Q4 2020 Murphy Oil Corp Earnings Call
Ladies and gentlemen, and welcome to the Murphy Oil Corporation fourth quarter 2020 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 for Communications. Please go ahead.
Good morning, everyone and thank you for joining us on our fourth quarter earnings call today, joining us as 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 on slides, we have placed on the investor.
As for section of our website as you follow along with our webcast today throughout.
Today's call production numbers reserves and financial amounts are adjusted to exclude Noncontrolling interest 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 in the private Securities Litigation Reform Act of 1995 as such no assurances can be given that these events will occur or that the projections will be attained a variety of factors exist that may cause <unk>.
<unk> results to differ for further discussions of risk factors see Murphy's 2019 annual report on form 10-K on file with the SEC.
Murphy takes no duty to publicly update or revise any forward looking statements I will now turn the call over to Roger Jenkins.
Good morning, gentlemen, thanks for everyone for calling in today before we get started for viewing our 2020 and looking for second of our day to day I would like to address the recent actions taken by the Biden Harris administration Murphy like all operators across federal lands in United States are disappointed, but not at all surprised by recent actions for.
Actually as a matter of public policy believe their efforts as misguided.
Submissions peaked over a decade ago in United States and continued to fall every year growth and more wired greenhouse gas emissions comes primarily from the far East South East Asia and Africa. These new initiatives will punish domestic producers from workers, but we're not lower worldwide emissions.
Ironically any policy that includes the Gulf of Mexico actually hurts, the carbon footprint as the deepwater Gulf has the lowest carbon intensity of all of the E&P business last.
Last week the U S Department, Terry NASA temporary suspension of delegated authority for 60 days.
It is important to note that disorders, not limit existing operations undervalued leases and provides a method for obtaining necessary approvals there's potential for delay in consolidation of approval authority. However to date, we have been pleased with the progress and are moving forward.
Murphy is well positioned to continue execution of our short term and long term projects, including Khaleesi more months samurai and our non operated projects based on approvals in hand discussions with our regulators and progress made in the last week, obtaining actual approvals to conduct ongoing operations on current leases.
You've also seen in the past two weeks over 20 approvals given for work in the Gulf of Mexico to not only us, but our peers yes.
Yesterday, the White House announced a pause.
On new oil and natural gas leasing on federal land on waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting on leasing practices. This action is also not surprising.
Existing and ongoing lease work was not included in the announcements. The administration's recent actions have confirmed the viability of our company strategy and increase the value of our diverse global portfolio. This includes large private U S onshore acreage, both onshore and offshore Canada assets and a robust international exploration portfolio include.
Offshore, Mexico, Brazil and Vietnam.
As you can imagine there are many pieces here moving forward, we expect once the dust settles that permitting approvals have returned to a process. We can work with it's not on the governance best interest to halt operations in the Gulf for host of financial and legal reasons again, we have a diverse portfolio and all of these actions are highly likely increase oil prices.
It would be in our favor over time.
That's all I have on this comment today on Easter in March and I would turn to slide two.
Murphy that remains steadfast steadfast on our strategy. Despite the turmoil of 'twenty 'twenty, maintaining our diverse portfolio, while operating in a safe sustainable physically responsible manner, our capital discipline leads to a targeted flatter oil production profile with additional free cash flow generation coming from the recently announced Tupper Montney development.
Along with long term price recovery scenario.
We remain focused on our shareholders through our longstanding dividend our employees contractors and communities by establishing a practicing a successful COVID-19 protocols. Our portfolio continues to span onshore and offshore locations in both U S and Canada, which offers many advantages in today's times and lastly, Murphy remains a strong <unk>.
Making exploration program on existing acreage in both the Gulf of Mexico and internationally slide.
Slide three.
Following the OPEC price war in beginning of the COVID-19 global pandemic last year, we focused on a few primary areas to solidify the company remain competitive over the long term with multi basin operations Murphy completed a significant company wide reorganization, resulting in reduced G&A costs as well as low to our overall cost structure and capital.
Our focus on maximizing free cash flow maintain liquidity to support of crude oil hedges and natural gas forward sales contracts led to the sanctioning of the low risk Tupper, Montney development and reduced capital allocation toward growing shale oil production. Additionally, we continue to support development plans for both long term deepwater Gulf.
For projects as well as our international exploration program.
Slide for Murphy produced an average of 149000 barrels equivalent per day per.
Per day in the fourth quarter, these volumes, including impacts totaling nearly 4000 barrels equivalent from two subsea equipment issues with production expected to restart in the first quarter 2021.
The unplanned events on the Gulf of Mexico were partially offset by strong North America onshore performance, our cash Capex totaled 111 million for the quarter inclusive of 1 million and NCI spending on it.
Rude basis, Capex totaled 130 million net to Murphy, excluding king's key.
Price to continue to improve in the fourth quarter with oil realizations and an average of $42. The highest of course seen since quarter, one and natural gas at $2 36 per thousand cubic feet also far ahead of prior quarters.
On slide five.
Our full year 2020 production average 164000 barrels oil per day as the dynamic here may experienced a record breaking hurricane season. Following historically low price just resulting in industry ride production shut ins for short periods overall for the year, we averaged nearly $38 per barrel for realized oil prices with a $1 85.
Per thousand cubic feet for natural gas cash capex for the year totaled 760, which included $23 million of NCI Capex.
On an accrued basis capex totaled $712 million, excluding king's key and NCI spending as per our guidance.
On reserves on slide six.
Our proved reserve base remains sizable at year end 2020, with 697 millions of oil barrels oil equivalent comprised of 41% liquids and 51% proved developed a proved reserve life is maintained at more than 11 years.
Overall, our total proved reserves were 13% lower from the year end 2019 due to two primary events. The first is a combination of lower crude oil prices along with Murphy shift in focus away from oil shale production growth, which resulted in transfer of Eagle Ford shale and K, Bob Duvernay Puds to probable reserves the <unk>.
<unk> capital allocation of the current five year plan reduce pudge by over 100 million barrels equivalent separately the sanction of the Tupper Montney development in the fourth quarter resulted in the conversion of probable reserves and contingent resources to proven undeveloped totaling nearly 100 million barrels equivalent.
On page seven while total proved reserves are lower year over year, our north American onshore proved plus probable resource remain near $2 5 billion barrels oil equivalent we maintain the ability to reboot, our onshore shale pubs with adjusted capital plan in the future if we decide to do so.
For the reserve transfers, where based on capital timing and not some surface risk as in any resource booking. It would also depend on prices cost structure at the time and a five year planning cycle change.
Overall Murphy continues to hold more than 3400 on drill locations across onshore North America further our U S onshore Eagle Ford shale position is located on private lands.
Now going to turn it over to David Looney, Our CFO and let him update us on some financial information David.
Thank you Roger and good morning, Slide eight Murphy reported a net loss of $172 million Alright, one dollar and 11 net loss per diluted share for the fourth quarter of 2020.
After tax adjustments, including but not limited to a noncash mark to market loss on crude oil derivative contracts and contingent consideration totaling 159 million resulted in an adjusted net loss of $14 million or a nine <unk> adjusted net loss per diluted share.
Slide nine.
Improving commodity prices led to further strengthening in revenue for the quarter overall, our net cash provided by continuing operations rose to $225 million in the fourth quarter, including a $13 million cash outflow from a working capital increase when combined with property additions and dry hole cost.
135 million, including $38 million for King's key we had positive free cash flow of $90 million in the quarter regarding king's key the producer and owner groups continue to make good progress on the array of legal documents and we look forward to a closing possibly within the next two.
Two weeks.
For full year 2020, our net cash from continuing operations of $803 million included a $39 million outflow from working capital property additions and dry hole costs of $859 million, including King's key spending of $113 million resulted in a negative free cash flow.
With $56 million for the year.
If we exclude the king's key expenditures for the year, we would've had positive free cash flow of more than $55 million.
We continue to maintain a high level of liquidity with $1 $7 billion at year end, including $311 million of cash and equivalents at December 31st.
With our focus on cost reduction measures throughout 2020, we've achieved significantly lower G&A within approximately 40% reduction in full year costs from 2019.
Lastly, Murphy continues to protect its future cash flow with the addition of 'twenty, one and 'twenty two crude oil hedges as well as fixed price forward sales contracts for a portion of our Tupper montney production through 2020 for slide.
Slide 10.
Liquidity remains a key focus for Murphy and our balance sheet remains strong with $1 $4 billion available under our $1 $6 billion senior unsecured credit facility as well as $311 million of cash and equivalents as of December 31.
We reiterate our goal of reducing our total debt level over time with excess cash flow. This reduced leverage will give us even more resilient through the inevitable commodity price cycles to come with that I'll now turn it back over to Roger. Thank you David on Slide 12, as a company we're responsible to the environment.
<unk> and our stakeholders and we have a long history of protecting all part due to our strong internal governance processes I'm, particularly proud of how quickly the team established COVID-19 protocols to maintain safe offshore operations with zero downtime or disruptions due to those efforts.
Murphy achieved another year of low metrics, including 46% reduction year over year on total recordable incidents, we expanded our internal diversity inclusion practices and programs and maintain a program to aid impacted employees in times of need for our disaster relief Foundation, which we will use this summer with hurricane relief on the Louisiana Coast.
Our operations team continued to work on minimizing our environmental impact such as building a new produced water handling system to recycle water and are sanctioned Tupper Montney project as well as utilizing biofuel hydraulic frac spreads on all well completions in Canada, what yourselves a considerable C O two emissions reductions.
While smaller changes individually they add up to a larger impact over time.
On slide 13 on sustainability last fall, we released our 2020 sustainability report, which features expanded disclosures and metrics a key highlight of it is our goal of reducing greenhouse gas emissions intensity by 15% to 20% by 2030 for 2019.
The report also outlines diversity disclosures workforce development employee engagement programs Murphy.
Murphy has also expanded our HSE Board Committee to include oversight of corporate responsibility formed and we formed an ESG Executive Committee and created a new director of sustainability role we've.
We've taken many steps and we continue to evolve and advance our sustainability efforts.
On slide 15 on the Eagle Ford Shale business, we produced 31000 barrels of equivalents per day in the fourth quarter comprised 71% oil for the full year production average 36000 barrels equivalent per day with $197 million of Capex, which includes near $50 million for field development as well we brought on line 25.
Operated and non operated wells earlier in that year. The team continues their efforts on improving well performance and high grading production enhancing projects.
Brazil, the artificial or artificial lift optimization.
Murphy seeing an average base decline rate of 24% for all wells drilled prior to 'twenty, one which in our view is very well positioned.
On slide 16 on the K, Bob Duvernay project the company produced 10000 barrels equivalents oil.
Per day in the fourth quarter comprised of 75% liquids and averaged 11000 barrels equivalent per day for the full year overall Murphy spent 94 million in capex during the year, including Placid Montney Reagan on line 16 operated wells in Kay Bob and 10 non operated wells in Plaza also in 2020 Murphy completed its drilling.
Graham to hold all acreage, resulting in full discretionary future development.
Most notable on the second quarter on the K, Bob East 15, 19 pad, which is achieving significant results as our best wells in Kay Bob Duvernay, So far ranking in the top 2% of all Murphy unconventional wells overall, it's competitive with our top producing wells in Karnes County in the Eagle Ford shale.
Slide 17 in Tupper Montney, we produced 234 million per day in the fourth quarter on average 238 million cubic feet per day and full year 2020, approximately 14 million for Capex was spent during the year to drill for wells with completions planned this year and ongoing. Additionally, the tupper Montney planning.
Expansion was completed during the fourth quarter since our last earnings call. Murphy has added significant fixed price forward sales contracts at Echo hub through 2024, which combined with improving basis differentials and higher prices as well as higher <unk> can lead to stronger free cash flow generation.
Slide 19 in the Gulf of Mexico.
Our assets there produced 63000 barrels equivalent of oil per day on the fourth quarter comprised of 78% oil production volumes were impacted by nearly 4000 barrels of oil equivalent per day on unplanned downtime due to two subsea equipment issues. In addition to previously guided hurricane downtime in the fourth quarter.
Full year 2020 production averaged 70000 barrels equivalent per day short term projects continue to progress with operating Calliope on schedule for first oil on second quarter non operating operated wells in various stages of completions and tie ins and we expect oil to begin flowing in the first half of the year to plan.
And golf and the Gulf of Mexico Slide 20 on major projects, we remain on schedule with Kinski construction at 90% complete and drilling the beginning in the second quarter for Clichy more months' samurai development. The non operated St. Malo Waterflood continues to move forward with completions on the first producer well underway PREPA.
<unk> is being made for drilling a second injected well as well as the beginning of a producer well workover.
On slide 22, and exploration we participated in the latest Ocs Gulf of Mexico lease sale during the fourth quarter and we were awarded and fully awarded eight blocks with five prospects at a net cost of approximately $5 3 million as a result, our Gulf of Mexico interest today totals 120 <unk>.
Six blocks spanning more than 725000 acres with 54 exploration blocks and 15 key prospects at this time.
On slide 24 on our capital program for 2021 Murphy plans to spend 675 million to $725 million and achieved production of 155 to 165000 barrels equivalent per day.
For the first quarter, we forecast production of 149 to 157000 barrels of oil equivalent per day.
Approximately <unk> 47 per cent of our 2021 Capex is allocated to offshore Gulf of Mexico.
With nearly all dedicated to the major long term projects that achieve first oil in 2022.
Another quarter of our 2021 Capex is budgeted for the Eagle Ford shale with the remainder split between onshore Canada in exploration overall, we continue to focus on high margin assets on our oil weighted portfolio, resulting in free cash flow generation after our dividend.
Slide 25.
For North American onshore capital budget is $265 million in 2021 and is focused on maintaining flat production in the Eagle Ford Shale was 170 million dedicated to bringing on 19 operated wells and 53 non operated wells as well as field development, which is 30% of the total spend.
Approximately $85 million earmarked for newly sanctioned Tupper Montney development program to bring 14 wells online during the year the remaining $10 million of Capex supports field development and maintenance in the K, Bob Duvernay and non operated placid of note our oil weighted shell assets maintain a long runway of drilling with more than 1400.
Locations in the Eagle Ford shale and more than 600 in the K Bob Duvernay.
Slide 26, net Tupper Montney project, we're excited for this opportunity this development brings to our portfolio.
We're seeking we're seeing lowest basis differentials in five years beyond that we've continued improvement and Murphy is well economics in EUR in the area, creating sustainable attractive cash margins for an asset that also generates the lowest greenhouse carbon intensity in our portfolio.
Lastly, the macroeconomics have shifted significantly in our favor in the last few years with additional takeaway capacity, achieving net achieving necessary debottlenecking work, both in west and east word boundary pipelines as well as construction beginning on LNG, Canada project with the planned in service date of 2025.
On slide 27, the Tupper Montney asset has been strong proven resource with rising <unk> in recent years and ever improving cost structure, while maintaining very low subsurface risk.
Recently put in place additional fixed price forward shale shale contracts in 2020 for thereby protecting future revenue for the project and assuming cash flow generation.
That said generated free cash flow of approximately $50 million in 2020, which is more than sufficient to cover the cash flow requirements in the next two years as for.
Development has initiated overall the current sanction plan for crowds on average annual capex of $68 million and will generate cumulative free cash flow of approximately $215 million through 2025.
Slide 28 in the fourth quarter, we farmed into an attractive play opening trend for 10% non operated working interest with Chevron as operator.
First well planned as the silverback prospect and we provide access and we will also be provided access to 12 blocks through our participation.
On slide 29, we continue to progress our various exploration project projects and are excited with the Optionality that day non operated position in Sergipe Alagoas Basin in Brazil provides our company Murphy is working with partners to meet to our drilling inventory and our partner plans to spud the first Brazil, well in the second half of 2020.
One.
And the selenium based on in Mexico on Slide 30 continue to advance our position there we have many leads and prospects here and targets for spud the first exploration well in late 'twenty one early 'twenty two.
Overview of the RFP on slide 32, our long term strategy of a dynamic plan to maximize cash flow, while managing capex. After dividend remains unchanged as does our commitment to a flatter oil production profile, our Tupper Montney development Lee leads to an approximately 8% CAGR from 'twenty one through 'twenty four.
While all growth remains at 3%.
<unk> Murphy will generate cumulative free cash flow after dividend at our base price scenario with significant cash flow achieved in a mid $50 oil price recovery scenario, which you achieve a sizable debt reduction as.
As we began with our announcement in 2000, Tony for a lower capital program. The average annual Capex through 2024, it's approximately $600 million was 2022 being the peak year due to finalizing the major Gulf projects, along with increased Tupper Montney development of course, we remain we maintain a portion allocated to.
Our exploration strategy with a targeted drilling three to five wells per year.
Slide 30, threes for closeout 2020, and lean into 'twenty, one Murphy is sticking with our priorities of managing Capex to support a flatter production profile.
Combined with protective hedges allow us for maximum free cash flow generation strong liquidity and debt reduction in long term price recovery as well as consistently paying a dividend to our shareholders Lastly, I want to extend my sincere gratitude to all of our employees for their efforts throughout 2020 and with their dedication and our new plans.
We're well positioned heading into 'twenty one.
I'll now and my remarks today I would be glad to turn it over for any questions anyone may have thank you.
Thank you Les.
Ladies and gentlemen, we will now begin the question and answer session.
Have a question. Please press the star followed by the one on your Touchtone phone you will hear with retail product acknowledging a question.
And if you are using a speakerphone please pick up the handset before pressing any case.
First question comes from Neal Dingmann with Securities. Please go ahead.
Good morning, Roger I appreciate your prepared comments on the federal leases and permits I'm just wanted to dive straight into that could you give your thoughts on just in ballpark. How long you anticipate that your current inventory could take you and more specifically.
What you all would eventually pivot towards if there was some type of ridiculous permanent federal band or <unk>.
Once your current assets are worth.
Well actually as I as I said, you know there is a short term and long term things that we work on every day in the business.
Business that requires communication with the regulator across several factors, we've continued to be able to do that during the suspension of authority period. We're very pleased with that also pleased with what's going on with non operated.
Work on a day to day type basis, which in our remarks today, we talked about some subsea wells that are needed to be repaired and that work is progressing.
As per even with this suspension.
Well positioned to start our <unk> project can continue on actually we are ahead of target on regulatory regulatory there and have more permits than you would normally have for development. This time. The permits are given pretty close to the drilling date and historically been that way in the Gulf So well positioned there so far.
What would we do with some kind of scenario locked it I mean I appreciate that question, but yesterday's executive orders did not mention anything about current leasing we're finding that everything thats ongoing lock our project is being treated like an ongoing project and that's why it's being treated and being work today Theres regulatory work going on.
On a normal business basis today in this building and so.
Naturally if they were to be some wild outlandish moratorium, which didn't do well in the Macondo time for the government at all we have a lot of flexibility first step may would be hey, lets just stop and have a lot more free cash flow and pay down our 'twenty two notes with this with this matter and then continue on it wouldn't be a need to rush in to go.
To duplicate.
Things that we own that's kind of our first step into quite helpful to us in that regard. If we are able to get these projects back going again naturally we have a big business in the Eagle Ford that can be throttled and change because oil prices are in any kind of more towards like that with the Gulf, making almost 3 million barrels a day would make that much more attractive or Canadian.
<unk> business is doing extremely well.
Our Canadian regulations, continuing to be very supportive so lot of things for us to do to replace the production if we want to with the capital efficiency and much higher oil prices, but in all in all it's a pretty wild scenario and the work that we're doing today.
Isn't pointing to that scenario.
Scenario in my view.
No I agree with you and then just my follow up let's stick with the golf.
I'm moving on that slide 22, and it just really reemphasize is just how many just how many opportunities you have there just wondering Roger wood.
What gets you you have so many of these things what I'm looking at all of the exploration projects as you've mentioned prepared remarks, a number of things coming on you are not even this year, but already planned for next year I'm just wondering what sort of makes you. Most excited right now when you look at all of these projects on the golf are there a few that you would point us to or I'd be really curious on how you would think of that.
I would like to hear your angle on it.
Well, we built a new area on the slide net osso area, that's really have rushmore and osso and gilder, that's a new area for us that we're very excited about we feel that were seismic advantage in net area.
Also if have a couple of opportunities near front runner Ninja that we're happy about because its nearby we are a very exciting well to drill that cascade Chinook in the long run it's a down thrown fault segment down thrown fault segments and most major Wilcox plays have been very successful, it's a very big deal for us in the future.
Large type of a well that's near production and we're very happy to partner with Chevron.
Our new silver back area, which is adjacent as shown on this slide here adjacent to some acreage that we also feel has that same new feature of this is we're very excited that chevron again back to our strategy of being a respected company that people want to work with we're fortunate to be in a working relationship with a supermajor that respects our.
Building on our knowledge and our experience on our long term experience in the golf. So I feel we're really well positioned because thats sort of a company, making thing at the right kind of working interest, but helps us de risk our blocks.
If that were to be successful. So those are those are the highlights there Neil.
Very good.
Thank you so much.
Thank you for the next question comes from Dun Mcintosh with Johnson Rice. Please go ahead.
Good morning, Roger.
Hey, good morning, how are you doing.
Good.
I noticed on the Eagle Ford spend for next year on $170 million, but a little less than a third of that is going to be going towards.
You call field developments.
A little more color on what youre going to be building out there.
I'll have Eric gets his expertise and talk to you all the way through that and everything you need right here.
Okay. When we build our capital program, what we lump into field development is.
Pretty much everything other than wells, so building pads flow.
Lines pipelines allocation separators.
People costs things like that so it seems like a large number but it really is more driven by the well activity. It's not like we're building a massive new facility.
We're also working on electrification and some other things involving ESG in this business all the time on improving our flaring and reducing always our missions, we have a new takeaway.
Pipeline in Eagle Ford to further reduce flaring that we're excited about <unk> capex took and those types of things as well that are required and needed and the right thing to do at this time.
Alright, Thank you and then for a follow up on the Tupper Montney Congrats.
Congrats on getting that 10, well program sanctioned but what can be on that and kind of longer term with.
On the 6% gas CAGR versus the vs.
Per cent versus the oil over the next three or four years. What are you all seeing out there that you think might be stickier, maybe from a demand perspective, I know you said basis.
Got it.
Tightened up the most it's been in five years just.
Kind of looking for some color on what what are you on if you look at the data. It was very variable on a very poor basis very pool of which we did then did some all FICO type business to protect our risk, which worked very well for us at that time.
Then the Debottlenecking by T CPL.
They were going to do all of this capital work they did the work.
Both east and West and there was a time, where it was difficult to get the gas to a summer storage facility there.
And now that Dave needing more gas in the country and less capital available by Canadian Junior players in Calgary than the production is greatly dropped in and now we can get the gas to storage, which eliminate system very viable very very low poor summer months type production shut ins also TCP.
<unk> had downtime through the years quite frankly, and because theres less two bcf of less production. There is less downtime. So here we are with this big position best lowest risk thing we ever had we started comparing it to low oil prices.
And then we decided this would be a great capital allocation for US also very very good from a greenhouse gas intensity perspective, so we feel there's a better chance for oil to go to 60 and make a lot of cash flow on our oil flat production shale than it is for gas here to get $5. Let's say then we five.
<unk> a unique way to book the gas and hedges that was very advantageous to us and allows us to have almost book. If you will free cash flow also these reserves are audited completely ought to buy mcdaniels in Canada and have been for a long time.
Eric is a former executive involving reserve auditing so over the top of the line reserve work here.
<unk> operations incredible ahead of it hedging that we've done and are really well positioned in there that's happened over time also.
In Canada, they have switched co out.
And have less production and need the gas from and get into storage and we have LNG low.
Long term there, which we are of course very familiar with in Malaysia and offer and lot of those folks involved with LNG, we've worked with before and our outstanding reputation to deliver gas in Canada.
In Asia over these years through LNG will help us in the long run in my view.
Alright, Thank you for all that color.
The next question comes from Leo Mariani of Keybanc. Please go ahead.
Good morning Leah.
Hey, guys.
Just wanted to follow up a little bit on some of those last comments I hear you right. It sounds like you guys are much more bullish on gas and oil over the next couple of years.
And maybe just kind of give me a little bit of a look back just on third quarter. You guys were certainly planning on kind of ramping up Eagle Ford here in 'twenty, one when I think some higher.
Good volume is when oil prices were closer to 40, and now were kind of over 50.
Year to day on oil and gas maybe hadn't done all that much in the last several months and so a little bit better, but not as dramatic of an improvement I understand you guys had facility work and there's a lot more capacity now at Tupper and summer outlook looks better but yes.
I wanted to kind of confirm or are you just more optimistic about gas in the next couple of years.
<unk> oil and you just looks like to you that the returns at Tampa or just better now than Eagle Ford Despite higher oil prices.
Well, it's not at all of that way as far as the bullishness to oil we still feel oil can go up and especially with all of this regulatory but what we're trying to do on what we said.
Was too low we wanted to plan our business on a flatter oil profile in shale specialty Eagle Ford and because we're well positioned there with our high oil percent and very known customer in that area of selling of our oil is needed in that area. We feel that if we keep that flat and oil prices go up we can make much.
More free cash flow.
And we're trying to get out of that business and AD free cash flow and successfully handled that company also our folks in the Eagle Ford have done a great job on maintaining base and base decline, which I think is very critical so its not that way at all we see is an increase in oil price as a way of keeping shale flatter and making more for free cash flow, which is not an <unk>.
Common supposedly by my peers now on Canada price has been greatly improved our cost structure improved we had like 15 different reasons why we needed to book that and do that we're still only going to be making when this projects full out around 500 million a day.
So it's not like we're turning all gas and making bcf for gas or anything like that so it's all about as we said before a flatter profile with more free cash flow to significantly reduce debt and higher prices in the Montney came along on top of that and you have to say for a project is going to go from $240 million to 500.
And fooling around with $80 million Capex do that really isn't that difficult. It's very capital efficient. So it's more about a unique project that we had was in our face to be successful with our flat profile with higher oil process to have more free cash flow, it's that it's nowhere around.
And tab bullishness on oil prices or anything like that Leo really.
Obviously, you guys talk a little about your multi year.
Ramp at Kemper on 8% between now and 2020 for pretty robust you guys are talking a little bit more kind of flat to 3% on the oil side, just how does the eagle Ford to participate once we get out of 'twenty, one and it looks like you are trying to maintain eagle forward in 'twenty, one at fourth quarter.
For a ramp in 'twenty, two 'twenty three or 'twenty four or are you going to basically wake after king's key comes on to kind of reallocate capex, what's the long term plan for the Eagle Ford here.
Our plan today is again to have a flat profile on the Eagle Ford to set it up to make it could probably make $5 million to $600 million free cash flow over a four to five year period, and 50 mid $50 oil price and Thats why we wanted to do with today, that's our plan today.
And that really has to do with king's key or anything like that so again our strategy as you know from most of last year was this plan. It just so happens that the Montney got so positive for us that we added at all with very little change in Capex and improved all it was accretive to all of our metrics our covenant metrics are free.
Cash flow metrics it was accretive to everything we did so we executed on because our cost structure. So low it's just really that alere. Okay.
Good color, maybe just on the Gulf of Mexico here you.
You guys talked about a fairly significant downtime in the fourth quarter.
You talked about some downtime moving into first quarter as well could you kind of quantify what's baked into the first quarter guide.
In terms of the downtime here I was just kind of looking at your guidance and I think you guys are saying you're oil volume is going to be up around 3000 barrels a day in the first quarter. Despite the fact that you had something like 18000 Boe per day down in the fourth quarter through storms and whatnot. So I guess I'm just trying to figure out there is a.
Bunch of additional downtime in the first quarter I would've thought it would've been up more.
We were well positioned going into around mid December in the Gulf and very very well position. We had two one off subsea events happen. They require some equipment to be put offshore and repaired. It's one was an operating field one non op.
That is in works now to be done on both the different levels of completion and we have that in this quarter to be recovered will also have some very nice wells being drilled at Lucius operated now of course oxy that we purchased through the Petrobras agreement through that formation of <unk> and so.
That will be coming online and we will be increasing production in the second quarter in the Gulf with all of that and that.
That's where we are on that Leo It was a surprise couple of subsea events are being fixed and that we have wells coming on at Lucius as well also on <unk> well that we mentioned in.
Doing well.
Okay. Thanks, guys. Thank you I appreciate it.
Your next question comes from Evan Zhou at J P. Morgan. Please go ahead.
Yes, good morning, Roger I wanted to ask you about the 2021 to 24 outlook that you've highlighted on slide 32.
You guys have.
We provided an outlook of $600 million in capex per annum.
With a little bit of higher Capex in 2022 with the development front. Just wondering if you could maybe help us think about the year to year trajectory from 22% to 2024.
And Kevin Boone for.
A room for I wanted to give you the year year trajectory I'd put it on slide I have it right here in my hand.
Yeah.
And for years, we've seen two major price collapses in our business and recover back in guiding out year to year Capex I don't think is a good idea there is no secret that.
Our capex this year midpoint of 700 is what it is and I think very well positioned to do what we're doing with that with all the money that we're spending that will not contribute to oil production and share our gas.
And next year is going to be higher capex in this year and then we're gonna be dropping down pretty drastically after that so I prefer to leave it at that right now a lot a lot happens on a year.
But that's our plan in two color I provided on the prior calls about the flatter profile on more more higher higher oil prices, allowing more cash flow. That's our plan, but we I think the point here. We're trying to make is that we've disclosed the CAGR, we have our business that we talked about our oil.
<unk> business, if you will our offshore business our eagle for business in the Duvernay of course is almost 80% liquids business with very very high price isn't doing well.
That business is slightly growing which has been our plan for non months, probably and the growth is in the montney because it's a unique time.
And you can book that and it was available to us so through that though.
With conservative oil prices through this for your peer, but we will have cash flow cumulative above our dividend.
And the low forties or mid Forty's at most.
And in the mid fifties were going on we can cut our debt in half for more.
And that's what we're trying to do.
Working on it.
Fair enough.
My second question is just regarding the Gulf of Mexico Development program, you guys are sticking with the timeline around Khaleesi Marmont semi first oil.
Based on what we know to date, Roger and stop me if I'm wrong, you've received two of the 10 permits for the program at Samurai number three number for per IHS can you walk us through.
I think the rig arrives in April but do you get started at samurai and just wait for the incremental permit approvals.
Do you think that we could see some permit approvals during this 60 day.
Time out from the deal DIY based on some of your commentary that you mentioned earlier.
Thanks, a room for that it's nothing I don't know, where the 10 oil things coming from we have a 10 well commitment on a rig to do any kind of work we want for a certain price in the Gulf of Mexico. This is a seven well phase one development.
Phase one meaning for the next few years I think there's another couple of wells beyond 'twenty, three or something like that.
There is for existing wells on the ground out there.
They've been drilled and cased and log everything there is three wells when I talk about this it's clichy more margin samurai, which we work as one continuous field, we have partners that are different.
Not matter at this time.
For existing wells, three new wells to be drilled and completed.
So you are correct on a public website, we do hold to drilling permits day, you can't get to completion permit to the wells are drilled completion permits often lag drilling permits because of the drilling program is a lot more complex.
And has been it's nothing new.
All of the proper documentation so it would be not the norm at all to have all this approved and I think we're well ahead to have what we what we have now because we are starting the work in April and I'm not going to comment on the permits will get they know we don't need them with our schedule. If you will they know where the rigs are.
They run the business that regulate the business we have a great relationship with the regulator also were very very good operator, and then Gulf on carrier great standing on sales, we haven't had a spill on the golf on over four years, a great safety record and incredible record as to incidence of noncompliance on one of the leading company. So I believe that all helps and like I said, we're well.
<unk> here and I would not even now we have submitted all of these permits and as a matter of fact, the completion permits have been come back to us for comment is quite often to ask questions. On these permits. So they are engaged in an ongoing field in an ongoing way and there is documentation also when you started.
Like this with the government to outlay to them that you are going to develop this and you have to provide that you've got a signed rig contract and the signed ability to put in the pipelines and they're part of an overall process that they know about and we are relying on and they know this and so it's.
It's going as we would anticipate and we like I said based on its the only one week, but based on what we've seen.
We're working with it and moving our business forward.
Great. Thanks, a lot for that color Roger.
Thank you Jason.
Your next question comes from Brian singer at Goldman Sachs. Please go ahead.
Thank you good morning.
Turning to follow up further on the Tupper Montney gas.
You indicated you've gotten the EUR up to 21 Bcf and I wondered is that a function of the longer laterals or can you add more color on what has changed beyond that and then b is that kind of the going forward expectations for well.
And as the 11th.
The expectation for lateral length on a law.
Longer term basis, I'll, let Eric handle that for you, Brian and I'll come back to any other question you might have.
Brian on the well performance is driven by two things longer laterals and also better recovery per lateral foot of lateral meter. So if you go back to the beginning of our.
Asset there we had four Bcf wells that were about 5000 foot laterals and now we have 21 Bcf wells that are about 11 to 12000 foot. Our plan is to have about 3000 meter laterals for this development program.
So youre getting a combination of.
Improved performance per lateral foot plus longer laterals going forward, we don't expect to lengthen our laterals from what we've been doing over the last couple of years.
Great. Thank you and then my follow up is with regards to slide 32.
Slide that focuses on that 2021 to 2020 for plan can you talk a little bit more about what's baked into that is there a wedge at all baked into either capex or production, assuming any exploratory discoveries from here.
Is there any kind of risking on federal land timing and timing of projects and can you talk about Vietnam.
And whether there's anything there that said that is baked in from either capex or oil production perspective.
There is absolutely no exploration success in the plan the net.
<unk> has been and.
That's why this talk of delaying in permitting really doesn't do anything to our company and as we talked about earlier, we have 15 really good prospects in the Gulf on acreage that we hold entered into another project with a super major with acreage that they hold today and again the executive order yesterday didn't really get into that.
Vietnam is a field development.
That is absolutely in place.
Between 80, and 100 million barrel project.
Can be developed we've submitted the field development plan and working with the regulator there.
We're used to working with regulators offshore all over the world.
And projects, it's about the same as a matter of fact people not realized this with most international areas copy the U S regulatory we're very used to it and.
But it's a little slower there for that and when they get that we could put that into our plan and look at replacing something but today. It's not in the plan. This is what we own the day, what we're doing and we're very knowledgeable about it we do not have a delay built in on clichy more months AMRI.
Nor St Malo.
I feel comfortable with what I understand about the projects not to do that at this time I'd say, we're ahead of schedule on <unk> more months samurai, which gives us better flexibility.
If anything we're head there so.
And that debt position.
Position in the schedule to allow for flexibility in my view based on what I noted day this way I feel by Brian.
Great. Thank you.
No. Thank you.
Okay.
Thank you. The next question comes from Gail Nicholson of Stephens. Please go ahead, good morning, gentlemen.
Good morning, Roger.
On the farm in opportunities I feel like people don't fully appreciate.
Track record.
Interest you guys Gardner and that can you just talk about how that farm in opportunities on <unk>.
Changes over time on what you're kind of for you potentially in the future there.
Well, you know theyre not many operators in the Gulf at our size and our nimbleness. If you will and we have been in the Gulf for a long time, where top for operator on gross operating production in the Gulf.
Well known all of our executive team, primarily worked Super majors before we have relationships with Super majors, we respected in that way and there is a lot of opportunity on this idea about leasing and leasing could be delayed or no future leasing that we have 54 exploration blocks ourself can you imagine.
BP shell and Chevron half and going forward. There has been no mention of stopping that at this point could be but it hasn't been that way.
We were able to look at all kinds of things in the Gulf going forward the way the regulation on an executive order is at this time.
The issue with some of these things it's a very nice thing here is to say Brian opportunity on a new play.
All my friends really don't like when you talk about it too much so the more the better and better things I do operating trends don't like me speak about it so I'm caught up in that a little bit and I'm not going to blow that because I want to keep those relationships and continue for them into these very unique company, making opportunities such as silverbacks such as <unk>.
<unk> and other places where we weren't so.
Sometimes that Sly wouldn't show what exactly we would like to say, but that's the business ran that's okay, we get along with a well and there is a mutual respect by Supermajors with our company and we're proud of it.
Yes.
Great and then just looking at the Montney you guys have a very impressive all in cost up there about $1 44 per Mcf a day.
I was just kind of curious as you move into a more steady state development program do you think that theres room for incremental cost improvement overtime.
I'll, let Eric answer that for you.
We have a significant percentage of our operating costs that are not variable with production rate. So as we fill the gas plant as Roger mentioned will get up to about 500 million cubic feet at the peak in that project, we will see the per barrel or per Mcf cost go down so I would model the cost to be.
In terms of dollars per year, nearly flat, maybe slight increase with a little bit more cost for new wells, but very minor.
Okay, great. Thank you.
The next question comes from Paul Cheng with Scotiabank. Please go ahead.
Hey, guys good morning.
Is that just curious that in.
Your budget I suppose that you have.
A range for oil price you feel you can you share with us what's that and how that program may change.
Based on the changes in oil price is much higher than that range on you are pretty much fixed to that and say okay. Yes.
Higher oil price that just going to generate more free cash flow. So how should we look at that program.
We don't usually disclose our pricing we have here a base price.
Over the next four to five years I would describe is it best to mid Forty's, starting low to mid <unk>, we have a recovery case that reaches into the <unk> into three years mid fifties never more than that.
It is our plan today to not increase this capex and to have the higher oil prices deliver more cash flow to our company balance sheet to be used as we see fit to reduce debt at the appropriate and proper Tom So no discussions here on a different capital plan on.
Any thing like that today, Paul going on here at Murphy.
Perfect.
For our Montney is really quick economic so why now you're pan you get to $5 on insurance.
But you do have a low enough inventory. So is there any plan or any opportunity to expand that beyond that have you talked to.
On the gas plan, operator, and see what the debt.
He is going to see more infrastructure being built.
We have a unique agreement when we sold this business.
For this for that that provider of the midstream work to build plants at a fixed price.
Day of negotiating a price, which we considered to be well positioned we did that here and there is ample area to do it. It can be it can continue to go in and $250 million increments as much as we want there right now we're going through a $24 25 peer to keeping at 500 and on.
Our current plan and then reevaluate if we want to go more but we certainly can and.
I wouldn't see us increasing in this planning because again of all the talk this morning about trying to keep our plan like it isn't make more free cash flow.
The real unique thing about Montney that may not be understood as or is that infrastructure in place. It's been very successful this plant from an uptime perspective.
They built a twin to it if you will next door.
All of the infrastructure roads, Pons, who do very well on water capture here water recycling. This is in place.
Drilling right in the middle of where we've already built the infrastructure, it's in cream extremely capital efficient here.
Very unique but we needed we were doing really well on all our work, but the price just changed the <unk> just changed everything changed and we see that you have to you have to make a move and we had a great plant on a great midstream operator is going extremely well we moved on and went ahead.
Fourth quarter oil in terms of.
Let's say, who make that decision going to expand the pan yes on midstream operator or that you guys make a request and then sign a contract with them. They will increase it or that you're solely from from day. It will have to it will have to mutually agree on the next one to work and we will and I can't imagine why they wouldn't want to continue.
Because our subsurface remained as low and we've got nice capital capitalized company for them to be partners with.
Mhm two final quick question first on.
That's for the two day send the unplanned downtime in the Gulf of Mexico is that for the fixed the problem and what is their boat one boats in the fact in the first quarter.
Boats in the field working on the problems today or this week and the impact of that is already in our guidance as to when we think the wells will come back on and do you know the impact Eric of middle of the quarter middle of the quarter should be all be flowing and it's in our guidance.
And so we should assume yes, roughly about 5000 barrel per day.
Yes.
We're trying to look at what is the incremental benefit.
In the second quarter, we share Sue when this coming back.
It's in the plan it wouldn't be that it's not that much. The first quarter current guidance would not be that magnitude of downtime from these wells probably be about 3000 off top of my head.
Okay, and then final day that you.
You already have a pretty sizable hedging program for 2021.
Should we assume youre pretty offset or that you will look for opportunities for an increase that further.
In 'twenty one no.
At this time and 22, we have done some hedges, which is disclosed in our release and working on options to review that but not settled in on that now because I feel like we're well positioned with our cash feel that we're well positioned on our liquidity and really taken a look at the additional hedging for 2002 at this time.
<unk> made a decision yet on that.
Okay. Thank you.
Thank you Paul.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star followed by one.
Next question comes from Josh Silverstein at Wolfe Research. Please go ahead.
Good morning, Josh.
Hey, good morning, Thanks, guys I'll just follow up on on the.
The hedges there you've mentioned the $47 number this year to cover the Capex and the dividend.
I'm wondering if that excludes the hedges since those were put in place at $43 and then maybe if you can just give us some trajectory on that longer term outlook I imagine the <unk> 47. They go higher next year since that's a peak spending, but then where would that go to you on the $23 24 times time period as the.
Bigger projects for us.
Our number here would include hedges on our calculations.
And the follow on question I'm, sorry in the future. We have some 22 hedges. This disclosed here today, that's all we have and I have no hedging or done prior to that we do like to hedge some of our production it depends on how much free cash flow on where oil goes on where our liquidity is as to the percent that we would want to do historically.
We have not been that high of a hedger.
But reviewing that in great detail does that answer your question Josh.
Yes, sorry, the second part of it was just the trajectory of where the 47 and they go to next year. My guess is maybe it goes up but then as you go into 'twenty 2023, and 24, where would that 47 fall towards well I wish I knew that.
Wouldn't be here talking to you.
So.
I believe myself, you know theres not a lot of liquidity. We're in backwardation now severely we have seen periods of time.
Before COVID-19 for the Backwardation just continues to move to the right and the curve looks the same.
We're like I said earlier today, we we have a base price of low <unk> to mid Forty's over a 20% to 25 period in our mind, we're able to cover our dividend and all of these big projects during that period cumulatively.
Very happy about that.
And we're able to handle that without a difficult because we have a lot of projects in the next couple of years that today as Brian asked a question earlier is no exploration capex today, so it should be well positioned to handle whatever that will be I do believe oil will get into the low fifty's personally.
Mid fifties after the vaccines and Covid and rebound of demand, but there is a long way to go about that that's why I believe personally but that doesn't mean that.
We are planning to have to have that or anything like that.
Okay.
Follow up on that.
And then can you just talk about the Eagle Ford program as well.
Heavily operated in the first half and then you are kind of relying on non operated activity in the back half of this year.
Was this the basically help kind of stem the declines for not having any much activity in 2020.
And I'm just curious how the volumes are being a risk for the back half given the shift from operators in Illinois.
Yes, you are right about our operating program, we have 19 wells to come online in the year.
16 in the first quarter three in the second quarter and then our non operated program is second and third quarter weighted than non operated program that we're participating in is quite a large number for us it works out to be the equivalent on a working interest basis of about 10 wells.
So those are material for us relative to our historical non op contribution.
The programs are all well underway and I don't expect any kind of timing issues or uncertainty around the timing of delivery for the non operated because we were working closely with the operators, we know what theyre doing theyre executing quite well.
Yes, a significant non op positions with BP ex gas.
The incredible team, we visited with them in detail last year. They purchased this asset for a lot of money, they're very serious about developing and we feel pretty good about that non op right now Josh.
Somewhat unique about the program is quite a few of the non operated wells that will come online. This year have already been drilled so they're mostly completion activities in 2021 and production expectation for Eagle Ford is flat at about 30000 barrels a day.
Great. That's helpful. Thanks, guys.
All right Josh. Thank you I believe that's our last question at this time there one more.
Okay, everyone was going on.
We're going to.
Returning back to work here, we appreciate everyone, calling in and it will be seen on our next quarterly result, I. Appreciate all your questions on health and thanks for calling in I appreciate it bye.
Yes.
Ladies and gentlemen, this concludes your conference call for today.
Thank you for participating and we ask that you. Please disconnect your lines.