Hess - Q4 2018
January 30, 2019
Transcript
Speaker 0
Good day, ladies and gentlemen, and welcome to the 4th Quarter 2018 Hess Corporation Conference Call. My name is Amanda, and I'll be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the conference over to Jay Wilson, Vice President of Investor Relations. Please proceed.
Speaker 1
Thank you, Amanda. Good morning, everyone, and thank you for participating in our Q4 earnings conference call. Our earnings release was issued this morning and appears on our website, www.hess.com. Today's conference call contains projections and other forward looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements.
These risks include those set forth in the Risk Factors section of Hess' annual and quarterly reports filed with the SEC. Also on today's conference call, we may discuss certain non GAAP financial measures. A reconciliation of the differences between these non GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website. As usual, with me today are John Hess, Chief Executive Officer Greg Hill, Chief Operating Officer and John Reilly, Chief Financial Officer. I'll now turn the call over to John Hess.
Speaker 2
Thank you, Jay. Good morning, and welcome to our Q4 conference call. I will review our progress in executing our strategy. Greg Hill will then discuss our operating performance and John Reilly will then review our financial results. Our strategic priorities are: 1st, to invest only in high return, low cost opportunities.
Through 2025, we plan to allocate about 75% of our capital expenditures to our Guyana and Bakken assets, 2 of the highest return investment opportunities in the industry. 2nd, we have built a focused portfolio with a combination of short cycle and long cycle investment opportunities with Guyana and Bakken as our growth engines and the deepwater Gulf of Mexico and the Gulf of Thailand as our cash engines. As we discussed at our recent Investor Day, our portfolio is positioned to deliver approximately 20% compound annual cash flow growth and more than 10% compound annual production growth through 2025 with a portfolio breakeven of less than $40 per barrel Brent by 2025. 3rd, we will continue to ensure that we have the financial capacity to fund our world class investment opportunities and maintain an investment grade credit rating. We entered 2019 with $2,600,000,000 of cash on the balance sheet, 95,000 barrels of oil per day hedged in 2019 with $60 WTI put options and the spending flexibility to reduce our capital program by up to $1,000,000,000 should oil prices move lower on a sustained basis.
4th, we are focused on growing free cash flow in a disciplined and reliable manner. We are at an exciting inflection point, transitioning from an investment phase in 2019 to a free cash flow generation phase beginning in 2020, with the start up of the Liza Phase 1 development offshore Guyana, followed by the Bakken growing to 200,000 barrels of oil equivalent per day in 2021 and then the Liza Phase 2 start up offshore Guyana by mid-twenty 22 with an additional ship planned in Guyana for each year thereafter through 2025. Finally, as our portfolio generates increasing free cash flow, we will prioritize return of capital to shareholders through dividend and opportunistic share repurchases. As we execute our strategy, we will continue to be guided by our long standing commitment to sustainability in terms of safety, protecting the environment and social responsibility. A key driver of our strategy is Guyana, where Hess has a 30% interest in the Stabroek Block and ExxonMobil is the operator.
In December, we announced the 10th discovery on the block at Pluma. As a result of this new discovery and further evaluation of previous discoveries, the estimate of gross discovered recoverable resources for the block was increased to more than 5,000,000,000 barrels of oil equivalent with multimillion barrels of additional exploration potential. Earlier this month, drilling began on the Haimara-one exploration well, 19 miles east of the Pluma-one discovery and on the Tilapia-one exploration well in the Turbot area. The Liza Phase 1 development is on track to start up in early 2020. Project sanction for Liza Phase 2 is expected in the Q1 of 2019 with start up expected by mid-twenty 22.
Sanctioning of a 3rd development, Payara, is expected towards the end of 2019 with start up as early as 2023. Also key to our strategy is the Bakken, our largest operated growth asset where we have more than a 15 year inventory of high return drilling locations. Our transition to plug and perf completions should increase net present value of the asset by approximately $1,000,000,000 Net production is expected to grow to 200,000 barrels of oil equivalent per day by 2021, generating approximately $750,000,000 of annual free cash flow post 2020 at current oil prices. Now turning to our 2018 financial results. Our adjusted net loss was $176,000,000 compared to a loss of $1,400,000,000 in 2017.
And cash flow from operations before changes in working capital was $2,100,000,000 up from $1,700,000,000 in the prior year. In 2018, we delivered proved reserve additions of 172,000,000 net barrels of oil equivalent, representing an organic replacement rate of 166 percent at an F and D cost of just under $12 per barrel of oil equivalent. The majority of these additions were in the Bakken. Proved reserves at the end of the year stood at 1,190,000,000 barrels of oil equivalent and our reserve life was 11.5 years. Full year 2018 production was 257,000 barrels of oil equivalent per day excluding Libya.
Pro form a for asset sales and Libya, our production was 248,000 barrels of oil equivalent per day in 2018, 10% higher than the pro form a 224,000 barrels of oil equivalent per day produced in 2017. In 2019, our production is forecast to average between 270,000 and 200 and 80,000 barrels of oil equivalent per day, excluding Libya. Bakken net production is forecast to average between 135,000 and 145,000 barrels of oil equivalent per day in 2019. In summary, we are extremely well positioned to deliver increasing and strong financial returns, visible and low risk production growth and significant future free cash flow, the majority of which will be deployed towards increased return of capital to our shareholders. I will now turn the call over to Greg.
Speaker 3
Thanks, John. 2018 was a year of strong operational execution and continued delivery of our strategy. We delivered production of 250,000 net barrels of oil equivalent per day in 2018, excluding Libya, which exceeded our original production guidance of 245,000 to 255,000 net barrels of oil equivalent per day. This was achieved within our capital guidance of $2,100,000,000 and even after accounting for the sale of our JV interest in the Utica, which reduced full year 2018 net production by approximately 5,000 barrels of oil equivalent per day versus guidance. In Guyana, on the 6,600,000 Acre Stabroek Block, where Hess has a 30% interest and ExxonMobil is the operator, we continued our extraordinary run of exploration success with 5 further major discoveries over 2018 at Ranger, Pacora, Longtail, Hammerhead and Pluma.
In December, the estimate of gross discovered recoverable resources for the Stabroek Block were increased to more than 5,000,000,000 barrels of oil equivalent, up from about 3,200,000,000 barrels of oil equivalent a year ago. The growing resource base on the block reinforces the potential for at least 5 floating production storage and offloading vessels or FPSOs, producing more than 750,000 barrels of oil per day by 2025. Guyana is a world class investment opportunity in every respect. The combination of scale, exceptional reservoir quality, shallow producing horizons and timing of the development in the cost cycle provide industry leading breakevens, which is key to moving Hess towards a $40 per barrel Brent breakeven oil price by 2025, while delivering significant growth in returns on invested capital and cash flow generation. In the Bakken, we have a 15 year inventory of drilling locations that can, on average, generate IRRs of more than 50% at $60 per barrel WTI.
Through field trials and an independent study, we confirm that our planned transition completions in 2019 from our previous 60 stage sliding sleeve design is significantly value accretive. Based on these results, we expect production to grow to approximately 200,000 net barrels of oil equivalent per day by 2021, after which the asset should generate approximately $750,000,000 of free cash flow annually at current prices through the middle of the next decade. In 2018, we also brought further focus to our portfolio by successfully closing on the sale of our JV interest in the Utica Shale play to Ascent Resources for approximately $400,000,000 in late August. Now turning to production. In the Q4, production averaged 267,000 net barrels of oil equivalent per day, excluding Libya, above our guidance of approximately 265,000 net barrels of oil equivalent per day on the same basis.
For the full year 2019, we forecast production to average between 270,000,280,000 net barrels of oil equivalent day excluding Libya, which on a pro form a basis is approximately 10% above 2018. In the Q1 of 2019, we forecast production to average approximately 270,000 net barrels of oil equivalent per day. Now turning to the Bakken. In the Q4, production averaged 126,000 net barrels of oil equivalent per day, which represented an increase of approximately 15% over the year ago quarter and above our previous guidance of 100 and barrels of oil equivalent per day, in line with full year guidance of 115,000 to 120,000 net barrels of oil equivalent per day. For the full year 2019, we forecast our Bakken production to average between 135,000 145,000 net barrels of oil equivalent per day approximately 20% above 2018 levels.
In the Q1 of 2019, we expect Bakken production to average approximately 130,000 to 135,000 net barrels of oil equivalent per day. In 2019, we plan to drill approximately 170 wells and bring approximately 160 new wells online compared to 121 wells drilled and 104 wells brought online in 2018. Moving offshore in the Deepwater Gulf of Mexico, production averaged approximately 68,000 net barrels of oil equivalent per day in the 4th quarter 57,000 net barrels of oil equivalent per day for the full year 2018, above our guidance, reflecting strong performance from our new Penn State Deep No. 6 well and the early return to production of the Conger field. We forecast 2019 production from our Deepwater Gulf of Mexico assets to average between 65,070,000 net barrels of oil equivalent per day.
At the Malaysia Thailand joint development area in the Gulf of Thailand, in which Hess has a 50% interest, production averaged 35,000 net barrels of oil equivalent per day in the 4th quarter and 36,000 net barrels of oil equivalent per day for the full year 2018. At the North Malay Basin, also in the Gulf of Thailand, production averaged 28,000 net barrels of oil equivalent per day over the quarter and 27,000 net barrels of oil equivalent per day for the full year 2018. Combined production from our JDA and North Malay Basin assets is forecast to average between 60,000,65,000 net barrels of oil equivalent per day for the full year 2019. Turning to Guyana. Earlier this month, the Stena Caron drillship began drilling the Haimara-one well located 19 miles east of the Pluma-one discovery and the Noble Tom Madden drillship began drilling a second well, Tilapia 1, located 3 miles west of the Long tail 1 discovery, both in the southeastern part of the Stabroek Block.
We expect to have results from both of these wells shortly. Following completion of drilling operations on these wells, the Stena Caron will conduct a drill stem test at the Long tail discovery and the Noble Tom Madden will drill an additional exploration well in the Turbot area, likely Yellowtail. Beyond these wells, 2019 drilling on the Stabroek Block is expected to include appraisal of the Hammerhead and Ranger discoveries and further exploration and appraisal in the Turbot area. Additional prospects and play types on the block where we continue to see multibillion barrels of exploration upside will also be prioritized for the drill schedule. The Liza Phase 1 development is progressing to schedule.
Drilling of Phase 1 development wells in the Liza field by the Noble Bob Douglas drillship is well advanced. Subsea equipment is being prepared for installation and the topside facilities modules are being installed on FPSO and the Liza Destiny FPSO is expected to sail from Singapore and arrive offshore Guyana in the Q3 of 2019. Also, as mentioned earlier, we continue to expect sanction of Liza Phase 2 in the Q1 and the Payara development to be sanctioned later this year. In closing, I believe that we have built distinctive capabilities and created a world class portfolio that together will enable us to deliver industry leading performance and significant shareholder value for many years to come. I will now turn the call over to John Reilly.
Speaker 1
Thanks, Greg. In my remarks today, I will compare results from the Q4 of 2018 to the Q3 of 2018 and provide guidance for 2019. We incurred a net loss of $4,000,000 in the 4th quarter compared to a net loss of $42,000,000 in the 3rd quarter. Excluding items affecting comparability of earnings between periods, results in the 4th quarter were a net loss of $77,000,000 compared to net income of $29,000,000 in the previous quarter, resulting primarily from lower realized crude oil prices. Turning to E and P, on an adjusted basis, E and P incurred a net loss of $5,000,000 in the 4th quarter compared to net income of $109,000,000 in the 3rd quarter.
The changes in the after tax components of adjusted E and P results between the Q4 and Q3 of 2018 were as follows: lower realized selling prices reduced results by $122,000,000 lower exploration costs improved results by $78,000,000 Higher DD and A expense reduced results by $58,000,000 All other items reduced results by $12,000,000 for an overall reduction in 4th quarter results of $114,000,000 Turning to Midstream. The Midstream segment had net income of $32,000,000 in the 4th quarter compared to $30,000,000 in the 3rd quarter of 2018. Midstream EBITDA before the non controlling interest amounted to $127,000,000 in the 4th quarter compared to $130,000,000 in the previous quarter. For corporate, after tax corporate and interest expenses were $31,000,000 in the Q4 of 2018 compared to $122,000,000 in the Q3 of 2018. On an adjusted basis, after tax corporate and interest expenses were $104,000,000 in the Q4 of 2018 compared to $110,000,000 in the previous quarter.
Turning to our financial position. Excluding Midstream, cash and cash equivalents were $2,600,000,000 total liquidity was $7,000,000,000 including available committed credit facilities and debt was $5,691,000,000 at December 31, 2018. Cash flow from operations before working capital changes was $584,000,000 while cash expenditures for capital were 6.60 $4,000,000 in the 4th quarter. Changes in working capital increased cash flows from operating activities by $297,000,000 in the 4th quarter due to an increase in accounts payable and a reduction in accounts receivable. In the 4th quarter, we purchased $250,000,000 of common stock, which completed our previously announced $1,500,000,000 stock repurchase program.
Now turning to guidance. We project E and P cash costs excluding Libya to be in the range of $12.50 to $13.50 per barrel of oil equivalent in the Q1 of $2,032 to $14 per barrel of oil equivalent for full year 2019, which includes costs for preproduction activities for Guyana Phase 1 and pre development costs for future phases. DD and A expense, excluding Libya, is forecast to be in the range of $18 to $19 per barrel of oil equivalent for the Q1 of 2019 and for the full year 2019. This results in projected total E and P unit operating costs, excluding Libya, of $30.50 to $32.50 per barrel of oil equivalent for the Q1 and $0.31 to $33 per barrel of oil equivalent for the full year 2019. As guided earlier, capital and exploratory expenditures in 2019 are expected to be $2,900,000,000 Exploration expenses, excluding dry hole costs, are expected to be in the range of $45,000,000 to $55,000,000 in the Q1, with full year 2019 forecast to be in the range of $200,000,000 to $220,000,000 The midstream tariff is expected to be approximately $170,000,000 in the first quarter with full year 2019 is expected to be an expense in the range of 0% to 4% for the Q1 and full year 2019.
Our 2019 crude oil hedge positions remain unchanged. We have 95,000 barrels of oil per day hedged for calendar 2019 with $60 WTI put option contracts. We expect option premium amortization will be approximately $29,000,000 per quarter in 2019. For Midstream, we anticipate net income attributable to Hess from the Midstream segment to be approximately $35,000,000 in the Q1 with full year 2019 expected to be in the range of 170 $1,000,000 to $180,000,000 Turning to corporate. For the Q1 of 2019, corporate expenses are estimated to be in the range of $25,000,000 to $30,000,000 and full year guidance to be in the range of $105,000,000 to $115,000,000 Interest expenses are estimated to be in the range of 80 $1,000,000 to $85,000,000 in the Q1 and in the range of $315,000,000 to $325,000,000 for the full year of 2019.
This concludes my remarks. We will be happy to answer any questions. I will now turn the call over to the operator.
Speaker 0
Our first question is from the line of Doug Leggate of Bank of America Merrill Lynch. Your line is open.
Speaker 4
Thanks. Good morning, everybody. John Reilly, the CapEx plan obviously hasn't changed given you only just put it out a few weeks back. But given the dynamics of the oil price, what would it take, I guess given the hedge position you're in, what would it take for you to need to cut that I guess going into perhaps the second half of this year. What I'm really thinking is, obviously, oil prices are well below where they were when you set the budget.
I'm just curious if you've got any contingency plans as to what where the flexibility would come?
Speaker 1
Sure, Doug. I mean, as we laid out at our Investor Day, we do have this long term strategy and we do intend to continue to execute it. We really feel that we have the portfolio in a really nice place from all the from the asset sales And we're really now this portfolio can deliver the 10% production growth and the 20% cash flow growth as John Hess mentioned earlier. So the only thing that we can't predict with this with our portfolio is commodity prices. So all we're doing now is trying to manage uncertainty.
So what did we do with the proceeds from the asset sales? We've left $2,600,000,000 of cash on the balance sheet and we have the hedges in place for 2019 and that's 95,000 barrels of oil per day with the $60 floor price and that's WTI. So the company is well positioned to deliver that strategy even in this low price environment. Now if we get extended in an extended low price environment and really would have to go really more into 2020, the tail end of 2019 into 2020. In that case, an extended low price environment, we have the flexibility, as we mentioned, to reduce our annual CapEx by as much as $1,000,000,000 That's principally by reducing rigs in the Bakken.
But right now, our plan is to execute with 6 rigs in the Bakken and deliver everything that we said that we laid out at Investor Day.
Speaker 4
Okay. I appreciate that. Obviously, we're not expecting at this point, but we'll keep an eye on it. My follow-up, if I may, is on exploration and it's kind of a couple of part question, I guess. The Tom Madden, as I understand it, was only contracted for 2 well slots.
I was just wondering if that has now been extended. And if so, what you have in the plan for this year by way of total exploration wells? And I realize that can move around, but well tests and so on. And if I may, just on that last point, Greg, I wonder if you could just characterize Haimara for us in terms of scale. It looks like it's that big green blob to the east of Turbot Longtail.
But as you probably saw from our note the other day, our understanding is that the service sector is telling us that is already under test, which would imply discovery. So any confirmation or color you can offer around that would be appreciated. Thanks.
Speaker 3
Yes. Thanks, Doug. So Haimara's operations are currently underway. And as we said in our opening remarks, we expect to announce something on that shortly, as well as the Tilapia well. Regarding the Tom Madden, yes, we plan to use that rig throughout 2019.
We really have without talking about specific well numbers because again it does depend on kind of what we find and testing and etcetera as we go forward. But our main objectives on the block this year are really threefold. 1 is to appraise Hammerhead, second is to appraise Ranger and then our third objective is to continue to exploreappraise around Turbot. And the purpose of those three objectives is really to underpin vessels 45, where are they, how big are they, etcetera. So those are our main objectives this year and we'll do that with 2 rigs in the expirationsappraisal theater.
Speaker 4
Just to be clear, the $200,000,000 guide, that's a G and G cost, not a dry hole cost, right?
Speaker 1
I'm sorry, Doug, the $200,000,000 guide from
Speaker 4
Yes, the guidance that you suggested, I think, for exploration, that's G and G, not dry hole.
Speaker 1
Okay. So our exploration spend for 2019 is going to be $440,000,000 That's what we laid out in Investor Day.
Speaker 4
Sorry, I thought I had to interrupt.
Speaker 1
So are you talking from my when my guidance that I give out, we give exploration expenses without dry hole cost. So that's the expense. The capital spend for exploration will be approximately $440,000,000 in 'nineteen.
Speaker 4
Right. Got it. Thank you.
Speaker 0
Thank you. Our next question is from the line of Brian Singer of Goldman Sachs. Your line is open.
Speaker 5
I wanted to follow-up actually on the points on Guyana you were just talking about with regards to appraisal. To what degree does the appraisal program over the next 6 to 9 months, as you said, just underwrite FPSOs 4 to 5 versus open up the door for additional FPSOs beyond 5? Or is the emphasis on the plus of 5 plus FPSOs or expansion beyond 5
Speaker 3
as I said in my remarks earlier, the, mean, as I said in my remarks earlier that one of the primary intentions though of the program this year is to underpin vessels 45. So where are they? We know that there will be 1 or more potentially in the Turbot complex. There's likely to be 1 or more on the Hammerhead. And then finally, Ranger, how does that play in and when does it play in?
And as you mentioned, we will additionally be doing additional exploration on new prospectivity on the block above and beyond that. So it's really both, but we're anxious to get 45 underpinned obviously because we want to keep the cadence of design 1, build many kind of a ship a year coming online. So it's important to understand where those are, get them engineered, get them designed and more importantly, how big to build them.
Speaker 5
Great. Thanks. And then my follow-up is with regards to the Bakken. Can you just give us the latest that you're seeing in terms of the surface cost environment, maybe unrelated to your shifts to plug and perf, but just more of the service cost environment in the Bakken and then what you're currently seeing on the realization front? Thank you.
Speaker 3
Yes. So I'll take the service cost. So I guess first point, Brian, is the Bakken is very different than the Permian. It's a more regional market. Therefore, it's not experiencing the level of cost inflation that the Permian is seeing.
Now having said that, we're seeing an average cost increase of 5% to 10% on average in the Bakken in 2019. Most of that's in the form of higher labor costs. But having said that, we're confident that with the combination of the performance based service contracts we've established with our suppliers or many of our suppliers and our lean manufacturing capabilities that we'll be able to cover all of that inflation. So from a well cost guidance standpoint, we're very confident we'll deliver what we promised in
Speaker 1
spite of the inflation. And just Brian to your question on the realizations, they are back to normal in the Bakken. So during the Q4, at the beginning of Q4, the Clearbrook spread moved from like plus $0.78 to TI to minus $8.30 per barrel and that was due to about 1,000,000 barrels of demand going away just due to refinery maintenance. So now that the refineries are back online, the differentials are back around normal. They've been $1 above to $1 under.
And so, we're just seeing more of the normal type of Bakken differentials. And if I can just add again, our strategy is to have multiple export markets there to provide us flexibility to move our oil into the highest value market. So we can get about 70% of our oil to the coast to get the Brent influenced pricing. So and that's through a combination of our firm transportation on pipelines and rail.
Speaker 3
Thank you.
Speaker 0
Thank you. And our next question is from the line of Ryan Todd of Simmons Energy. Your line is open. And Mr. Todd, your line might be on mute.
Your line is open.
Speaker 6
Sorry, I apologize for that. A couple of quick questions on the Bakken. Of the 35 wells that you brought under in the Q4, how many of those, if any were plug and perf? And can you comment on how early production looks relative to expectations in your targeted type curve for the 2019 program?
Speaker 1
So in the Q4, it was 13 were plug and perf that came online. And then as we said, basically going forward, it's almost 100%. We could have some carryover sliding sleeves being coming online, but really all our program is plug and perf. And I'll turn it over to Greg on performance from the plug and perf.
Speaker 3
Sorry, I was on mute for a second. Just a reminder, the high intensity plug perf completions are expected to deliver a 15% to 20% increase in IP 180, at least a 5% increase in EUR. That increases our plateau production to 200,000 barrels a day from the previously guided 175, and importantly an increase in overall Bakken NPV by over $1,000,000,000 at $60 per barrel WTI. And what I will say is that results so far indicate that we are meeting or beating expectations on IP rates. So we're in good stead going forward.
Great.
Speaker 6
It's good to hear. And maybe any near term impacts from the weather? And you had a relatively strong oil mix in the Q4 as well. I know that bounces around and we tend to ask you from quarter to quarter, but anything on those two things?
Speaker 3
No, there has been some minor weather impacts. It's extremely cold. So the polar vortex is alive and well in North Dakota, just like the rest of the nation, but we expect to recover from all that as normal.
Speaker 1
And then just going to the oil cut too, and I know the way you asked your question, you're right. I mean oil cut is going to fluctuate quarter on quarter really due to changes in gas volumes captured, NGLs extracted and also NGL pricing. But just from our guidance standpoint, we do expect to average in the low to mid-sixty percent range for the foreseeable future. So the increase in Q4 relative to our gas, it was driven by lower gas was gathered because we did have Tioga Gas Plant
Speaker 0
Thank you. Our next question is from the line of Jeffrey Campbell of Tuohy Brothers. Your line is open.
Speaker 7
Good morning and congratulations on the quarter. Thank you. I was just wondering,
Speaker 0
could you give us
Speaker 7
a
Speaker 8
I was just wondering, could you add some kind of color with regard to the Guyana 2019 well test program, specifically how that's going to help you to confirm or eliminate development options for the future?
Speaker 3
Well, I think the purpose of the testing program, the primary purpose is always to establish reservoir continuity. So is there any compartmentalization or anything like that going on? So far, all of our drill stem tests have indicated very good continuity everywhere we go. So that's important as you think about vessels 45 to have some tests under your belt to understand how many wells will it take to evacuate those reservoirs. So yes, so that will be the purpose again is looking at 45, the majority of the testing will be dedicated to that or new discoveries that we would like to get a drill stem test in while we're there.
Speaker 8
Okay. Thank you. And I was just wondering, could you comment broadly on the distribution of the drilling and completions in your best areas such as Keene and Stoney Creek versus East Nest and then Beaver Lodge in 2019? Just kind of wondering how you're going to distribute the rigs around the completion? Yes.
Speaker 3
So, if you think about the 160 wells online that we're going to drill, about 45 of those will be in Keene, about 30 of them will be in Stoney Creek, 40 or so will be in East Nesson and then 20 will be in the Beaver Lodge kind of Capa area. And then we have another 25 miscellaneous wells that are really spread out to try different loadings, etcetera. So kind of test wells in other parts of the field.
Speaker 9
And just a follow-up.
Speaker 8
Oh, I'm sorry.
Speaker 3
Sure.
Speaker 10
Just on the 25,
Speaker 8
is that I know that other operators in the Bakken have talked about this as well. Is that sort of an effort to try more modern completions maybe in areas where you haven't done it recently to see if you can push those EURs up?
Speaker 3
Yes, I think so. And those 20 5 wells, we're going to do about 11 in Goliath and 14 in Red Sky. So really that's as you kind of move out, how do we think about profit loading and potentially even spacing in those areas of the field. So we want to get some of that experience under our belt this year. But if you look at the program for this year, the IP 180s are going to average 120 to 125.
And certainly the EURs will be well north of 1,000,000 barrels for the program.
Speaker 8
So a
Speaker 3
good healthy program and returns in the 50% to 100% range.
Speaker 8
Okay, great. I appreciate that color. Thank you.
Speaker 0
Thank you. And our next question comes from the line of Bob Brackett of Bernstein Research. Your line is open.
Speaker 9
Good morning. Could you talk in terms of Guyana, the pending government and regulatory approvals? How do you see the milestones coming through the Q1? And are they influenced by the election down in Guyana?
Speaker 2
Let's handle it 2 ways. With the recent no confidence vote and elections still being scheduled, There is absolutely no impact to our exploration or development activities. Liza Phase 1 remains on track to achieve first oil in early 2020. And we also expect Liza Phase 2 to start up by mid-twenty 20 2. The government on the final approval on plan of development, it's just a question of getting a third party engineering firm in place, which is underway to work with ExxonMobil to basically vet the details of the plan of development and we anticipate getting that in the Q1 and moving forward.
But I think the important thing there, Bob, is that all steam ahead.
Speaker 9
Yes, that's clear. Related follow-up that the F and D of under $12 a barrel is quite strong. If you look back to the 2017, that was an amazing $5 a barrel as those Liza bookings came through. How do we think about the cadence of Guyana reserves bookings either on project sanction or then production related revisions as we go forward?
Speaker 1
Sure, Bob. We really believe we've got a competitive advantage with our reserve resource and backlog basically. One, just so you know, we only have 40,000,000 barrels of Guyana booked at this point. And as Exxon says, there's greater than 5,000,000,000 barrels discovered. And it is this cadence because with the cadence, we the sanction of the Phase 1, we booked the approximately 40,000,000 barrels and did not book any barrels here in 2018.
So in Phase 2, as John says, gets sanctioned, we will pick up barrels then. Phase 3, as Exxon is saying by the end of the year, we'll pick up those barrels. Then also as we drill the production wells now for Phase 1 and begin to start up performance on Phase 1, we'll be picking up additional reserves at that time. So from a reserve standpoint, Guyana will be the gift that keeps on giving for us here over the time because as John Hess mentioned earlier, as we expect to have these phases come on once every year, we'll continue to record additional reserves every year as this moves out. And you saw the low F and D costs associated with that.
So let alone the scale and just the uniqueness of the low cost reserves, it just puts us in a terrific competitive advantage.
Speaker 2
Great. Thanks for that color.
Speaker 0
Thank you. And our next question comes from the line of Roger Read of Wells Fargo. Your line is open.
Speaker 11
Yes, thanks. Good morning. Maybe just to follow-up on some of the Guyana stuff. Can you talk to us a little bit about, I guess, what some of the issues we should watch for in terms of completion and delivery of the Destiny vessel? And then anything else on the development drilling or any other critical equipment timelines we should be launching to remain comfortable with the early 2020 startup?
Yes.
Speaker 3
So I think as I mentioned in my opening remarks, the cadence of when the vessel will show up and whatnot. We are on schedule to do that. So there are no issues foreseen yet. We are on schedule to get the vessel on location. I think the next key thing to watch is all of the surf activities that really start in the Q2 in Guyana.
So those are key activities. But we are based on the project progress to date, we are on schedule to deliver oil in early 2020. Then you'll ramp those wells up over a 4 to 6 month period,
Speaker 7
so it won't be an
Speaker 3
instantaneous ramp. The instantaneous ramp. The reason for that is you'll bring them on slow just to make sure that you don't have any sand control issues. So there will be a ramp of 4 to 6 months according to the operator.
Speaker 11
Yes, of course. I understand that. And then just one last question on balance sheet flexibility, obviously hedged up for this year, the 95,000 barrels. I was curious, is there and you may have mentioned this, I may have just missed it in the original commentary, but what's been done or could be done for 2020? Or what do you envision maybe needing to do for 2020 if the opportunity to hedge at $60 were to present itself again?
Speaker 1
Yes, we will continue to look to add hedges as we move into 2020 or 2021. As I said earlier, we're just looking to manage the uncertainty and we do like to have that healthy insurance to ensure our program can continue to be executed because as I said earlier, we really like where the portfolio is right now and what it can deliver that 10% production growth and 20% cash flow growth. So with the 95,000 barrels a day hedged at the $60 WTI floor for 2019, once we look to 2020, we will look to put on hedges as well to add insurance.
Speaker 2
Yes. And I think it's important to know that the structure we'd use would be similar where we protect the downside, but we don't cap the upside.
Speaker 11
Okay, great. Thank you.
Speaker 0
Thank you. And our next question comes from the line of Paul Chang of Barclays. Your line is open.
Speaker 12
Hey, guys. Good morning. Good morning. John, Marty, I have to apologize that. You gave a number about the amortization cost per quarter for the hedges.
Is that $29,000,000 after tax?
Speaker 1
Yes, that is $29,000,000 after tax.
Speaker 7
Okay.
Speaker 12
Yes. John, just curious that, I mean, have you or Exxon have ever reached out to the opposition party and see what is their current view about the contract and everything?
Speaker 2
Yes. So you know that both major parties, the current ruling party as well as the opposition party, have stated that they are supportive of the development and have consistently stated their intention to honor our PSCR contract.
Speaker 12
And that based on the current plan, when the consortium will start developing the natural gas for the local market?
Speaker 3
Paul, that project is still under review and under discussion with the government. I mean, we're doing some early engineering studies to figure out what it will take. But in any case, it will be a small amount of relatively small amount of gas going onshore in the Maine to deliver to a gas fired power plant. But that project has not been sanctioned. It's still under feasibility studies and whatnot.
Speaker 12
Greg, I mean, so that saved me some reading through the entire PSC. Is that being specified in the PSC in terms of the SCOOP and the when that gas market need to be developed?
Speaker 3
No. It's still all that's still under discussion with the government.
Speaker 12
Okay. So that is actually subject to discussion, it's not framed in the PSC?
Speaker 3
No. I think we've agreed for the necessity for it, but timing and how it all is going to work and all that is yet to be determined.
Speaker 12
Okay. And at Bakken, at 200,000 barrels per day of the peak, how many years that you can sustain based on the full rig?
Speaker 3
4 to 5.
Speaker 12
4 to 5 rigs. I mean how many years are
Speaker 3
you subsiding? Based on what we know today. I mean 4 rigs, but 4 to 5 years at a peak, Obviously, based on what we know today, completion technology could get better. I mean, there's lots of things that could get better that could extend that.
Speaker 12
But the current based on what you know today, the resource is 4 to 5 years on that?
Speaker 3
Right. At that roughly 200,000 barrel a day peak. Okay. Yes, at a 4 rig level. So let me be clear about that.
Speaker 12
Yes. John Wiley, on the Midstream, can you tell us what is the expected CapEx for 2019 2020?
Speaker 1
For 2019, Midstream has put out its guidance. It is $275,000,000 to $300,000,000 of CapEx for midstream. There is some small amounts that aren't in that midstream related to water assets because the water asset sale will is expected to close in the Q1. That's approximately $25,000,000 to $30,000,000 on top of that. But that's the gross amounts that I was giving you.
Speaker 12
Okay. How about 2020? Any kind of rough number?
Speaker 1
No, we don't have guidance out on that. So again, it will depend all on our plans as well as any potential third party opportunities that the Midstream
Speaker 12
has. Okay. Thank you.
Speaker 0
Thank you. And our next question comes from the line of Ross Payne of Wells Fargo. Your line is open.
Speaker 7
How are
Speaker 10
you doing guys? Obviously, Venezuela got involved with Exxon's exploration ship on the very western part of the Guyana border. Can you give us an update on when you think that will be resolved through the UN? Thank you.
Speaker 2
Drilling and development operations in offshore Guyana are unaffected by the incident that involved the seismic acquisition vessels on Saturday, December 22 when the vessels were approached by the Venezuelan Navy. The area where the incident occurred is more than 110 kilometers from the Ranger discovery, the closest of our 10 oil discoveries and approximately 190 kilometers from the Liza development area. So the point is our drilling and development operations in offshore Guyana are unaffected by that incident. And I think it's also important to know that exploration and development drilling is continuing in the southeast area of the Stabroek Block. Greg's talked about that.
The activities related to Liza Phase 1 development, which is expected to be producing up to 120,000 barrels of oil a day in early 2020 also unaffected. And in terms of where it goes from here, it'll be going to an international court. The UN fully supports the Guyanese position. The United States supports the Guyanese position as well as the CARICOM. So this is an issue that is diplomatic that will have to be handled through the court.
But at the end of the day, we're very optimistic and encouraged that the Guyanese position will prevail.
Speaker 10
Okay. Thank you very much. And one more question on the Bakken. Can you it sounds like you can get about 70 percent of your barrels to the Gulf. What percentage is pipeline versus rail and is that mix going to change at all in 2019 or 2020?
Speaker 1
So what we have right now is approximately 50,000 barrels a day that goes on DAPL. So that can get to Patoka, it can get to Nederland, you can export from there. Then we have approximately from the rail that can go east, west or Gulf Coast. You've got like 25,000 to 30,000 barrels a day on rail that we can move. So that's basically how we get to the Gulf I mean to the various coasts and get the Brent Link pricing.
And we will
Speaker 7
there are multiple potential expansions going
Speaker 1
out such as DAPL and we'll to to again access more of those Gulf, I keep saying Gulf, but coast pricing to get Brent linked pricing on our crude. So we are looking at some of these expansions such as DAPL.
Speaker 2
Yes. So you look to the future, the majority of our movements to market our Bakken crude will be through pipeline and the rail will be there for Flex.
Speaker 10
Okay, perfect. Thanks guys.
Speaker 0
Thank you. Our next question is from the line of Pavel Molchanov of Raymond James. Your line is open.
Speaker 13
Thanks for taking the question guys. Kind of back to the general topic of takeaway capacity in the Bakken, any issues with gas flaring or anything around those lines that are facing constraints as you continue to ramp volumes?
Speaker 3
No. We don't anticipate any gas flaring restrictions as we ramp our volumes. We have adequate capacity in place.
Speaker 13
Okay. And then just a quick one on buyback. Having completed the previous authorization in Q4, as you mentioned, Is it fair to say that no additional buyback is envisioned as part of the 2019 capital allocation?
Speaker 2
Our first, second and third priority is to maintain a strong cash and balance sheet position, ample liquidity to ensure that we can fund our world class investment opportunities in Guyana and the Bakken without the need for further debt or equity financing by the way. As we transition from our investment phase and our portfolio begins to generate recurring free cash flow and you go forward in time out to 2025, we plan to return the majority of that free cash flow to shareholders through higher dividends and opportunistic share repurchases.
Speaker 1
All right. Very good. Appreciate it.
Speaker 0
Thank you. And our next question is from the line of John Herrlin of Societe Generale. Your line is open.
Speaker 14
Yes, hi. Just some unrelated ones. With reserve additions this year, you said they were primarily Bakken, where most of the additions extensions, Greg?
Speaker 1
It was actually a mixture, John, of extensions and ads. So, generally with the ads, you're going to get the extra year in the 5 year program. So we're going to get those ads. Then you get some of these technical ones where you could have had in a program well A in the previous year and now well A is out and you got well B, so you get adds versus revisions. But you do get the additional year of the PUDs and then you get some revisions pick up.
The prices were higher, so you do pick up some revisions from that as well. Okay.
Speaker 14
Would you ever consider discussing your captive resource base given the fact that reserve additions are going to be lagged in Guyana and it's so large and you do have other resource potential elsewhere because it's not something you frequently discuss?
Speaker 1
No, we don't. We typically don't discuss this like the 6P type resource number, but what we do and as we laid out on Investor Day and Exxon has laid out that we do have greater than 5,000,000,000 barrels gross in Guyana. Obviously, we have a 30% working interest. So people can get the scale of that. And as I mentioned, we only have $40,000,000 of that booked right now.
And then in the Bakken, obviously, with our 15 year well inventory that we have with greater than 50% returns and then we have obviously an inventory of well locations beyond that. So that's how we give that flavor because to your point, we do believe we have a real good competitive advantage with our backlog, our resource and reserve
Speaker 3
position. Great. And the estimated EUR in the Bakken is somewhere around 2,300,000,000 barrels there as well.
Speaker 14
Thanks, Greg. Since John was answering a lot of the questions, what are you capitalizing this year in terms of interest expense for 2019?
Speaker 1
John, I'm going to have to dig that one out.
Speaker 2
We can do it offline.
Speaker 1
That's fine. Yes, maybe I can get back to you offline on exactly what that is.
Speaker 14
Yes, that's fine. And then last one for me is for 2018 costs incurred, could you give us a sense of what was exploration, what was development?
Speaker 1
So from our cost incurred standpoint in 2018, our exploration spend was $440,000,000
Speaker 0
Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.