Q1 2022 Murphy Oil Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the Murphy Oil Corp, first quarter 2022 earnings conference call at any time during the call you need assistance. Please press star zero for the operator, I would now like to turn the conference call over to MS. Kelly Whitley, Vice President Investor Relations and Communications. Please go ahead.
Yeah.
Good morning, everyone and thank you for joining us on our first 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 Tom morale at Senior Vice President Technical services, Eric Hambly, Our executive Vice President of operations is currently.
A Harvard University Executive program in the interim Molly Smith, Vice President drilling and completions has temporarily assumed his responsibilities. Please.
Please refer to the informational slides, we have 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 by the private Securities Litigation Reform Act of 1995 as such no assurance can be given that these events will occur or that the projections will be attained.
Righty of factors exist that may cause actual results to differ for further discussion of risk factors see Murphy's 2021 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.
She Roger Jenkins. Thank you Kelly good morning, everyone and thanks for listening to our call today, turning to slide two Murphy continues to Delever us deliver a strong value proposition our ongoing execution excellence from our three producing areas crews that were long term sustainable company.
Our competitive advantage is continually reinforced most recently with the achievement of first all ahead of schedule and likely see more months samurai and King's Quay floating production system.
In April we continued to generate strong cash flow with higher oil prices realized this year, we've been able to increase our shareholder returns through quarterly dividend raises as well as accelerate our debt reduction goals.
Lastly, our meaningful level of board.
Management ownership highlights our personal interest in the company's long term success.
Slide three.
We remain focused on three strategic priorities of Delever execute and explore since the start of 'twenty. Two we've increased our debt reduction goal now targeting 600 to 650 million for this year with first step achieved to the redemption announcement on Monday of this week of $200 million overall, we believe this guy.
It was achievable at an $85 per barrel <unk> price and current production guidance for the year.
Longer term, we have forecast, having the optionality of up to an additional $1 billion of debt reduction in 2023, assuming only $75 per barrel pricing.
We continue to review our overall debt target for additional accelerated reductions.
Additionally, our delevering efforts are being recognized by external credit agencies as Murphy's recently upgraded to be a two by Moody's and received a positive outlook from S&P.
As we announced in early April we reached a significant milestone our first all the King's Quay floating production system with two wells from the <unk> semi field project currently flowing.
With field uptime far exceeding our expectations.
<unk> are ongoing with five wells remaining that we anticipate the next well to flow imminently.
I am pleased that our onshore wells are progressing slightly ahead of schedule and for quarter. Two we have 11 of 23 operated wells already flowing Nagel Ford shale with 10 operated wells in the Tupper Montney coming online as well.
And then you'll Ford shale the team has been enhancing our completion methods real time, leading to early indications of higher production levels in the first wells online this quarter.
Third priority is exploration, we've been granted an additional exploration period in the block five offshore Mexico now.
The regulator and we are advancing plans to drill the <unk> exploration well later this year. We're also working with partners on our 23 exploration program, which we anticipate to include two operated wells in the Gulf of Mexico.
On slide four.
For the first quarter of 'twenty, two Murphy produced an average of 141000 barrels equivalent per day with 60% liquids content.
This is the high end of our guidance range due to outperformance from our oil weighted assets.
Recognize strong oil pricing in the quarter with more than $95 per barrel for oil and $42 per barrel NGL, leading to a total revenue of $764 million.
Overall I am pleased to see that our realized prices are back ahead of WTO benchmark for this quarter.
I'll now turn the call over for a financial update from our Chief Financial Officer, David Looney.
Thank you Roger and good morning, everyone slide five for the first quarter, we reported a net loss of $113 million or <unk> 73, net loss per diluted share certain after tax item adjustments included a $149 million noncash mark to market loss on derivatives.
And a $77 million noncash mark to market loss on contingent consideration as a result, we reported adjusted net income of $113 million or 73, adjusted net income per diluted share.
Cash from operations for the quarter totaled $338 million, including the Noncontrolling interest and also including an $81 million reduction due to working capital changes after accounting for net property additions and dry hole costs of $245 million, we achieved positive adjusted cash flow.
Of $93 million in.
In the first quarter, we reported accrued capex of $301 million also we made $55 million in total contingent payments related to our two Gulf of Mexico acquisitions closed in 2018 and 2019.
Slide six.
As just mentioned our total accrued capex of $301 million in the quarter was above our original $270 million guidance for a few specific reasons. Most significantly were unavoidable inflation impacts for fracking services in oil country tubular goods. We also made the decision.
To adjust the scope of our work in the Eagle Ford shale to account for higher completions intensity, which is already paying off and in the tupper montney to drill longer laterals. The remaining capex impact during the quarter was the result of additional rigs standby costs for non operated exploration drilling in Brazil for.
Full year 2022, we've raised the midpoint of our Capex guidance by 7%, establishing a new range of $900 million to $950 million beyond the impacts I. Just mentioned, we also have a scope impact from the samurai field in the Gulf of Mexico due to further evaluation of additional pay zones.
And completions overall, we're maintaining our previous production guidance of 164 to 172000 barrels of oil equivalent per day, with 53% oil and 58% liquids waiting.
With ongoing high oil prices, we continue to forecast a high level of excess cash flow for the year, which we intend to direct towards $600 million to $650 million of debt reduction. In addition to reviewing our dividend quarterly with an ultimate target of returning to historical payout levels.
Slide seven our cash position remains strong and as of March 31, cash and equivalents totaled $481 million as we've often stated our company is focused on delevering with ongoing strong operational and financial execution. We achieved the first steps in 2021, and then <unk>.
<unk> new targets for this year in January with prices much higher than forecast in the first quarter and first production now achieved from the Khaleesi Mormile Samurai project, we're in great position to reach our debt reduction targets with the first redemption of $200 million announced earlier this week, which will be executed in <unk>.
With that I'll turn it back over to Roger Thank you David.
On slide eight Murphy has been increasingly focus on operating sustainably our drilling and completion team has replaced over 1 million gallons of diesel fuel with natural gas has improved water recycling and average of 20% of total frac volumes utilizing <unk>.
Recycled water in the first quarter of 2022, while also reducing industry's footprint by recycling offset operators water as well.
Meanwhile, operating as a K, Bob Duvernay have achieved 20% reduction of emissions through 'twenty two.
Lastly, I'm pleased to state that Murphy has been designated a best place for working parents in 2022 by the greater Houston partnership.
Turning now to operational updates on slide 10.
Murphy produced 30000 barrels equivalent per day in the Eagle Ford shale for the quarter with 85% liquids just over 1000 barrels a day equivalent above our plan.
Non gross nine gross non operated wells are brought online with five wells in Karnes and four wells until the near year.
Ah well deliveries remain on schedule for the year.
Mercury's completions team has done an outstanding job this year and to reviewing real time completion data is enhanced completions intensity and our wells.
The first 11 wells.
Producing early in the second quarter and we're very pleased with the initial results.
The company is salt ways to capitalize on higher oil prices and launched a workover campaign and Eagle Ford shale in the first quarter targeting wells that could achieve less than six months payout was negligible impact on opex to date with selected 60 of these well opportunities.
Slide 11 in the Tupper Montney Murphy produced 242 million cubic feet a day for the quarter were advancing our well cadence on schedule with 10 wells planned to come online this quarter in the second quarter, rather the team evaluate our existing well permits in adjusted development plans to drill longer laterals.
To enhance well recoveries and slightly higher costs.
Additionally, while we've seen significant rise in Ecu pricing this quarter.
Our estimate of royalty impact of 1100 barrels of oil equivalent per day for full year 'twenty two assuming a C. Dollar for 82 acre price for the year the.
The Saco prices assumed in our current production guidance when estimate a royalty rate for the year to be approximately 6%.
<unk> group.
As far below any other north American unconventional play.
The K, Bob Duvernay on Slide 12, Mercury produced 7000 barrels of oil equivalent per day in the K, Bob Duvernay with 70% liquids content as planes three wells came online during the quarter.
Producing just above our old volume type curves. These are solid wells producing an IP 30 of 800 barrels per day. These completions allow us to retain key acreage area for our company.
This is our last work for the year in this play.
On slide 14 in the Gulf of Mexico, our assets, they're produced 59000 barrels equivalent per day for the quarter was 80% all overall approximately 80% of our 2022 capital plan as designating for advancing our major projects with the remainder spending on development and tieback wells and activity schedule.
This year.
Non operated St. Malo Waterflood project is also ongoing.
On slide 15.
As announced in early April will achieve first oil at the Murphy operated Kings Heath floating production system ahead of schedule and on budget, we've seen great results. So far with the two wells producing coupon a combined gross 30000 barrels equivalent of oil per day at approximately 89% all.
And the F BSO, achieving significant 97% uptime, which is simply unheard of.
The third well is anticipated to flow imminently.
Completions continue on the remaining four wells and a seven well project, averaging 40 to 45 days per well.
Drilling samurai for last year, we encountered additional pay zones above the main targets for the field as well as in the planned targets. This.
This year our plan our plan include a sidetrack of.
The prior Gerald Samurai three well two primarily evaluate these zones further.
This well was very successful and found nearly 140 feet of pay above our main objectives in the field.
As a result, we've increased our capital for additional evaluation of this well completions and the planned development zone.
Turning to exploration on slide 17.
The third part of our strategic priorities to explore in the first quarter Mercury received regulatory approval and an additional exploration period in blocks in.
So we're progressing the necessary permits and approvals ahead Julian to learn well later this year as the operator earlier.
Earlier this year, we participate in exploration well in Brazil, which found no hydrocarbons, the operator's plugged and abandoned well on the partner group is evaluating results Murphy as expenses well.
On the head we're advancing our plans to drill two operated wells in the Gulf in 2023.
Slide 19, as David mentioned previously.
We're revising our capex midpoint, 7% higher with a range of $900 million to $950 million for the year.
65% of that spending is forecast to occur in the first half of the year, while 80% of the Gulf of Mexico Capex is earmarked for our major projects.
Second quarter 2022 production is forecast at $1 56 to 164000 barrels equivalent per day at 60% liquids.
This production range was reduced by operated planned downtime.
Proximately 5500 barrels equivalent a day, primarily onshore and non operated offshore downtime of 3400 barrels equivalent per day.
As well as continuing to come online.
Completion more months Samurai project, along with our onshore well execution plans with project an average of 10% increase in total production each quarter with the fourth quarter production significantly higher in 2021.
We maintain our full year 2022 production guidance of 164 to 172000 barrels equivalent per day comprised of 53% liquids.
Rather 58% liquids.
On slide 20.
Murphy remains focused on its long term strategy through 2024, we continue to accelerate our delevering goals at higher oil prices, including Optionality for 900 to a $1 billion of net reduction in 2023, the conservative prices to today's strip.
We forecast Delevering average delivering rather average production of 188000 barrels equivalent per day at a CAGR of 7% with an average 52% oil weighting through 2024.
Additionally, offshore production is maintained in this period at 80000 barrels equivalent per day.
Exploration program remains another focal point of the company with a portfolio of approximately 1 billion barrels oil equivalent net risk potential resources.
Overall, our plants provided excess cash flow that we will direct toward enhancing our payouts to shareholders.
To accomplish while accomplishing our debt reduction goals and dividend increases simultaneously.
As you look longer term, 25% to 28, our plan remains intact as we forecast our current portfolio produces an average annual volume 195000 barrels per day equivalent with approximately 50%, 50% oil weighting.
While we targeted corporate investment grade rating.
During this period, we forecast generating ample cash flow, which can be used for additional cash returns to shareholders through dividends and buybacks and accretive investments.
Slide 21 looking forward in 2022, our three pillar strategy remain unchanged and we continue to advance our debt reduction goals execution continues to be a significant focus as we work through completing the remaining wells of caliche moment samurai as well as our onshore plants.
Marine production AUM without issues.
The production and resulting cash flow generate from these wells when further supports our ongoing shareholder returns through quarterly dividends.
Furthermore, while execution timing is important a key point of our execution strategies to maintain top tier safety and environmental metrics send everyone home safely at the end of the day.
Lastly, we continue to target our exploration program I look forward to the opportunity in offshore Mexico as we've drilled later this year.
In closing I'd like to extend my deepest thanks to our CFO David Looney for.
Our service to the company over the past few years.
David were leave me when I was very ill with Covid in March of 2020.
He led our company some of the most difficult times ever in our industry and I and our board of directors. Thank Murphy.
David for that and I wish he and his wife Beth Beth all the best in their retirement.
Ill now turn the call over to our operator and be glad to take any questions you might have thank you.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone.
Here are three ton problems acknowledging everquest on your questions will be told in the order. They are received should you wish to decline from the polling process. Please press star followed by channel.
A speaker phone please lift your handset before pressing any keys.
One moment for your first question.
Your first question comes from Iran, Jairam with J P. Morgan. Please go ahead.
Yeah. Good morning, Arun J ran from J P. Morgan.
Roger David I wanted to get some thoughts.
From you around priorities for.
Uses of free cash flow I know debt reduction is clearly a priority, but when we run our model over the next two years 2022 2023, we get over two 5 billion of free cash flow.
Dividend.
And I was wondering if you could go through some of the potential buckets, including cash return is obviously the Petrobras.
Asset package, which is on the block today.
Maybe go through what the priorities would be and then David in terms of your comments on restoring the dividend to pre.
Covid levels, we note that your dividend and it was 25 cents.
Per quarter during 2016 to 2020 and 35 cents.
<unk> per share in the 2014 to 2016 level. So I'm wondering if you could give us a little bit more refinement thoughts on where the dividend could get to.
Thank you for that question Rune about our long standing dividend.
Paying a dividend since 1961 in them.
We're not new to capital returns as you May know, we've paid out over $3 billion to shareholders since 2013 through dividends and buybacks alone.
Our first step is for them once in a lifetime opportunity to greatly de lever our balance sheet.
And by greatly Delevering, we mean paying our debt down to just the <unk> notes that we have long term with current pricing and im sure youre using that in the J P. Morgan model that can easily be accomplished next year.
Calls, we're doing well in our execution because.
We're doing really really well and following those plans were going to be able to do that while simultaneously increasing our dividend.
Until that level of Delevering is reached.
Reached we will be looking forward and you know it's complicated to continue to advise about dividend increases, but clearly we are done that two quarters in a road and want to continue to do that but we are simply look at it is is in 2020 one a room.
About five to six 5% to 7% of our <unk>.
Free cash flow was paid toward dividends.
This year for that to be the same while delevering, our dividend will need to increase on an annual basis.
Our last quarterly increase was 217 and half cents a share that will be annualized on a 70 cent per year annualized basis, as you know and that will need to increase in order to just keep up with what we did last year. So our first goal is to keep up where we were last year in 2020, one as a percent of that.
Free cash flow and you can model and calculate that and then continue on this rapid once in a lifetime ability to delever down to <unk> and we'll be doing those things simultaneously and at that time, we will evaluate much larger dividends and hopefully plan for consistent buybacks when we reach that.
And your last question involving Petrobras naturally we are fully aware of that process, we have a very valuable preferential right and that process around as you know.
And any quality quality company would be using that.
Reviewing that as we see fit.
We've been very good at M&A, MSA and have accomplished great things doing that and we would not want to after that plan and we'll be reviewing that and if we share a lot about our views of that.
Would hurt our ability to accurately to actively pursue the preferential right.
I'm sure you can understand that.
Fair enough okay.
Roger I wanted to get one update from you on the Tupper Montney.
You know as largely anticipated you did tweak down.
Your volume expectations, just on higher royalties given the move in commodity prices, but I was wondering if you could give us an update on where the industry stands in D. C regarding the permit situation.
And any potential impacts to your plan this year or do you think about future capital allocation to the tougher.
Thanks that runs that question about the Montney, we do have a significant <unk>.
Significant resource there and I must say that.
The two wells that were flowing this quarter some of the highest rate wells, we've ever seen and probably some of the best two wells ever in the Montney overall anywhere.
So it's a really good asset for us naturally we're very experienced in Canada over 60 years being in Canada.
We're in close contact with the BC.
Oil and gas Ministry there.
Speaking to them on a regular basis, we believe towards the second half of the year will be a product some progress going forward of how to achieve more approvals.
I'd like to give my hats off to my team because of our vast array of permits we go by unchanged. This year enabled to execute the 20 wells that we had planned, albeit we moved a pad a round or two which Nate which required the wells to be drilled longer to be more effective and that caused a slight increase in capital. So we are still low.
For this year, we anticipate improved improvements our way forward towards the second half of the year around the time of our capital budgeting and we still believe we will be able to execute our long term plans in the montney.
Today.
Thanks, Roger and David Best of luck in your future endeavors up Theres, a lot of golf and fishing and and your future toxin.
Thanks, Alright, I appreciate it thanks, everyone and talk to you soon.
Your next question comes from Paul Cheng with Scotiabank. Please go ahead.
Hi, good morning, good morning.
Good morning.
David and David.
Best wishes and hope you have fun.
Nine minutes.
Going on off morphing.
Thanks, Paul.
That.
Maybe this is for David.
You cited the inflation effect.
On 2022 budget.
And the idea that how that is going to spill Walter.
<unk> to 'twenty three 'twenty four comparing to your payments I think okay.
<unk> been looking for maybe about 650.
So, let's say 600 to 650 for 2023.
And maybe I need to be held for 500 or maybe not 500 for 2024, and given Dan mom and dad, we see how that is going to be changing and also for the contingency payment can you remind us.
What is the remaining.
Got it.
For the next several years.
That's my first question.
That's a lot questions Paul I'm glad that he's going to have to retire after that yes exactly. Thank you yes. Thank you Paul.
Both very good questions I'll address the inflation question first very good point you are correct, obviously, we've been saying for a while that our average capex for 'twenty two three and four the $650 million certainly based on the increased guidance, we provided today for 2022.
And then if you look at 23% and 24 in a similar fashion to what we've seen this year, where that real inflationary impacts we've seen have had to deal with our our onshore drilling and completion issues. Yes, we think that the inflation going into 'twenty three 'twenty four I mean, obviously our plan had some small.
Mount built into it so we if we tweak that a little bit higher I will just give you a number basically to say that that three year average for 'twenty two 'twenty three 'twenty four is probably up.
About $40 million or 5% or something like that so not a huge increase when you look at spreading that over the three year period.
So on the on the contingent payments great question again, both the deals we did in 2018 in 2019 did have contingent payment kickers in them. If you will we look at that from the standpoint of saying it really worked out well for us because we did not have to pay cash upfront on those.
Deals, but we put in for the most part they were revenue triggers so that if revenues exceeded a certain amount in any given year, we would make a payment whereby we would split the the additional revenue 50 50 with the sellers at the properties.
So for.
For example, if you look at the deals and I would point out that we do have a lot of good information in our 10-K about the contingent payments, but basically the payment. This year of $55 million was the first time, we've had to pay on either of these transactions and the contingent payment structure. Obviously it was put in place when we negotiated the deal.
In 2018 in 2019, certainly it's a factor of the high prices that we've seen towards the end of 2021 carrying into this year I would tell you that at today's oil prices and production levels. We would fully expect to make the final payment under the Petrobras deal in March of next year 2020.
Three that's the way the deals are structured you calculate the revenues on an annual basis and you make the revenue adjusted payments in March of the following year. So we would expect the Petrobras deal would have an additional payment in March of next year could be in the range of $95 million to $100 million that would.
Max It out under the original agreement we had.
If you look at the La transaction again at current prices and production levels, we would probably be looking at another $90 million payment or so in the first quarter of next year to DLR folks that again would actually extinguished all of the obligation with.
Respect to that transaction because the 2022 fiscal year is the final year of calculation under that particular structure. So regardless of what happened in 2023 there'll be no additional payments related to the <unk> deal, but it would be finalized based on 2022 production.
And again that is at current pricing levels that we're looking at today in current production forecast that we have for those specific properties and then if you roll all that together again, we would expect those two obligations to to be extinguished effectively with those payments in March.
'twenty three there is a first oil payment that we agreed to make related to the King's key facility Arthur policing more Mont samurai field.
One of those payments, which was $25 million was made in April that will show up in the second quarter and there would be another similar payment.
Year from this April likewise to that $25 million. So that's the that's the entirety of all the contingent payments hope that I hope that answers your question.
Yeah.
Our call I'd like to add a little further color to that when we did these deals are quite proud of these contingent payments we didn't pay for it upfront and these were revenue curves set at the time of the deal and which when that party receives that contingent payment.
We have the other piece of it so we're sharing above the revenue line in both of these deals 50 50 with the other party. We did not know all would go up at that time, we're glad to make the payments because we're getting a piece of it and we've done very well in the M&A about contingent payments, but a 100 dollar wall that came home to route to roost and we are glad.
It did because we're making a lot of money on these projects and we didn't pay it upfront two years ago. So that's the way the deals are structured it turned in favorably for the other party, where we share in that reward as well Paul.
Okay great.
Just a final question real quick.
The first quarter.
What type of impact production curtailment in Eagle Ford.
Yes.
In the first quarter of this year, yes.
We had not.
Got it okay. Thank you.
Our de Minimis level Paul.
Thank you Paul.
Your next question comes from Neal Dingmann with <unk> Securities. Please go ahead.
Good morning, I'll try to keep that number four or five questions.
Maybe David makes feel good for you got just a quick one for you just could you talk a little bit on cash taxes, obviously nice to see on just the cash flow profit continuing to go up maybe just comment on what you expect to see on that.
Yes, Neal thanks for the thanks for the question very very good.
Obviously with our NOL out there in excess of two and a half billion dollars. It does shield a lot we we should.
Perhaps be paying a small amount of cash taxes. This year at the current level, we're talking about but then really we would we are expecting now to if you will burn through the D&O well around 2020 for as long as oil prices stay above $90 on average.
The current things that we're paying generally have to do with Canada, and Theyre pretty diminishment de minimis amounts from a cash tax perspective, but as you look out into the future.
<unk> prices were probably good towards the end of 2024.
Okay, and then David just on price it looks like this continue could you just talk a little bit about.
I know, there's two hours on the Mars barrels could you just talk about what kind of expected pricing we might see the next couple of quarters, yes.
Neill Davis Gotta catch his breath, let me do the diff.
Yeah.
Paul warm down.
Hang on let me get to my notes on this matter I think the best way to talk about our company from a differential perspective is that if you look at our total crude oil for the year, Let's say 85 to 87000 barrels a day.
35% is Mars.
21% is <unk>, which is a heavy Louisiana sweet.
<unk> 27 per cent is EMEA, which would be Eagle Ford shale of course, we have east coast, Canada with that and we have very strong print pricing there along with our Cascade Chinook F. P. S O in the Gulf. So H L. S for the year, we're forecasting probably a $1 20 to $1 50 positive for EMEA each about the same.
And we originally had more set of $2 negative dif for the year, so with 48% of our Gulf coast barrels being non Mars in 35 at Mars, we can overcome that easily as a matter of fact, we had great realized results in the first quarter and back when we were really rolling we were ahead of <unk> because we have.
Very strong realized basis with our Gulf coast barrels.
Recently, while we had forecasted a negative diff tomorrow with the SPR coming in cheaper to refineries.
The Gulf the Gulf of Mexico crew was shipped exported. This of course did no. Good the SPR as you anticipate and therefore.
Now with euro barrels off the market. This has gone up to where there's hardly any negatives if at all in current market.
So while we have negative $2 for the year. We're very pleased about is the word we see today in the EU about reductions of euros further and that being that replacement with the drip in slow of the SPR. We can end up positive across the board here on our Gulf Coast barrels and we're very pleased about it.
Okay, No thats why I look at it it looks like a nice setup I'm glad to hear that and then lastly, I'd be remiss if I didnt ask just on King's Quay.
Okay. Roger It really sounds like you are running a bit ahead of schedule and so not only maybe just verify that.
You are more than satisfied with it.
Is there is there capacity after all of these initial wells come on.
About it is there is there additional capacity beyond that maybe maybe just give his perspective.
As far as how it's looking now and what is even the future upside there.
Thank you Neil so much for that Great question, It's a big project for US I just cannot tell you how well my teams have done and not just the execution the installation with the pre commissioning in collaboration with our production teams, 97% uptime, probably 10% to 15% better than industry and a new start.
Facility, it's incredible incredible resolve and the wells are doing extremely well, we have one wells extremely powerful out there.
Extremely well.
This is a name plate boilerplate deal of 80000 barrels a day that we should be able to feel that we hope of course, when you get into the facility in southern facilities running there are some debottlenecking things that can be done I know our teams looking at that and with this additional pay that we found at samurai in the future but.
We'll be very happy to fill it up and look for some 10000 barrel a day debottlenecking, there and but we still got to get all the wells on but we're very pleased to find more pay at samurai I can tell you. That's a great deal for us because it's inside infrastructure. It's a lay down tie back if it's inside the field as you can anticipate great uptime great results.
Great team and very fortunate to have.
Yes, I am looking forward all the upside there. Thank you Roger.
Thank you.
Your next question comes from Neil Mehta with Goldman Sachs. Please go ahead.
Good morning team and thanks for all the updates. This morning. The first question was around exploration to obviously get the update out of Brazil.
Roger if you could talk about the exploration portfolio as you see from here.
Are you excited about.
As it relates to Brazil.
How would you put that into context with the product.
Thank you for that question very good question, because it's one of our key priorities.
First let me just address in Brazil.
Of course, we're disappointed that results we remain very enthusiastic about the overall prospects in that block.
Throw well encountered very sick very thick high quality reservoirs, we didn't find hydrocarbons. So now we have to ascertain that and we have multiple high impact exploration opportunities remaining there that are not related to that that are sourced in a different way it or at a different depth horizon and have a long way to go in this play it's a very large.
Acreage position with $1 6 million acres, there with ample opportunities that arent exactly tied to that well at all.
The Brazil question I think from an overall perspective on exploration, we like to drive with our.
Risk portfolio, that's similar to our proven we're a little ahead of that now that's the first step and when Youre in the exploration business and Youre trying to be very specific with your capital maintain your oil production with a slight CAGR delever once in a lifetime opportunity on your balance sheet, while simultaneously increasing your dividend you really do not have.
If money leftover for extensive exploration capital so in the big scheme of things when you're involved in several wells things can go and come in different ways over the last two years, we've been in two of the biggest exploration wells in the world with two of the most successful U S Super majors, and both Chevron and Exxonmobil very proud to.
Working with them, but the prospects didn't work, we're now moving into a period, we'll be drilling smaller prospects operated by us and when we operate bus will have the great advantage of our execution and our real calling card is on Tom early fastest in the industry high sub Tom offshore execute.
Sure.
And we're moving into a phase of being an operator, which we greatly enjoy we can we control the permitting we won't have permitting problems go through would never have we control the operation, where we do very well and we look forward to drilling a couple of nice wells in the Gulf of next year.
That will be working and working with partners on one is the Cascade Chinook east well that we've been working on since we bought this property from through the MP Gaum joint venture and another one.
Well in central Gulf of Mexico that we're very excited about and of course, we have our operated well in Mexico. This year. These are laid down sub salt opportunities very similar to what historically, we saw in the Gulf, where outboard of SaaS and Mexico North of us as another well planned by shale in that basin and we've seen other people enter that and have success.
Around us so those are three nice opportunities, but moving into a stage that we control we control the regulatory we control the permitting we control the capex with control of the operation with the ability to really make value with what Murphy does best.
Yeah.
Yes.
Okay. Thanks, Roger and the follow up is we could see.
The positive actions taken by Moody's here can you just talk about <unk>.
Freshen towards investment grade and the conversations youre, having with ratings agencies.
We would argue moving to investment grade would help to improve the cost of capital.
Business.
Thanks, Neil David has caught his breath and he is going to leave me on that matter.
Thank you, yes, it's a great question Neil you know obviously, we are always in regular contact with all three of the rating agencies and needless to say, they're very pleased with the with what we're doing from the perspective.
Debt reduction et cetera, obviously strengthening the balance sheet, all those kind of things you know.
We think we're we think we're moving in a great direction and of course, we have no ultimate control over what they do and when they do it but I think the.
The feeling we're getting if you will is that we continue our deleveraging program.
As Roger talked about earlier with the increased production coming on completion more my samurai seeing that particular project coming online that's meaningful to the agencies as well. So I think the combination of all those things really does just put us in a really good spot from that perspective, being well positioned to potentially.
Get upgrades into the investment grade area.
Thank you yes.
Thank you.
Your next question comes from Charles Meade with Johnson Rice. Please go ahead.
Good morning Charger.
And David.
Gratulation is on your retirement I hope our paths cross again somewhere.
Likewise, Charles Thank you.
Yes.
Roger.
I wanted to ask you a little bit more about what you saw in.
The samurai development well.
It's not clear for me really the the release, whether it was just more pay in the upper zone or it it sounded like it was a new zone and I'm imagining that if this was just some.
10 foot string or something like that that you guys saw you wouldn't be mentioning it. So can you could you give us a sense of and I recognize it's early but can you give us a sense of.
What the what the relative magnitude maybe it sounds like this could be maybe its own subsea development somewhere down. The line is this is this kind of up.
I'd known field pay or is this is there are there is there offset production from this from the zone.
Thanks for that question Charles Great. We tried to be a little clearer now release actually found really nice pay in this well to a 140 feet above the zones, which are we working so let me just take a few minutes to walk you through very pleased with this whole development. How this is going last year, there's two development wells and samurai.
With two deeper zones.
We drilled the well last year and segment of samurai that hadn't been explored before and we found additional pay in the main objective areas. So we found three zones instead of two in the lower part of the world.
Also on top of that with some amplitude than some.
Formation of mapping that we have we were exploring at that time for an upper area of PE seen in other fields in the region.
We were very successful in finding very nice pay in that well.
So in our budget this year and in our Capex, we plan to sidetrack, a previously drill samurai three well.
To explore for both of those things the deeper objectives and the upper objectives that was found in the prior well we did that this year.
And found.
To plan pay in the lower part of the well not not excessive or anything like that but against very pleased in the upper part of the well.
This is also in a cheaper area of drilling and more shallow of the deeper zone of the well and found very nice high quality Sands 140 feet. So then that will likely add one to two wells on top of this development.
And probably get the overall deal size and Murphy's view in the 80 80 million plus range and we had sanctioned that own a 60 million barrel field.
So we're very excited about it's like bond and a 20 million barrel field on top of you with infrastructure laying on top of you.
<unk>.
Really nice pay zones, very excited about it and a great job by our subsurface team to identify this put the capital in and get it approved.
Drill that sidetrack this year, we're very pleased about it.
It's a very very big deal for us.
That's helpful color. Thank you Roger.
Thank you Charles.
Your next question comes from Roger read with Wells Fargo. Please go ahead.
Good morning, good morning.
Are you all done.
Doing great.
Alright, well ill give my congratulations to you David Good luck with everything and it's got to be better than <unk>.
Listen to other people like us.
Three months I've worked for me probably yes.
Yeah.
Roger.
Thank you Roger and no comment on that.
Yeah.
We don't have we don't have <unk> go ahead.
Yeah.
Just kind of two questions to follow up on both on I guess kind of balance sheet and cash flow side, you talked earlier Roger about.
The dividend and restoring it.
And I'm just curious do you think about it or does the board think about it from.
Yield standpoint.
Payout standpoint payout relative to production.
What would be maybe.
Our base level commodity price that they would want to think about and then the other question. I had was can you give us an idea of what the benefits of achieving the <unk> rating.
We'll be to Murphy. Besides the obvious of just a lower cost of debt like is there anything else, we should think about from an operating or financial standpoint.
Thanks for that question Roger Great question onto our dividend I mean, we're like I said earlier in prior questions very proud of our dividend history natural you anticipate getting it back to where it was it was a dollar before COVID-19 cut to 50 cents today.
On an annualized basis were 70 years.
Years ago in the prior uptime of all it was a $1 40.
If this type of level of prices remain in the way our company with our cost structure and the way we are executing we would now moving beyond the pre COVID-19 level and beyond.
Looking to do that rapidly through quarterly group costs, we have to get that approved from our board are thought of our board as it continued to increase to where we were before Covid back in 12, 13, 14 timeframe, we're paying a $1 40 and beyond and with consistent buybacks once we.
We get this once in a lifetime delevering down so our focus is to get to IAG notes sought simultaneously pay this year similar 'twenty, one which would require additional dividend increases throughout the year going into next year same position again and continue on that March get the dividend is.
And very very good shape, and then see where we are in our company around a consistent buyback program and that's where we're headed and more of that in lieu of the yield.
When you're a big dividend payer and you want to be a dividend payer.
You want to get back to that that means more test in a specific yield and stopping and then we see a lot of value creation in two things for US Roger one is the equity rising <unk> R. E V and if we keep our multiple where it is and we continue to pay down debt. The equity portion of our EV will go up.
And then we continue to improve our dividend status and then trying to get to consistent buyback status and we think it will be very very well positioned with the assets. We have how we're performing how they are executing.
And doing that long term on the I G. I'll, let David address that to me we've never had a secured revolver at Murphy, we've never offered security for any type of debt in our company's history.
And when you have I G. We feel we can still continue to be unsecured, but it gives a lot more power beyond that and I'll, let David talk about other advantage yes.
Yes, Roger Great question glad you are glad you brought it up.
Roger here just referenced at Murphy has always been a very very strong balance sheet oriented company et cetera for years, we're investment grade before things happened in the 2015, 16 timeframe et cetera, but a return to investment grade is very important to us for some of the obvious reasons as you referenced.
It would be renegotiating a bank facility ahead of the 2023 maturity obviously helps if we're in an investment grade position there.
As well as just overall cost of capital you referenced and then I think the other thing I would highlight as well is as you know as everyone knows Murphy has always been a globally oriented company and some of the projects that we get involved in whether they be local or whether it would be international.
The Counterparties and government entities et cetera, we're always looking for someone with a strong financial backing and obviously that investment grade rating means a lot when we get into those situations from the perspective of bonding issues et cetera et cetera. So it's just a it has multiple add on <unk>.
For us given the way that we run our business and given the way our business lays out really across the globe.
That's great. Thanks, guys.
Thank you Roger.
Ladies and gentlemen, as a reminder, if you do you have any questions. Please press star one.
Your next question comes from Leo Mariani with Keybanc. Please go ahead.
Good morning, Good morning Leo.
Morning.
I was hoping you all could talk a little bit about what you think the.
Peak rate is going to be on those seven wells that are attached to the king's key.
Facility here on a net basis to Murphy, so as we get it.
Towards the end of the year, where do you think this thing peaks out net to Murphy.
I think originally our planes or Leo Thank you for that question about our great project there.
Our net going in early is around 23% to 24000 barrels a day, we think the wells can make let's say 4000 net attempts seven is 28000 is kind of where we are today, we have different ownership in the samurai field, where we're 50 50, we own 34% of the facility.
The clichy more mark fields and of course, we do have a specific 18, 75% royalty in the Gulf of Mexico, That's kind of where we think that's headed.
But we're in early days with just two of the five wells on but we are very pleased with where we are today.
Okay, So definitely sounds like China, and a little bit above expectations certainly at this point.
Yes, I would agree with that for sure.
And then can you provide a little bit more color on the Eagle Ford you. All obviously chosen some kind of more intense completions. It sounds like these wells maybe just came online here recently the first 11 I think you cited but is it looked like these things are trending a little bit above constantly earlier type curves, there's a little too early to tell.
I'll have Molly handle that question for you Leo she's on top of that matter.
Thanks, Leo that's a that's a great question I'm glad you asked that I would like to address our onshore as you mentioned, we do have these 11, well turn on line earlier and they are performing above type curve. So we are very excited about this result.
Still have six more turn online, making 23 Eagle Ford or this quarter.
Additionally, we also I'm turning on more lines in Catarina and Eagle Ford Shale, we have six more coming online in Q1, and we even have go into third quarter more wells coming on line Eagle Ford shale as well. So it's been very it is very early but we're very excited about the wells coming online earlier and a higher result.
Okay. Thank you.
Okay, we have no more callers in queue today, it's been a long call here today, we appreciate everyone listening in and we'll be back next quarter and thanks, everyone for their attendance today and I appreciate it any questions just to get with.
Our IR team and they'll be glad to help you out. Thank you so much appreciate it.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.