Earnings Call: Q2 2021

Aug 4, 2021

Good day, and welcome to the TELUS Energy Second Quarter 2021 Earnings Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Sergio Lightworm, Vice President of Finance, Investor Relations and Treasurer. Please go ahead. Thank you, operator. Good morning, everyone, and welcome to our Q2 of 2021 Earnings Conference Call. Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer Shane Young, Executive Vice President and Chief Financial Officer and Bob Abenshein, Executive Vice President and Head of Operations. Before we get started, I'd like to take this opportunity to remind you that our remarks today 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 in our Form 10 Q for the quarter ending June 30 filed with the SEC yesterday. Any forward looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non GAAP financial measures. A reconciliation of GAAP to non GAAP measures was included in yesterday's earnings press release, which was filed with the SEC and which is also available on our website at talusenergy.com. And now, I'd like to turn the call over to Tim. Thank you, Sergio. Before I specifically discuss the results and recent activities of the 2nd quarter, It's worth reflecting more broadly on the year we've had to date because I'm really excited about the execution and results shown across our entire organization. The team has done a tremendous job. We have seen back to back record production quarters and improving margins. We had a significant deepwater sub salt discovery at Puma West in the Q1 as well as a Successful exploitation drilling program that we're looking to repeat as the rig moves to another key asset. We extended the maturity of our credit facility in an evolving Lending space and recently added a new lending bank to the syndicate. We launched a carbon capture and storage initiative that we believe reshapes what is possible Gulf Coast and Gulf of Mexico Energy Company. It's been a very busy 6 months and I'm encouraged by the great results year to date And I expect this to continue into the second half of this year. Moving into the specifics of the quarter, we're proud to report record for the 2nd straight quarter reaching 66,300 barrels of oil equivalent per day in the 2nd quarter aided by very solid execution on minimizing production downtime. That solid execution coupled with the oil weighted production of 69% oil and 76% total liquid Is reflected in our margins for the quarter, where we recorded adjusted EBITDA margins of over $36 per barrel of oil equivalent or approximately 72%, before including the impact of financial hedges. The realized adjusted EBITDA margin after hedges Approximately $25 per barrel of oil equivalent. This led to an adjusted EBITDA values of over $217,000,000 before hedges and $148,000,000 after hedges. 2nd quarter capital expenditures of $117,000,000 It's expected to be the high quarter for the year as is typically the case in most years when we plan our capital projects around what is generally our best weather window offshore during the Shane will talk about his guidance in his remarks, but we do expect our capital program to taper back materially From here, with significant free cash flow generation in the second half of the year. At Tornado, we drilled and completed our attic well in the 2nd quarter below budget and ahead of schedule. We've increased the water injection rates to over 30,000 barrels of water per day from the injector well that we drilled in 2020. As a result, we are seeing initial production from the Attic well above our original expectation of 8,000 to 10000 barrels of oil equivalent per day gross. This is a very complicated project where the injection well sources water from the same wellbore, which is then immediately injected into the deeper producing B6 sand, Creating reservoir energy to help maintain output in the producing wells. It is the first project of its kind in a deepwater subsea environment, And we're proud to show success from our team's innovative and creative approach here, which is expected to significantly improve recovery and extend the field life of Tornado, one of our key assets. In the Q1 earnings call, we discussed the success of our exploitation program in the Green Canyon field, utilizing for an immediate production impact. That allowed this field to enjoy production rates it has not seen in over 20 years. In the Q2, we moved that platform rig to our Pompano field, where we believe a multiyear field study bolstered by And we expect to see some production from our first project there in the Q4. We are also utilizing the spare capacity of our Pompano facility to host 3rd party production with LLOG Exploration's Praline Discovery initiating 1st oil in the 3rd quarter. As a reminder, production handling fees from this project and from many other projects around our owned infrastructure help lower our already competitive cost structure across our asset base. Additionally, on the non operated side, we also announced the success of our Crown and Anchor development well, which we expect online late in the Q3. In the Q2, we also made key announcements on the ESG front. In May, we presented to the market our long term GHG emissions reduction targets, which is to lower our Scope 1 emissions from our assets by 30% from our 2018 baseline by 2025. We're continuing to advance towards that goal and making solid progress. We also made adjustments to executive compensation to better align specific ESG objectives with a portion of our annual bonus program. From a social and governance perspective, in our most recent annual meeting, we added a key new Board member in Paul Glover. Paula has a long history of advocating for energy efficiency issues and how energy policy impacts local communities. She will bolster our sustainability and community responsibility initiatives and will help inform our ESG reporting going forward. And as a reminder, we Talos' 2nd ESG and Sustainability Report to be published by the end of the Q3. Over a year ago, we initiated an employee led grassroots approach to ESG, Not only looking at more ways to get involved in our communities, but also reviewing where we can apply the same core skill sets that have made us a Successful oil and gas company into the evolving low carbon economy and energy solutions space. We concluded that a natural space where we could leverage Our organization is skill set with the most impact was in carbon capture and storage. In the Q2, we announced an exclusive carbon capture and storage venture Along the U. S. Gulf Coast, we are pleased to be partnering with Storegga Geo Technologies, one of the most recognizable firms in the space And the company responsible for the Acorn project, which is being developed in real time today in the U. K. North Sea with partners including Shell and ExxonMobil. Storrega brings a solid CCS value chain and project delivery track record and was looking to expand in the United States where we will now be their We're excited to be working with them going forward. For Talos, Offshore CCS is a natural extension of our existing skill set, an excellent way for us to leverage our core competencies and add diversity of energy solutions and eventually At important scale to our business, the region contains a significant concentration of the United States industrial and petrochemical activity, It is almost immediately adjacent to one of the largest potential storage provinces in the country as well, located in the inland state and federal waters Of Texas, Louisiana and Alabama, a region we have a long history of operating in safely and successfully. Many of the functions we handle on a daily basis in our hydrocarbon business are directly applicable to the Gulf Coast and offshore carbon capture. Offshore operations and project management, drilling wells, Understanding the appropriate conventional geology for sequestration, seismic data interpretation and reservoir management, as well as Things like regulatory procedures, permitting and leasing. So we see this as a way to take the skills and corporate knowledge we have in house and add a new element to our business. Our CCS offering is off to a fast start since announcement. We built a dedicated team led by our Executive Vice President, Bob Abenshine, We have been advancing numerous discussions with potential partners along the full value chain just in the last 60 days, including emitters, midstream and infrastructure providers and storage site land owners among others. We believe we have a technical and commercial advantage in addition to our speed and commerciality that permeates our culture. We expect CCS could be an integral part of our business going forward and grow into a real driver over time. We are hopeful that we will show progress in this rapidly advancing area in the near term. Across the Gulf and Offshore Mexico, we received disappointing news from the Mexico's Ministry of Energy or Sinera As they awarded unit operatorship of Talus' Zama Discovery to Pemex. To be clear, we are committed to preserving and optimizing the value of our Zama Discovery for shareholders, which includes evaluating all commercial and legal options at our disposal. We will limit our comments on this topic at this point given the sensitivity and evolving status of But I want to reemphasize to our investors that Talos is doing absolutely everything possible given the circumstances to maximize value from this asset. As I reflect on the quarter and our positioning today, it's clear that the investment case in Talos is very solid and continues to be attractive. We're the largest pure play independent in our basin and our assets are strong as evidenced by this quarter's production and margins. We're executing through the drill bit across the board In innovative projects like the Tornado Intra Well Water Flood and exploration partnerships with majors like BP and Chevron and Puma West And in short cycle development opportunities around our infrastructure like Green Canyon 18 and Pompano's platform rig program. We have a strong balance sheet and solid credit, and we are utilizing our core skill set to be a player in a low carbon energy solution. Finally, we are more bullish on the accretive and value creating inorganic growth opportunities through business development and M and A. And we see those not only in the Gulf of Mexico, which remains our core focus area, but outside the GOM, particularly in other basins with rich producing history That we believe where we believe there is also exploration upside. M and A will always be a significant part of our strategy and we continue to actively evaluate opportunities. I'll have some closing comments, but in the interim, I'll hand it over to Shane to provide more financial details for the quarter. Thank you, Tim. Good morning, everybody. We appreciate you taking the time to join our Q2 conference call today. This morning, I will address 4 topics. First, the company record setting results from the Q2. 2nd, the reaffirmation of our full year 2021 guidance. 3rd, I will provide a preview of how we will approach 2022. Finally, I will address the recent success of our RBL extension Now that leaves Talos well positioned for the second half of twenty twenty one and beyond. Suffice it to say, this is a very exciting I'm at Talos with so many positive things happening on both the financial and operating fronts. Let me start with the strong results for the quarter. Realized prices were $64.28 per barrel $3.05 per Mcf, resulting in revenue of approximately $304,000,000 We performed well on the recurring cash cost front with LOE and G and A of less than $12 per BOE and Approximately $2.50 per BOE, respectively. Strong commodity prices, record production and disciplined cash costs resulted in EBITDA of $148,100,000 for the quarter. Adjusted for realized hedge losses, EBITDA would have been a company record $217,300,000 in the 2nd quarter with unhedged margins of over $36 per BOE or roughly 72%. As discussed earlier in the call, the Q2 was expected to be the highest capital quarter for 2021, driven by the high level of operational activity as we took advantage of what is typically the optimal weather window for the year. We expect capital expenditures to taper over the balance of the year and should stay well inside our full year guidance for 2021. The business continues to execute on all fronts. And therefore, we are reiterating our operational and financial guidance for the full year 2021 originally issued back in March. We believe that we are on pace in all production and expense guidance categories. That, coupled with the current commodity price environment, Should generate significant free cash flow for the full year. You can find the specifics of our 2021 guidance included in last night's press release. Looking forward, we are in the very early stages of developing our 2022 outlook and capital program. While it is too early to provide detailed operational and financial guidance, we do expect to stick to our principles in developing that plan. That is having a healthy capital reinvestment rate likely in the range of 60% to 70% of EBITDA and a diversified capital program that delivers new production and significant free cash flow. We expect to allocate D and C capital On the services front, we are seeing slight pressures on the cost of services, but believe this impact should be manageable in our margins and on our capital program economics. We are currently in the process of evaluating our deepwater rig opportunities for next year and we'll provide an update on that in due course. I continue to be pleased with where we stand in terms of delivery on the operations front and our ability to generate We have plenty of liquidity and strong rapidly improving credit ratios. Our leverage metric improved from 2 point 6 times in the Q1 to 2.2 times in the Q2. I expect all these trends to continue through the second half of the year as the capital program tapers and free cash flow generation should increase strongly. Turning to the capital structure. During the quarter, we completed a significant maturity extension on our credit facility, extending the maturity to approximately 3.5 years, Taking the facility maturity to November of 2024. 2020 was a challenging year and we appreciate the pressures The lending community is under and therefore, we are very happy to have the 12 leading commercial banks that participate in our extension. This extension, coupled with our successful refinancing earlier in the year of our high yield notes maturity to 2026, allows us to continue to focus on growing the business, Positioning Talos as a preferred strategic counterparty and maximizing the value of our business to our shareholders. We've been fortunate over the years to have consistently had strong partnerships with our RBL relationship institutions. This week, we were excited to add yet another valuable relationship to our facility between regularly scheduled redeterminations, Adding a 13th lender with a commitment of $75,000,000 to the RBL. This new commitment brings to over $380,000,000 on a pro form a basis at quarter end. We also repaid approximately $65,000,000 of our outstanding RBL balance during the quarter, bringing our drawn balance to $400,000,000 at quarter end. In summary, liquidity is solid and increasing. Total debt is very manageable and declining. Our maturity profile has been materially extended and our credit ratios should continue to significantly improve through year end. All of this should take us back towards levels of pre pandemic balance sheet strength have previously enjoyed. With that, I'll hand the call back over to Tim. Thank you, Shane. It is important for me to reiterate that I have the highest expectations and confidence in our team to deliver on strategic initiatives across the board. We think the Q2 started the process of rethinking the impact of what an independent oil and gas company can become over the next 5 to 10 years. First, we think what we do as an oil and gas company is very important. Delivering low cost and efficient energy improves lives and It is important that the emissions and safety story on those assets improves, not declines, as they move into new hands. We have a history of being a trusted counterparty and we want to stay a leader among independents in this important area. Lastly, As we focus on lowering emissions in our own production, we are also focused on lowering emissions in the communities where we work and live through our CCS initiative. From our huge technical success in Mexico to our innovation at Tornado to our early leadership in carbon capture, we pride ourselves On being a nimble, commercial and an outside of the box team with a tremendous amount of resolve, and we're proud of the success we've had with that approach. As we look forward, I'm counting on our team to continue to deliver with this culture at its core. To conclude our prepared remarks this morning, I'm very pleased with our operational and financial performance in the quarter as well as all that we have accomplished on the strategic front. We are executing well on everything that we can control and delivering solid results while we find ways to add an With that operator, we'll open the line for Q and A. Thank you. We will now begin the question and answer session. The first question will come from Subash Chandra with Northland Securities. Please go ahead. Yes. Hi, everybody. Hey, Tim. I guess a question about 22, and this is really a question for most E and Ps. But as you sort of look at your priorities, And maybe it's a false choice, but I'll lay it out anyway. You talked about a 60% to 75% reinvestment rate. How would I prioritize the following? The reinvestment rate, a production growth cap, which I don't think you've Previously communicated or paying off the revolver given some of the liquidity concerns the industry has been through, I would That might be a priority as well. If you have to choose between those 3 and rank them, How would you? Yes. I wouldn't rank hey, Subash, how are you, man? We wouldn't rank kind of growing production first. I think We certainly want to continue to have that leverage tick down. I mean, I think it's a priority. Shane talked about the direction in which it's going. That's something we're very proud of. In terms of reinvestment rate, I think the one thing that we talked about in previous call and I think that it applies today is, When you think about what we do compared maybe to different than our onshore friends, we're going to reinvest a little bit in exploration. So there's a maintenance component to what we do and then there's an exploration component to what we do. And we've added a little bit of that back and obviously got some good results in Puma West. We want to add more of that back next year as well If we have the right price environment and we have a portfolio where we can dial that back if we don't have that price environment. But if we do, we want to reintroduce that and that's part of that Kind of distribution of reimbursement rate that Shane talked about, and I think it was more 60 to 70 than 75 just by the way. But again, part of that is in that exploration. If you're lucky and you have success in that exploration, we'd anticipate we do. Now you have to think about how to develop those greenfields. And there's a portion of your budget that has to Kind of be involved in that. And that's really where you think about long term value creation is through the drill bit. So it's not about growing production. I think it's really more about Maintaining the right level of free cash flow, maintaining the right level of discipline with respect to paying down the revolver and paying down debt, but reintroducing some of that high impact dollars That you can think about long term as a value creator where you want to be is in a position where you have an abundance of riches and you have to pick between projects. On the revolver, is there a comfort level that you have? We've seen others just kind of want to shake the banks Entirely. And would that be a preference for you? Yes. Look, one thing about the revolver, if you I'm going to hand some of this over to Shane, but if you thought about kind of where we are in kind of the current aspect Banking community, so we had 12 banks affirm a $950,000,000 borrowing base. And we think that's great and we love to have that affirmation. That sets that senior Secured credit capacity. We had commitments at 655 that gave us some room to add banks, and we were able to attract a new bank. And I think just that news alone Speaks to the value in the content of our assets. Shane can talk about the additional capacity, where we like to kind of keep those borrowings. I don't know if you have any kind of comments on that. Yes. So look, again, I think we see people trying to get away from the bank market. We're certainly cognizant of the challenges of the bank market and certainly lived through it a little bit when we went through Our extension process but we have a great relationship with the banks. We want to keep the banks involved. We may get that utilization rate down a little bit, But they're great partners to us, whether it's our hedge book, which we're pretty consistent at, whether it's M and A, whether it's capital markets, whether it's other things, we want to maintain the strong level of relationships That we've always had. And Tim just highlighted that we added a new bank this week. We're glad to do it. I think it's going to be Standing for us. And look, we'll continue to have dialogues as we head into the fall and see where things shake out. But today, we've got 13 banks that are committed to Talos, and we like that I think it's nice to have a bank from a different jurisdiction as well, because it speaks to kind of the direction of where the firm is going, how we think about Where we want to how we want to look 5 to 10 years from now, certainly Centric in the Gulf of Mexico could be in other areas. And I think bringing in an international bank I think solidifies that that message is being received. And then, could you sort of remind us how you're risking weather in the back half as the season is about to Again, if it isn't underway already? Yes. We always and we probably talked about this in previous calls, but we always kind of had this 5 day excuse me, 5 year rolling average of downtime as a starting point as we build our corporate model. And before last year, when we thought about those 5 rolling years, we were averaging I think 6 or 7 days a year where we have some A material level is shut in. A storm sometimes can only shut in 10% of your production for 3 days, that's fine. Another storm may not even be too powerful, it just happens to move Cross your assets and it shuts in 80% of your production for 3 or 4 days. You just never quite know. But we had a nice rolling 5 year average. Last year, I would say disrupted that 5 year average, but we've tried to stay kind of true to that principle. So we didn't put in a Similar year to last year, we think last year was an anomaly, but we did let those days blend into kind of how we thought about what this year could be. I think that's why we guided that down. Now obviously, we're in August and so far so good, and we had a certainly a nice month last month. But we are in that point of the year going forward where the next 3 months could be busy. And so we'll just have to see. If they're slow, we should have a really robust second half of the year. If we have a busy season, Then we might get closer to where we are in guidance. But I think that's why we it's easy to think when you look at the way production is running and our team has done a phenomenal job certainly on the downtime To think about the high end of that guidance, but we're just hitting that time of the year where you just have to recognize you could have some storms. Yes. And then this quarter, P and A was a larger expense and has been I imagine COVID had something to do with it. And you didn't change your overall budget, but I was wondering if there is a back story to the P and A for the quarter, Especially in light of some of the other news announcements we've seen in the Gulf? Yes. No, there's nothing Special about that, it's all weather. Those guys do a nice job of saying, hey, look, where are my best weather months, weather my best weather windows and we're going to And I think that's why typically April, May, June July are really, really good weather windows offshore and you want to get as much And I think we try to reemphasize and we'll continue to work with those who follow our story or when we're on the road that the Q2 is always that lumpy capital And even if a guy comes to me and says, hey, this crew is working great, weather is great, can we move this crew from this platform to another facility and May, it's late May. I'm probably going to say yes to that within the confines of an annual budget, because it just makes good operational sense to take those weather windows. So It's nothing kind of any more complicated than that. Got it. Okay. And final one for me, Tim. You sort of the CPS stuff, I mean, it sounds like it's picking up momentum, etcetera. Could Could you sort of even with a broad brush paint what a final outcome might look like for the project? Yes. I'll start it and if Bob wants to weigh in on a little more, he can as well. I think what's interesting about it and look, Subhash, you've been a thought leader here in reading about this and you're trying to get your investors thinking about it, your clients thinking about this as well. I mean, it's an enormous Industrial Complex along the Gulf Coast, I think 300,000,000 to 350,000,000 metric tons of emissions a year. The current tax structure doesn't work for all emitters. There are certain Emitters that probably need a higher kind of tax credit structure, and I think that's probably coming and we can different conversation for a different time. But there are Some emitters, chemical plants, methane related plants, ammonia plants, where the current tax credit scheme works right now. The question is, When you kind of extract the CO2 and then move it and sequester it, where is the right place to do it? And I think that's the key part here. And the right place to do it Is when you're not around a lot of wells and we think the inland water state waters is a great place to do that. You've got to have the right rock properties at the right depths, The right salinity is in those aquifers. This is what as we contemplate this, it's not for your purposes. We're really talking about just putting away CO2. I think as we looked at it, what we realized is that it's right kind of in down the fairway of what we do very, very well. And it's logistics and it's labor and it's permitting, It's drilling, it's monitoring and these are just yes, the geoscience side of it. These are just skills we have and how do we apply that to get into a different business segment that frankly is a growing And it's one we need if we're going to focus on lowering overall global emissions. So, we started working on it. We talked to our friends at Steregga, Nick, the CEO is there, he's a guy I've known a They wanted to move their business to the states. And I think the way you have to think about a project is, It starts with the store. If you find the right store and that's where you're going to put away the CO2, you can find the right tenant and that's going to be an emitter. And then as you find more tenants, Then you're going to get more throughput through your store and you're going to build the business. And so it's a clustering effect. And I think you really have something that really clicks Almost like a midstream asset, it kind of has it certainly has a predictability to it and you're just trying to add more volume into that store you create. But The value chain is the emitter, a transportation partner and then the store. And Bob and his team are working on all elements of that. And what I would kind of lean on you here a little bit is, when they regardless of some of the issues in Mexico and Certainly, limited on what we can say about that. But the execution of our team and going into an area that came out of the energy I don't think people thought we were going to be the ones that signed that first contract and made that first big discovery. What we're doing in deepwater in that tornado water flood is one of the first of its kind. That's probably what people Didn't think TALUS was going to go do. I wouldn't bet against our team putting something together here. They're working really hard on it. We believe in it. And we just got to keep making progress. And Tim, I promise last one just as a follow-up to that. The midstream element, which is a final element. I guess some of the midstream companies have sort of pushed back on the ability of Older pipes to be retrofit for CO2, how would you characterize I mean, it's just a pretty dense system of pipelines there. Would you bracket Those pipelines in any way that they need to be built within the last several years or to be able to handle CO2 or do you not think it's that Well, so there's a couple of things on that. And it's actually you almost have to pull a map out and look at it. But obviously, yes, there's a lot of infrastructure that can't just For various reasons, CO2 is a corrosive material, there are certain pipe sizes and working pressures. And again, there is a little more I have an in-depth conversation around that, but that doesn't mean some of it can't. Some pipeline systems have redundancies and separate lines and you might be able to use redundant lines. The one thing a lot of these pipelines do have and so much of this is about timing and about urgency and about project deliveries, they have right of ways, they have the space. And that actually is an important key in when you think about putting a project together, which was your original question. So, it's all bespoke, Subash, every one of these is different. They're going to have different partners, different emitters and different geographical locations. There's plenty of room for a lot of different We're not the only ones and we shouldn't be the only ones. But the key elements that some of these midstream guys have, they've got access to emitters and they've got right of ways within their existing infrastructure And the next question will come from David Heikkinen with Heikkinen Energy Advisors. Please go ahead. Good morning, guys. And really wanted Did you all submit a proposal in the Texas Land Office Submission that was due in mid May, are you thinking more Louisiana Coast? I think that I don't think Those submissions are public, David. So if we did, I don't sound like we can talk about. Yes, right. That's right. That's why I'm not answering. But look, here is what I would tell you. The JV we have with Storegga contemplates kind of Corpus Christi through the state of Mississippi now and really even heading into Alabama and Florida. So these guys Our leaders in the space in terms of how they think about these projects, that's a project in the UK North Sea that I think started with 2000000 to 3000000 metric tons of And then by clustering more folks, they could be up to 20. And so can we duplicate that in offshore Texas? Absolutely. Can you duplicate that And the inland waters of Louisiana that you know well so well, David, in your background, absolutely. And so, there isn't an area along the Gulf Coast we're not focused on. Okay. And then looking at like Northern Lights in Norway and Acorn, like leases were awarded in 2019 and they're talking about 2021 for Like planning injection and then upscaling, is that the type of cycle time we're thinking a couple of years from award To getting close to considering injection or having, like you said, opening the store is probably the better description. Just trying to get an idea of cycle versus the North Sea project? Yes. Well, first, David, I don't know if it was I don't know if it was that quick, like on the Acorn project, I think. And again, It's not our project or your project, so we don't want to misquote it. And I don't need Nick calling me saying, get my darn project right. But I think they're kind of FIB ing this year and looking at injecting in 2027? 2020, late 'twenty five. Okay. So Nick would call me. Yes. So they're opening I was using that's the opening of the store component. So you start With FID and then the tenants are coming in, in 5 years is the way to think about it. But I think that 5 years from open Store to inject, we might be able to speed that up again for this. So you're right in the one sense that getting the store and again the store in our view and I think this is the part You understand very well as well is getting the store in the right geology, the right space, the right pore space, the right amount of kind of geographical area, so you can grow a plume. But getting that store in place brings the cluster emitters and now you're working. Can you get first injection sooner here than over there? I think so, by the way, we can capture The carbon emissions right off the stack and move it in the Gulf Coast. There's so much infrastructure, there's so many right aways. I do think we can move on these projects maybe a little quicker, but again, they're also bespoke. It's kind of hard to be able to compare one to the other. What's the distance in Proximity to that first anchor tenant, things like that, David. But yes, I think it starts with the store, but not just the store. If you're going to get a project moving quickly, you've got to have other partners. I mean, you've got to have a transportation partner, you've got to have an anchor tenant on the emitter side. You want all of that to come together as close to the same time as possible, but ultimately it's got to go somewhere. Now, kudos to you all. It reminds me of the vision that Danish Oil and Natural Gas had before they became It takes some years, but a vision in the upstream space It's something we're looking for and I like the way you're thinking. Well, David, I appreciate that. I mean, I think it's not deemphasizing what we do on the oil and gas side. Frankly, we want to be a much bigger conventional oil and gas company. We want to we have ambition of what that needs to look like. And someone needs to own oil and gas assets for the foreseeable future. The bigger companies are thinking about monetizing those assets. But I think for an independent to be relevant in the space going You get away just from oil and gas and kind of what I would call energy solutions. And this is what this is about, using the talent, the team we have to solve more problems And keep it local, and that's really what we're trying to do. And I think I really think we're going to be able to pull it off. We've got a lot of hard work. We got to keep finding partners. But I'm glad you see it because we see it. And if we see it, we're determined to make it work. Yes. I think you all as a partner of choice for Buying properties fits. We saw another private company in the Gulf of Mexico have some liabilities flow back to Hess this year and Probably some flow back to other people and you all are good acquirer and you do things the right way and don't have those abandonment costs come back at the The next question will come from Steven Deckard with KeyBanc. Please go ahead. Hey, guys. With what's happened at Zama, just want to see where you guys plan to focus on Do you think it will be more in the Gulf of Mexico or are you looking at more at other regions? Yes. Well, look, I wouldn't say we've 100% given up on some. I think there's just a process there to try to monetize the right value. And so we won't speak go into great detail, but I would just say, don't let's not consider ourselves giving up. We're going to work hard there and try to create value for shareholders. But as we think about the other areas, yes, look, we're excited about the discovery I actually noticed the other day that it hit BP's earnings release, they mentioned it. So there's a lot more we want to kind of peel the onion back, but there's a right process and timing around that The project is underneath a lot of salt. There is appraisal that we're planning. And so you'll learn more about that in time. But it's in a good neighborhood. It's around a lot of facilities. It speaks to the very thing we're trying to do. There's other emerging plays on the eastern side of the Gulf of Mexico. And I think there's wells that We're not drilling, but some of the majors are drilling that could open up some place where we have a lot of acreage. And so we're excited about some things happening in the eastern side of the deepwater Gulf of Mexico. And then absolutely, we're looking outside the Gulf in areas where we can buy both production or areas where there's greenfield And so, again, we want to be a company that's not only growing the base business through exploitation and M and A, And has that greenfield project, you see the benefit it's created for folks like Hess and is a young engineer, I was at Hess and I'm proud of those guys for what they're But that's you want to have some of that in your portfolio. And so we certainly did in Zama and we still do, We're not giving up on that, but we are absolutely going to keep looking for areas to replace that, both through our own investment and risk taking on our own portfolio or really through potentially other greenfield assets that have been found that are looking for partners. Okay, great. Thanks. And then just with your expectation for higher production in the second half of the year, do you think that kind of puts you towards the high end of your production guidance range For the full year? Hey, Stephen, yes, Shane here. Look, I'd say first half of the year, we averaged 66,200 barrels of oil a day equivalent. Our guidance range is 63,000 to 67,000 and we expect to be higher than 66.2% in the second half of the year. So again, it's a tricky time of year. So we're not coming out with a re guide or any statements, but I think it'd be safe to say That would be our outlook. At this time, there are no further questions in the question queue. This will conclude today's question and answer session. And I would like to turn the conference back over to CEO, Tim Duncan, for any closing remarks. Right. Thank you, operator. And again, thanks everybody for joining the call. Good questions and conversation. Again, the team's execution was fantastic, both in the second quarter and in the first half of the year. As we mentioned, some of the lumpiness on the capital side obviously related to the Q2 weather window, you're going to see that taper off, you're See a lot of free cash flow get generated in the second half of the year. But I think what you also saw in the second quarter that I repeated, Said in my prepared remarks is you're starting to see the vision of what we're trying to become and how we think about ourselves over the next 5 10 years. Only we're trying to grow the oil and gas side, I'm proud of that and proud of what we do. We are tipping our toe into trying to diversify kind of how we're going to look as an energy company going And it's a lot of hard work. We've got a team that's dedicated to doing it and we're excited. We're going to be excited about giving you those updates in the coming quarters. So thanks for your participation and