Talos Energy Inc.
Q4 2020 Earnings Call Transcript

Published: 11 Mar 2021

[Operator:]

Good morning, and welcome to the Talos Energy Fourth Quarter and Full Year 2020 Earnings Call. Please note this event is being recorded. I’d now like to turn the conference over to Sergio Maiworm. Please go ahead.

[Sergio Maiworm:]

Thank you, operator. Good morning, everyone, and welcome to our fourth quarter 2020 earnings conference call. Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer; and Shane Young, Executive Vice President and Chief Financial Officer.

[Tim Duncan:]

Thank you, Sergio. Good morning, everyone and thanks for joining us today. The fourth quarter capped off a year of resiliency for the company on numerous aspects. Around this time a year ago, we were adjusting our plan, so we could manage our business due to commodity crisis brought on by the demand pullback associated with the global pandemic that was ensuing. Those adjustments included, making difficult decisions to lower our overall cost structure and cutting projects from our capital program to focus our investments and those projects that were previously committed to and those that had short turnaround times to first oil, which would support our credit liquidity positions to withstand an extended commodity price downturn. 2020 also saw historical levels of hurricane activity in the Gulf of Mexico, which caused major production disruptions in project delivery delays. Despite all these challenges, Talos maintained its operating excellence. And in the fourth quarter, we saw the benefits of those decisions taking hold. We exit the year with just over 71,000 barrels of oil equivalent a day, and we continue to manage our operating costs below our guidance and generated solid free cash flow. Also in the fourth quarter and early 2021, we opportunistically access the capital markets with proceeds used to refinance our old notes and significantly improve our liquidity position, which is now similar to what it was pre-pandemic today. Today Talos is very well positioned to execute on its strategy, which is a well balanced combination of development wells and lower risks subsea tiebacks, high impact exploration and value added M&A activities. We have a more diverse set of assets today than a year ago, robust liquidity and a drilling program that will allow us to generate meaningful free cash flow in 2021 and beyond.

[Shane Young:]

Thank you, Tim. I’d like to take a few minutes to add further color to three things. First, our results for the quarter, second, our recent capital market activities, which help facilitate the refinancing of our high yield maturity to 2026 and enhance liquidity and third, to outline our 2021 production and cost guidance. Turning to the fourth quarter, realized pricing for the quarter was $40.63 per barrel and $2.38 per MMBtu. Revenue was over $175 million, exclusive of $2.4 million of realized hedge gains for the quarter. The company generated adjusted EBITDA for the quarter of approximately $106.4 million, equating to a margin of $19.47 per barrel equivalent and over 60%. We maintain the competitive cost structure with LOE, including repairs, maintenance and insurance of $11.41 per BOE, and cash G&A of $2.25 per BOE.

[Tim Duncan:]

Thank you, Shane. We’re proud that all we were able to accomplish in 2020, despite the historic year of interruptions from the COVID pandemic and weather-related production shut-ins and delays. Despite all of this adversity, we maintained a stable business, maintained our already solid credit profile, advanced our safety and ESG goals and positioned a company for success in 2021 on numerous fronts. As we move into 2021, we aim to execute on the balance plan that Shane presented, mature the rich set of catalysts we have in front of us in the near term and drive value creation for all of our shareholders as a result. With that, Operator, we’ll open the line for Q&A.

[Operator:]

And our first question at this time comes from Richard Tullis with Capital One. Richard, please proceed.

[Richard Tullis:]

Good morning, Tim and Shane. Tim, if we could maybe talk initially about the comment in the press release related to the range of business development and M&A opportunities kind of being reviewed, if you can kind of give us some details along those lines of what you might be looking at?

[Tim Duncan:]

Yes. Sure, Richard, good morning to you. Look, I think as part of this is a theme of – we come out of this year, last year and you see the margins improving and I think you see a measured capital program. We have more free cash generation. We’ve got more liquidity coming out of the capital markets effort. And so I think we’re in a position to think about M&A both strategically and opportunistically. And so exactly where that come from is always a question. We’ve worked with private companies that could be in a position where they look for a liquidity event. We’ve worked with majors who could be monetizing assets, and that could be a basket of assets, that could be individual assets. I think as the commodity price has stabilized, some of those bid-ask spread, kind of the wildness of all that and the uncertainty around the commodity, buyers and sellers from transacting at certain times last year. I think there’s a better opportunity to transact this year. And we’re also kind of expanding our horizons and thinking about, are there other basins, other jurisdictions, where we have a skill set of offshore operations of full lifecycle operatorship and asset development and then follow-on exploration. Is there other basins where that we can transfer that skill set to different jurisdictions. So we have looked at some other things in LatAm and some things in the Atlantic margins. So we have a very active team. I think this business will do better with more scale and more diversity. I think, we ultimately, it’ll help drive down our cost of capital with time for a bigger business two years from now, three years from now. You’ve got to be smart on how you do it. And we’ve got to have kind of our minds open on where we think we can execute and execute well. If we don’t do it in the U.S. Gulf, we typically look for partners to do it with somewhere else. But it’s a busy part of the team’s effort this year. And in the summer, we’re going to stay focused on.

[Richard Tullis:]

Thank you, Tim. That’s helpful. And as a follow-up, if you could maybe Shane provide some more details on kind of the conservative approach you’re taking this year to Gulf of Mexico – potential Gulf of Mexico storm downtime, and other downtime factored into the 2021 production guide? Just so maybe we could get an indication of upside, if some of these things don’t materialize during the year?

[Shane Young:]

Yes. That’s a great question. So historically, we’ve taken a look back approach and looked at the last five years, compared that to the seven-year window, 10-year window, et cetera, to see what kind of downtime we’ve experienced. I think, look up until 2020, we’d had a pretty modest run, frankly for well over a decade. And so the average that we used was something less than a week. I mean, maybe five, six days on average, over that period. You bake in a year like last year into that five-year look back or five-year average, there’s a pretty pronounced effect. And those numbers, I would say, have doubled or perhaps even a bit over doubled in terms of how they get rolled through a risking from a weather downtime standpoint.

[Tim Duncan:]

And Richard, this is Tim. And another thing I would add to that and again, I understand that that got a little attention, but I think it’s the right abundance of caution. So that platform rig that we have on the Green Canyon 18 facility. So we put – when you put a platform rig on a facility, the good news is you’re going to go drill a nice well, it’s going to have robust rates and you’re going to get that rate right away. So that’s the nice thing about a platform rig. But it’s a bit of a construction project. You have to move some things out of the way. When we put it on GC 18, I think that facility was making 1,200 barrels a day, maybe 1,500 barrels a day, now we’ve added two wells that are making close to 7,000 barrels a day. So that’s a heck of a success story. Now we’re going to go move it and put it on Pompano. So we’ve got to shut-in for some period of time that production just added to deconstruct that platform rig. Then go put it on another platform rig that’s making actually 10,000 to 12,000 barrels a day in the Pompano area. That construction has to happen, there’s some shut-ins. But then it stays out there for maybe a solid year, maybe year and a half. And hopefully we’re going to have a heck of a lot more volume when we’re done. But those types of projects that really don’t happen every year, we have to bake some of that shut-in time. And the facilities that we’re putting them on, Green Canyon is a heck of a lot of – better looking facility from a production perspective than when we started. Pompano is actually a bigger facility when we start. Hopefully, it looks a lot better when we stop, so a lot of explanation there, but all that kind of weighs into how we think about guiding production in this particular budget.

[Richard Tullis:]

Thank you, Tim. Appreciate it.

[Operator:]

And our next question comes from Subash Chandra of Northland Securities. Please proceed.

[Subash Chandra:]

Yes. Hi Tim, good morning. On your exploration sort of wedge for this year, do you think this – will this been a Talos operated prospect and any more sort of status detail on Puma West where that well is exactly?

[Tim Duncan:]

Right. Yes, sure. So it’s sort of a couple of themes and thanks for the question on that. That we’re trying to make sure we get across here. One is, we’re putting some exploration kind of back in the budget. We think the budgets, by the way, very measured. It’s a 65%, 70% reinvestment of EBITDA. We have a significant acreage position, Subash, as you know, and we think we can start to put even in a measured budget some wedge of that in exploration and Puma West is an interesting project. That’s not one we operate, our friends at BP operate that, it’s playing a middle Miocene trend. That’s kind of ties around to the Mad Dog area. You have some other discoveries in the area. There could be deeper oil cost potential in that type of prospect. So we’re excited to get that done. It took a while to get back here, they’re working hard on it. And hopefully, we’ll have something to discuss kind of in the weeks or months to come. And so that’s exciting. And then we’re going to go get a rig associated with our waterflood project that we talked about on the call. That rig will have some options. And we don’t have any real incentive to try to get a deep long kind of multi-year rig contract. We think in this cost of goods environment, we can maintain optionality. But with that optionality, we might pull in another exploration project. Part of it depends on where we are with Puma West. Part of it depends on where we are both in terms of kind of our own business development effort and what we think the right move is in the second half of the year. So I would frame that as second half of the year optionality and a rig contract, based on some of the things we might or might not see in the first half of the year. And I think that’s the way, Subash, we want to play it. I mean, the goal for me is for us to have a new greenfield development, a new discovery almost every year. I don’t know if I have to take on a long-term rig contract to pull that off. I don’t know if I have to test three things a year to pull that off. Maybe you can do it with one. And so if you can maintain optionality and build a pipeline of new developments, I think we’re in that kind of cost and good environment and rig environment where we can do it.

[Subash Chandra:]

Okay, got it. Then onto the – I guess the bank facility. So first, do you have sort of sense of where you might close the quarter on the amount borrowed given all the dynamics in the first quarter. And second, in extending the maturity, do you anticipate there’ll be any significant change in terms?

[Tim Duncan:]

So I’ll talk about just quickly to bank group. And then Shane, you can talk a little bit more detail on where we’re going next with the bank group. We’ve had a supportive bank group. Obviously, we were able to get through a flat borrowing base redetermination in the fall and prices have improved since then. I think we’ve heard some chatter about various banks and where they are in different plays on onshore plays, on conventional plays. We think we’ve gotten very good behavior, banks that understand the offshore environment. We have a lot of banks that are European banks still lending in other basins there. So we’re going to go through this redetermination and look for an RBL extension. And I think we expect the support from the vast majority of our banks and look, the assets are more diverse. I think they’re more frankly bankable and we’ve got a better price deck. But Shane, you want to provide extra color on that?

[Shane Young:]

Yes. Well, I think part of the question on front was sort of, what is the balance looked like over the course of the year and then to that process. And look, I think, as I said in my comments earlier, anywhere near sort of the current strip or even recent strips, et cetera, even lower, we think this guidance delivers a lot of free cash flow. And then the question, I guess, Subash, is what happens to that cash flow. And I would say, again, as a base case ebbs and something else coming up that I would expect that that would go to reducing that utilization number over the course of the year, where’s it going to be kind of quarter-to-quarter, it’s going to depend on how the sort of – how the capital program lays out on a quarterly basis and then whatever price deck you or investors split into their models in terms of how that free cash flow sort of rolls out over the course of a year. But I think that would be the use number one. In terms of the group itself, again, Tim sort of covered it. I think I would just only point out that, this is a group that’s like been very supportive of us for a very long time. They were very supportive us in 2020, which was probably the most challenging year, a lot of us had sort of faced, maybe ever in our careers from a finance standpoint and a commodity standpoint. Bank market, and that was a market where, look in a spring with the commodity where it was, we were down 14% relative to most of the oily peers that might’ve been down anywhere from 15% to 30% plus. And then we held flat in a fall redetermination. So they demonstrate great support there. And then as well, I’d say through the recent couple of months to capital markets activity, they continued to show strong, strong support for us. And so I don’t expect that as a group, that’s going to be that much different sort of going into to this cycle.

[Subash Chandra:]

Okay. That’s great color. I guess, we’ll say two. And if I just sneak this one in along those lines. So the cash – it looks like cash OpEx for 2021 at least versus consensus was higher. Some portion of that was the additional workovers. What would you attribute sort of the balance of the increase too?

[Shane Young:]

Well…

[Tim Duncan:]

Go ahead.

[Shane Young:]

I was going to say, good portion of it is just a normalization or sort of a full year, if you will, of some of the acquisition activity that took place over the course of the year. We picked up a couple extra months on the ILX and Castex properties and then an extra seven, eight months on the Castex 2005 properties as well. So all that sort of, kind of rolls into it – you talked about the additional workover capital that we talked about that we’ll see this year, that we didn’t see last year. So we wanted to call that out explicitly.

[Tim Duncan:]

Yes. Then look, that’s always tricky on, it would be prefer to take some of those workovers and capitalize them as asset management. Because a lot of that is like asset management, we’re working on restored production, but just we take a conservative approach on kind of how to book that. And it’s appropriate to book at an expense. We book it an expense. So that’s a good part of it. There’s a little bit of rotating equipment, a generator that we want to swap out that maybe we didn’t have to do it last year, or you weren’t willing to do it in a $40 environment, but it makes more sense to do those repairs in a $60 environment. You see a little bit of that, if you have the opportunity to do those projects in a stronger environment.

[Shane Young:]

And I think on an overall per barrel basis, you’ll actually see – it’s pretty favor – 2021 will be pretty favorable.

[Tim Duncan:]

I think that the message for us is, we’ve clawed back into that corporate margin, inclusive of everything back over 60% in the fourth quarter. And that’s a nice spot for us. It gives us a lot of flexibility to benefit of being oily, having physical differentials come back. And so if we can stay there and improve on that, I think we’ll be in a good spot.

[Subash Chandra:]

Thanks, Tim and Shane.

[Operator:]

Our next question comes from Leo Mariani of KeyBanc. Please proceed.

[Leo Mariani:]

Hey guys, I was hoping you could talk a little bit to kind of quarterly production and CapEx cadence. May I see the strong exit rate ending 2020 here, would this imply kind of a higher first quarter production and then maybe it starts to move lower in second quarter due to the Pompano downtime. And then third quarter, obviously, you’ve got potential hurricane downtime and then kind of moving back up in 4Q on production. Just trying to guess if that’s kind of what it would look like? And then any color you can kind of give us on how the CapEx is kind of spaced out during the year?

[Tim Duncan:]

Yes. I’ll give a start and Shane will almost – Shane is going to correct me if I’m wrong. But yes, so look, I mean, you’re right. No reason to think January is not hot, obviously, we all had a little weather. You’re going to have a little weather downtime, when things ice up, and it’s not like onshore, but you get a little bit of that inconvenience from time to time. We start having some downtime really at the end of this quarter related to some construction work in Pompano. It’s manageable. We do that a little more in the second quarter. So you’re going to have a little more, if you will blend down in the second quarter and then as you get to the third quarter and fourth quarter, you’ll see that blend up. That’s what we expect the well from the next well in the waterflood project and Tornado to come in. And then again, some of the impact of what we do in the Pompano program as that construction projects completed and we start those. We’re going to start the Pompano program. It’s actually some recompletions just kind of right off the bat stuff that gives us some rate and gives us some good economics before we get into drilling. And we’re going to have a slide deck that kind of shows, how that programs work. But I think generally you’re thinking about it the right way, Leo. I mean, Shane, did you want to add on the more that.

[Shane Young:]

Yes, look, I think you’ve got sort of the production path, the concept pretty well for 2021 as we kind of roll through the quarters here. I think on the capital path, kind of the thing to think about, is when we do start on the Attic well, and that’s going to be a higher dollar piece of equipment. And so those middle quarters, so I think is when you’re going to see likely maximum activity and therefore maximum capital for the year. So you’ll probably see a flattening out on the production and then turning in the second half. And you’ll see the capital a bit of a touch higher in the second and third than you wouldn’t in the first and the fourth. I would suspect that the activity plays out the way we think it is.

[Tim Duncan:]

And then it comes down, Leo, to some of those – what are the other things that can cause some shut-ins in the Gulf around the weather season. And again, we just have to – we’ve put a layer of risk there. You may or may not see that as appropriate. And typically, that’s been as Shane said, five, six days a year, but if we use a rolling five-year average, which we think is appropriate, that rolling five-year average changed after last year season and still, it’s not obviously as busy as last year season, it just reflects the possibility of that.

[Leo Mariani:]

Okay. That’s helpful color. And I guess, maybe just jumping back to the Puma West here for a second. Sounds like you guys are maybe hoping to get some results and roughly a month here. Wanted to get a sense of what the potential in this well just in terms of what the gross recoverable range of resources could be? And then just also wanted to get sense of kind of what your latest conversations have been with Pemex. Obviously we’re just a couple of weeks away from the deadline here on utilization.

[Tim Duncan:]

Yes. We got partners in Puma West and BP and Chevron. And let me tell you, it’s great to be in a partnership with those guys. They certainly have all the cutting edge technology that we use. It’s nice to see them use it as well. When you’re partners with those guys and they say, look, we’re not going to disclose pre-drill ranges, you can pretty much hold the line on that. Now, what I would tell you is, look, it’s a decent neighborhood. What makes this area so interesting is it was just an area where people couldn’t image the salt. You have a fairly good idea there’s some geology there and that geology is kind of the middle and lower Miocene. And you see that in the Mad Dog area off to the East, and then there’s potentially Wilcox, which you see to the South. And so, you know, you’re an interesting geological area. This was always about imaging salt, and really understanding where to put a well and how do you image the base of that salt? I think that’s what we brought to the table. Certainly BP brought that to the table and that’s what caused us all to go – put some acreage together and drill a well. So, I think the guidance is you’re in a good neighborhood that guarantees us nothing other than that’s an area where people should find out if there’s potential and that’s what we’re in the middle of. And so, let’s hope we can get through it and have something to say, it’s tricky when you’re drilling 25,000 foot wells through 8,000 to 10,000 foot salt sheets. But the team’s working hard, BP is doing a great job. And like I said, I think we’re still probably a month or so away from talking about it. And we’ll see where those results land us. Now on Zama, Zama is interesting because we really started talking in earnest last year, Leo. We had to catch them up on all the technical stuff. As you know, we were the ones who gathered all of the technical data. We drilled the wells, the core data, the fluid data all that had to get caught up all that had to be shared and make sure they fully understood it. Frankly, to give them a level playing field in these negotiations. And it was an obligation for us to do it. We were happy to do it. And the fourth quarter really shifted to more of a commercial discussion. And we started picking up the pace on those items and what those items are, are there operators ship, their equity splits in the beginning that get redetermined later, some of these other voting rights and nuances that would come with an operating agreement when this is finalized. Really started working that in earnest in the fourth quarter, didn’t quite get to a conclusion, went to the Energy Ministry, showed them the progress, they’re happy with the progress and said, look, we’ll give you another quarter to try to get this panned out. We’re in the middle of that right now. I’m not going to break any news on this call. It’s a day-to-day discussion. And our hope is we will meet that deadline. Look, the Energy Ministry down there expects us to meet that deadline. We’ll present to them at the deadline where we are and then we’ve got to wait on them to weigh in on where we are, and then we’ll announce that. So in the meantime, I think the comfort we’re trying to give is, we’ve effectively completed most of our feed work. We have all of our design work. Once we get this thing unitized and put into a partnership this thing can start moving towards that pace towards FID and that line of sight the first production becomes a little more clear.

[Leo Mariani:]

All right. Thanks for the update.

[Tim Duncan:]

Okay. See you, Leo.

[Operator:]

Our next question comes from Michael Scialla of Stifel. Michael, please proceed.

[Michael Scialla:]

Good morning, everybody. Just to follow up on Puma West, if that is successful, I realize you’re not the operator, but any thoughts on what the timeline might be to bring that online?

[Tim Duncan:]

Well, Michael, thanks for the question. I don’t ever jinx an exploration project by talking general rule for offshore explorers. But look, it’s testing multiple geological layers, and I think that’s one thing that it’s worth understanding. What makes it interesting and what caused all three companies to say, hey, look, imaging is never going to be perfect below salt. We think it’s good enough that we should make this attempt is because the breadth of the geological section. And the reason I bring that up is, you really don’t know what you’re going to end up with until you test all of it. You can find something and then need to go drill the well to try to find something else. And so, depending on what we find, it’s going to depend on whether you have a subsidy tie back that you think you can get to quickly, or whether it needs a praise and you have something different. But that’s all that’s all in a situation where you have success and we’ve got to get this theme drilled out and see where we are. And if you jinxed it, Michael, I’m going to call you in a month and a half and we’ll have to have a conversation about that. But, I think it’s just understanding. You’re testing a big geological section. And although we’d love to hear, what happens in the works, you have to get through the process and really understand what you know, what you might not know and what you need to know to make those decisions. So it’s pretty early.

[Michael Scialla:]

Understood. And I’ll take full responsibility if it’s not a huge success.

[Tim Duncan:]

All right.

[Michael Scialla:]

You mentioned that in terms of the Interiors order, really no near term impacts on what you’re doing in the Gulf of Mexico. I’m just wondering if it changes your view, obviously you talked about the need for the Gulf of Mexico, but does it change your view at all and your long-term thoughts on operating in the Gulf of Mexico. And you talked about looking at other areas outside the Gulf, does that accelerate your desire to diversify your asset portfolio at all?

[Tim Duncan:]

Well, so the first question, I mean, it doesn’t change our view on the prospectivity, if you will, and the opportunity in the Gulf. I think we have a huge acreage position. I think, you know that it’s large, both on what we hold. So our held by producing acreage, where we have assets and facilities. And then in our primary term acreage said, I mean, I think that’s almost 800,000 acres. And so we’ve got a big acreage position. And you know what everybody else has a nice acreage position as well. And so I think between our own acreage position between other folks that are in the basin who are thinking about what’s the best way to partner, monetize, put together different ideas. I actually think you’re going to see a lot of business development come through this as people navigate, they’re going to be future lease sales, or they’re going to be less lease sales. How do we manage inventory over the next four to six years? And so I’m actually excited about, again, how all of us manage this inventory together to make sure that we’re making things happen in the Gulf of Mexico. So I’m no less excited about it. Frustrated a little bit about the rhetoric around leasing and, and any kind of conversation on whether our basin isn’t important when we know how important it really is. But I’m not less excited about the business opportunity. And again, we think most of the permits we do are prescriptive, and we’re seeing that play out with this administration. However, to your other question, it does make us think about, look, ultimately I believe we need to be a bigger company. We need to drive down our cost of capital. That’s not going to happen just by drilling wells, there needs to be some M&A there. And we’ve got a skill set. We were able to transfer to Mexico. That’s a different jurisdiction. It might be the same time zone, but a different jurisdiction. There’s no reason we can’t transfer that skill set to other offshore jurisdictions in play and other conventional places. So, yes, we’re looking at that. And I would say, some of the regulatory action just kind of says, look, we really need to make that as part of our broad corporate development and M&A focus.

[Michael Scialla:]

Make sense. Thanks, Tim.

[Tim Duncan:]

All right. Thanks.

[Operator:]

Our next question comes from David Heikkinen of Heikkinen Energy Advisors. David, please proceed.

[David Heikkinen:]

Good morning, guys and hope everybody fared well through the freeze and thaw. The first question really is on this multiple jurisdictions, Tim, and you’ve kind of hinted towards Latin America, I mean, the offshore skill sets and assets for sale range around Africa and the North Sea as well. Are those off the table?

[Tim Duncan:]

No.

[David Heikkinen:]

There’s anything off the table. Okay.

[Tim Duncan:]

I would say, in that broad Atlantic margin area, no. Again, I don’t want to suggest that you can expect an announcement anytime soon, but no, we are looking at ideas in the Western African region and the LatAm region, and then potentially in the North Sea region. And again, I think it’s because you’ve got maturing assets, we’re lifecycle operators. I think we understand how to get in there and find that next round of value. There’s good seismic, good rock properties. Again, it has the type of ingredients that if we could execute that strategy in the U.S. Gulf of Mexico, the question should be kind of why can’t we? And if the question is, well, you need a team, then can you go find a team or can you find a local partner on some assets? We found a local partner when we went into Mexico to make sure we kind of had the right – we were handling the regulators the right way and thinking about kind of permitting and those types of things the right way. And I think you can look at those partnerships or find those entities to make sure you don’t stumble if you go into a new jurisdiction. So we have to be thoughtful. And again, I don’t want to over preview anything, but it’s just – we’re opening our minds up to deal flow in those areas.

[David Heikkinen:]

And as you think about opening up your minds, Exxon talked a lot about the first 3,000 feet of water that you have to drill through and the subsurface as carbon capture and underground storage in the Gulf Coast. I mean, if you open your mind in that direction at all as well, I mean, there’s a whole lot of regulatory question about who owns floor space and what the opportunity is, but you’re a major project organization with skills and from the shallow water to the deep water.

[Tim Duncan:]

Yes. That’s a good question. Well, it’s funny, I mentioned on the call that we’ve – we obviously, with all dividends dove into the ESG efforts and different companies dive in at the different ways and what’s consistent amongst the companies. We’re all trying to figure out how to measure our emissions and then improve and fix as many of that, the measurements and make sure it’s tight and how we do it. And is it improving? And we’re doing all those things. Again, I think we’re going to see three years in a row of that coming down. And then there is some of the social responsibility and some of the social justice issues everyone’s doing that. The nuance is then David, I think your question, okay, I’m offshore. We all know the things that everybody’s doing, but is there something different I can be doing offshore because I’m unique to offshore. And I talked about in the earnings release, we have these different committees, and it’s all kind of employee led and homegrown. A lot of that rolls up to Bob Abendschein who runs our Operations. And yes, we’re thinking about other things where we can play in the space. And some of those things might be able to utilize our platform and extend the life of those platforms actually helps you manage P&A budget. Some of those things can be in wave and wind and could it be in other areas. And then is it just too cost prohibited for a company our size? Can we partner with a university? I mean, I would treat it almost like when I was learning about Mexico. When we were learning, they were opening up Mexico and there could be Middle Miocene, geological prospects down there. I thought if we find out another independent, had the courage to try down there and we didn’t try, I’d be pretty frustrated. As we go into this discussion around carbon capture and renewables, if there’s something that can be done in the Gulf an area where we know how to operate that a company our size can actually play around and be supportive of it. And we’re not trying, I’d be pretty upset about that. But what’s trying look like? And I think David, that’s what we’re trying to figure out. We would love to see where we can transfer skill sets in the different spaces that make sense, certainly in the Gulf of Mexico.

[David Heikkinen:]

Yes. It’s definitely an OPM other people’s money environment for Exxon. So y’all could have a good way of getting into other people’s money.

[Tim Duncan:]

We don’t have to brunt the bear of it, right. I mean, hey, look, we’re good at these things, we offer these skills, labor management project delivery. How can we help you? Where can we be in this thing? This isn’t a platform well that I need to own 100% of. So I get it. And I agree with that. And yes, we’re opening our minds to it. No doubt about it.

[David Heikkinen:]

Makes sense.

[Operator:]

That concludes our Q&A session. I’ll now turn the conference back over to Tim Duncan for any closing remarks.

[Tim Duncan:]

Thanks, operator. Look, I think I want to leave you with a couple of points that we think is important because really this call is as much about understanding what we’re trying to do going forward and where we’ve been in the past year. Right now, as we sit here getting into 2021, we’ve got a very valuable resource base. You can see some of those sensitivities on our proved reserves. I think the enterprise value of the company is less than $50 a barrel on PDP. So we have a valuable reserve base that doesn’t include the things we talked about on the call and Zama and other offshore catalyst opportunities. We’ve got a huge acreage position with deep inventory, 1.4 million acres. One of the biggest acres positions in the U.S. Gulf of Mexico. We saw improving margins in the fourth quarter and we expect to hold good positive margins into next year. And so you can expect a better net barrel, I think part of that’s because of the cost structure initiatives, and we’re getting better physical pricing. We tried to show a discipline capital plan. I mean, could we have put more capital into that program, we could have, but I think we can meet the objectives. We want to meet, 65% to 70% reinvestment rate. We still have – we’re going to stabilize this business, we still have catalyst. And by doing that, we generate more free cash flow, which will gives us flexibility, it adds to an already strong liquidity position and it gives us some opportunity in the M&A space. And so that’s why we’re so excited about this year. That’s why we’re excited about reporting back to you as we go throughout the year. We’ll freshen up a deck and we’re going to be in some of the conferences coming up in the coming weeks. And so we look forward to catching up with many of you then. So thanks for your questions and thanks for being on the call. And we hope talking to many of you very soon.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.