Q3 2021 Murphy Oil Corp Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Murphy Oil Corporation third quarter 2021 earnings conference call and webcast. At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time during this call.
You require immediate assistance. Please press star zero for the operator, I would now like to turn the conference over to Kelly Whitley, Vice President Investor Relations and Communications. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us on our third 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, Eric Hambly Executive Vice President.
Operations and Tom morale as senior Vice President Technical services. Please refer to the informational slides, we placed on the Investor Relations 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.
Slide one 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 $19 95.
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 actual results to differ.
Their discussions of risk factors see 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 statements I will now turn the call over to Roger Jenkins.
Thank you Kelly and good morning, everyone and thanks for listening into our call today as you look at slide two we'd like to briefly remind our investors of our story as each tenant of this slide remains in effect this quarter and in the future our.
Our ongoing execution in our three producing areas continues to support our offshore long term projects are competitive advantage of executing an offshore as illustrated by our outstanding progress on our caliche more months' samurai field and the King's key project.
We've maintained strong cash flow due to capital discipline that covers our planned spending and debt reductions for 2021 and support shareholders through our long standing dividend lastly.
Lastly, our meaningful level of board and management ownership highlights our personal interest in the company's long term success.
Moving to slide three.
At the quarter, we remain focused on progressing our three priorities Delever our company execute explore we continue on delevering during the quarter as we redeemed $150 million of our six 875% notes due in 2024 and earlier. This week you saw that we announced the redemption of additional $150 million of these 2000.
Four notes to occur in December.
Therefore, we have achieved our goal of reducing long term debt by $300 million this year.
I'm, even more pleased that our total debt reduction of $530 million or 17% for all of 'twenty, one as we progress towards our long term debt reduction goals, we remain on schedule for our Gulf of Mexico major projects, including transporting the King's Quay floating production system to the Texas Coast ahead of <unk> with <unk>.
No impact, while maintaining our timing of first oil and the first type of 2022.
Our strong execution and capital discipline has allowed us to be able to reduce the midpoint of our capital budget by $20 million for 2021 down to $680 million.
Lastly, we are pleased that the partner group has come to an agreement on the Terra Nova asset life extension project and work will begin in the third quarter.
With regard with regard to our exploration program, we completed drilling the non operated silverback exploration well during the quarter. The well has been plugged and abandoned and Murphy is fully expense to well we will continue to evaluate results across our working interest blocks looking forward. We're excited to begin the drilling of the cut throat exploration well in Brazil. This <unk>.
Quarter and advance our 2022 exploration drilling plans with our partners.
On slide four.
Our third quarter production of 155000 barrels equivalent per day was comprised of 59% liquids hurting auto had a significant impact on the industry in the Gulf.
We were able to safely redeploy our people offshore five days after <unk>, but we experienced men, where we experienced minimal damage to our facilities. We could have restarted production at that time. However, the issues affecting third party downstream assets kept our production offline longer with a slow return to full active.
As a result, we had 12800 barrel equivalents of impact due to hurricane order in the quarter.
Even with the storm impacts are consistent onshore apps operations and capital discipline placed our net accrued capex at $103 million.
Which was below guidance, we also saw stronger realized pricing, averaging just over $68 per barrel in the quarter or natural gas averaged $2 77 per thousand cubic feet natural gas liquids also very high average $33 per barrel in the quarter.
On slide five.
Hurricane out to hit the Gulf Coast. This August as a category four hurricane this path put it directly over critical third party offshore pipeline hubs onshore terminals and natural gas processing plants. This unique track combined with intensity and physical impacts of the storm this size created devastation.
Operational loss not seen since Hurricane Katrina 15 years ago.
Our results this hurricane Murphy production for the year was reduced by approximately 4400 barrel equivalents per day, Fortunately have a longstanding agreements in place for our temporary shore basis, which enabled us to redeploy personnel quickly and safely only five days after the event much faster than most of our peers.
So we were one of the first companies able to resume our drilling following the storm at our please see more Mark Samurai project.
On the ground, we followed our disaster response plan and quickly activated our incident team sourcing suppliers and arranging transport to deploy the items to our impacted workers. So they could take care of their homes and families.
Overall I believe we had an exceptional hurricane response that put us in the best position possible to resume operations as soon as third party downstream capabilities, we're back online now.
I will turn the call over to our Chief Financial Officer, Mr. David Looney to give a financial update of the company.
Thank you Roger and good morning, everyone for the third quarter, we reported net income of $108 million or 70, <unk> net income per diluted share.
Certain after tax adjustments included a $44 million noncash mark to market gain on derivative instruments of $22 million noncash mark to market loss on contingent consideration and a $54 million noncash gain on asset retirement obligations due to the multi year dip.
<unk> of expected Terra Nova abandonment expenditures following the project sanctioned as a result, we reported adjusted net income of $37 million or 24 cents per diluted share cash.
Cash from operations for the quarter totaled $405 million, including the Noncontrolling interest after accounting for net property additions and dry hole cost of $119 million, we achieved positive adjusted cash flow of $286 million slide seven.
Our third quarter Capex was notably lower than originally our original guidance for three primary reasons number one we received an $18 million credit for Terra Nova from exiting owners upon close of the agreement number two we were also able to reduce cost for various Gulf of Mexico projects by our <unk>.
Net of $18 million and number three a portion of our spending was shifted from the third quarter to the fourth quarter. This year due to timing differences.
<unk>, our capital discipline and offshore execution has enabled us to reduce our capex midpoint by $20 million down to $680 million with our range tightening to 675 to 685 million. This.
This is even more significant when noting that this number includes the $20 million acquisition of additional working interest in the Lucius field in the first quarter of 2021.
Slide eight turning to the fourth quarter, we're forecasting a production range of 145 five to 153 5000 barrels of oil equivalent per day with a midpoint of oil production at 81000 barrels of oil per day. This range includes approximately.
4500 barrels of oil equivalent per day of Gulf of Mexico facility downtime for the quarter, which occurred in October as well as planned non op downtime of 2200 barrels of oil equivalent per day later in the quarter.
We are reinstating and revising our full year 2021 production guidance with the previous low end of the range set as our new midpoint after experiencing hurricane Ida, which averaged out to a 4400 barrels of oil equivalent per day impact for the full year 2021, we now forecast two.
'twenty one production of 156, 5% to 158 5000 barrels of oil equivalent per day.
Our full year oil midpoint of 87000 barrels of oil per day is up 6% from our original guide and is forecast to comprise 55% of total production for the year.
All of this reflects our priority on execution as we have been able to lower capex, while increasing our oil production and ultimately generate sufficient free cash flow to redeemed 300 million $300 million of long term debt all despite experiencing production impacts from a significant.
Hurricane with that I will turn it back over to Roger.
Thank you David as you look at slide 10, and our North American onshore business.
Our onshore drilling and completion activities nearly complete for 2021, we plan to bring online four operated wells in the Eagle Ford shale in the fourth quarter and that will wrap up our program for this year.
On slide 11 in the Eagle Ford, We produced 37000 barrels of equivalents per day in the quarter comprised of 7% oil and 86% liquids, we plan to bring online as I just said for wells in Catarina in the fourth quarter.
Two upper Eagle Ford shale, two lower Eagle Ford shale and one in the Austin Chalk total capex for this year will remain at $170 million in this play.
We are pleased that for 2021, we're now achieving approximately nine months payout wells across our Eagle Ford shale business.
Slide 12 in Catarina as mentioned previously we have four Eagle Ford shale wells coming on here. This quarter. All four wells are located in our Catarina area and we've seen incredible results this year and as part of our operation, including achieving the highest oil cut in Dimmitt county, and producing 60% above the type curve, resulting in.
Six months payouts in Catarina.
Companies have also reported strong production results in this area, particularly in our new Austin Chalk zone play in this area.
With our Austin chalk tests, we plan in the fourth quarter, we're hoping to further derisk approximately 110, Austin chalk locations in Catarina for future development.
Slide 13 in Tupper Montney, we produced 292 million cubic feet per day or 2021 wells have achieved record high IP 30 rates for the company and also in comparison to industry through modifications and flowback facilities wellhead equipment and procedures.
Overall, we're seeing IP rates more than 50% higher than previous three years of 19% CAGR and IP rates since 2013.
As you look on to slide 15, and our offshore business.
Our Gulf of Mexico projects contingent Vance and we are now drilling the final well and are pleased to more months' samurai project before advancing to completions later in the fourth quarter.
In September we were able to quickly resume drilling following hurricane Ida with no impact to our schedule for first oil in the first type of next year.
The non operated St. Malo Waterflood project continues to progress with installation of a multiphase pump.
We're fortunate these projects avoided the impact from the Hurricane and we're excited as we advance this moving forward.
Slide 16.
The King's key floating production system successfully transported more than 14000 miles from South Korea to the Texas coast during the quarter and Rob just ahead of hurricane either with no impacts.
Work continues in the Fps will soon be moved to its final location. The Gulf ahead of receiving first oil in the first type of next year I'm very pleased that the incredible work everyone has done to keep this project convention on schedule, especially during COVID-19.
All while remaining a healthy safe environment as exemplifies our long term offshore execution ability.
Slide 17.
Nova during the quarter. The partner group came to an agreement on the Terra Nova asset life extension project, which is expected to extend the production life of the <unk> by 10 years.
<unk> agreement the government of Newfoundland and Labrador will be contributing up to 164 million U S dollars and royalty and financial support with the three partners contributing in aggregate matching basis.
Mercury's total future net investment in the project will only be $60 million.
Work has begun on the <unk> with the sale to Spain for dry dock through most of next year before an anticipated online date in the fourth quarter of 2022.
On slide 19 involving exploration in the Gulf.
We continue to hold the <unk> position in the Gulf are excited that we will have a lease sale on November 18th and it's moving forward with no changes in royalty rates or other matters less.
Last quarter last quarter, our operating partner along with other major energy peers completed drilling the silverback exploration well well has been plugged and abandoned and Murphy expense to well, we continue to evaluate results across our working interest blocks.
Slide 20 concerning Brazil.
We're excited to work with our operating partner this quarter to spud the cutthroat exploration well, Mr. GPA Alagoas basin in Brazil, with an approximate net customer fee of only $15 million Delta as well as the first of many in the basin and look forward to the Optionality and resource potential the well provides.
As you look at our long term strategy on slide 22, our.
Our disciplined long term plans remain intact as we continue on our path of Delevering executing and exploring as previously disclosed we were targeting an average capex of $600 million from 'twenty, one through 'twenty four with production CAGR of only 6% during that period, our long term oil weighting remains at approximately 50% through 2024.
And this combined with our average 75000 barrels equivalent per day produced offshore will support significant free cash flow generation as it has already done this year.
We plan on maintaining our low production CAGR and capital discipline, even in a period of these higher prices. We're seeing this will allow murphy to pay down debt faster and advanced returns to shareholders and we have no plans to change the strategy at this time.
Our debt will be reduced by half down by one down to $1 4 billion by the end of 2024, averaging only WTO at $55 per barrel pricing.
Further our strong cash flow continues to support our cash returns to shareholders. Our exploration program portfolio of more than 1 billion barrels equivalent net risk potential continues to be another focal point for our company.
Longer term, we appreciate the optionality afforded us with significant free cash flow generation as well as who have the ability to allocate capital more broadly between funding asset development exploration success additional debt repurchases and returning more cash to shareholders.
On our focused priorities on slide 23.
Our team has done a tremendous job. This year remained focused on our priorities and we've achieved that with sheet achieved I'm sorry, a lot as a result of this discipline.
As announced earlier this year will be redeemed and another $150 million of senior notes, thereby achieving our delevering goal of $300 million in long term debt this year.
This is a great first step in our plan of reducing total debt in half by the end of 'twenty four.
And our long term oil prices of $55 per barrel at current strip prices, we were able to achieve this one year earlier.
We continue to execute well on our major Gulf projects, as well as reducing onshore drilling and completion costs through ongoing efficiencies most importantly.
Maintain a safe working environment for our employees contractors and surrounding communities.
Lastly, our priority of exploring supports Murphy's longevity. So that we may continue to find and produce oil and natural gas to achieve our mission, providing energy that empowers people for the next 100 years.
We achieved this by participating in the drilling discovery Brunei already this year, we're excited about the prospect in Brazil that will spud later this quarter with our operating partners. Further we are advancing in finalizing our 'twenty two exploration plans with partners as everyone completes their budgeting process and we're looking forward to next year's opportunities.
In closing like to congratulate all of our employees for another quarter of strong execution and capital discipline and thankful that everyone remains safe during hurricane Ida incredibly appreciative to those who displays murphy's values and helped our colleagues families cleanup and begin repairs to their homes following the storm.
With that I'll turn the call back to the operator for your questions at this time. Thank you.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question press the star followed by the one on your Touchtone phone you will hear a three ton prompt acknowledging your request and Youre questions will be pulled in the order they are received.
Wish to decline from the polling process. Please press the star followed by the EU and.
And if youre using a speaker phone please lift the handset before pressing any key.
First question comes from Neal Dingmann with truly please go ahead.
Good morning, all.
Roger obviously pretty excited about.
Tommy Cutthroat and I'm just wondering besides could you maybe talk about your thoughts on I know it can vary but potential timing around that that well and then any other sort of notable exploration wells you'd consider around the quarter.
Thank you Neil for that question about our program and Thats, one of our key tenants and a differentiator for us.
We see that well here pretty soon Neil I'd really like to leave the comment at that but we're hopeful to spud the well this month.
As far as <unk> got it next year program. We're looking today finalizing our budget is typically be the case.
Drilling a nice well in Mexico, and another well in the Gulf of Mexico, which both serve as operator and those would be nice wells.
Ralph will, especially Mexico being a larger.
Well on size of mean resources naturally and happy about those who have a lot of opportunities both both places to drill and that's in our plans at this time Neal.
Okay, and then just one follow up.
I'd like to see that near term upside at Sei model on the waterflood. So I'm just wondering would you consider or is it.
The potential for bringing some other waterflood zone in the coming quarters I don't know what the plans for that.
No today that thank you Neil for that historically waterflood projects have really been an internationally you may not know this we're one of the leaders in water injection in deepwater in the world because Malaysia was developed totally in that way.
It's very uncommon in the Gulf. There is some of these big Wilcox projects that we'll have this.
It's a different cost structure here in a different reservoir type <unk>.
Development in the Gulf and sub debt comment.
We are evaluating.
At Dalmatian, which again tied to more of a reservoir energy perspective to St Malo and looking at that in our long term plans.
Thanks again, thank you Roger.
<unk>.
Your next question comes from Paul Cheng with Scotiabank. Please go ahead.
As Paul Good morning.
Hey, Josh.
A number of questions and you're talking about.
The balance is thought to.
Quickly getting back to shape.
And you go into a salary the cash return can you talking about between say.
Fixed David then.
Both dividend and buyback how should we look at when you, which the pawn you would be.
April.
<unk> rates of return and then what's the peak condition for that to happen.
Thank you Paul it's a good question for Us and a company that does have a loan policy.
Like many others in 2020, we reduced our long standing dividend by a good portion of 50% in that case, we still feel that we're a very nice dividend paying company.
We put that with our capital discipline that we've been exhibiting here to allow us to allocate our free cash flow to really reduce our debt Paul we want to get our debt and have as we've said and I said earlier. This morning, we can reduce our debt in half by the end of 'twenty three.
With the strip pricing today.
So we know that we are an established company, we want to have lower debt, while returning cash to our shareholders Thats been our policy and practice Thats no surprise.
And at these oil prices as I, just said, we will be able to accomplish shows object objectives at a faster pace than if this were to occur.
We do have one big advantage and our company with lack of equity issuance that only 154 155 million shares at an increase that you read about from our peers really isn't a lot of money for us.
So that would be an undervaluation in near term and along with our budgeting and pricing and wed like to lower the debt first and we're hopeful we'll get the debt done but.
Simple increase in dividends not an expensive venture for Murphy oil.
And that.
Once you can you tell about where both dividend and buyback, which yes you bet.
Going to have excess cash efficient because as you say you're only at 164 million share. So we think that fixed dividend not necessarily that much money in the ones that you really want to waste at that high I assume so that.
Excess cash flow again this top pricing.
Between the variable dividend.
Buyback do you or the bolthouse persons one meal together.
We have been so focused on our Delevering, which is the left hand pillar of our three focus areas Paul quite honestly, that's our first step naturally as you go into our budget season with oil around 80.
<unk> views can take place I don't want to get ahead of my board on that but I would say at Murphy.
More tuned to dividend and getting our dividend backward dividend payer for 60 years and that would be best for us and of course, a variable dividend as opposed to come into that mix and I would say at this share count that would be the basis today Paul.
Okay.
And the second question is on hedging with the bonds, it's getting better shape.
Should we looking at hedging <unk> go into significantly with deals.
Hedging position going forward or that you continue to be very aggressive on the hedging.
Cody.
Why do another hedging, yes, youll have a strong balance sheet and your <unk>.
Investment wages were low.
Your breakeven requirement is slow.
Yes, Paul I'll provide just a high level and let David get into more of that with you.
Not going to be a company that hedges ever more than about 45000, a day a high for oil.
We have some some make sure some protections to ensure that we do not ever have to go to the bond market for the 24 notes that we've greatly reduced and that's our overriding thing at this time I will let David to provide you more color on that Paul.
Yes, Paul.
Question by the way thank you for that.
The way, we think about hedging at this point as you point out really is to think about it in the context of our continued debt reduction plan, which of course is 50% by 2024.
As Roger mentioned, we really don't ever hedge more than about 50% of our anticipated oil production.
And recently as you've seen as we disclosed we've chosen to utilize collars for the remainder of our 22 program and we've been able to achieve a floor price of about $62, a little bit more than that and an average ceiling of almost $75 that we like this structure because it does provide us some downside protection so that.
If certain things were to happen in the oil market, we'd still have really good cash flow from those hedges that would allow us to continue our debt reduction plan and of course, if the prices stay where they are today, then we're going to be able to reap the benefit of those higher prices, which as Roger mentioned earlier would also allow us to pay down our.
That faster so we think about it in that context, and we've never we've never really been a company that.
Other than our gas position in Canada in the Montney, we've never really hedged terribly far out longer than.
12 months to 18 months. So that's been our consistent approach historically and I think we're sticking with that now.
Okay final question, what's your it.
That's a lot of set up there for sale.
Good thing I think Quantico after they closed the shell deal puppy, we do quite a lot.
Asset sales.
And petrol Boswell Paul Doug in the Gulf of Mexico is also putting down setup wholesale can you talk about from an M&A standpoint.
The company looking at that.
<unk>.
Kevin maintenance, a biomarker analyze sell in the market from Europe.
Expected.
Well well Paul. Thank you for that question, we have been very active in M&A, both both selling and buying over the last eight years for sure, but I think we've done $8 billion of deals in the company to reposition ourselves to where we are and it's helping us pay down debt and we have a lot of EBITDA per barrel from that.
We look at a lot of M&A I would say, we focus our M&A efforts in offshore we have ample locations in onshore and we want to make our onshore business, it's running extremely well right now at a very consistent production and want it to be a long term free cash flow provider like.
All shale peers today offshore, we see a competitive advantage in certain assets and certain issues, but instead of saying buying or selling market. It has to be a certain rate of return at the way, we do M&A and how we analyzed PDP in two P type reserves and a price.
Deck with the information that we have of being long term offshore players and that type of return and we will supply the free cash flow to be accretive to all of our debt reduction metrics.
And the type of return that we want in risk and the discounting of those cash flows with that risk is how we think about it more than it just being a buyer or seller.
Because theres not that much competition to buy Paul and we are.
Non operator, and can look at a lot of offshore properties and add value and cost structure improvement to most things. So that's how we're thinking about today Paul. Thank you for that question.
Thank you.
I appreciate it.
Ladies and gentlemen, as a reminder, should you have a question. Please press the star followed by the one your next question comes from Charles Meade of Johnson Rice. Please go ahead.
Good morning, Charles Good morning, Roger and David had a little difficult.
Drop, but I'm glad I got back in.
And good morning to the rest of your team there.
Roger I'm wondering if you can share with us.
And you have something like a like a gantt chart or for some kind of schedule that you're keeping an eye on for the.
For detract a progress of King's key to your.
To your startup can you share with us what the.
What the what the key milestones or what the what the key.
Lines of activity and heavy lifts are that that you are really focused on.
Thanks, Charles to that in Kings Skus going well there is a gantt chart to 723 lines on it.
Usually condense it down for me Charles when we meet.
I understand it's a lot going on there but.
We're doing very well there.
Very very well.
Visit the facility recently, it's the most advanced facility at this stage of the game I've seen in my career.
Some great shape, great condition with the tow over getting ready to towed offshore in a week or so to so to me the issues our towing it out which shouldnt be a problem mooring it up the mooring our prelate.
And we do have a lot of pipelines delay in the field you know for each for the wells and manifolds and build goals Theres two vessels in the field laying pipe today, we will be telling the vessel out very soon in establishing the mooring and then we're out in the field drilling we have interface management to manage that it's common to our business and feel well.
Position that King's key today, but there is always many items to execute there, but feel real good about king's key and the associated jewelry thats on the mud line to produce these are three fields <unk> see more mining samurai.
Feel real good about the execution of the facility and the pipelines et cetera.
So if I if I understood you Roger is really getting the facility out there.
Getting into the more in large secured which you're I guess pre positioned it really just the ongoing lay of the infield flow lines.
If I wasn't clear enough Charles I apologize it that is the key part then of course, the rig has to complete the wells on Tom and we want to maximize the flow of how many wells. We can have before first store. So it's a matter of organizing that we may flow earlier, but with less wells or flow later with more and we've got to get the rig to complete.
The Wells course, these wells are pre drill with pay at <unk>, more Mont which still drilling at samurai and but we're progressing everyday on schedule and have been real fortunate on it in a real real pleased about the progress.
Thank you for that and then if I could ask a question about the <unk>.
The Petrobras sale of their I guess is the remaining 20% interest in Europe.
And your JV.
Can you offer any comments on that process and then maybe specifically.
Do you have anything like a upfront right.
That that 20%.
Thank you Charles for that.
Yes, the Petrobras deal as you know has been a very very nice deal for our company and help them as well they wanted to exit and remain partial owners with us I think they would be very pleased with our execution and progress. So far they have determined they want to sell their piece, we do have a prep right.
And we will be analyzing that but just like the previous question you might've been offline with Paul at Scotia, we have to have the certain returns in certain aspects of deal that we would like as to the risking but we really understand all the assets because a lot of them are ours and we brought them for a long time, we feel that vantage from that perspective.
And but they will have a process, we're going to probably participate in it.
And move forward after that and see how that goes Charles.
Thank you Roger.
Your next.
Next question comes from Leo Mariani with Keybanc. Please go ahead.
Good morning Leah.
Morning, guys.
I wanted to just touch base on the silverback well here.
Just wanted to get a sense from you guys did you did you see any hydrocarbons in that well and what type of information do you think you may have learned here because I think you bought a bunch of other acreage in the area.
Thanks, Leo for that question on exploration. This morning, what I can say about it yes, we did find some hydrocarbon in the well.
And the well is being evaluated and tied into our blocks and to the blocks that we farmed into and we expense the well and the wells plugged and abandoned and we have a.
Eliminating disclosure among our partner Groupon at Leo quite frankly, and that's kind of where we are today I'm afraid to talk about it.
Okay understood.
And I just wanted to touch base I think Roger in your prepared comments you talked about your longer term plan 'twenty, one through 'twenty four kind of $600 million of Capex, 6% production CAGR I just wanted to get a sense I think.
You will just playing a while back I think the plan was for 'twenty two to kind of be the high point offer capital just due to a lot of the king's key.
Opex that needed to kind of roll through here. So just wanted to confirm if that's still generally youre thinking from you folks and just wanted to give you any comments on inflation and how that might impact capex over that plant.
Thanks for that question before.
Before I answer that I think the main thing for US is in probably two years ago, a year ago 2020, a year ago. We formulated this plan to keep our onshore businesses flag have our montney long term projects support our offshore projects pay down debt.
And all of that and we've done very very well in that and the capex to what im proud of today is that after another year of all the comings and goings in business that we work in that we can maintain all of the attributes of our long term strategy slide for now well over a year, which I think is positive considering what we do in our business.
<unk>.
And the Capex for next year will be higher I've spoke of that before and it will be the higher year because of what you said.
Moving along as planned and I'm very happy for that plan and oil prices are helping us delever faster and then keeping the plant in shape.
With these numbers that I mentioned in my comments, which is our reading of the slide I'm real happy about.
<unk>.
As to inflation Tom.
Tom morale is here, who runs technical services at the company, including supply chain and I'll, let him talk about our views on inflation there Leo if you don't mind Here's Tom.
Alright. Thanks. Thanks, Leo Yes. This is definitely something we keep our eye on and on.
Our supply chain group working with the operations group.
Try to.
Adjust where we can to make sure we can deliver the plan as Roger described this year.
We definitely saw with the recovery of the global economy.
Was in the market some tightening, but it really didn't impact us Fortunately.
Sort of what we had planned for 'twenty, one was already under contract, especially if you consider the Gulf of Mexico projects with long lead items and then looking at next year.
Certainly seeing some categories go up but we're also seeing some come down.
In particular around the Oc <unk> category, that's that's where we saw some.
Some some inflation, but really for US earlier this year, we talked about our ability to drill our onshore wells for about $5 5 million a well.
And when we look to next year, we think we can deliver the same in for that for US It comes down to changing.
Changing changes in how we design and operate our wells.
It comes down to lateral links.
And the mix of the drilling areas that we're going to be focusing on and then longer term and the longer plan that Roger talked about we.
We do incorporate some modest inflation around 3%.
So a lot of what he's referring to has that baked into the longer term view.
Yes.
Okay, that's fair.
Very helpful and just last one here for you guys just on exploration I guess, you have a well planned in Mexico.
For next year I, just wanted to kind of get your thoughts and how you rank Mexico from a high level perspective on exploration given some of the changes in the political and regulatory regime down there just wanted to get a sense if.
You look at Mexico, maybe is not.
<unk>.
Prolific as maybe it could have been a couple of years back as a result of some of those changes.
Thanks, Lee for that no I don't see that changing in any way.
Prolific Miss if you will thats the word around Mexico.
We have been able to permit and gain approvals of everything we've ever wanted.
Think they are some issues there around other matters unit position and things in which we're not a party there's been some nice success by European majors around the trend that we're drilling.
We're operator, there that's also an advantage.
Well offshore we feel comfortable about that part of the business and treated as another nice exploration well to drill very.
Very similar to a project that we would see seismically and our long term history of being in the Gulf of Mexico.
Don't see the.
The <unk> that were here around that involving us too much and we're able to do what we need to do.
Yes.
Okay. Thank you.
Thank you appreciate it.
There are no further questions from our phone lines I would now like to turn the call back over to Roger Jenkins for any closing remarks.
Appreciate everyone, calling in today, and we will be talking to you at the end of our next quarter with our budget and things of that nature and thanks, a lot for dialing in to the next time. Thanks.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.