Q3 2020 Murphy Oil Corp Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Murphy Oil Corp, third quarter Twenty-twenty earnings Conference call. If at any time. During this call you need assistance. Please press star zero for the operator I would now like to turn the conference over to Kelly Whitley, Vice President Investor Relations and communications.
Please go ahead.
Thank you good morning, everyone and thank you for joining us on our third quarter earnings call today, joining us, it's Roger Jenkins, President and Chief Executive Officer, along with David Looney Executive Vice President and Chief Financial Officer, and Eric Hambly Executive Vice President operations.
Please refer to the information of fights we've placed on the Investor Relations section of our web site as you follow along our webcast today throughout today's call production numbers reserves and financial amounts are adjusted to Exclaim, Noncontrolling interested in the Gulf of Mexico.
Please keep in mind that some of the comments made during this call will be considered forward looking statements as defined and that private Securities Litigation Reform Act at 1995 as such no assurance can be given that these events will occur or that the projections will be attained a variety of factors access that may cause the actual results to differ.
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Once per day with 86000 barrels of oil per day production was significantly impacted by historical Gulf of Mexico Storm season, resulting in 12000 barrels equivalents per day shut in compared to our guidance of just under 5000 barrels equivalent per day. This impact was partially offset with stronger performance in our onshore business.
We spent approximately $120 million of accrued capex in the quarter, including $19 million for the construction of the kings ski floating facility.
Our various oil pricing points trading closer to the WT on the quarter than usual due again to the unique storm season. This led to a realized oil price of nearly $40 per barrel on par with Wi Fi.
It's improved to $209 million in the third quarter, including a cash outflow of $28 million due to a working capital increase when combined with property additions and dry hole costs of $134 million, including $23 million for Kings key we had positive free cash flow of.
$74 million in the quarter, excluding the working capital change, we would have achieved free cash flow of $102 million.
While also reducing our environmental impact with flaring reductions and increased water recycling.
We have also expanded our internal diversity inclusion practices and programs and maintain a program to eight impact employees in times of need through our disaster relief Foundation, which taking place in now as were impacted by Hurricanes our employees on the Gulf Coast.
Our operations team has made ongoing efforts to reduce our environmental impact while lowering costs through the changes such as electrification of our Frac fleet and opening remote operating center for managing all onshore Canadian operations. Overall, these small changes at up to a larger longer impact by reducing downtime and costs and improving the efficiency.
We have our field employees.
Additionally, we utilized by fuel hydraulic frac spreads.
For all well completions in Canada, this year, which resulted in considerable sealed to emissions reductions.
Or downtime in wells and facilities, while optimizing artificial lift performance production from the wells brought online prior to 2019 deliberate over 20000 barrels equivalent a day in this quarter demonstrated less than 14% decline.
Over the prior 12 month period.
Anticipate 2021 base decline of just 22% or you Ford asset. This is a significant improvement in base decline.
For the Eagle Ford.
On slide 14.
Murphy produced 13000 barrels equivalents per day in the Kaybob in the quarter with four wells online. This asset continue to show strong well performance with tightening differentials and achieving higher cash flow metrics our.
Remain on schedule construction Kings key floating production system has advanced and is approximately 77% complete with mid 20 to remain as a target for first oil at this time Weve submitted all permits typically see more mountain samurai projects.
We're excited to launch the drilling campaign and second quarter 21, and take the next step toward first oil.
Two rigs are presently drilling at the St Malo Waterflood project and the first producer well as shown results to plan.
Okay.
Next formation on Slide 20, we continued to progress our various exploration projects as remain as we maintain optionality across our diversified portfolio. This quarter, our operating partners, but the high guard well the Gulf of Mexico and has encountered delays in drilling due to the significant storm season, our Vietnam plans move forward with the partners.
Signing the joint operating agreement on block 15 dash to.
We remain excited for the opportunities have with more than 900 million barrels of oil equivalent of net risk resources across our exploration portfolio.
We've been more focused on having sustainable and transparent operations, including our proactive goal of reducing greenhouse gas emissions intensity, we will continue to allocate capital to our unique exploration program in closing I'd like to thank our talented group of employees for innovation and dedication this year in light of all the challenges that.
We faced I'd like to turn the call over back to the operator for our question period I. Appreciate your time. This morning. Thank you.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone, you'll hear a three tone crop acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star.
Is our main focus rather than production increases at this time Duncan.
Okay. Thank you very much and then since I know it'll get asked anyway on King's key and the the cell down processes any update there are things go progressing or what any and there's a slot and taken out to just kind of how how you are thinking about that now.
Yeah, I'm Gonna I'm Gonna talk about that and thanks for asking that get that over with here.
On on King's key really I made a mistake that are rarely if ever make in business development. We've done a lot of business development here at this company and that's commenting on a closing timing of a business and making this the way that's negotiated and I'm not going to be doing that further and but I will say that.
It is progressing King C contained progressive as an email on my phone before walking in here, but naturally them folks in this meeting at this time.
<unk>, a very valuable midstream asset for our company.
And that said that's completely almost derisk built through Covid in Korea, which is no easy task Mark team Bill through significant typhoon season, the hit that project as well twice.
And is now 80% complete.
Kinski is going to sit on top of a very valuable field at caliche more month, it's been previously drilled that we purchased.
So it has value has not diminished at all with this closing delay.
So where we are there's two groups involved with is closing an owners group and it producing group.
With our owners group, we've made it clear directional path forward, there and we're now working with or producing group toward closing so pleased with the work in progress. It's a good derisked asset we're progressing in settlement, but I'm just not getting involved with the date of all that here dump can be honest with you.
Yes, Sir all right well I appreciate it. Thank you no problem. Thank you for asking.
Your next question comes from Neil Digman from true Securities.
Please go ahead.
Good morning.
I don't know Rushydro say too much on this just on that Green can I decided I know, obviously, <unk>, sorry, I'm having trouble.
I'm, having a little trouble talking to so a little bit slower form of here sure I just wondering on Green Canyon 895.
Storms as such any anything you could talk on timing et cetera et cetera on it.
This this is a rig oprey by another partner.
An experienced partner that we know well they've had downtime with the rig pulling the rozerem various things that happens in typical offshore exploration the Gulf This time of year and.
We're in the middle of recovering from the last storm and getting setup back on the rig to kind of know where we're going forward. We progressed a world drove through solved in Maine made a lot of significant progress, but it's really a held up for hurricane reasons, primarily right. Now is would be the case with almost any rig operation conducted this quarter.
In the Gulf.
And then just for a follow up was wondering on Canadian production nice increase to the third quarter I think about 6% Canadian I should say on short production could.
Could you give comments on there do you think that could continue in that regard or anything you could talk about the onshore Canada.
Well, our our Canadian operations are going extremely well, we also have to keep in mind that sometimes it kind of glosses by all the significant event. That's happened in his company like we close our office there working at now in Houston, you see in my comments today that we set up this remote operating center and to continue these incredible results is really outstanding.
Considering what all we've done on the G&A side in the office moving.
These assets Duveneck shale is performing extremely well right now and gives us a lot of flexibility own all kinds of things in our company for the future the.
Wells are performing better this year than we thought.
We're hitting above guidance and the asset the pricing there has got just below at times of the Eagle forward due to a lot of weird differentials going on the Gulf Coast and a lack of capital being spent in Canada in general.
So these answers Doom will also montney doing extremely well one decline rates and we mentioned in our script today. All this focus with these operating centers on this small amounts of downtime improvement, but big significant improvement in Eagle forward to improve the base, So Eric and his team with limited capital R Spring.
A lot of time, focusing on based production as I mentioned the Eagle Ford is very low base decline lower than we've ever had tupper is no different and do Renee is just a smaller asset but it makes 13000 barrels a day of prices just below the Eagle Ford. So a lot of unique things going on in Canada around gas a fair right now don't most people paying attention to this.
It's quite on out around but <unk>.
<unk> has been very positive there's been a lot of debottlenecking and things that were talked about a few years ago.
Almost 1.5 Bcf, a additional new gas supply availability and pipes, but 2022.
The supply in the country's declined to Bcf a day due to covid investing gas demand in Canada is improving with the cold switching some time.
A L.
<unk> there in 2025, the diff to hub.
It was very poor from 16 to 19 now that's all recovered and it's very nice basis going forward due to all these pipes. So Canada's.
Sleeping place, but has greatly improved and allows us a lot of flexibility in our diverse portfolio that we talk about all the time, but if you in in the game and you do different things the game will come to you over top and that's kind of where we are that asset today.
Great details thanks Roger.
Thank you.
Your next question comes from Gail Nicholson from Stevens scale. Please go ahead.
Good morning, Roger.
Nice job.
Both in the Dom as well as the Eagle heart, what's happening Eagle sorry, when you with the artificial lift authorization that facility opposite authorization that you guys are doing that lowers the bank fine, but I also have a positive development.
Are we going forward.
Yeah, Mallette Air Air taken all that glory, and let him answer that question for you you have a great question. Obviously, the more we can get production from our base and continue to lower operating costs. The stronger performance. We have on free cash flow, we're pretty happy with Eagle forward, having just over $8 a bow.
<unk> in the third quarter.
<unk>, we opex in Eagle for it is of course dependent a fair bit on capital allocation going forward.
So we are giving a lot of focus on what 2021 looks like but we are working very hard as an operations team to continue to maximize production and minimize spending and I'm really happy with how my teams done on that.
But also keep your mom Gail that these that these overall opex levels for us this quarter are good with a bunch of the Gulf shutdown. That's also hard to do on a per Bowie basis very hard to do.
Yes, I think I, just got a man and I was wondering if.
$10 changed number.
He has a good run right to use in the goth going forward or let me return to kind of a normalized right at downtime that will likely that are extra work hours.
In that range, but X workovers I think we're really good shape on opex on goal them really well there and work on a bunch of plants to improve it.
Alright, and then Roger.
And then it all the time and <unk> and.
Can you just talk about.
What's the next piece of the puzzle is it approval or just the same sampling of any clarity on timing of that.
Well you know there's a lot of as you can imagine complexity around that with this a lot of yakking really on the administration changed Berseem Boeing parts of the Department Interior you can continue to operate through all administrations, we hope to gain our approvals we'd like to gain those approvals in January as you would anticipate before <unk>.
<unk> 21, working towards doing that you have to get him in and submit them, they're quite a bear of documentation. There that we have to go through so we got that in and no. We own. These assets we have a right to these assets.
All this yakking and talking about differing things, it's really not known at this time of course, we feel really good about our position we've gone through a lot of a.
A lot of presidency, 70 years and a lot of difference thing. This administration. That's coming in was also part of a tried attempt to stop drilling and Macondo. We're very much understand what was called the form then have to keep them on these fields are already drilled which is an advantage where the completion is different than a drilling permit.
Keep in mind, what drilling has to be done as a known pressure regimes, which gets away of some of these issues put on us postal macondo by the prior administration.
All of these things where I'm very aware of were very knowledgeable about and gone through and working all of our options and.
And again on all those things Murphy always has another thing to go to outstanding Canadian assets thousands locations in the Eagle Ford exploration out of the United States. So very rarely fond is all in one ball there one one ball. So that's that's our situation Gail as you know.
Wonderful and then get the standpoint of the 2022 Nope. Yeah, you guys have an undrawn credit facility pass on hand.
Flexibility to adjust budget makes me generate great cast and 21 with an update of thoughts on how you guys are thinking about this upcoming.
Upcoming mccurdy.
Yeah. Gail. This is this is David Lynch talking I mean, obviously, we have a total of $578 million coming due in 22 stout not quite evenly split between June and December we obviously keep an eye on the bond markets and candidly, where the bond market shar today, and where our pay.
<unk> is currently trading is certainly not anything that's attractive to us today, but as we've seen over the last several years, there's a high correlation I think between where our bonds trade and what oil prices look like et cetera. So we don't we don't have to do anything immediately obviously, we still have.
And access it.
Four and a half 18 months before that first maturity. So we look at that as you point out we do have plenty of availability on the revolver and if the bond market didn't come back to us if you will with over the next 18 months to two years that is an option, but but obviously, we look at it we watch it and we try to we try to be opportunistic.
Great. Thank you so much.
Okay I appreciate it.
Your next question comes from Roger read from a Wells Fargo. Roger. Please go ahead.
Good morning, Roger how are you doing.
Well Roger good morning to you.
I guess, a couple of things I'd like to make sure I understand a little better you mentioned a couple of different times Eagle for shell well based declines really.
I don't know we call them shallow out of 22% that certainly better than what we typically see I just wondered what all is factored in there is that a larger base truly mature wells that are declining slower or something you've done different terms choking back production early on or a combination of factors.
Well, what we've done is kind of right size. This asset around 30000, a day going forward, a really low maintenance charged to do that capex and that's really what we're doing and I'll, let Eric expand further than that for Ya Roger sure. I mean, we have a natural phenomenon with the shale oil wells that have a shadowing declined through time.
If you look at our Eagle for this year and what our thoughts are in terms of the base performance next year with a fairly limited capital allocation to Eagle Ford in 2020, we have less production from high decline rate, we've established as we comment on our slide deck a.
20000 barrel of a piece of our business from wells brought online prior to 2019 that has demonstrated very shallow declines which of course, we expect to continue to shallow going forward. So our focus on managing our base on limiting downtime on maximizing production on increasing well performance through artificial lift.
<unk> allows us to shallow out or decline, even more than sort of a natural phenomenon and we've been happy to see that performance over the last 12 months or so and expect it to continue going forward as the wells naturally shallow up in decline as well.
Okay. So just kind of a as in all of the above process is really the right way to think about it.
That's correct.
Everything you said.
Alright.
I don't know, which one of y'all wants to take this but on the CFO parity for dividend Capex should also a desire to.
Pay down.
That that's out on the revolver I'm just curious.
Where does the extra cash come from to pay down the revolver like it's just based on oil 40 for parity 45, you are going to move it around as oil prices move around just a little more.
Help on.
As I said not really getting into it today Roger I'm sure you can understand why but when we sell down this asset to would take a revolver to zero. This midstream asset that we have kinski.
And if not that would stay on there and a low 40 world.
Because we're cash flow capex parity with dividend the otherwise and then we would make another arrangement on selling that if you will if we need to or want to.
Still have very good liquidity.
Even with that remaining coast project is almost built so.
That's the issue there Roger.
Okay I appreciate it thanks guys.
Thank you.
Your next question comes from Ah Leo Mary Annie from Keybanc Leo. Please go ahead.
Leo the morning, how you Doin' Hey.
Hey morning here guys.
Just to follow up on that last comment you made there with respect to King's key he said that the project is.
80% built at this point, so I guess just in the event that.
This deal doesn't give us through what would be kind of the remaining kings keyspan that you'd have to put in place in in 21, I'm getting a sense, it's probably not a lot laughter.
I would say that numbers, probably less than 100.
And the 70 rang.
Doing very well we have a team there on the ground today.
<unk>.
Scooting that well.
It's an asset that is valuable to be sold to someone I'm not concerned of that.
But not really negotiate net here anymore Leah.
Yep understood. Okay, we have a lot of flexibility around it you can see in our in our dead in our free cash flow almost made enough free cash flow this quarter for that so we're doing really well with our operations really well with their gona really well with their L. O E.
Even through the storms, we've cause of our diversed in our other assets outperforming we're very well positioned to take care of what we need in these assets, where where we work and of course have plans to have any outcome involved with that if we need to.
Okay understood and.
And I guess I just wanted to get a chance I know you guys are talking about.
Kind of restarting the Eagles Award operated program next year is that somehow so I hit the ground running pretty early with a couple of legs. An early 21, what can you tell us about the way you're looking at the tackling eagle, while we have to.
Keep your mom, we have to meet with our border improve our budget in December we still have to do that notice where people do their budgets almost a year ahead like as soon as you do your budget do the next budget, which is quite a phenomenon we have going out there.
So.
Do that but we have ducks to do an eagle for probably 14 15 of them see are not in his head in the affirmative there and we have ducks to do and some drooling do got plenty of wells to do with a thousand locations, there, but again that assets performing very well on the base it assets.
Toning and well at at a flatter profile with low maintenance capex going forward a lot of flexibility and of course like most operators I would anticipate up front end loading of operations in the year I don't think we will be.
Common in that in that regard.
Okay, and I guess, maybe just on Mexico.
Certainly I think you guys have been talking about a couple of wealth.
Next year at a minimum.
Just trying to get a sense of where you are in that process in a different partners to kind of negotiate with but is that something we could potentially see start drilling first half of next year I think it's more second half with a unit tells about Mexico.
We're in the middle of our partners on the budgeting there. She can imagine that's things suggested taken close regard. These days with these type of prices.
I would anticipate it late next year, we have two very nice very large prospects there that are coming out of the multitude of of options. We have there and also a very excited about our Brazil wells in the budgeting of that with our partner Exxonmobil that will be about a second hypes Bud as well.
So a nice second half your type of opportunities there for us Leo in our diverse business that we have.
Okay. That's very helpful. I appreciate it.
No. Thank you.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by one.
And your next question comes from Josh Silverstein from Wolf Research Josh. Please go ahead.
Yeah.
Good morning, good a good.
Good morning, guys Uhm just on that.
<unk> Trent transaction here.
You have the the value of the project completion date I'm, just wondering hoping to around given how far along it is would you actually consider keeping it at this point it doesn't seem like you want to do that but could that potentially be on the table.
Really trying not to negotiate it here Josh as I said, we can do that we can afford to do that we have all the ability to do that.
We have decided to go down this road, we progressed the road a long way and continue to progress that it's just a delay in the closing timing. So far is really the issue and putting out additional dates on that is not helping the matter at all and continue to progress towards the original go but we have ultimate flex.
Be able to do anything we need here, but the goes still to do it and wear as long as we're progressing as as I'm, saying, then we're going to continue on with that until it no longer progress is of course, but that's not the case today.
Gotcha turn up and then no problem I wasn't sure.
Sure if they're account for I think it was out for a couple of questions ago, but as far as the.
The volume guidance and spending for roughly kind of flattish run 700 million year over year, what what's the the breakeven that you guys have uhm I'm crude oil and gas prices I know, there's a little bit of flexibility to ship capital around but what what was the the breakeven in what way Josh.
Cash flow breakeven.
With dividend or was capital.
Posted a dividend.
Oh, and low forties very low forties.
Below 42.
No problem.
Appreciate your call.
Your next question comes from Ah run drama of J P. Morgan. Please go ahead.
Welcome and your last one today.
Hey, Roger how are you Sir doing great.
Yeah, Roger I'm wondering if you could give us and I again, I apologize I'm dialing in a bit late but I was wondering if you could give us an update on the development program can receive more month.
And confidence in delivering on that is at first half.
<unk>.
Is it 22 production outlook.
Yeah, well first step the facility, which is going very well we are very experienced that building in constructing these things. That's another thing we are in charge of that an asset that we own. We're also the operator and building. It so that's a big advantage.
Hell of an advantage and so then it really becomes the wells, they're drilled calisi more Mont samurai will require some additional drilling.
Please see more modest greatly derisked by I think.
Six I mean, wellbore penetration is seven wellbore penetrations in sixth wells that are case, there and we have the wells or pay on log.
Have the reserves third party, so we need to get out there and do the completions, it's real important to differentiate between completion and drilling permits if we want to have the.
Insert about some of these political matters and things of that nature, which were very astute about and knowledgeable of and so it's it's an asset that set up to perform.
And go forward and we really we have the rig contracted it's also important in the permitting.
That's become more specific through the years and real police about.
Just executing what we do all of our business and we've executed many deep water different kinds of wells and projects all over the world and this was in line I'm very pleased with my team and we're doing well.
Okay. Roger My second question is just a little bit more maybe color of clarification on Mexico, and Brazil next year.
Is the Mexico plan include the Chiller appraisal are you direct grilling some some rank exploration wells and then you're saying that the and in Brazil.
You could sputter well in the second half of 21.
Yes, that's correct, we're not spending at our operator Exxonmobil is excellent yes, yes, yes, and in Mexico way of a call between a tallulah as an appraisal program approved by the government there.
We do not have to execute on it we have time, we can drill a larger structure.
The larger some salt structure, which has been derisk with some other wells in that region and much larger.
Prospect, if you will that we may lean toward but we're working with our partners noun the timing and what to choose between those two at this time, we at Murphy are leaning towards the larger opportunity.
Over the knees her in there.
Gladish Capex guide right or outlook.
God also also be clear on the Capex for next year.
We're guiding a capex similar to this year I think it is trending a slightly lower than the midpoint of 2020 at this time and also the 22 capex would be similar and.
And after that is much lower capex and significant free cash flow coming out of this business as they offshore projects come on so this idea that we will have that capex forever. It really isn't our point, we're trying to make in this long term guidance 21, and 22 or the higher capex levels by far have since some.
Credible exploration success.
In our business.
Okay, I got one more Roger if I could sneak one more in you you you did note that most of your debt maturities are in 2024 and beyond My question you do have some 2022 maturities got some time on those but what is the the general thoughts on addressing those do you.
Do you issue new debt.
Those out or Where's your head today on in terms of those maturity.
Well, while you were talking to Lee Gail asked that question and.
And David answered it because you're a nice guy room will answer for you again so David.
Selling more and more yeah, yeah room, obviously.
We have like 260 may and coming due in June of 22, and $320 million or so in December so it certainly on the front of our minds. We as you know, we obviously watch the market on a regular basis.
Bond market today for for names such as US is not great. Obviously, there's been a lot of uncertainty around oil prices political situation et cetera, So I think.
We still want to see how that plays out we watch it we're always prepared to go if and when necessary and if and when the market moves in our favor we feel like we do have that opportunity. If we need to we have about a year and a half now before that next maturity. So so we're watching it we look at it and frankly.
Doesn't ever become attractive to us over the next 18 months, we do have significant availability, obviously on the on the revolver to do something.
Of a temporary nature, if you will and and then as we get into a different environment. Roger mentioned as you get out past 2022, particularly or Capex numbers decline in a big way and as such it frees up a lot of cash flow to to pay off some of these bonds. If in fact, we need to do it at that time, So we look at it.
Regularly consistently and feel like we have a full complement of opportunities to take advantage of it also think it's important that separation of the notes do in the middle of the year and the end of the year and a post Covid World six months is a lifetime rooms, you know.
I think that's also pause it's not like it's due in the middle of the year. So it's almost two years away yeah over two years away for the second note first can easily placement revolver and the key for US is keep our revolver empty and when you do that you can get another one very easily also to keep them on Murphy, where we are we have an unsecured revolver we've.
Never had a security of any type of revolving credit facility in our company history normal and.
An enormous flexibility for Murphy on our liquidity in our evolving situation and our long term.
Positivity in the market around bonds and the deals that we've had in the past.
Got it Roger Thanks, So that is a long hard I guess that serves me right for getting on at least call first so anyways, thanks longer cabinets [laughter] no problem Maroon I'll talk to you soon appreciate Ya.
Thanks.
There are no further questions from our phone lines I would not like to turn the call back over to Roger Jenkins for closing any closing comments.
I appreciate everyone, calling in today will see it our next call in late January Thanks for everything see soon take care.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please use disconnect your lines.