Good morning, and welcome to the Talos Energy First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Sergio Maiworm, Vice President of Finance, Investor Relations, and Treasurer. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to our first quarter 2022 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 Robin Fielder, Executive Vice President, Low Carbon Strategy and Chief Sustainability Officer. 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 March 31st, 2022, 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 talosenergy.com. Now I'd like to turn the call over to Tim.
Thank you, Sergio. Good morning, everyone, and thank you for joining our earnings call today. As we entered 2022, we had several specific goals for the year. First, we wanted to lower our debt metric to approximately 1x, which would be the lowest since going public in 2018. Second, we wanted to reintroduce high-impact drilling projects into our portfolio and organically grow our reserve base. Third, we wanted to continue to build out our growing carbon capture business. Finally, we wanted to continue to actively pursue accretive M&A deals. After four months into the year with a strong first quarter result and with exciting and tangible milestones still in front of us, I'm confident we are well-positioned to achieve all our goals in 2022. At Talos, we're building what we think the energy company of the future should look like.
One that balances to continue the responsible growth of our upstream business to meet the world's needs, as well as the increasing mandate to reduce our industrial carbon footprint. We are delivering on both of those imperatives, and I'm truly excited to discuss the first quarter and the future of Talos. In the first quarter, Talos generated $414 million in revenue. Coupled with lower than expected operating costs, we generated $208 million in adjusted EBITDA, inclusive of hedge losses and $0.77 of adjusted earnings per share. With a lighter capital investment program in the first quarter, Talos generated over $92 million of free cash flow in the first quarter alone, allowing the company to continue its debt reduction trend and stay on track to reaching our first goal, getting to a 1x leverage target by year-end or sooner.
Shane will spend more time talking about the details of the quarter, including our successful spring borrowing base redetermination that provides increased borrowing capacity and liquidity. On the operational side, our platform rig program is progressing well at Pompano. Approximately 2,400 barrels equivalent per day of added average production in March. We recently spud the Seville exploitation well and look forward to results from that well and at least one additional well from the platform rig later in the year. As we prepare to initiate our open water drilling program in the second half of 2022, we seized an opportunity to extend our rig contract with three additional consecutive well slots, which will now take the contract into 2023 with six straight planned wells.
These additional wells were already expected to be in the 2023 capital program, and in executing them consecutively, we expect to realize significant operational synergies and lower overall cost. More importantly, the extended rig contract assures that in the following 12 months, we can have a balanced portfolio of operated sub-sea projects. Some projects are lower risk sub-sea tiebacks, while others are more impactful, such as our Lime Rock, Venice, and Rigolets prospects. Each of these are tieback candidates to either our Ram Powell or Pompano facilities. Each of these prospects are targeting 10 million-30 million barrels equivalent gross, and each are a one-well sub-sea tieback that could deliver a gross initial production rate between 6,000-10,000 barrels equivalent per day per well. We expect them to be online between late 2023 and throughout 2024, depending on each project's timing.
Working interest levels are expected to be approximately 50%-60% per project. Delivery of this rig is currently scheduled for early in the third quarter, though it may accelerate into the second quarter depending on the timing and the results of ongoing rig operations by the operator that is currently using the rig. On the non-operated portfolio, we expect to participate in three deepwater non-op wells, all sub-sea tiebacks to existing infrastructure, with working interest ranging between 10% and 25%. Amongst these projects is the appraisal of our 2021 Puma West discovery, which is set to spud in the second half of 2022. Moving on to Mexico. Zama remains an important catalyst for the company.
Following the receipt of the final unitization resolution from Mexico's Ministry of Energy, Talos continues to have constructive dialogue with Pemex on how we can move this project towards FID in the most commercially attractive way. We've mentioned in the past that we believe Zama is a valuable project in the company's portfolio, and we will continue our effort to make sure the value of Zama is unlocked for our shareholders. On the carbon capture and sequestration part of the business, it was an exciting quarter for the Talos Low Carbon Solutions team. Our rapidly growing CCS business has had numerous key milestones announced that highlight the speed, the commerciality, and the innovative thinking that our team is bringing to bear and what that new vertical can look like for Talos. In February, we announced two separate projects.
The first, River Bend CCS, is a 26,000-acre sequestration site with exceptional rock properties that can store over 500 million metric tons of CO2 and is centrally located between Baton Rouge and New Orleans, Louisiana. Talos has partnered with EnLink Midstream on the project as an equity partner, providing access to the company's footprint of over 4,000 mi of transportation infrastructure in the region, much of it connected as last mile into numerous industrial sites in the area. Following Riverbend, we separately announced our Coastal Bend project with the Port of Corpus Christi and Howard Energy Partners.
We will be working with the Port Authority as the landowner and Howard as the preferred midstream infrastructure provider in the area to develop another CCS-as-a-service offering to industrial partners along the Port of Corpus Christi, a major export hub in an ideal CCS project setting due to its highly concentrated industrial footprint, in-place transportation infrastructure, and solid geology available on site on port-owned lands. We look forward to advancing both River Bend and Coastal Bend this year with pre-FEED work as well as stratigraphic characterization wells ahead of Class VI EPA permit application submissions, while continuing to maintain discussions with local industrial partners in each market. Lastly, this week we announced an expansion of our Bayou Bend project in Jefferson County, Texas, with the preliminary agreement to bring Chevron into an expanded joint venture with the current partners, Talos and Carbonvert.
This transaction will include a consideration of cash and a capital carry that will cover Talos's costs through FID, which includes FEED studies, a stratigraphic well test, activities related to Class VI permitting, and ultimately, final project approval. Talos will remain the operator of the project, and it is our belief that Chevron's reputation and commitment to investing in CCS-related projects will help kick-start this important hub. This is a major development that speaks to the tangible success that Talos has achieved over the past year in its CCS initiative. We look forward to collaborating with Chevron in the coming months and years to make Bayou Bend the premier CCS solution in the Beaumont-Port Arthur industrial region of Southeast Texas. Robin and I are happy to take questions on any of these developments.
While I talk about low carbon initiatives, it's worth mentioning as a follow-up from our annual ESG report published in the fourth quarter of 2021, our operations team finalized our 2021 emissions intensity data. We saw a 9% decrease in emissions intensities from 2020 and a 27% decrease from our 2018 baseline, putting us well on our way to achieving a 40% reduction stretch goal by 2025. In addition to the emissions we are reducing in our upstream business, the amount of emissions we expect to capture just from our current CCS portfolio alone is significant. Once fully online, we estimate that our four announced CCS projects will be capturing more than 50 x Talos's 2021 upstream Scope 1 emissions.
Finally, on the M&A front, we've continued to actively evaluate a number of business development opportunities and are being patient in identifying the best opportunities for Talos's shareholders. We remain committed to seeking out transactions that are a good fit for our skill sets and strategies, are accretive to our shareholders, and preserve or improve our strong credit position. With those key updates on the progress of our 2022 goals, I'll turn it over to Shane to address some of the financial details of the quarter.
Thank you, Tim, and thank you everybody for joining our call this morning. I'd like to start by congratulating our team on another solid quarter operationally and financially, despite some unplanned third-party shutdowns we experienced. Today, I'd like to cover three things. First, the financial results of the first quarter, and then give some thoughts on the outlook for the second quarter and the full year 2022. Finally, an update on the continued strength of our leverage and liquidity position, including our successful borrowing base redetermination that we announced yesterday. As Tim mentioned in his opening remarks, this quarter's results reflect continued effort to focus on the things we can control, our facilities production performance and control of operational and capital costs. During the quarter, we generated production of 63,200 barrels of oil equivalent, of which 67% was oil and 75% was liquids.
That figure includes the impact of approximately 40 days of unplanned third-party downtime from the Eugene Island pipeline system, totaling 4,700 barrels equivalent impact for the quarter. Realized pricing for the quarter was $93.42 per barrel of oil, $36.54 per barrel of NGLs, and nearly $5 per Mcf on natural gas. With this, we were able to generate quarterly revenue of $414 million. This strong performance was further bolstered by continued focus on cost control, which also contributed to great margins. We generated $208 million of adjusted EBITDA during the quarter, or $36.61 per barrel equivalent, or adjusted EBITDA, excluding hedge losses of $335 million or approximately $59 per barrel equivalent. These amounted to 73% and 81% margins, respectively.
After approximately $85 million of capital expenditures in the quarter, we generated over $90 million of free cash flow before changes in working capital. Importantly, adjusted net income for the quarter was $64 million or $0.77 per diluted share. As previously mentioned, we expect the dry dock process for the HP-1 floating production unit to start during the month of June and run for approximately 45-60 days, impacting production in both the second and third quarters with production deferrals. During the second quarter, we currently expect total planned downtime, inclusive of the HP-1 planned downtime to negatively impact the quarter's production by between 4,500 and 5,000 barrels equivalent per day, similar to the downtime impact we experienced in the first quarter. This planned downtime has been accounted for in our full-year 2022 production guidance previously issued.
Further, our previously issued cost guidance was inclusive of inflationary pressures that we are currently seeing throughout the cost structure for expenses like helicopters, service vessels, personnel, materials, and rigs. The team relentlessly worked to manage all these items and will continue to provide updates accordingly if our cost expectations for the year materially change. During the quarter, we paid down an additional $35 million on our credit facility and reduced our leverage debt to 1.4x net debt to EBITDA, down from 1.7x at year-end. Over the past 12 months, we have now reduced net debt by over $160 million and are continuing our aggressive debt reduction plan in order to reach our 1x net debt to EBITDA goal by year-end 2022, if not sooner.
Liquidity at quarter end stood at $516 million, including over $450 million available under our credit facility. This brings our credit profile back to around the same strong levels we knew pre-pandemic. Earlier this week, we successfully concluded our semiannual borrowing base redetermination process. We increased our borrowing base by $150 million from $950 million to $1.1 billion, and increased our commitments to $806 million, with two lenders opting to increase their existing commitments. We continue to appreciate the supportiveness of our RBL syndicate partners as we execute our growth plans in both our upstream and CCS businesses. Finally, as a reminder, we will host our first ever Analyst Investor Day in New York City later this month on May 24th.
There, we plan to discuss our many recent strategic and execution milestones, our portfolio and future capital allocation opportunities, and our outlook for both the upstream and CCS businesses, among many other topics. We invite all of our investors and research analysts to join us for this important and informative day. With that, I will hand the call back to Tim.
Thank you, Shane. Talos is celebrating our 10-year anniversary in 2022, and as I reflect on the last 10 years of Talos's history, I'm extremely honored to have been a part of advancing the extraordinary business that we have built. However, our valuation today reflects a steep discount to the value of our current production and does not give us credit for any of the value wedges of our business, namely our carbon capture business, discovered resources such as Puma West and Zama, and the value of our drilling portfolio. Today, I still see Talos as an incredible investment opportunity and one that I believe is amongst the best opportunities in the energy sector. With that operator, we'll open up the line for Q&A.
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Subash Chandra with Benchmark Company. Please go ahead.
Yeah. Hey, good morning, guys. So first question, I guess is on the program. You know, congrats on getting it going. So on the rig, did Eni extend their contract for the rig and through October, or do you have a shot of getting it earlier than that? Which I think you might have said. Second, you know, when should we see the production response from the sequence of wells? Do we have to wait for the program to end, or can, you know, based on success with subsea tiebacks, you know, begin immediately?
Yeah. Hey, Subhash. Thanks for joining the call. It's good to hear from you. You know, I think the current operator, who is Eni, has that rig through whatever operation they're in the middle of right now. It was always the plan that we would receive that rig after the current operation. Now the timing of when that operation ends can always be in flux. Look, we don't dive into the details of exactly what Eni is doing. The question really on the rig extension was, we were gonna take that rig, always planned to be in the third quarter, initiate a three-project program, and it was gonna start with a recompletion on a deepwater well. That would have production response fairly quickly.
It would move into these high impact projects that we've been waiting to put together, that we really wanted to wait for a more constructive commodity environment to do so, and we have that now. What was presented to us was an idea that, hey, look, the operator that was gonna receive the rig after us, which would push us into 2023, was rethinking their portfolio, and did we want an opportunity to extend the rig once we received it? You know, we looked at the rig market and where it could be going in 2023, and we looked at, you know, the efficiencies of having a rig for a little longer period of time. You think about logistics, you think about the operating crew.
Our goal is to always be engaged in two to three kind of subsea projects a year on the operated basis if we can do so. It was gonna be in the plans to have these projects teed up for 2023. I think this was just an opportunity to extend it. You know, we've got some ideas that are in the Mississippi Canyon area. They're around infrastructure that we own and control and operate. I would say to answer your other question, though, you know, we're drilling these targets that can be anywhere between 10 million and 30 million barrel equivalent, one well subsea tieback. I mean, these are good projects that are exactly down the middle of our fairway, but they aren't projects that are gonna come online in six months.
They are projects that are gonna take, you know, 15 months, maybe 24 months. This is production we're gonna see late in 2023 and into 2024. We still feel fairly positive about the, you know, constructive aspects of the commodity environment at that time. It's a great time to invest in these projects now and really see the benefit of that revenue and income in late 2023 and 2024.
Okay, thanks. Thanks for that, Tim. Could you shed, you know, any more light on, you know, sort of how the Chevron transaction occurred? You know, was that something that you went looking for partners or they came to you? It seems like, you know, they brought expertise, I guess, quote unquote, but they basically brought a checkbook, it seems, and no existing assets. You know, how you sort of interpret that in, given the balance of your CCS projects and the bankability or, I guess, the, you know, the value that can be recognized in those CCS projects.
Yeah. Yeah. No, it's a good question. I'm gonna hand it over to Robin to kind of give her views of that partnership and the benefits and what that partnership can do for us. You know, as we've built these out, you know, our whole goal was to have conviction that we could do this, that we could be a player in the space, that we could certainly manage the sequestration and the monitoring, and we brought that to bear. You know, we knew that if we were finding the right areas, we absolutely understood the majors were gonna be involved in this. They're the right guys to be involved in this. They're investing in tech. They've been studying this for a long time.
If we pick the right locations and the right markets and the right pore space, that we might have you know an opportunity to partner with some of these majors. You know, Chevron is a huge global brand. They do an excellent job. They are clearly committed. You've seen their CEO in multiple outlets talk about their commitment to the space. You know, we think it's a great validation. Robin will talk about that project specifically and her views of it. I think broadly, you know, the fact that we've been able to retain our operatorship is important. Look, these are companies that we partner with, for example, in Puma West.
I think as a smaller company, we've built a reputation of being very smart technical team, a good operations team, and I think we always want good partnerships. Robin, you know, additional thoughts on that particular project.
Sure. Thanks, Tim, and thanks, Subhash, for the question. You know, as we're looking across the value chain and thinking about strategic partners, it's making sure we're all aligned, that we wanna have calculated speed, maintain that first-mover advantage, be that partner of choice, whether it's with our equity partners or recognizing we're customer-facing, and so we wanna be that customer facing brand, and so having the right mix there across the value chain. But as Tim touched on, is that operational assurance piece and making sure we've got some experience in the partnership.
Now with our partner, Carbonvert, and now with Chevron, we feel like we've got a lot of the right skill sets, experience, expertise, and all things that we're gonna need to develop these projects from filing our first Class VI permits to all the way through the injection and long-term monitoring programs here. We're excited to have this new group together as we're tackling a very large regional hub. We know there's tremendous amount of emissions in the Beaumont-Port Arthur corridor, and so we're excited about being able to lead that premier project and to have this fantastic partnership at the first and only offshore CCS site in the United States.
Yeah. The other thing I'd add before we wrap up and go on to, you know, other questions is you have to think about this end to end. You know, on one end, you have an industrial emitter, and a lot of those are big investment-grade companies. They're thinking about their counterparties. Look, people have to think about counterparty risk and indemnities and things of that nature. On the other end, you have a landowner, whether that's a state or a private mineral owner, and they're thinking about when they want project delivery, the urgency in which they'll get revenue. You've got to marry all of that. I think the right partnership does that. Look, we think we bring a lot to the table. Chevron adds a little more to that. Again, it's great validation for us.
Look, we're managing capital as well. We're always sensitive about that, Subash. How are we managing capital? To get a carry through FID is extremely important, for a company of our size, and I think it's the responsible thing for us to do.
Yeah. Hey, Robin, Tim. Okay. I'll just follow up a couple of things there. There is regulatory approval, you know, required as you stated in the release, and there's a, you know, a cash and carry. One is, how would you handicap regulatory approval on getting this done? Second is, will you, at some point, share the terms of, you know, the cash and carry on this? And I'll just throw it out there. Last question, Tim, you did talk more specifically about M&A this time, or Shane did, I think. Could you just say, you know, between international and domestic, what the split of opportunities might be? Thank you very much.
Sure. I'll try to tackle those in order. First, yes, we're very excited about this announcement of this MOU. We're rapidly advancing and progressing toward definitive agreements, and we do have the intent, once we have the transaction finalized, that we would talk about those specifics at the time. Really just wanted to announce the partnership idea and the concepts here to really put that extra emphasis of bringing that additional expertise and experience to develop this regional hub for the Port Arthur Beaumont region. As far as how we're looking, we certainly wanted to start our CCS portfolio along the U.S. Gulf Coast because of both the rock quality we've got there, so the world-class storage, and then also when we think about all these emission clusters. We are looking beyond.
We're looking at other places in North America and internationally. First and foremost, we want to advance the existing projects that we've announced. We've got our ear to the ground and looking to see where else we might be able to participate. Since we're approaching this with a portfolio mindset, we've got four announced projects today, but we could add in a few more. As demonstrated here, we don't have to be at 100% of each of these. We can monetize pieces of it and spread our dollars around, but also our exposure around as we get some exposure to some of these other markets.
Yeah. Then I think on M&A, Subhash asked on the oil and gas side of the house. Look, you know, we're always in the market. It was frustrating almost not to get a deal done last year. We're trying to make that a priority this year, but it's got to make sense. It's got to have some core principles. Our absolute number one goal for the year is to get this leverage target back down to 1x. We're committed to it. A transaction has to fit inside of that. It needs to be accretive to our shareholders. We absolutely understand that. We always start in the Gulf because we know we can effect synergies in the Gulf.
You know, look, we've said we've looked outside the basin a little bit, you know, and because if it can fit our geological and operating skill set, then we'll look at it. You know, look, there's no breaking news other than it's been a focal point for this year. It's good to tell the market that we're a counterparty that's ready to engage if something makes sense to engage.
Thank you.
The next question comes from [Jared Drew] with Stifel. Please go ahead.
Hey, good morning, guys.
Morning.
First question was just about inflation. I know it's talked about in the opening remarks, and it's just been a hot topic with onshore operators and really the whole industry. Just seeing how Talos is going about trying to mitigate inflation. Thanks.
Yeah. Well, look, one of them was that rig decision, you know. You know, there's no doubt the rig market is increasing. You know what? It's hard to tell where the deepwater float rig market is gonna be just, you know, picking a time, say, call it the second half of 2023. I mean, what would that market look like? You know, when we had an opportunity and we know we want to engage, like I mentioned in the previous question, in two to three of these projects a year where we're operating a subsea tieback. You know, the idea of getting this rig and just extending it doesn't add capital necessarily in 2022 as much as it would be in 2023.
Capturing that now is, at some measure, a way to kind of manage inflation in that marketplace. Look, we're seeing it everywhere. You're seeing it on labor. You know, you have to think about our operations maybe a little differently than some of the onshore names you follow. We use a lot of boats. We use a lot of helicopters, a lot of fuel involved. That's an operating cost. When prices are high, that's high. Obviously, there's labor pressures, there's supply chain issues that if you want it on time a little quicker, you might have to pay a little more. All that's in the system. I think our team. Look, we had a big, you know, first quarter beat on OpEx. You know, yeah, Shane, you might have some comments.
We had a first quarter beat on OpEx, and it just speaks to the team's ability to try to manage through that. Shane, any thoughts on your side?
Yeah, look, I would just say you did. You saw in the first quarter, you know, we were all really proud of the sort of way the business performed in terms of keeping costs in check. That's great. I think, you know, we are, you know, well within our guidance outlook still for the full year, which I think was LOE $300-$320. We bake in our outlook for inflationary pressures into that outlook. Cannot say we're always right, but last year, I think as you remember, we came in below the low end of our LOE and CapEx guidance, frankly. Not to say that happens every year, but we certainly try to bake in an anticipation of some cost creep.
You know, I would just kind of use this moment as a way to just really remind everybody about the second and third quarter. We talk about the HP-1, we talk about the production deferrals. I think we've also guided that it's probably an extra $20 million or so in expense. I wouldn't expect to see $60 million a quarter each quarter over the next couple when we incorporate some of that HP-1 expenditure in there as well.
We're talking about dry dock specifically, right?
Yeah, on the dry dock expense.
Perfect. Thank you for that. One last question. After the federal lease sale in November was rejected, blocked by the federal court, do you have any color on what you believe the federal lease sale and environment could look like this year? Thanks.
Yeah, look, I think it's going to be. We talked about this in the past. I would suspect it would be difficult to anticipate another sale this year. We, you know, I do think ultimately these sales need to come back. It's, it's, you know, the Outer Continental Shelf Lands Act is law, and that requires a five-year plan, and there is a five-year plan that was in the previous administration. That plan is expiring in June, and then that plan then gets reinitiated, you know, for another five-year leasing period. The planning process of getting that five-year plan in place is ongoing right now. We try to engage with Interior on that actively. There's trade groups that engage on that actively.
I think there's an absolute expectation that there's gonna be a new five-year plan, and part of that plan should be federal lease sales. They're seeing a little bit of that. Again, the way that's managed offshore is slightly different than how that's managed onshore. You've seen some of that come back onshore. It's a different five-year plan for offshore. You know, I think just by the nature of the way the administration's prioritizing this and moving on this, obviously, it's taking longer than we would want. You know, you can't delay this forever with, I think, a little bit of upheaval up in Washington. We would expect it. We have trade groups focused on it. We've got a huge acres position. I think we've talked about that in the past, about 1.3 million acres.
A huge position both on our producing leases and primary term. We feel good about our inventory, and we feel good that ultimately, you know, you're gonna see lease sales again. I think there's a temporary pause. It's frustrating. We're not fans of it. I think we're fairly vocal about that with other operators in the Gulf of Mexico, but it is law to have lease sales in the Gulf of Mexico. We should all have the expectation that they come back.
Perfect. Thank you. That does it for me. Thanks, guys.
All right.
The next question comes from Jeff Robertson with Water Tower Research. Please go ahead.
Thank you. Good morning. Tim, on the deepwater or on the subsea tieback program, are there any long lead time items that make sense to try to order to shorten the cycle time of bringing discoveries on?
Yeah, there is, Jeff, and it's a good question, and I think it's an underappreciated part of how we have to manage things in the Gulf of Mexico. Again, another reason why when we had an opportunity to take a rig that could be extended into the 2023 program, where we didn't have a rig, you know, kinda dedicated at the time, but go ahead and use the rig that we're gonna go use in 2022 and extend it into 2023, you can really start to think about planning. That planning can be beyond, you know, just umbilicals and trees. It can be tubulars. Again, we all know there's supply chain issues.
If you can kinda plan now as opposed to waiting six months from now and then hoping you can get that at another delivery in 2023, I think we can all agree just in time is being challenged in the current global supply chain issues. You're absolutely right. Now, sometimes, as you figure out where these projects are gonna go and exactly the order you wanna operate some of these projects, particularly the ones on the later side of that rig cycle, you're really buying inventory, and then you're placing that inventory to those projects later. You know, it's just a way you need to manage kinda where the supply chain is. Absolutely, for us to accelerate first oil on these subsea projects, which are always gonna be a little longer than things that we do from a platform.
You always have to remember the time lag is going to be there. If we can shorten that by having long leads and taking a little bit of risk up front on some of those long lead items, I think it's a responsible thing for us to do. We just have to be smart on how we do it. We just can't order absolutely everything and assume nothing but great success all the time. We have to be measured on a risk basis on how we do that. You know, we've got a pretty sophisticated team that thinks about that. Yeah, we're doing it, and it's important that we do it.
Tim, that can add some value to those prospects if, in terms of their present value, correct?
Well, it adds time. I mean, you know, if you do it the right way and you have some success, it might, you know, on a project that could take 24 months, you can make it in 18 months. You know? It absolutely allows you to beat what would be a, you know, kind of a wait and see. If you wait and see on everything before you order that, then you're gonna, you know, you're gonna add six months to a lot of these projects. If you add six months to every subsea tieback project you wanna do, then the whole portfolio looks a little less interesting. Again, the balance is, I can't assume I'm gonna have great success on everything, and I'm just ordering inventory under the sun. That's not responsible.
I don't wanna wait for success on projects that we think have a 2 in 3, 3 in 4 chance of success, right? You just have to be balanced in how you do it and knowing where the benefits are. Sometimes when you have your own infrastructure, you know, it's another reason to lean in a little bit because you can make it happen even faster. You know, it's a lot that goes into it, but we think about it all the time, and we certainly engage in long leads. There's no doubt about it.
Question on Bayou Bend. Is Chevron a potential anchor customer for that project as well as being involved with their current participation?
Yeah. We didn't announce any associated emissions with this project. Right now we're just talking about bringing them in as a partner to the Bayou Bend. Obviously, we got to get definitive agreements there, and so we're just excited to have some of that CCS experience in some of the projects around the globe that they've done and at this point.
I mean, look, these guys have all made the appropriate pledges around what they're doing with emissions. Our hope is obviously that, you know, in a big organization, you've got a lot of JVs in the downstream space. If you really study it, Jeff, it's probably worth studying. It's interesting, the level of JVs in the downstream space. You know, you hope there's influence there. Again, I think the critical part was to have someone so committed to the space in this project. I think that just helps the execution.
Last question. Shane, on the 12% notes, since it's 2022, I know they're not due until 2026, but rates are going up. Is there, do you all look at any options to r efinance those at a lower cost?
You know, we think about that a lot. I mean, it's something that we'd like to do. It was the right execution at the time we did the notes back in December of 2020, as the market was opening up after the low points in the pandemic. I would tell you or remind you, to the extent you have it is, you know, they're not callable till January 15, 2023. You know, there are some potential make whole provisions, but that math gets you know, gets pretty snappy.
I think, you know, as soon as we get a little closer to that window, we'll, you know, we will continue to monitor it and try and figure out if there's something interesting we can do there to lower the overall cost of capital of the business.
Thank you.
If you have a question, please press star then one. The next question comes from Steven Dechert with KeyBanc Capital Markets. Please go ahead.
Hey, guys. I just wanna see how you guys are thinking about hedging in this current commodity price environment. Thanks.
Yeah. Look, thanks, Steven. Thanks for joining the call. I mean, you know, I'll let Shane talk about kind of the, you know, prescriptiveness of how we hedge. I would say, you know, I think it's interesting. It's frustrating when hedges aren't working in your favor. It's great when they are. I would tell you that over the course, since probably the first quarter of 2014, the entirety of the hedge book, which is interesting 'cause you think about, you know, the waves, if you will, on the commodity between 2000 and 2014. I think the entirety of that hedge book over that time is about break even. As painful as we might see hedge losses this quarter, we're proud of where we are, we're proud of where the balance sheet is.
On those quarters where it swung the other way, clearly that helped us survive what were turbulent times that a lot of companies couldn't survive. I think it gets to you have to have a policy around that. You can't just run away and hope that you're gonna be in a constructive environment forever, as frustrating it is. You know, Shane, maybe just a couple comments...
Yeah.
...on how we think about hedges.
Yeah, I'll think about it. Look, we've got some minimum requirements that are in place related to the credit agreements that we have. Clearly we're gonna continue to adhere to that. I'd also say those minimums line up quite well with sort of our internal views and policies around sort of minimum hedge. I think you'll continue to see us put hedges on and build that book as time goes on.
You know, I would say, just as a matter of note, you know, and you can look at the hedge schedule we got in the press release and in the 10-Q as well, that really after this quarter, there's a pretty steep drop-off just in terms of volume metrics, in terms of what's in place. You're still gonna see them in those low to mid-50s for the remainder of the year, the hedge book. Once you get past this year, you see obviously the volumes are lower again. Also you start to see that hedge book being rebuilt kind of in that $70+ context. You'll see the look of the hedge book change over time a fair bit.
Look, my other final comment is, if you go back to last year's financials and you look at it on an unhedged basis, kind of the unhedged average price last year was, I think, around $65.
That's right.
The business ran unbelievably well. You think about, you know, as things roll off, and I don't know what kind of commodity environment we're gonna be in next year. I suspect it'll be constructive, but if I have some $70+ hedges, you know I'm not gonna lose sleep over it. It's just we absolutely wanna have a portion of our revenue exposed to the market and get the benefit of where that market is today. Again, I think when you look over the longer view, in the period of time, I do think the hedge book has served its purpose for us.
Okay, great. That's all for me.
Okay. Thanks, Steven.
This concludes our question and answer session. I would like to turn the conference back over to Tim Duncan, CEO, for any closing remarks.
Yep. Again, thanks for everyone for joining the call. I think what we laid out were the goals we had for the year that we laid out in our first call after the fourth quarter. I think it's great to revisit those goals, which we tried to do today, and then kinda come back to you and continue to talk about where we are and what we think is a pivotal year for us as we try to continue to invest in the right projects and a bigger diversity of projects on the oil and gas side and on the drill bit side, and then also build out what we're trying to do on the CCS side. The team works very hard for its shareholders, and we're proud of the direction we're going and continue to appreciate everyone's participation in these calls.
One last plug for the Analyst Day.
Oh, yeah. No, thank you, Shane. Yeah, you can say that out loud. But, yeah, we have an Analyst Day, May 24th, for those institutions that can attend in New York. Absolutely we'll lay out more plans, so we appreciate that. Thanks, everyone.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.