should provide further growth beyond 2024. Third, we have a robust balance sheet which continues to get stronger. Liquidity is increasing and absolute debt is reducing, with leverage making good progress towards our year-end target of less than one and a half times at current prices. Fourth, as planned capex falls and free cash flow grows, there is potential for meaningful shareholder returns once we reduce leverage sustainably below our target. And finally, we have strong ESG credentials, underpinned by our commitments to climate targets, track record on sustainability, and strong governance. Our stakeholders are asking us to do more than formulaic ESG, and our company has a bigger agenda. With growing exposure to gas, we support a just energy transition for our host countries in Africa, as well as provide enhanced energy security for regions of the world, Europe in particular, that are looking to diversify their current supply sources. Turning to slide four. Events of the last two months have emphasized the importance of having reliable access to energy and gas in particular. At Cosmos, we have a material stake in a significant and strategic gas resource that can play an important role in enhancing energy security. Over the last 18 months and well before the war in Ukraine, we've seen the impact on gas markets of rising energy demand and years of underinvestment in supply. The chart on the top right, based on Woodmark data, shows how LNG demand is expected to grow sharply over the coming years, almost doubling by 2035, an enduring forecast. The chart on the bottom left of the slide shows the expected shortfall of new LNG needed to satisfy that rising demand has grown significantly in the last few months. This is as a direct result of countries in Europe looking to reduce their dependence on pipeline gas and replace it with LNG from international markets on the back of the war in Ukraine. With demand expected to strengthen further over that period, prices have responded accordingly. The chart on the bottom right shows the forward curve for TTF today versus November last year, with forward prices around $13 and MMBTU higher today on average over the next three and a half years than they were in late 2021. While short-term prices have traded at all-time highs, it's important to look at the impact of the current situation in Europe over the medium to long term. We believe the longer-term outlook for LNG has fundamentally changed, with higher prices likely to persist as a result of a premium placed on greater security and flexibility. At Cosmos, we have around 27% of an estimated 100 TCF of gas in place across Mauritania and Senegal. We expect this gas to have an important role to play in meeting rising demand with enhanced energy security. Turning now to slide five, Our gas in Mauritania and Senegal is cost-advantaged due to both location and also the quality of the resource. It's geographically advantaged into Europe with a major time and distance benefit over U.S. supply, resulting in significantly lower transportation costs. For an LNG cargo traveling from Tortue into one of the existing U.K. terminals or into Willemshaven, the proposed site of one of the new German import terminals, The sailing distance is around 2,000 nautical miles, or a sailing time of five to six days. From the U.S. Gulf Coast, the distance is closer to 6,000 nautical miles, or three times as long to deliver the same cargo, resulting in shipping costs that could almost be $1 MMBTU higher at long-term charter rates. We believe we can produce gas at an upstream cost of approximately $2 to $3 per mm BTU of the life of the field, which compares favorably with current US gas prices of around $8 per mm BTU. Whilst we believe the US will be an important partner to Europe for future LNG supply, The data on the slide shows that Tortue competes favourably on both upstream and transportation costs to Europe, and therefore should have an important role to play in the growing European LNG market. Our suburb gas in Mauritania and Senegal also has a carbon advantage, with almost no CO2 in the feed gas coming from the fields. As a reminder, our gas from phase two of the project is yet to be priced, which creates a significant opportunity for Cosmos when we bring that gas to market. Turning to slide six, this is also a slide we showed at year end, which we've updated for the Tolo preemption and the first quarter of the year, which are now behind us. In one queue, the business generated free cash flow of around $220 million, excluding Tolo preemption proceeds. With minimal capital expenditure in Mauritania and Senegal in the quarter, the number demonstrates the steady state cash flow potential of the business once our growth capex is behind us. At $75, we'd expect the business to generate over $700 million of free cash flow in 2024 as production ramps up and capex falls. At current prices, that number will be significantly higher. We believe this level of cash generation is sustainable and underpinned by our 20-year 2P reserve life, putting us in a position to be able to deliver consistent material shareholder returns at the appropriate time. The combination of quality growth and cash flow generation of our portfolio is unique within our peer group, which is why my team is excited by the future potential of our company. Next, we'll look at the 1Q results in more detail, starting with slide 8. It was another quarter of strong operational financial delivery. Operationally, we performed well, with production at the upper end of our guidance range, helped by the sustained, robust performance of Jubilee in particular, which continues to perform strongly. Adjusting for the impact of Tolo's preemption, we're at the top end of our original guidance. And our developments, both Tortue Phase 1 and Jubilee Southeast remain on track, currently overcoming the more challenging operating environment we're seeing with regards to supply chain issues and cost inflation. FID on Winterfell is expected around mid-year as we continue work to optimize the development in response to the current environment. On the financial side, as I mentioned, we had an excellent quarter for cash generation. helped by the strong production and supportive commodity prices. That strong cash generation, coupled with preemption proceeds from Tolo, allowed us to reduce net debt by $330 million in the quarter, resulting in leverage at the end of one Q of 1.9 times. On the balance sheet, we successfully completed all our financing requirements with the RBL redetermination, RCF refinancing, which were important steps to secure our strong liquidity position. Turning to slide 9, which focuses on the operational performance in the quarter. As I mentioned on the previous slide, Jubilee performance during the quarter was strong, averaging just over 91,000 barrels of oil per day gross, with 99% uptime. The field is currently shut in for the planned two-week shutdown and is expected back online at the end of this week. Prior to the shutdown, Jubilee was producing a daily rate of around 95,000 barrels of oil per day gross, which demonstrates the potential of the field with improved reliability and disciplined investment. We expect an additional production well and water injection well to be online later this quarter, which should help to support production levels through the end of the year. On 10, gross production in the quarter of around 25,000 barrels of oil per day, again with high uptime of 99%, is in line with expectations with the next wells planned for the third quarter. On Jubilee Southeast, we're making good progress with the ordering of long lead items ahead of drilling, which is expected to commence around the end of the year. Production from the First Wells is targeted for mid-2023, which should push gross production at Jubilee over 100,000 barrels of oil per day. On the OXY transaction, the completion of the Petro SA preemption has not yet taken place and we'll update the market in due course once it has been done, although the impact in our production and guidance is immaterial. In actual Guinea, gross production in the quarter of around 35,000 barrels of oil per day was supported by high uptime on the SAVA FPSO. The reliability projects we've invested in over the past several years are delivering with 99% uptime at Sabre within the quarter. Combined with the benefit of the wells we drilled in the second half of the year, first quarter production was 15% higher than 4Q 2021. In the quarter, we also successfully completed the ACUMA upgrade project, which increases our ability to support additional ESPs, which we started to install in April to further support production levels. In the Gulf of Mexico, average production in the quarter was around 19,000 barrels of oil equivalent per day net, impacted by unplanned facility downtimes. All facilities are now back online, and April production was around 22,000 barrels of oil equivalent per day net. We're currently drawing the Kodiak sidetrack with production expected next quarter. Turning to slide 10, which focuses on three low-cost resource additions in the Gulf of Mexico and Exxon Guinea, deepening in our existing asset base. Combined, we're adding around 12 million barrels of resource at a total cost of around $4 per barrel with very attractive economics. Firstly, on Winterfell, we increased our interest in the central Winterfell blocks where we have the initial discovery and successful appraisal well. We acquired an additional 5.5% from one of the partners for around $10 million taking our overall interest in those four core blocks to around 22% and to 36.5% in the de-risked northern blocks. The consideration will be offset by capital reductions elsewhere in the Gulf of Mexico business units. Secondly, we exercise our preferential right to purchase an additional 6% in Kodiak for a total cost of around $28 million, with the first installment in 2022 and a subsequent deferred payment. It's important to note the original transaction was negotiated largely in 2021 at much lower oil prices, which created the opportunity for Cosmos. On Kodiak, the transaction has a forecast Payback around 13 months at $75 per barrel and an IRR of over 95%. At the current oil price strip, payback should be less than a year with an IRR of above 180%. To fund the Kodiak preemption, we'll recycle a small amount of the Ghana preemption process to invest in this compelling opportunity. Third, alongside our JV partners, we've agreed with the Ministry of Mines and Hydrocarbons in Exeter or Guinea to extend the Block G license to 2040, adding 11 years to SABRE and six years to Accumate, which supports the next phase of investment in the country. As part of the extension, we're paying a signature bonus, which is already included in our four-year CAPEX guidance, and have agreed to undertake a work program focusing on the next infill and exploration drilling campaign. The extension adds around 6 million barrels of 2P reserves, which generates around $100 million of NPV10 at $75 Brent net to Cosmos. Turning to slide 11, our developments in Mauritania and Senegal. Phase one of Tortue continues to advance with all major work streams making progress in the quarter. On the hub terminal, construction continues on schedule with the 21st and final caissons shipped offshore in early March 2022 with three caissons left to be installed. On the subsea, the offshore installation campaign is expected to commence this month. Drilling of the four wells required for first gas commenced last month with two top holes completed. On the FPSO, mechanical completion continues. There was a two-week COVID-related lockdown of the Costco yard in China in early April, but that now has been removed and the yard is back up and running. As the operator communicated in its first quarter results call last week, the FPSO is on the critical path and the team is working hard to mitigate these disruptions and maintain the contract to sail away schedule of N3Q. The FLNG vessel is making good progress at the Kapoyard in Singapore, with the pipe rack installation now complete. Overall, the project was around 75% complete at the end of the first quarter, with first gas target in the third quarter next year. On Torchy Phase 2, we continue to work closely with the operator, the governments and the NOCs to optimize the development scheme with regards to both scale and timing. That work is progressing and we expect a development decision around mid-year with formal feed and FID to follow. It's important we manage future cost pressures in the right way to maintain the project's attractive economics. On Borrella and Yaka-Turanga, we continue to work with both governments and our partners to progress development concepts that will optimally position the projects to take advantage of the current market conditions. With that, I'll hand over to Neil to take you through the financials for the quarter.
spk08: Thanks, Andy, and good morning and good afternoon to everyone. On the back of the robust operational performance Andy talked about for the quarter, we posted strong financial performance. the key highlights outlined on this slide. EBITDAX of $430 million was over 25% higher than the fourth quarter, thanks to the full impact of the OxyGona transaction in the quarter and strong realized prices. Net debt fell over 10% from year-end, which coupled with the strong EBITDAX performance drove leverage to 1.9x at the end of the 1Q, a significant reduction from last quarter. Free cash flow in the quarter was approximately $220 million, an increase of over 60% on our previous quarter, demonstrating the cash generative ability of our low-cost portfolio. With good performance across the portfolio, liquidity rose by around 20% over that period. Turning to slide 13, we completed the RBL redetermination and RCF refinancing at the end of the quarter with liquidity rising to over $900 million, and we expect it to continue to increase further through year-end. The right-hand chart shows we have no material maturities until 2025, after repaying around $100 million on the RBL in the first quarter. As we generate cash, we plan to pay down additional debt, pushing debt maturities out even further. Turning to slide 14, which looks at the quarter in more detail. As Andy mentioned, net production of 72,600 barrels of oil equivalent per day was at the upper end of our guidance range, up almost 40% on the same quarter last year. Realized price per barrel after hedging impacts was $88 per barrel, almost double the same period last year. On cost, we performed in line with guidance, with higher off-ex per barrel this quarter versus last year, largely a result of lifting a 10 cargo this quarter. Total capex in the quarter was just over $100 million, excluding the impact from the Telo preemption. There was very little capex for Mauritania-Senegal in one queue, as we continued to benefit from the FPSO sale transaction last year, although we expected to increase in the second quarter. The inflation we are forecasting for 2022 is minor. As a result of the longer-term nature of our contracts with the inflation, we have experienced rising from the variable elements in those contracts, such as fuel. We have also mitigated inflation this year by drawing down on existing inventory for some materials. On our largest development projects, we have also locked in large components of our future capital spend, reflected in the progress of GTA, Phase 1, Jubilee Southeast, and to a lesser extent, Winterfell. although even for that project, we have committed to long leads representing approximately 10% of the total cost of phase one of that development. That said, we do expect increased costs to show up next year if we remain in an inflationary environment. Turning to slide 15, as I mentioned on my introduction slide, we've made good progress on leverage in the quarter with the combination of rising EBITDAX and significant debt paydown. Quarter-end leverage of 1.9x was a meaningful reduction from around 2.5 times at year-end 2021. At current prices, we remain well on track to hit our year-end leverage target of below 1.5 times with further absolute debt reduction a key priority. The bullets on the left show the progress we have made so far in 2022 with more to go later in the year. At the current strip, we'd expect a further $200 million plus of free cash flow and a likely payment from Shell in the coming months on the back of the expiration success they've had from their first two wells in Namibia, supporting total debt reduction of approximately $550 to $600 million this year. I'll now hand it back to Andy to conclude today's presentation.
spk01: Thanks, Neil. Turning slide 16 to wrap up today's presentation. In summary, we're delivering on our promises for today while building a company for the future. Our producing assets are performing and generating material free cash flow. Our defined development projects are progressing well despite the challenging environment. We're growing our exposure to international LNG at a time when gas and LNG demand is rising sharply. On the back of strong cash and EBITDAX performance, leverage is falling and liquidity is rising. And finally, we're committed to a just energy transition and can play an important role in enhancing the energy security of those nations looking to diversify future energy supply. Thank you, and I'd now like to turn the call over to the operator to open the session for questions. Operator.
spk11: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad and a confirmation tone to indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
spk02: Thank you.
spk11: Our first question is from the line of Neil Mehta with Goldman Sachs. Please receive your questions.
spk07: Hi, Tim. Thanks so much for taking the time this morning. The first question is around TOR2 Phase 2 and would love your perspective. We got a little bit of color from the operator a few days ago, but your perspective on are we tracking towards a new FID and then To the extent you can talk about it, how do you think the economics of that incremental growth project have evolved as it is much lower capital intensity?
spk01: Yeah, thanks, Neil. Yeah, I think we're taking the time to make sure that we've got the right scale and fundamental concept both in terms of the scale of the project and timing to fully optimize the resource. I think there's been a lot of changes in the market and we need to make sure that we're bringing the right project forward with the right timing. We're clearly at an inflationary period, and one of the things that I think both BP and Cosmos are aware of is we need to make sure that it's fully optimized and we're putting in the right capital for a long-term project at a potentially inflationary period. So we have the ability to expand the project and build on the current infrastructure that we've put in place, and that's clearly our focus. And as we've said in the past, you know, the hub terminal will serve as an offloading point for future expansion of the project. We have the ability to expand the offshore at a relatively low cost. So we believe we've got a cost-competitive project. We just need to make sure that we're very disciplined about the capital that we put into that, you know, given, you know, the more challenging supply chain and inflationary environment we're seeing.
spk07: I want to stick with Tor2 for the second question, which is the project's up to 75% construction now. What's the biggest risk around execution? Is it COVID or is it something else? What steps are you and the operator taking to mitigate said risk?
spk01: Yeah, well, look, as I said in my remarks, as you go through the various work streams, the FPSO is on the critical path. You know, nothing has changed. The key next step is clearly the sail away from the yard in Costco, which is close to Shanghai in China. You know, we have had a short interruption with the lockdown of the yard for... a couple of weeks. And again, as the operator said on their call, I think the team has done an incredible job to keep the project moving forward in that environment. So that's the thing that we're really focused on now is the release of the FPSO to enable it to then sail to Mauritania and Senegal. And then we can start, as it were, all of the hookup activities, which would commence at the beginning of next year. So that's the critical issue that we're focused on. As I said, we've commenced the drilling. That's going well. I think the hub terminal, we were concerned in the past around COVID-related issues there, but obviously we're making good progress on that. Subsea installation will start this month. And the FLNG vessel is being built in Singapore, where I think there's less of a risk of COVID-19. So I think the FPSO remains the item that we're focused on. Thank you, Tim.
spk02: Thank you.
spk11: Our next question is from the line of Charles Mead with Johnson Rice. Please proceed with your question.
spk05: Good morning, Andy, Neil, and to the rest of the Cosmos crew there. Andy, I wonder if you could elaborate a little bit more on the the inflation that you're seeing. I think you referenced it a couple times in your preparer comments, but are the concerns you're confronting, are they just cost or are they also on availability? And is it, I think you've touched on this some already with the FPSO, but is it Is it more around, you know, just give us a flavor, is it more around drilling or facilities or something else?
spk01: Yeah, well, look, you know, I think, as I said in my prepared remarks, I think that, you know, as it were, deep water is slightly different from onshore in a sense because you have longer-term contracts. I think we've done a really good job in mitigating the impacts in 2022. You know, as Neil mentioned, I think we've probably seen a little bit in some of the, you know, sort of commodities, you know, almost fuel costs, actually. But apart from that, nothing really of any great scale. And actually, we've mitigated that. And as we said, we've included a couple of new opportunities in the Gulf of Mexico and in Exxon Guinea and still kept our sort of CapEx guidance in the same place. So I think the first, you know, message, Charles, is that you know, it is a period where we've got to be phenomenally disciplined around the allocation of capital and therefore to ensure that, you know, we're absolutely focused on execution and doing everything to the highest possible standard. So that's 2022. As you look forward to 23, you know, I think you're seeing inflation really across the board, you know, whether it's the deep water rig market, whether it's actually connected to the fundamental sort of commodity prices. You know, we're probably seeing deep water rigs, you know, over the last two years from sort of, you know, $200,000 per day probably into the low to mid 300s, yeah? So maybe, you know, around 75%, you could see casings sort of similar sort of numbers, supply vessels the same. And I think the market is adequately supplied at the moment, but you are seeing a tightening of that market. Riggs would be an example of that, which is why we're getting ahead with sort of the long leads in particular on our projects, both in Jubilee Southeast and on Winterfell. So I think it is a time for real discipline, anticipating the market tightness, and then actually trying to get ahead of it. You know, and I think, you know, I sort of put the COVID-related issues in China sort of in a separate area, because I think those are very, very specific. So hopefully that gives you a little more color, I think, around, you know, our approach. And, you know, to me, it is about discipline. You've got to make sure that In a higher price world, you have to be able to execute to a high standard, and that's what we're doing.
spk05: That is helpful, Andy. My second question is actually about the possibility of share buybacks. I know this may seem like it's looking too far down the timeline, but the truth is you're 18 months away or 19 months away from from that 700-plus million. And I know you're focused on projects between here and there, and then you've probably got some work you want to do on the debt side of the balance sheet. But can you give a sense for you and the board, is this something that you guys have spoken about or would think about, whether opportunistically on a day like today or whether it's something that would be perhaps programmatic, if your share price is still in the same ballpark?
spk01: Well, look, I think we've been clear, Charles, that the first agenda item is around debt reduction. And we need to get the balance sheet sustainably below a leverage level of around, you know, one and a half. And clearly it's about a sustainable... price environment that delivers that. So I think that is, you know, the first focus. And I think through 2022, that's absolutely what we intend to do. You know, we believe at current oil prices, we can get below one and a half by year end. And I think then you start a slightly different conversation around, you know, where do we believe we are on debt reduction, further debt reduction? Where are we in terms of a sustainable leverage level and what opportunities would that create for us? So I think, you know, in a sense, the messaging, nothing's changed. I think the point you're pushing on is that the future may well be accelerating towards you and how do you take account of that? But we just want to be very disciplined about what we're doing. We're disciplined about the capital in terms of our growth options. We're disciplined around the cash flow, how it's being used. And then I think, you know, when we've got to a position where we feel we have the balance sheet in the right place, then I think share buy banks would be one of the things that we would look at hard.
spk05: Got it. That's helpful.
spk11: Thanks, Andy.
spk01: Thanks.
spk11: The next question is from the line of Bob Brackett with Bernstein Research. Please receive their questions.
spk06: Good morning. You highlighted a couple transactions with acquisition prices around $4 of barrel oil equivalent. Can you talk to how you did those deals, the appetite to do more of those, and how it might inform your strategy?
spk01: Yeah, thanks, Bob. Look, they're both, I would say, in the bracket of being opportunistic. They're relatively small, but they are important. What I like about them, they're in fields that we understand today. We're deepening in our existing asset base. And I think that is actually a very efficient way, as it were, to continue to grow the company. So, you know, Winterfell arose. You know, one of the partners had a large share than they would typically carry through the development phase, and we were able to negotiate that, I think, you know, at a time when there was a favorable environment. The Kodiak, you know, preemption actually was – I think, inked in back in 2021. It took some time for all of the deal to close and therefore the preemption to come forward. But again, it was priced in a very favorable environment and therefore we were able to take advantage of it. You know, as you look beyond, I would say we've been really disciplined with our M&A. We're clear about, you know, Pursuing deals where we believe they are consistent with the strategy of the company. You know, shorter term, high margin oil growth, supported by longer dated quality gas. We're looking to deepen in areas that we understand and therefore where there is true economic value that we can add. and fundamentally they need to be cash accretive and continue to strengthen the balance sheet. I think our track record on deals is actually aligned with those criteria, and if we see opportunities that enable us to continue that, we will do it. I think clearly in today's price environment, I think it's slightly tougher, but that's the path we're on.
spk06: Appreciate that. The follow-up would be the journey time from Shanghai to Greater Tortoise, perhaps 60 days. If hookup is in one queue, it sort of implies that even an early four-queue sail away would still be okay on that critical path. Is that the right way to think about it, or it's more complex than that?
spk01: No, Bob, as always, you've got the numbers. What I would say is depending on sailing time and the transit speed, it's probably 60 to 90 days, put in a bracket like 60 to 90. 90 would be the outer edge, 60 would be the shorter edge. Yes, so look, you're right. There is a degree of flexibility, but clearly this is the item that we're focused on intently because You know, then, you know, obviously the hookup of the SPO, FPSO, then allows you to start the subsea completion work, the tiebacks, the FPSO, et cetera. Yeah. So, you know, it is absolutely on the critical path. And as you well know, with projects of this scale, there's always sort of opportunities to mitigate an overrun in one area with other activity. Yeah. But you basically got the timeline. Yeah.
spk06: That's clear. A final very small one. Winterfell is a tieback. Have you decided on the host to which it ties back?
spk01: No. We're in negotiation with several opportunities at the moment.
spk06: Very good. Thank you.
spk01: Thanks.
spk11: Our next question is from the line of James Heisey with Barclays. Please proceed with your question.
spk09: Hi there. Yeah, I've got a couple of questions on the tortuary projects. I guess first on the FPSO sail away schedule, is the plan to hit that end Q3 target by carrying over some of the work when the vessel arrives on location? And then on the stage two, how should we think about inflationary pressures impacting the previous cost estimate of less than a billion dollars gross? I guess, is that figure still valid?
spk01: Yeah, thanks, James. Look, yeah, you've obviously, you know, the most important part with a project of this is to ensure that you minimize that carryover because there is a cost multiple of taking jobs out of a yard to offshore. So that's clearly the point of optimization now. How do you ensure that you're not taking significant man-hours offshore? So I think our objective is for the FPS, so to say, with very little carryover. That traditionally has been the way to deliver successful offshore projects, and that's clearly the focus of BP today. So I think you've asked the right question, and clearly from our perspective it is an important criteria to ensure that we deliver both on time and on budget. Yeah. And in terms of, you know, phase two, yeah, it is really important, you know, that we, you know, we put capital in a slightly inflationary period that is truly, you know, efficient. And, you know, again, you know, as you go through cycles. to ensure that we're not investing at a time, putting heavy amounts of capital in when inflationary pressures are there. So that's the reason for going back and making sure that we've got a properly optimized concept, both in terms of scale and timing, and those inflationary pressures. And it's not only the inflationary, but it's actually the execution issues on the supply chain have been properly evaluated. So that's the work that's ongoing at the moment with our partners and with the government.
spk09: Okay, thanks. And just to follow up that last comment then, is it potentially we end up looking at like a Tortua phase one and a half, where you kind of upscale the project, but not to the size that you were previously talking about on Tortua phase two?
spk01: Look, again, what we're trying to do is make sure that we've got the right concept for the environment, yeah? So I think that, you know, as it were, we're going back and making sure that the work that we're ensuring is fully captures the timing and the scale to best execute the project. It's a great resource. It's a resource that the world needs. We've got to make sure that we've properly optimized it.
spk02: Okay. Thank you.
spk11: Thank you. As a reminder, you may press star 1 to ask a question at this time. The next question comes from the line of Mark Wilson with Jefferies. Please proceed with your questions.
spk00: Hi, good afternoon, good morning, wherever you are. I'd like to ask about the greater Tortu area, or rather the volumes outside of Tortu in Berala and Yak-Altaranga. You've got a very clear path to monetization of Tortu Phase 1 and then Phase 2. You've got over 20 years of reserve life. So these additional volumes, very large gas volumes in terms of in place, what would be the the strategy for monetization of those now for Cosmos? Has the market view towards them changed in the last few years, a few years before you had a sale process going? And indeed, would there be any additional appraisal drilling required, do you think, to maximize valuation there? Thanks.
spk01: Yeah, Mark, good questions. Significant resource. The fundamental strategy has not changed. I think when you look at Yakuturanga, it's adjacent to the Dakar Peninsula. The first phase of Yakuturanga is focused on a gas-to-power scheme, so relatively low cost, almost early production scheme. It allows you actually to appraise while developing, so you wouldn't do additional work. appraisal. And for the country, what it does is it displaces diesel burning power with gas burnings, both lower cost, lower carbon. So I think you can see Yakutia-Ranga being developed in that way. And that's the agenda with the government about how do we move forward with that scheme, you know, right-sizing the initial development that gives them the sort of base load power, gas power that allows them to, you know, deal more credibly with a very volatile external world. So I don't think, you know, nothing sort of changed on that and almost the volatility externally has actually probably reinforced that agenda. When you look at Boralla, it's different. I think Boralla is driven by resources in the country with a relatively low population, sort of around 4 million people. Use domestically is probably not the long-term agenda. There is a need for gas resource in the near term, and there are other fields that can be developed to do that. So Borrella is fundamentally how do you get to a low-cost modular development that allows you to access the market you know, with the right timing and sort of build another export scheme. So that's the concept work that we're pursuing now. So I think there are clear plans. And in our view today is we have a resource where significant value can be added by the progression of those development plans and making them real. And I think the external environment has made that easier rather than harder. And, you know, that's the work that we're pursuing with both, you know, with BP and the governments.
spk00: Okay, understood. I suppose down the line, one of those concept plans have gone through would be a decision of whether Cosmos would enter into such developments. But understood. And the second question, therefore, on Winterfell, I'd just like to ask, you speak about the 100 million of resources in the area, but what sort of percentage of that do you think you develop in the initial phase as Tyvek?
spk01: You probably, you know, I think the initial two, while could grow to something as large as sort of six wells probably to cover the full development. So you think about it in concept, I think we might see three phases of up to six wells. So the initial phase is probably around a third of the resource, something like that. Yeah, maybe a third to a half on the upside, Mark.
spk00: Got it. Okay. No, thank you. I'll hand it over.
spk11: Our next question is from the line of Matthew Smith with Bank of America. Pleased to see you with your question.
spk04: Thanks, and thanks for all the details so far. So let's just do a quick point of clarification left for me, please. And that was, could I just check on your understanding on this sort of Shell expiration campaign so far, whether it's your belief that you've triggered one of the contingent sort of consideration payments at $50 million or whether you think two, and therefore you're already at the cap of $100 million, which you're expecting to receive, please.
spk01: Yeah, thanks, Matt. Yeah, just so we're clear about what we've said. The payment comes following an expiration well that is included in an appraisal plan. So Shell have indicated that they anticipate to drill further at the end of this year, which would require an appraisal plan. Whether it's 50 or 100 would depend on whether they include both discovery wells or one of them.
spk04: Sure. OK. And it's very clear. Thanks, Indy.
spk01: Great. Thanks.
spk11: Thank you. At this time, there are no additional questions. I will hand the floor back to management for any further closing remarks.
spk10: Yeah, thanks to everyone for joining today. Don't hesitate to get in contact if you have any further questions. Thanks very much.
spk11: This will conclude today's conference. We disconnect your lines at this time. We thank you for your participation.
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