Q1 2020 Earnings Call
Thursday
I said shut ins primarily an onshore. We anticipate 40,000 barrels equivalents Productions shut-in and curtailments for the month of May with majority plan from offshore. Wells took the time. We made the decision on nominations and in the Gulf of Mexico prices were very low since that time prices have improved greatly for June especially without and without significant changes. We should flow in June in the Gulf of Mexico. But as we all know we can be quite volatile in the world prices and we'll have to continue to monitor that situation with revised capital gain a significant operational GNA cost reductions Murph remains competitive in a low-cost price environment. We prepared the company the past several years through all way to developments and transactions and appropriate balance sheet management. This is now come to fruition with approximately 1.8 billion of liquidity and no near term debt maturities are streamlined portfolio with diverse assets provides wage.
good morning, ladies and gentlemen and welcome to the Murphy Oil Corporation first quarter 2020 earnings conference call if at any time during this
through the cycle
And slide Seventeen Murphy's top priority always has been and will be maintaining the health and safety of our employees contractors and communities where we work our strong safety culture and planning so far has prevented Cogan from impacting any of our operations globally beyond that. We recognize in price Cycles such as these that liquidity and financial strength is important and we make the choice. We made the tough decisions by reducing spending and costs across all fronts in order to maximize our future cash flows. We're able to preserve our largest resources and our unique operation upside for the future and closing on behalf of my executive team. I want to express my appreciation to our employees or driving force behind our company and culture and mm decayed it employees and El Dorado and Calgary to thank you again for all of your contributions. The El Dorado office closures particularly painful for us. This company was founded here has been integral part of this club.
For many years with that. I'll turn the call over to the operator for questions.
Thank you. Ladies and gentlemen reason that begin the question-and-answer session. Should you have a question, please? Press the star followed by the one on your touch-tone phone, you request any questions will be pulled in the order. They are received should you wish to decline from the polling process, please? Press the star followed by the two and if you're using a speakerphone, please lift the handset before pressing any Keys your first question comes from Bryan Singer with Goldman Sachs, please go ahead Brian good morning and Rodger on a personal note. I wanted to wage could help on your on your recovery. I went back Brian Roland norenberg. That is great. First question is with regards to kase Chi you did mention no change to the original plan mid twenty twenty-two and I just wondered if there are any changes you see either up or down to the cost structure and then yep.
Whether there are any risks to the timing as a result of all this going on. No, we feel real comfortable the the project execution. We did pull out our expat staff out of Korea at an age appropriate time and very good call by our safety management team will continue to home with local staff that Hyundai Shipyard where we're working was able to continue to work the entire time the well Beyond 50% complete on the project. We've lined up all the vessels to move the the the the structure to the Gulf of Mexico. Feel real good about it. I think from a cost structure side, of course that contract is signed while back but we rebid the rig for that and that bid is do like tomorrow and anticipate that to be very favorable to us with many of the other contracts have been reworked and we're seeing a pretty good shape on the cost structure certainly nothing, you know after buying a project like a dog
with significant work to be done
On you know, you quite fortunate almost a year later to have the capex be identical or slightly lower to that with all those assumptions. So we're certainly in that position and we anticipate help from the rig and the execution and we we think this is a good project certainly has a break-even prices, you know in the 30 range for the rest of the field life and feel real good about those projects and want those projects. Come forward is going to lead to a nice production up with for us at that time to the original plan of when we purchased it.
Great. Thank you. And then my follow-up is with regards to the eagleford. Can you just talk a little bit more about some of the price points at which he would bring back completion drilling activity and how you think about price points for maintenance mode versus going to maintenance mode versus going to go into growth growth mode. Well this time I brought I think me and everyone else is in this type of role or looking at 8:30 and slowing down and not rushing to bring Wells online in this price environment. It's all about what we can cover with our cash flow and capital allocations and decisions and twenty Twenty-One. What brings forward the best best returns for our company. It's not really about getting back onto any type of growth profile and we have to continue to get stabilized. They're in pretty good shape on wage shut-ins in the eagleford. They were some curtailments for some other reasons in the month of April, but we're not caught up in that today. We have nice we have pricing available due to our advantage situations Flint home.
And Phillips in Corpus, but we sell all in the Eagle Ford real close to delivery points putting us greatly advantaged in these type of shut in situations. So we have to get that stabilized and get into our 2018 budget to maintain kind of mid 30s kind of production the eagle food probably costs about four hundred million for that and all of our own Shores are even for just probably only three twenty-five or so working on that and working on a long-term project for next year and you know working through that capital and trying to improve Capital allocation to deliver higher value and our Focus right now. He's not really determining a price to get back on the growth plan again or anything like that at this time.
Great. Thank you.
Thank you.
Your next question comes from Leo Mariani with KeyBank, please go ahead.
Hello, Leo. Good morning. Yeah, good morning here guys. Just a first question here on l o e certainly noticed that your your l o e and the US was up quite a bit in the first quarter and you guys had a significant work over going on that sink drove that hire just trying to get a sense of how we should expect that to Trend in the next couple of quarters think you guys said you had a month Dalmatian well workover going on in the second quarter. So should we continue to see a little bit elevated in the US and second quarter is it to come down later in the year anything you can tell us on contradictory? They're dead what happens in the Gulf of Mexico? We usually can get around nine or ten dollars and we have one of these work overs and a quarter it goes up about $4 and we have another one in the second quarter in the original plan was for it to be another forty million dollar type work over but the well is practically complete today with a great execution by our team there almost for half the expense so it can log
forward to the second quarter being better than the first
Even though they have a work over and then our Eagle Ford Shale kind of a non dollar game in a typical run rate there, but still need to bake in the continued savings that are procurement team has come back up within our execution team. We continue to beat costs out of the system and will continue to do so and I just think the first of the year had these work overs in it will get back to our normal weight and her Canada topics is looking very good. So not concerned about that. And as to these work overs, there's probably nothing more an industry more economic than an offshore subsequent work over at the rates that we get and these are any mid-cycle pricing well over a hundred percent rate of return. So these work overs are super economic even in times like this and need to be done and but they do drive you off x-wings Leo for us and but when you pull that out Murphy's probably on it run rate of a little over $10 for the first quarter, which I think is pretty good for an oil change.
Had company with diverse access like we have and get ourselves into the 9 range and we pull these work overs out. Oh, that's that's very helpful. And I guess just for the respect to em, you know kind of getting back to hire activity levels. I Know It's Tricky. There's a lot of variables going on, but just trying to get a sense if we do get a a decent price recovery, you know, sort of fair wage than strip towards the end of the year and to start next year. Where does Murphy want to put its kind of first incremental dollars? So what areas do you start to kind of spend money? You know first when you look across the portfolio. Well, we have it on both fronts and we'll have to make decisions between our offshore and onshore. We have a long-term projects that we're part of these are very very nice projects. Both police seemed Samurai and st. Malo waterflood enormous long-term reserves for our company. So those are our in our system and will be executed then we have our eagleford some really wage.
Locations across the business there, especially in Karns. We had a very big program and non opened eagleford that has been deferred by that company like most companies in shaylor most companies in our in a street cut back capital and soon you'll be a matter of the best Eagle Ford Wells versus these work overs and pent-up work that we have in the Gulf of Mexico. We would anticipate lower wage costs in the offshore to continue and an onshore so it would be a competition between those it's quite quite close on rate of return on those type of projects off in the middle of determining that to put a first dollars to work. So we have a lot of opportunity and a lot of unique things we can do or pull back some of our projects in the Gulf that can be brought back to execution mode off with the pullback in the eagleford. We had a really nice program this year and pulled that back. So have two places to go with the capital be heavily focused in competition between the eagleford and the Gulf of Mexico at this time.
Okay, that's that's very helpful color for sure and just lastly real quick on the the Kings key FPS deal certainly understand that you know that was delayed. I'm sure a lot of it was was covid-19. But just wanted to get you said you guys have a a pretty high degree of confidence that this deal can kind of close here in the next month or so. Just trying to get a qualitative sense of how you're thinking. This is progressing. Yeah, we feel good. This is a way to be partner that's currently our partner and on our a significant portion of Delta house in which we operate and produce that we purchased in the Gulf of Mexico good relationship with them. They're in the business office understand the Midstream business. There's several Partners in these fields. And these are Big notebook agreements about running a offshore facility for thirty years and the Gulf of Mexico maintenance operating expenses handling of the production handling agreement. These are Big lawyer driven books and a lot of pages to review and that progress is going well. There's no indication wage.
issue around this environment
Or anything like that pushing that back and we're very happy about the the execution going forward. The pace is a little behind where we where we were thinking before but as you brought up am working remotely and things of that nature slowed that back a bit, but we feel confident about it do business with them know them working with them and all the partners and I feel very good about it, you said, okay. Thank you Rodger. Appreciate it. Thank you.
Your next question comes from Gail Nicholson with Stevens, please go ahead morning Gail. Good morning Rodger. I'm glad you are feeling better when we look at home feeling better. I'm just working.
Well, I don't know if that's a good thing or not done. When we look at the Improvement in operating costs of over thirty million dollars is that fair to assume that is predominantly driven by offshore. And how is that split between the renegotiation of contracts optimizations versus delaying work overs. I would say at this time. It's a nice wage. There's course Savings in the 20s around our onshore business and the 20s in our offshore business split between a lot of chemical read bids how we're dispersing chemicals offshore. That's a big cost sharing of facilities and helicopters with nearby Partners looking at every dollar to squeeze out additional efficiencies offshore. I'd say that the money split between the two businesses at this time.
Okay, great. And then looking at FrontRunner you counted over 250 ft of pay. Can you talk about future opportunities there and then how the growth rate of the 7,000 barrels to your initial expectations of the first while it's probably two times our original expectation while these Wells are super economic. They're not high rates. The facility is there and you do the whole project on an existing older platforms are very good economics. This this pay had a much more expected net pay than we thought and the amplitude response as well seat makes this may allow us to take this off the main structure front-runner off into a subsea exploitation opportunity near the field and and then we've been focusing a lot with the new seismic grid that we bought from the entire Gulf and when we bought a log and formed a JV with petrobras, we've taken all of our seismic into one large seismic grouping if you will and doing a lot of reprogramming
Testing and looking near field and looking for normal expiration opportunities. And this is one has come out of that effort where we can tie the success of this well to an exploitation opportunity and took you know, that's the whole business and very very happy about what we're seeing there.
Great. Thank you so much.
No, thank you.
Ladies and gentlemen, as a reminder should you have a question, please? Press the star followed by the one your next question comes from Mohammed go of Raymond James, please. Go ahead. Good morning. Thank you for taking the questions about how you choose which Fields the shuttle is it purely a matter of looking at cash costs or do you guys focus on other factors? Also how that's done is in the Gulf of Mexico. We we sell into two packs grades of crude and Mars Grand and an h l s blend and these have differing differentials. May was a very difficult month and if people understand the crude physical home businesses a ratable roll calculation that is caused by the super contango. We have between these trading days when crew went almost went negative and that made the majors.
Physical delivery price quite low within look at the both the variable.
On the fixed cost we know a variable and fixed for every platform and every pad that we have in the eagleford and are well and we look through as to what those prices are to cover those costs. Just that looking for a certain margin there and when we reached that we discussed with our partners and then we move forward with decisions to you know, maximize the cash flow for the company wage.
Okay, and what price is there a rough price you can give us as to when would see the shut-ins come down would be current kind of June price be a reasonable number. We would see a significant reduction shut-ins. Yes, the June prices well above the Mets physical price probably ten to eleven dollars higher today or more. And so this recent little run up in crude and away from this super contango between May was thought to be the shut-in month and when you go through those formulas to get to these crude differentials that calls made to be very poor. June is much better made today had decision was made today. We would not be shut in today that may has improved enough to probably allowed to flow at as it work today, but you have to nominate cruise and your customer and and that's that's what happened in that situation if we woke up today with the prices. We have two dead.
Wouldn't have a shut-in in May and now our would be anticipate one in June but we need these prices to hold and I'd have volatility as we get into the trading off of the crude month which is around the 28th of every month. But right now we being really good shape. We made a decision earlier in June is looking very positive in that regard as to shut-ins.
Okay understood. Thank you for the thank you for the answer. Thank you for calling.
Your next question comes from Rodger with Wells Fargo, please go ahead and Rodger. How you doing. I'm doing well Rodger. I'm glad to hear you're on the way to recovery. If not, cover this find a lot of the the kind of I think more important stuff in the head here, but I was just curious. She did not get a hedging in June or for June and you know, we think about where you had you before obviously mortgage a little bit different today. But how are you thinking about hedging for the latter part of the year or in two twenty one is obviously