Q1 2021 Murphy Oil Corp Earnings Call
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The oil conference call will begin momentarily once again, please continue to standby to not disconnect. The Murphy oil conference will begin momentarily. Thank you for your patience.
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Amounts are adjusted to exclude Noncontrolling interest in the Gulf of Mexico Slide one please keep in mind that some of our 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 exists that may cause actual results to differ for further discussion of risk factors seem Murphy's 2020 annual report on form 10-K on file with the SEC Murphy takes no duty to publicly update or revise any forward looking state.
<unk> I will now turn the call over to Roger Jenkins.
Good morning, everyone turn to slog to I'd like to start with Y Murphy oil that illustrates or unique assets and abilities. Murphy produces from primarily three sources for jail Gulf of Mexico, and onshore Canada on can.
<unk> for jail in on sure Canada assets are complimentary characteristics, which enables are on short team delivered shared capabilities and expertise further we have deep roots in successful water operations in the Gulf of Mexico business, which provides a large portion of our revenue <unk>.
<unk> exhibit a unique ability to execute offshore projects faster than our peers with leading drilling a completion abilities and an average three year project timeline from sanctioned first stole a leading offshore execution capability augments our high potential exploration portfolio on.
Our assets achieve low carbon emissions intensity, which we believe will be in the top quartile as compared to our oil weighted peers at the end of 2021. They continue to generate high levels of cash flow, which are directed toward delevering, our business and returning cash to our shareholders through our long term dividend.
<unk> spending but includes our $20 million acquisition of an additional $3 five working interest in the non operated Lucius field.
Overall, we spent a third of our total capital plan for the year.
Commodity prices rebounded significantly in the first quarter with oil realizations, averaging $58 per barrel slightly above the <unk> benchmark, which we havent seen since before the pandemic on.
Natural gas realization prices averaged $2 55 per thousand cubic feet and now I will turn the call over to our Chief Financial Officer, Mr. David Looney to give a financial update.
Thank you Roger and good morning, everyone on slide five for the quarter, we recorded a net loss of $287 million or $1 87 net loss per diluted share.
After adjusting for several one off after tax items, such as a $128 million noncash impairment charge on Terra Nova and a 121 million noncash mark to market loss on crude oil derivatives, we reported adjusted net income of $10 million or <unk> <unk> adjusted net income.
<unk> per diluted share.
Regarding Terra Nova operations, there had been on offline since December of 2019, we recorded the impairment charge during this quarter due to the current status of operating plans. However, Murphy other partners and stakeholders continue to evaluate options that could support a long term production plan.
Cash from operations for the quarter totaled $238 million.
Including the non controlling interest after accounting for property additions of $258 million in proceeds from asset sales of $268 million, we achieved a positive adjusted cash flow of $248 million for the quarter.
On the hedging front Murphy continues to protect its future cash flow in the Tupper montney with additional fixed price forward sales contracts for a portion of production all the way through 2024.
As well as $18 million and Kings key Capex that was incurred during the quarter.
We also issued $550 million of new senior notes.
Raising proceeds of $542 million. This was used to pay off $576 million of 2022 notes. Once you take into account the $34 million of early redemption cost related to the pay off of those notes and account for dividends and other amounts we <unk>.
Ended up with an $80 million cash deficit, which was covered from cash on hand.
At the end of the first quarter, we had $231 million of cash on equivalents available and had repaid a net $233 million or 8% of total debt as Roger mentioned at current commodity prices, we have a goal to repurchase an additional $200 million of senior.
Notes later this year for total debt reduction of approximately 15% for the full year 2021 with that I'll turn it back over to Roger. Thank you David I'll be moving on to slide nine talking about our North American on sure business.
If it continues to enhance our onshore well execution with operated wells come in on on line of heavy schedule in the first quarter due to enhancements and drooling and completion efficiencies.
Additionally, 16 non operated Eagle for sure Wills came on line at the end of the quarter ahead of schedule.
Overall remain on track to bring on line three remaining operated wells and 29 and gross non operate wells in the jail and 10 operated Tupper Montney wells in the next two quarters are drilling and completion teams have worked hard to reduce the companies environmental impact Ah using clean burning natural gas since of diesel enduring and completion Act.
<unk> on the only where emissions reduced Murphy say $1.3 million in cost for the quarter, while bring on line 20 wells across North America onshore were utilized approximately 800000 barrels of recycled water across our completions programs, which tupper montney completions consumed nearly 75 per cent recycled water.
Saving $3 million and disposal costs further way of reduced emissions with actions such as electrification on the third party processing plant, which is secured power primarily from hydro and.
And our Tupper Montney.
<unk> plant from the previous natural gas power supply.
On slide 10, or Eagle for channel production of 30000 barrels equivalent per day exceeded the midpoint of our guidance for the quarter. Despite more than 2000 barrels equivalent per day of impact from February Winter storm, our first quarter online wells IP 30, right average 1400 barrels all equivalent per day with the IP.
<unk> of the two best wells, reaching 2000 barrels equivalents per day.
Long with stronger well results Murphy significantly reduced our costs from previous years, and 2018 or average oil costs has dropped from approximately six $3 million well to now for $5 million per well and first quarter of 21 with Standalone completion costs down 40% during that period.
I'm proud of the work our team has done and the meaningful impact it is having on our company's bottom line.
As we work to Derisk are Austin chalk acreage and curtains County, we're pleased to see the strong well results achieved in the first quarter and potential they create for Austin sharp location count and future our tier two wells have outperformed our tier one type curve and achieved an average IP rate of 1400 barrels equivalent per day in our recent tier one Austin chartwells.
Continue to perform in line with the type curve slide.
Slide 11 on the Tupper Montney.
<unk> produced 234 million cubic feet per day in the first quarter and tougher and brought on line for wells as planned on production has impacted in the quarter by mechanical issue on one well as well as higher royalties during drilling on completion costs contained to improve this asset as well with the approximate 28% reduction since 2017.
<unk> average total well costs are now approximately $4.1 million in the first quarter of 21 as compared to five and a half million dollars in 2019.
Looking at our Gulf of Mexico projects on Slide 13.
<unk> major projects on the Gulf contained to advances plan the top post section of been drilled it all three wells as part of <unk> see more months samurai in the semi three well is currently drilling as the first well in the drilling campaign. The project remains on track to achieve first oil and first half of 2022, the non operated Saint Mallow Waterflood project.
Progressing as schedule. The first producer well is now on line in the final well of the four well total campaign is currently being drilled by the operator.
On King's key on slide 14, as frequently announced we close to monetization King see floating production system in the first quarter constructions now complete with the sales away to the Gulf of Mexico plan for the third quarter of 2021 mornings are currently being stalled in the field in advance on the survival. The Fps remains on track for receiving first of all.
First oil from Calisi more months Zemarai and the first half of 22. We're pleased that this construction is kept to schedule. Despite the global pandemic is an integral piece of our Gulf of Mexico projects and Murphy's industry, leading team is doing an exceptional job and executing this significant project.
Exploration slide 16.
We're excited to be partnered with Chevron is the operator for the silverback prospect in the Gulf of Mexico, which commenced drilling in the second quarter of 21 or 10% non operated working interest provides access to 12 blocks with potential for an attractive play opening trend is adjacent to a large position currently held by Murphy and our partners.
<unk>.
On slide 17.
Are non operated exploration position that <unk> space in Brazil continues to progress and provides us further optionality today, we are highlighting our view of the resource potential at 500 million to 1 billion barrels again illustrating was significant opportunity Brazil. This for our company Murphy along with the operator Exxon.
Mobile and partners on this but the cut throat well in the second half of 21, which is approximately net customer fee of $15 million.
Slide 19, we proves presented our long range plan as far as our fourth quarter earnings and highlight that the plan remains unchanged by maintaining average capex spend of $600 million annually, we forecast of production keg of approximately 6% through 24 with oil waiting averaging 50% and offshore <unk>.
Duction, averaging 75000 barrels equivalent per day. This consistency leads to significant cash flow generation, an average deputy wty price of $60 per barrel enables murphy to reduce that's total debt level to one 4 billion by 2024, while maintaining a quarterly dividend to shareholders further we Maine.
Focus on executing our exploration program with a portfolio of more than one 1 billion barrels of all equivalent on a net risk resource basis. After we have our debt levels. So we have the option to reduce step further towards 1 billion when debt reductions behind us we will do what is best for the company and shareholders based on marketing condition.
While balancing increased asset development funding exploration success potential A&D opportunities and of course, returning cash to shareholders.
On the slide 20 on our focus priorities as we look ahead to the remainder of the year on beyond remain focus on our priorities of delevering executing in exploring with current strip prices above $60 per barrel and strong production volumes. We're on target for an additional $200 million of debt repurchases. Later this year, resulting in a 15 per cent ridden.
Action for all of 21, but maintaining conservative capital spending we project. The total debt B 1.4 billion 2024 with potential for further reductions beyond that level.
Murphy is committed to operating safely in particular as we continue moving forward on our major offshore projects ahead of first oil in the first half of 2022 are onshore drilling and completions team have done a tremendous job improving our cost efficiencies and bringing wells on line ahead of schedule, all while finding ways to cut emissions intensity and operate with minimal environ.
Mental impacts.
Lastly, looking forward with our partners to drill exploration wells on the Gulf in Brazil. This year.
Look forward to this year's campaign.
Wrapping up on to thank the employees of Murphy for doing outstanding job this quarter and executing the business safely and according to plan within budget in some cases ahead of schedule. The set a strong foundation for the remainder of the year and for our future drilling campaigns with the work done to reduce costs and environmental impacts I'm pleased with all the hard work on your accomplishments.
That's all have this morning, and I will turn it over to the operator for our questions. Thank you.
Thank you Sir.
These on gentleman if you do have any questions. Please press star followed by one on your Touchtone will have been here <unk>.
Three total prompt acknowledging a yoga class and if you would like to withdraw your question.
Followed by too.
Speaker phone, we do ask that you. Please lift the handset before pressing any keys. Please go ahead and per Samhain now if you have questions.
And your first question will be fun pop Tang Scotiabank.
<unk> Bank. Please go ahead.
Hey come on the guidance.
Good morning posture.
Simple quick question the first in Austin chant.
Can you give us a rough idea at that what's clamp opportunities set you may be looking at there what is.
Successful as you hope how big is the inventory that we may be talking about.
Okay. Paul I think it's best to have air Kam Lee our head of operation provide that color for you. This morning.
Thanks, Paul to Great question, we are really excited about the potential of our Austin Chalk program. We saw very solid results from the sixth Austin Chartwells. We brought on line. This year with the performance of those wells will be reassessing are tearing and expectations from future wells over the next few quarters.
And will.
Determined a plan for for Austin chalk, but we're very excited about it and the cash flow generation from these as really strong and allows us to follow our focus areas of Delevering as Roger mentioned.
And you have a.
Day number up call us back inventory any color.
Say, maybe go up ideas that you can share.
We have broken or eagle for position out into numerous tiers of.
Expert expected performance from our Austin, Chartwells, and we have likely about 100 wells that we're going to pursue over the next decade or so between our tier one and tier too. So we're going to be reevaluating that tearing and incorporating future Austin chalk locations into our co development strategy for our.
Eagle Ford position, it's a bit premature two right now update our overall assessment of Austin chalk in terms of the distribution of those wells between tier one tier too.
And once you it that day.
I think you're saying that heroin paying for the Capex flow of 2021 to 2020 before we mainland change average about 600.
Commodity price, it's actually quite strong and.
Light that you could be stronger than everyone expected full at least on Nick's, maybe two or three years is that you're in any shape or form that change your program or what that you're just going to stick stick to get any excess cash is just going to pay down debt.
Thank you Paul for that question on our on our long range plans and higher oil prices.
Actually Paul we're sticking with this plan we have a very nice program were very well position, where we are on our oil production levels happy with our outstanding execution and just going to stay with our Delevering is the main focus fall and feel that after that we will have those list of opportunities. After we have our debt are further.
<unk> as outlined in my call statement. This morning, So no plans to change with that and if the oil price contained to go up we will delever faster and be and be glad to do so.
And on that day that you mentioned that long term debt parkette off a payment taller.
Is that.
That pocket unit to week.
Before you way can seat the whole tend to use our cash or that before you get there you may start looking at.
That's a good question Paul Thanks for that call or question on our debt targets, just so happens that.
In a 55 dollar world you do get toward that magical 1.5 kind of the level of debt Abdabs. When you get down to that one four to 1 billion range, which I think is a very comfortable place to be and and at that time, having that level of debt to to cash flow would be advantageous.
To start on other alternatives from an A&D perspective, though Paul we've been very active in that space through the years. They are opportunities that are creative to cash flow that we could execute on and review that would still allow us to make that debt level.
That timeframe that is something we continually review it with our team and that's the way we're thinking about that and it just so happens that the one to 1.4 billion is a good place from a debt EBITDAX multiple perspective, Paul that would be similar to any company with an outstanding balance sheet.
Thank you.
Thank you Paul.
Thank you next question will be from Jordan.
Securities. Please go ahead.
Wondering Roger David Kelly.
Roger I want to start off by getting your thoughts as it kind of relates to the competitive environment, mainly in the Gulf of Mexico, but in all your offshore assets specifically on.
I wanted to get your thoughts on if you've seen that change at all with either new entrants are simple name is getting more interested given the rise in prices and what opportunities you see possibly creating if you have seen a change there.
Thank you so much for that question on our Gulf of Mexico business, we are uniquely position there I'd like to point out that we have done a deals in the Gulf two significant ones as we swapped from international to golf a few years ago, that's paid off very nicely for us.
We see more deal flow more deal room or more deal discussion here in town.
Then we've seen of late with.
People changing or wanting to change where of course aware of all of those and happy about happy to hear about other opportunities that uniqueness suggest went through with Paul a few minutes ago, we have to keep in mind that our goal is to Delever. Our goal is to buy something if we were in that environment to be accretive to cash flow. So we could steal my.
Maintain our delevering goals, which is where we are today and we believe those opportunities exist. We like the the rumors on the street, we like to talk.
We're enthused by that and happy about that and happy to be the fourth largest operator on the Gulf of Mexico.
That's really helpful. Thank you and then just now thank you quickly.
My second question is just in regards to the 600 million capex level.
Specifically.
How you're thinking about that in the context of an exploration success, whether it be in Brazil or in another region. How you how you think about.
Flexing around that capital allocation.
The exploration plays out.
Being something that's accelerated.
Thank you for that question on our exploration business I appreciate that.
We'll have to keep in mind and emphasize here today that again to Delevering is arkie and of course exploring is our key in with exploration will hopefully come success and we're part of some significant wells. This year, we believe in our capital forecasting and flexibility, especially on the tails of this outstanding execution that we're seeing in our <unk>.
Onshore business and I'll sure of Salt and our offshore business that we can fund delineation of a success and our cash flows and not hurt our delevering goals. If it gets into a major project success more than likely it would come along the time, we are deleverage quite a good bit and allow.
Less than to have the cash flow is our capex straight greatly drops off post the execution of our offshore assets that we have today and when we have that drop off we feel that we could fund our share of a major discovery based on what we see from the other successes in this hemisphere that are widely known and we feel well positioned in that going for.
Which is one of our capital allocation opportunities outlined on slide 19, So I feel very comfortable about that at this time.
Great. Thank you so much.
Thank you.
Thank you next question will be from Stephen Richardson.
Please go ahead.
Good morning saving.
Hi, good to hear from you Roger.
I was wondering.
One of the things Roger and we've been wondering about is.
Tracking a number of companies that are looking at exploiting.
Brian resources for lithium in Arkansas, considering the corporations legacy in Arkansas.
I was wondering if you could talk a little bit about.
If indeed, the corporations still has land or mineral rights in those areas and if you've contemplated.
Any role for Murphy and that emerging business, which looks like it'll have pretty significant growth over the next couple of years.
Thank you Steve for that question about our uniqueness that would be something would place us on a unique position.
Well I'd like to point out to your day is yes, we do have about 10000 acres of royalty lands in Union County, Arkansas, The home of the founding Murphy family in our Corporation.
We do have royalty income from brine, we are closely monitoring the extraction of the brine for lithium there is you know by covering that company I believe.
That there is a project big large scale extraction project that we're monitoring that and we are not today working to add in that region, but we are experienced in or have long term knowledge about that particular situation Steve.
Great and do you think Roger not too not too to flip the card before the horse, but do you think that there is a role for Murphy in this business potentially longer term beyond.
Obviously minerals and participant income of royalty perspective, it's really attractive, but taking a more direct participation.
We as usual like most companies would review different opportunities around a roll energy transition naturally being part of that would allow us to have more focus on information around that particular item and I'd, rather just leave it at that today, Steve If you don't mind.
Great. Thanks, very much Roger.
Oh. Thank you thank you for asking.
Thank you next question will be some gales nickolson.
Please go ahead.
Good morning, good morning.
Good morning, Roger.
[noise] mildly elevated during the corner with weather related and how can we think about.
Exactly yeah.
R. L O I'll answer the overall question turn the Montney particular question over to Eric. Thank you for asking that today, what I'd like to emphasize today is our eloise can be pretty standard throughout the year.
Do have occasional work over an offshore Gulf, which of course are very economic worked out very well I.
I would say that our total Murphy.
<unk> would be <unk>.
Hello, where we were this quarter, which is non 75 for total Murphy and quarter, one I'd see us in the 850 range. The rest of the year as an overall company and I will have Eric Hamley here head of our operations discuss the tougher operating expenses for Gail.
Thanks Roger.
First quarter results were influenced by a work over at the same Malo field.
Slightly elevated our offshore operating expenses if.
If you look at the full year as Roger mentioned.
R. R opex will be a bit lower on a full year basis. If we look at some assets specifically the tougher Mon need for example, we expect about $5 just over $5 a barrel equivalent operating expenses and then for our Eagle Ford business. So it will be less and less than $10, probably about 950. So.
It should stabilize to kind of what you've seen from us over multiple quarters.
Great I appreciate that color and then the Eagles.
Current that are outperforming that pier one type curb.
The driver, that's causing that outperformance and when you look at this day of the Eagles My results.
That you continue to see and the region can you talk about how you're thinking about current capex to keep eagle for volume flat now.
Yeah. That's a great question. So just briefly on the Austin Chalk results, we have six wells in our program that we've brought on line and the first quarter three of them, we expected to have tier one performance and they have.
Three of them, we expected to have tier two performance because of their location.
And their proximity to known offset historical well performance.
We're very happy to see outperformance of those three well is that we expect it to be tier two.
They're actually significantly above our tier one performance.
The primary reason for the exceeding expectations was that we had less offset well control to guide a higher forecast. So it does open up a bit of a different view of how we might have teared our future locations.
But we're just evaluating that now it's very early time data, but we are excited and encouraged by those results.
In terms of or can you repeat the last part of your question I'm sorry.
Yeah of course.
Looking at this stranger to even worry dot net.
But you continue to cheat you to talk about how you're thinking about what's happened needed Eagle Eagle for value flat now.
Yeah, we've we've talked about this question before and we will of course every year update our forecast.
We are targeting to maintain eagle for production flat over many years at about 30000, net Bowie per day, and the way I would frame that as we expect somewhere around $200 million of total capex per year, the eagle forward to accomplish that.
Great. Thank you and then.
Date on the 10th on potential on Vietnam.
Thank you gas that question about exploration. There we are very very excited about Vietnam as a place that we have.
Not allocated capital too late for our own reasons.
On our Delevering focus, but it allows a very large portfolio of inexpensive lower risk opportunities that we're evaluating now and I prefer it to be part of that.
Post delevering process of additional capital allocated assets that I mentioned that are highlighted on slide 19 and <unk>.
Closing, they're just represents unique nature of exploration assets and.
The way, we have to create value in places and with Optionality on capital spending and timing and very pleased to have our Vietnam acreage.
Great Guy great quarter. Thank you. Thank.
Thank you Gail.
Thank you next question will be some Leo Mariani Keybanc. Please go ahead.
Good morning Leah.
Morning here.
Just.
On kind of that that return profile of the onshore drilling program just wanted to get a sense I mean, it looks like your Eagle Ford Wells are performing nicely and so on some of the chartwells to start the year.
When you look at the returns on those wells.
On on IRR basis, or have you guys want to look at it.
Those compare it say 60 to $65 oil versus the tougher montney wells with eco prices have been kind of arranging on two and a quarter. It's $2 50, you asked here.
Thank you for that question on our assets there Lee on will have Eric that we have all that detail broken out by area and price go ahead.
Okay, Yeah, that's a great question.
The Eagle for wells that we are investing in our plan here this year and expectation for going forward.
Current oil prices have rates of return sort of in the 35, two 100 per cent and are tougher montney wells.
Have rates of return that are in.
In the 60% to 90% range. So we see a tighter range of expected rates of return within Tupper.
The very best of our Eagle Ford locations are a bit better than our tupper investments, but the range of the Eagle Ford returns is a little bit broader so that's kind of how I would frame that we're really excited about both of them and think we have great position to invest in with tons of Optionality going forward and we're excited to keep executing on.
Plan.
Okay, and just on the Eagle, Florida, obviously saw hire non op activity I think the unexpected here and.
In the first quarter.
You think that's an acceleration.
Later in the year or do you think there's potential for more an on off to come with higher oil prices here.
It's been out for thank you Leo for that question.
I believe in emphasis for us today is to the lever and keep capital expenditures and check I think it would be quite common two year to our peers quite common to the folks that were working with which are very known successful Eagle Ford shale and North American onshore players all the big names are our partners there and.
We see no indication of those companies increasing capex.
Nor would Murphy. So again, our goal is executing we're executing better executing better on our operations, which is leading to our delevering and our delevering goals and we believe to be the case of our partners as well.
Okay, and just looking at the the Gulf of Mexico. Here. Obviously, you guys made this working interest acquisition Lucius I think you guys said it was about 1100 incremental barrels a day in the first quarter I'm not sure that was actually on line for the whole quarter. So I wanted to kind of get a sense of what the total impact would be.
If that was just day apostle quarter on the 1100.
Barrels a day and then also just on silver back in the Gulf of Mexico.
Is there a kind of an expectation as to when we might see a result is that like.
Five months type of well in any estimate of the potential drivable costner, if it's on successful.
I'm going to have Eric channel. The question you have an onshore and I will take the silver back after that Leo pleaser, Okay. The production from Lucius We started recognizing beginning in February so for the first quarter of 2021. It contributed two months of production our estimate for the year is a little over 3100 per.
Barrels per day net.
Murphy.
One two silver back. Thank you for that question, a real excited about that well Leo like to emphasize again, that's a way for us for 10% working interest to day risk significant.
The portfolio of those type opportunities, we have on our acreage that we purchase from analog.
The World is ongoing now bye chevron and the well.
<unk> will be near her slightly post or call. In August result, if the wells able to be executed on time and it would probably be at her past right past our call time Leo at this time and I will cost is probably in the 10 to 15 million dollar range for our share of that well.
Okay. Thanks, guys.
Thank you.
Thank you as a reminder, ladies and gentlemen, if you do have any questions. Please.
Please press star followed by one on your Touchtone phone.
And your next question will be from Josh Silverstein Wolf Research. Please go ahead.
Good morning, Josh.
Good morning, guys Uhm, just a question on on the Eagle Ford volumes, you got off to a good start this year with volume is coming in better than expected.
That's what I'm drawing QQ.
But you only have three operated wells coming on line and the second quarter and then you kind of mentioned the 30000 barrel day level, which you guys would be ahead of.
The first half of this year.
Could you talk about how the volume.
Yeah.
And how the volume.
Activities to support that just because you guys are about that 30000 barrels day level and the first half.
Yes, Leo I'll I'll frame this and have very get into the details. Thank you for that question.
Our emphasis again as to as an overall perspective of our company to make to allow our own sure well our onshore oil fields to be flatter production profile to achieve maximum free cash flow with oil price increase that is the overall goal of how we're working there we have been very excited about.
Our trajectory in our execution, but you're right we have less.
Wells going forward in the future, but overall our goal on our execution. There is positive toward what we want to do and I'll have Eric here frame for you the rest of the year.
Okay. Thanks Roger.
We are forecasting second quarter production from Eagle for.
Nearly 38000 per day.
And a full year of 32000 per day.
The non operated wells that are in our program that have not already come on line in the first quarter, we expect to come on line and the second and third quarters are operated program as you highlighted will end in the second quarter.
So we will have decline due to new well performance of course, and we're happy to see that are based decline from our wells brought on line. Prior to this year continues to be in line with our forecast in 24% that's significantly supporting our ego for program this year.
<unk> and are strong cash flow generation.
I would further add color on on that Josh to say that the third 2000 is above our original plans and ahead of our 30000 goal and we're doing very very well there.
Correct, Yeah, I just you get on the on I just wanted to understand like the expectations that you're volumes on the back half will decline, though yes, that's strange offshore oil actually go to like 30000 of us based.
On the full your average for Ya Oh sure. Yes, just wanted to clarify that and also our team other kudos to our operational team on the base production has been outstanding so have several several positive this year so far on execution, not just drilling incompletion, but on production engineering as well Josh. Thank you for that question today.
Sure.
Just one other quick volume kosher here then so.
So I know last year. There was there was a big storm year, just one in the Gulf of Mexico. Just wanted to see how you guys are bacon that into the queue to reach you got into this year.
Yes.
Let me turn to that part here.
As you know Hurricanes are part of our business and we have a process for dealing with that.
<unk>.
The way I like to think about this this is like this we estimate storm downtime from decades of storm day to here and we assume an average stronger year based on on a lot of detail Josh on that matter and our production guidance now includes a downtown in the third quarter of over 5000 barrels per day.
Hunt and almost 1500 are slightly more than 1500 barrel equivalent per day on the fourth quarter and that's the way we estimate our storm downtime and feel good about that situation.
Situation, Josh again, it's part of our execution and something we're working on an estimate and we're ahead of the game now and I'm very happy where we are.
And then as far as the balance sheet goes you guys had $230 million cash on January vulgar at the end of the first quarter do you guys see yourselves building cash throughout the course of the year are you building cash to take of 2024 maturity early or.
Waiting waiting to see what happens happens with the exploration program that are on the theater, making decisions.
Let David go ahead with that question for you Josh.
Yeah, Josh Thanks for the question.
As we've as we've mentioned a couple of times here. It is clearly our plan our attention to pay down additional debt for the remainder of the year. So to the extent that that cash does build up over the over the next several quarters.
In all likelihood you would you would see us do something probably towards the end of the year in terms of taking out additional debt. We're very fortunate to have several issuances on our books bonds on our books that have attractive call features that we could take advantage of towards the end of the year and of course anytime we do.
Do that we're trying to look at maximizing the amount of debt, we can repay in conjunction with where the monitor price et cetera. So a lot of different things go into that that discussion and analysis, but but that's probably what we're looking at towards the end of the year.
Great. Thanks, guys.
Thank you Hey, Josh.
And your next question will be from <unk> County at Goldman Sachs. Please go ahead.
Good to hear from you.
<unk>.
Exploration is a key differentiator for Murphy.
Any update you can provide on Brazil, which looks like it could be a significant opportunity for the company.
Yes. Thank you that question on our exploration business.
We're very excited about Brazil, Brazil has been a place on which we've worked for a long time as part of our overall strategy.
I'd like to point out that we have this key well this year and for the first time today as I mentioned in my script, we have outlined our view of the size of that and very happy to drill this well, which is outboard of a lot of success in that area. We also have the portable are based on which is moving along nicely as well.
In the same type of exploration overall strategy, so Brazil should get going the second half of the year with the first opportunity there on our large acreage position and real proud to be there on a long term basis with our partner Exxon Mobil and participate with them going forward and a large law.
<unk> prospect it we're very happy about it we've gauge debt 500 million to be in Beryl. So large opportunity force and we're excited about it on this morning.
Great. Thank you.
And as a follow up I just wanted to get thoughts on on service pricing are you seeing any signs of inflation given what we're seeing on the commodity markets.
Tom morality is join US today for the first time and he heads are all of our procurement another services in the company of him and let him close you out with that this morning.
Thanks for the question you, we certainly do try to stay on top of any potential costume pressure cost pressure impacts on our program.
Our priority right now is delivering the volumes of value that where you're committed to our board and our shareholders. When they approved our budget last year.
So Fortunately we're on a good position through our strategic sourcing are 2021 program is not really exposed to the current increases that we're seeing.
In some in some costs.
We look ahead of 2022, we feel will be able to continue to deliver attractive returns to our program.
So while we see some potential cost increase coming in key services. We also continue to improve as Eric highlighted earlier, just through cost efficiency through efficiency gains in our execution.
We also like to work with our providers that we can.
Be able to deliver a mutual benefit so it's it's something that we stay on top of that currently are 2021 activity as well positioned so that we're we're kind of shielded from that what we're seeing currently in the market.
Thank you.
Thank you appreciate it.
Thank you there are no further questions from our phone lines and I would like to to end the call back over to Roger Jenkins for any closing remarks.
Thanks, everyone for Darling in today with a good quarter and proud of all our work that we've done here and will be seeing you at the next call and thank you. So much I appreciate it.
Thank you, Sir ladies and gentlemen, this does indeed concludes your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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