Q3 2022 Murphy Oil Corp Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the Murphy Oil Corporation third quarter 2022 earnings conference call. If at any time during the call you need assistance. Please press star zero for the operator I'd now like to turn the conference over to Kelly Whitley, Vice President Investor Relations and Communications. Please go ahead.
Thank you David Good morning, everyone and thank you for joining us on our third quarter earnings call today, joining us just Roger Jenkins, President and Chief Executive Officer, along with Tom Morale is executive Vice President and Chief Financial Officer, and Eric Hambly Executive Vice President of operations. Please refer to the informational slides we have.
Based on the Investor Relations section of our website as you follow along with our webcast today.
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 1995 as such no assurances can be given that these events will occur or that the projections will be attained a variety of factors exist that may cause.
Actual results could 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 to Roger Jenkins.
Thank you. Good morning. Thank you good morning, everyone on top of an excellent quarter, both operationally and financially with consensus beats across the board Murphy continues to deliver a strong value proposition our ongoing execution excellence, especially in our oil weighted assets ensures that we remain a long term sustainable company as we operate safely.
With focus on continual improvement in our carbon emissions intensity.
Offshore competitive advantages reinforced with significant project success, especially with the achievements with the Khaleesi more months' samurai field feels development flowing to the King's key floating production system Murphy is unique exploration portfolio as I prepare to drill two key wells this quarter.
We're generating strong cash flows with higher oil prices and well performance exceeding expectations.
As we have been able to increase our shareholder returns through quarterly dividend raises as well as accelerate our debt reduction goals as a result of this success.
Last quarter, our capital allocation framework, which announced supporting increasing returns to shareholders. In addition to our 60 year long standing dividend as various debt targets are achieved.
On slide three are.
Our team has done a tremendous job this year progressing our three priorities to delever execute and explore during the quarter, we reduced debt by 248 million across three senior note transactions also earlier this week, we announced an additional $200 million redemption of senior notes due in 2025.
We're projected to achieve the high end of our 650 million debt reduction goal by year end and forecast total debt at that time of one 8 billion, which positions us to again Murphy to point out of our capital allocation framework in 2023.
Which will advance cash returns to shareholders.
Our ongoing debt reduction would not have been achieved a warrant for a continued successful execution in our operations. We now have six or seven producing wells from mcaleese more months' samurai field development projects with gross production volumes significantly exceeding expectations and achieving a record 120000 barrel equivalents per.
Day gross at the facility.
And our colleagues see more mop volumes, along we produce practically double our original estimate used in M&A economics.
Due to project execution.
Onshore, we continued to see superior well results in Eagle Ford shale from our 2022 program and are pleased to drill and complete Tupper Montney wells in 2022 for an average price of just under $5 million per well with exceptional payout results.
Exploration program has some exciting months ahead as we prepare to spud two operated wells in the fourth quarter with Hulu and offshore Mexico and also in the Gulf of Mexico.
Oxy enrich would entered into an agreement with Murphy to participate in those so well with Murphy remaining as operator, and holding 33, 34% working interest also during the quarter Murphy assumed its partners position in Brazil, Paraguay Basin and now holds 100% working interest in those three blocks.
Lastly, as announced earlier in the quarter, our board raised our quarterly dividend.
Turning it to a pre 2020 level of 25 cents per share or dollar per share annualized Murphy plans to advance its capital allocation framework and return money to shareholders through repurchases and potential dividend increases as we achieved various debt thresholds.
On slide four.
In the quarter, we produced 188500 equivalents per day, 57% liquids, which has the highest oil production level since the second quarter of 2021. This exceeded the high end of our guidance due to several reasons, including a less active Gulf of Mexico Hurricane season, and strong well performance in the Eagle Ford shale.
Which more than offset price related royalty impacts and the Tupper montney.
Murphy's realized oil price of $93 65 per barrel it tend to receive a premium to the W. T. I benchmark Ngls, just below 37 per barrel and Nat gas was $4 per Mcf.
For Murphy.
Now turn the call back over to our CFO , Tom morale us for.
Ability of financial update Tom.
Thank you Roger and good morning, everyone.
Slide five.
Since releasing our 2022 sustainability report in August we have received positive responses from the steps, we've taken to increase and align our reporting with internationally recognized frameworks as we support efforts across the industry for comparable reporting.
As noted in the report Murphy also received its second annual independent assurance of scope, one and two emissions data.
Following the disclosure shared in our most recent report we ranked highly with ISS, improving our environmental score by three levels, while our social score was raised one level to the highest ranked our.
Our governance score remains at the highest rank for five years running.
Slide six.
In the third quarter, we recorded great financial results with net income of $528 million or $3.36 per diluted share.
After tax adjustments included a $189 million noncash mark to market gain on derivative instruments of $25 million noncash mark to market gain on contingent consideration and $26 million of other items.
As a result, we reported adjusted net income of $290 million or $1.84 per diluted share.
Cash from operations, including Noncontrolling interest was $719 million for the quarter.
After accounting for net property additions and acquisitions, we achieved positive adjusted cash flow of $390 million.
Murphy reported accrued capex of $209 million in the third quarter, which excluded non controlling interest and the Lucius acquisition.
Overall, I'm proud to say, we generated sufficient cash flow to fund capex.
Higher accretive working interests payer quarterly dividend.
Reduced $248 million of debt and still add cash to the balance sheet.
Slide seven.
During the third quarter, we executed a variety of delevering transactions with the debt reduction earlier this year combined with the $200 million redemption announced earlier. This week. We are on track to achieve the high end of our debt reduction goal of $650 million by 2022.
Yeah.
Looking back to the end of 2020. In addition to our senior notes, we had a balance of approximately $200 million on our revolver.
However, our delevering efforts over the past two years have significantly strengthened the balance sheet by the end of this year. We are forecasting total debt reduction of $1 2 billion over those two years with $1 $8 billion remaining comprised of long term senior notes.
We will have achieved this reduction while increasing oil production and dividends this year.
With that I'll turn it back over to Roger to expanding our production for the year.
Tom on slide eight we continue to see immediate positive results from our decision earlier this year to enhance our own sure well completion designs as production remains above expectations.
Additionally, as previously mentioned the new wells that clichy more months samurai are producing above expectations. Overall, our total oil production is forecast to increase 30% from the first to the fourth quarter of this year.
For the fourth quarter fourth quarter, we forecast production of 173, five to 181.5 thousand barrels equivalent per day with 55% all in 62% liquids total production volumes are impacted by 10000 barrel equivalents per day for forecasted Tupper Montney royalty changes.
500 of the oil equivalent today is throat offshore downtime, including 1600 barrels oil equivalent per day for downstream weather impacts associated with Hurricane Ian.
And 4500 barrels a day.
Our underperformance of the non operated Kodiak three well. However, it is important to note that the performance of caliche more months samurai offset most of these impacts.
For full year 2022 guidance, we're revising back to our original range of 164 to 172000 barrels equivalent per day, with 54% oil and 60% liquids well. This is primarily due to royalty increases at Tupper Montney I'm pleased to say that our full year forecasted oil volumes of 4000.
<unk> all of oil per day higher than our original guidance in January and has no change from the August August guidance provided.
As to capital allocation.
Slide nine today I'm excited to describe some great opportunities in Murphy to take advantage of these projects lead to a revision in our 2022 capex guidance with a new range of 975 million to one point O. Two 5 billion. Excluding acquisitions of this 75 million revision 40 million is attributed to higher.
Return Gulf of Mexico projects, including the addition of the new samurai five well, allowing us to build on the success of that field. This wells one of the most highly economic opportunities I've seen in my entire career allows us to utilize below market rig rates and a tight rig supply environment in the Gulf of Mexico <unk>.
$20 million to support further work in the Eagle Ford shale, primarily non operated activity following success of nearby wells.
Ultimately the majority of this capital will bolster operations to production and cash flow generation, leading to higher returns as we transition into 2023 for continued update I'll now turn the call over to Eric our EVP of operations.
Thank you Roger and good morning, everyone Slide 11, our Eagle Ford shale assets produced 39000 barrels of oil equivalent per day, with 87% liquids, which was 6% above guidance.
We brought online four operated wells in Catarina as planned as well as three non operated Tilden wells are wells continue to exceed initial forecast after revising our completions method in early 2022, and we're achieving some of the highest per foot IP 30 rates in Murphy's history. While the results are still early for our third quarter cattle.
Renal wells in particular for the two Austin chalk wells initial indications point to Derisking of up to 100, Austin chalk wells locations in this area.
The team has also done a tremendous job at managing existing wells and our base production decline remained steady at 11% for pre 2022 wells Slide 12.
Murphy produced a net 376 million cubic feet per day in the third quarter from the Tupper, montney or 395 million cubic feet per day on a gross basis five wells came online early in the quarter, which completed our program for the year overall, we achieved our 2022 program for $4 8 million per well which were.
Only 10% higher than our 2021 program.
Significantly we achieved a record high gross production peak of 415 million cubic feet per day in the quarter showcasing the capability of this asset. This continued strong performance is due to the longer laterals, we announced in the first quarter as part of our scope changes for the asset. However, while we are very pleased with the pay out of these wells.
<unk> at an average of six months higher natural gas prices triggered higher royalty rates earlier than we forecast on slide 13, Tupper Montney royalties are expected to increase significantly in the fourth quarter of 2022, leading to a nearly 11000 barrel of oil equivalent per day impact Tupper Montney royalties are determined by sliding scale person.
<unk> that is driven by natural gas prices and are partially offset by royalty credits that are specific to each well.
New wells pay a minimum royalty amount until the royalty credits are consumed then begin paying royalties based on a sliding scale. The natural gas price used to determine the royalty amount is known as the posted minimum price and as published by the British Columbia government about three months after the month in which he was realized since future posted minimum prices are not known we forecast future royalties by.
Correlating the historical relationship between <unk> prices and the posted minimum price and then apply that correlation to the acre forward curve.
During 2022, we have seen higher posted minimum prices than expected due to a shifting correlation between eco prices and posted minimum price the higher prices combined with our strong well results consumer royalty credits much quicker than predicted resulting in a sudden and large increase in royalties much earlier than originally predicted looking to 2023.
Our overall royalty rate will remain relatively high along with elevated natural gas prices if prices remain elevated in 2023, we expect royalties in the 20% range, which is significantly higher than the 3% to 6% historically observed.
It is worth noting that our free cash flow generation is driven primarily by our oil weighted assets in the Gulf of Mexico, and the English shale. So the lower Tupper Montney net production will not significantly impact our capital allocation framework or our ability to reduce debt.
Slide 15, our Gulf of Mexico operations produced 76000 barrels of oil equivalent per day in the third quarter with 80% oil volumes, which exceeded guidance as we were fortunate that hurricanes did not approach our assets during spud during the quarter. We have since reached total depth at Dalmatian number one we anticipate the successful.
Well to come online in 2023, we also participated in drilling two non op subsea tieback wells at Lucius with completions ongoing and close the highly accretive acquisition of additional working interest at Lucius.
I mentioned last quarter that our operating partner would be drilling the Kodiak number three well. Unfortunately, the well has performed below expectations and work plans are being developed by the operator for remediation slide 16, the Khaleesi more month Samurai field development project in the Murphy operated King's key floating production system has been.
Tremendous success for the company since achieving first oil in April .
We recently brought online the first well from the samurai field with the previous five wells initiating production throughout this year from the Khaleesi and more mark fields. The team is continuing completions on the remaining samurai well and this will close out the initial seven well development program.
Production continues to exceed expectations with current total gross production of 120000 barrels of oil equivalent per day net production of 32000 barrels of oil equivalent per day, and a high oil cut of 85%.
Can we see more month has been an incredible field for us this year as we go into 2023 and high production rates are well above our original forecast when we purchased the asset in 2019. We're also very pleased with early production at the samurai field that was originally discovered by our exploration team and this feel keeps getting better at samurai success has been <unk>.
<unk> enhanced by the proximity of the Khaleesi Moore Mountain fields.
Earlier this year, we disclosed the discovery of additional pay zones in our samurai field. During the initial phase of development. As a result, we have expanded our capital plan and drilling program for the year to include drilling the new samurai number five well in the fourth quarter overall, we forecast production to plateau across the three fields for the next several years.
Without additional development and with that I will turn it back to Roger.
Thank you Eric can we talk about exploration now on slide 18.
Exploration remains a third pillar of our strategy in Murphy's held at 40%.
<unk> working interest in block five and as Selina basin in offshore Mexico for several years looking forward to spud the to loom exploration well later this month with a net cost of approximately $23 million located in the lower Miocene fairway on the western side of block five anticipate this well to have a mean to upward gross <unk>.
Source potential of 150 to 350 million barrels equivalent.
<unk> identified multiple follow on opportunities in the area that could be derisk following results of <unk>.
Further on slide 19, we are excited to report that Ridgewood, and oxy to its Gulf of Mexico subsidiary Anadarko, We entered into an agreement with Mercury to participate in our Oh, So exploration well in the Gulf of Mexico, We remain the operator preparing to spud the well late in the fourth quarter.
With drilling anticipate to continue into the first quarter of 'twenty three.
This well has a similar estimated maine to upward gross resource potential of 155 million to 325 million barrels equivalent and is forecast to cost approximately 22 million net to Murphy.
Success can lead to extensive value creation and we've seen that the results from exploration discoveries of Dalmatian and samurai both incredible fields for us today.
I am pleased that we're about to spud to two key wells in the quarter with a similar size of risk component with great partners.
As we turn to slide 21 is.
As originally announced this quarter, we have a multi tier capital allocation framework that allows for additional shareholder returns beyond the quarterly dividend base for 25% since per share while advancing toward our long term debt range of $1 billion. Additionally.
Additionally, we maintain a board off the rated board authorized pardon me initial 300 million share repurchase program, allowing mercury to repurchase shares through a variety of methods with no time limit.
As of today, we have not yet executed any repurchases under that authorization.
On slide 22 in summary today I'm, so proud of our offshore business. It gives murphy a competitive advantage at least two more months Samara feels projects foreign at King's key is a significant project, adding to our longevity and illustrates our key abilities and industry, leading offshore execution as well as accretive A&D having acquired please see.
In 2019, these fields are homerun ball for us.
Set the tone for the year and have built production and cash flow going into 'twenty. Three this incredible execution, coupled with production exceeding expectations across all of our oil weighted assets, including the Eagle Ford Shale has led to significant free cash flow generation, enabling Murphy to achieve its debt reduction goal by the end of 'twenty to increase.
Our dividend and events our capital allocation framework.
We're preparing to spud two operated exploration wells later this month with to loom in offshore Mexico and also also in the Gulf.
Im looking forward to kicking off twenty-three these key results.
As I said earlier, we are proud and excited to increase our capital spending and there are two highly economic key all weighted assets as we simply could not pass these accretive projects up at these prices.
In closing I want to thank our colleagues for their tremendous effort. This year in executing our significant project with huge success supporting our base production and help us achieve our strategic priorities I'm pleased to say that we're well positioned for the future as we close out 22, and it wouldn't be possible without our team's accomplishments I'm now going to turn the call back over.
To the operator for your questions. This morning. Thank you.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star key followed by the number one on your Touchtone phone Youll hear a three tone prompt acknowledging your request questions will be taken in the order. They are received should you wish to withdraw your request. Please press the star key followed by the number two if you use them.
Speaker phone please lift up your handset before pressing any keys.
While we assemble the queue, we will take our first question from Neal Dingmann with Truest Securities. Your line is open.
Thanks for the time this morning, Roger It seems let's get right to it the margin. It seems to me. This morning, it's not appreciate your upcoming activity. So really my first question is on your plan well activity may be specifically could you give maybe your early thoughts on how you view the upcoming Gulf of Mexico Wells.
Including your thoughts on bringing that ASO well forward. Thanks.
I'll, let Eric take care of the Sam five I'll add additional color on that and handle Oh, sorry go ahead here. Okay. Yeah. Thanks, Neil It's good question on our <unk> program offshore.
The samurai five well as we highlighted in our prepared comments is driven by the early development phase of the field. We discovered a number of additional reservoirs are additional pay sands and a couple of them look really really large and attractive and high quality and it's a compelling investment for us too.
Add an additional well to develop those sands. If you can you can imagine that super high capital efficiency to.
To develop a field in an existing field development with existing infrastructure and were also advantaged as Rodger tried to highlight that we are able to execute that work with a rig that we're using and has a below market rig rate right. Now so overall capital efficiency of the well is expected to be Super high it'll be one of our highest rate of return on investments.
It will also allow us to provide stability to our offshore business. We've highlighted in previous calls that we are targeting maintaining an overall flat offshore oil business for the next 456 years and this well will go a long way toward accomplishing that so we're really excited about adding this well into the program the small.
Additional capital increase in 2022 will support nice strong free cash flows from 2023 and beyond so we really think it's a great opportunity for us.
And Neil and my a little more color there.
She had to realize in the offshore business that there's only 13 rigs at work in the Gulf. We have a rig provided to us today by Noble Corporation working at our Clichy more months' samurai field. We just completed a 30000 foot completion with five hours <unk> five hours of nonproductive time, so to let that.
Rig go not know when it can come back at half the market rate one could never pass up the opportunity to develop that work and add to the capital at this time because the rig is working so well and we're doing so well out there in the field. So that comes and goes differently in offshore than it does onshore and on top of that.
There's additional capital in Eagle Ford, where we participate in some non operated wells that went extremely well and then we were a feed to do more and I just can't see passing up those types of returns as to the Oh, so well.
Very nice opportunity for us something homegrown here quite proud of.
And we have had 50% working interest there, but we wanted to go down to a typical 30 to 40 level that we've done in the past Oxy is a great partner and its back to business in the Gulf. We're doing a lot of great work with oxy at Lucius and they wanted to enter a world. They also bring their own set of seismic information allows for another look at the.
<unk> around seismic for the.
For the project, which is helpful and we're glad to have them, it's a real nice well for us in a place where we can really showcase our unique development opportunities and bring all forward. What we do as you know neil's bring things forward quicker better on time on budget and just excited as we can be to drill a well with them a new partner and of course.
Ridgewood Who's our partner at least two more months. So all in all just a great situation for us and I'm real proud and excited about this capex Neil and I think it's the right thing to do for the company are really good.
Yeah, I would agree with you I hope that in the markets better appreciate and understand that and my second is just maybe around the three fields. You guys did you have a great color on this but hoping for maybe even a little more color on the three fields around King's Quay.
Just wondering could you speak to really the production now how you anticipate that production trending.
Coming quarter will that stay.
Stay up quite well and then could you talk potentially about other opportunities in 'twenty three 'twenty four and the three fields.
Yes, Neil let me provide a little bit of color for you on the mix of production in King's key.
As we highlighted earlier, our caliche more mob fields came online earlier and are producing the bulk of the production from the field. So far this year.
We brought online the samurai well.
Recently, and it's doing very well as we highlighted we will soon bring on the.
Seventh well on the program the samurai number four well in the coming weeks as we.
Add that well into the production mix to the facility what we expect to see is that the total gross production should remain approximately where it is right now and again, that's about 120000 barrels of oil equivalent per day on a gross basis about 85% oil and we will add additional wells bring on additional volume.
But then we will have to reduce the production rate from the Khaleesi and more Mont fields to allow for additional production at samurai.
The samurai wells will benefit us a bit because we have a higher working interest at 50% in the samurai wells compared to 34% and the collusive more malt wells. So you may see a slight uptick in net production, but again, we should expect that total production rate to be somewhat similar to what it is now we're really happy with the execution.
We have there.
The overall three field development is producing way above our initial expectations and we expect that with the wells that we described here that we will remain on production plateau from the three fields for about three years without additional development.
And we will continue to evaluate additional opportunities for future wells in the <unk> more months' samurai field development area, we as as normal we will monitor the performance of the fields and evaluate where there may be opportunities for additional wells.
Don't have any firm plans around those right now, but as we experienced the production and they can do some additional modeling we will likely develop some future opportunities that will help extend the plateau beyond the approximately three years that we're forecasting right now.
Great guys I look forward to all the activity.
Thanks Niko appreciate it.
Yes.
And as a reminder, if you have a question Thats star one on your telephone Keypad next we'll go to Leo Mariani with <unk>. Your line is now open.
Good morning Leo.
Hey, good morning, I wanted to follow up a little bit on the Montney Tupper Montney royalty issue here.
Maybe you guys could help us out a little bit and put like some prices around this you are expecting to lose 10, five <unk> per day here in the quarter was there certainly like a certain price level on a go that kind of triggered this and then you also mentioned in your prepared comments that if gas prices were to stay elevated in <unk>.
<unk> three you could pay a 20% royalty rate how does that 20% compare to what you are paying you know in.
In the fourth quarter, and what type of prices, what sort of gets you to the 20% next year, just trying to kind of calibrate around this a little bit as we watch prices be very volatile.
Okay. Thanks, Leo let me try to kind of frame that for you. The situation that we have in 2022 is that we have experienced throughout the second to third quarters, and then expected into the fourth quarter.
Significantly higher posted minimum prices, which is what the price is used to determine royalty and that the reason that were we.
We're seeing higher posted minimum prices is that the historical correlation between echo and posted minimum price changed significantly through the year. So as we are building our budgets in our long range plans, we we forecast.
Peco prices based on a forward curve strip whatever.
<unk>.
That hasnt changed too much we saw slightly higher <unk> than we expected, but the posted minimum price relative to echo really changed almost collapsed to be nearly the same number and that impact of that throughout the last few months and expected in the fourth quarter is that we chewed through royalty credits work.
Deep well royalty credits significantly faster than we expected and the reason that's material for our fourth quarter is new wells start out with a 3% royalty until that's a minimum royalty they have to pay while they're still have remaining on consumed deep will royalty credits and when the royalty credit is concern.
<unk>.
Those wells will jump from a 3% minimum to something driven by the natural gas price and at the prices, we're seeing lately above three and a half dollar Canadian.
Then that percentage is 27% royalty. So you have a jump from three to 27 very rapidly on a number of really nice high rate wells. So the overall weighting of high volume, 27% royalty versus 3% just in the months prior really drives the royalty up. So if you look at our slide 13, you can see for the <unk>.
Quarter, we're expecting echo of Canadian $5 65.
And that would translate to an estimated 17% average weighted royalty for the quarter and then as we move into 2023, we expect a similar kind of price level, but we'll have additional wells roll off their royalty credits and so we think that the average royalty will creep up into the say 20% range.
Just a couple of things to highlight first in terms of next year, we're still working on a program we haven't.
We haven't detailed our 'twenty 'twenty three plans, but the new wells in British Columbia will benefit from our enhanced royalty structure. They start with a higher minimum royalty of 5%, but there are 5% for 12 months exactly there'll be a lot less uncertainty about the royalty you are paying on those new high rate wells that should really help us.
If we continue to see elevated natural gas prices as we expect and the other thing I just wanted to circle back to was.
We have we do not expect that this lower production from Montney will significantly impact our free cash flows again I as I mentioned, our free cash flows are predominantly driven by our oil weighted Eagle Ford and Gulf of Mexico assets, we put in place some fixed forward sells at relatively low prices as we committed to.
<unk>, a multi year expansion project in the Montney, we would love to have higher prices, there, but because we have forecast them as always being a little bit low the free cash flow was a bit muted from the asset it will continue to be a bit muted from the asset but.
Because we knew that was happening.
It really doesn't affect our.
Capital allocation framework, our ability to pay down debt or generate material free cash flow from the rest of our assets.
Okay that was it was great color and maybe just to follow up quickly on that point you talked about you know kind of mid fives Eco next year in terms of the forecast I'm. Just curious if gas were to be say a lot lower so it goes $3 next year could there be a lot of downside to that 20% ish type royalty or is im sure theres, probably some time lag there as well I'm just.
Trying to get some sensitivities kind of around how that may play out.
Yes, if you have natural gas prices echo below $3 Canadian.
The royalty rate will fall very rapidly so it would be upside for us on a volume basis.
Okay. That's helpful. And then I also wanted to ask on the downtime in the fourth quarter, you guys talked about kind of $9 5 million barrels in the offshore.
Can you give us a little bit more color around that and is that something thats pre transitory do you expect all that to come back online here may be early in 'twenty three just any thoughts there.
Yeah sure, let me give you a little bit of detail on that.
So early in the.
Early in the quarter in quarter, four we experienced some downtime at a number of facilities.
Most of the downtime for operated facilities and non operated facilities offshore is sort of behind US. We highlighted 600 barrels of weather impact, which is early in the quarter and of course, we don't expect additional weather impacts.
One of our key operated fields had significant downtime related to equipment repair that problem has been resolved in the field is producing at nearly normal rates and expect to be fully normal rate very soon and then in our non operated business. We had about 1100 barrels of.
Downtime projected for the quarter and that was almost entirely driven by Hibernia, which had a slightly longer maintenance campaign early in the quarter than expected and that problem is resolved the fields producing at normal rates. So if you just sort of look at the overall pluses and minuses on production for the quarter, we have really nice performance from Eagle Ford, which we've highlighted with.
<unk> improved our expectations for fourth quarter production, we have colussy more months' samurai wells, adding 5700 barrels more production in the fourth quarter than we expected based on really strong results. The rest of our offshore business, we expect to be up nearly 3000 BOE a day just on nice strong performance in those.
Help offset the downtime events that we talked about and then the Kodiak three well, which we highlighted as underperforming about 5400 barrels a day, that's kind of what gives you a bit of color around the pluses and minuses.
For the quarter.
Okay, great great color on the numbers. So it sounds like most of that 9500, you guys would expect to be back on early next year here.
That's great, yes should be back online some of it's already back online and a lot of it ought to be back online very soon in this quarter yes.
Okay. Thanks, guys.
Yeah.
Next we'll go to Paul Cheng with Scotiabank. Your line is now open.
Hey, guys good morning.
Once you're at that I know you're still early on.
But I think.
Before today or that in the last call you sort of had a 700000.
15 million or so next year Capex.
With everything going on with the high inflation.
Also with us and stuff so anything from activities can you give us some idea that all of the different moving parts on the Capex for next year and how that May shake out.
And also that I think payments the you've been targeting a production somewhere in that 200 to 220.
For next year and moving forward with what the next decade.
With the <unk> way.
Monday.
Should we just assume that that would be shipped down by somewhere in that 10 to 15000 barrel per day.
Yeah.
Thanks, Paul for your question. This morning appreciate that I'm, not surprised Teva twenty-three capex call on.
No issue at all with that I can understand that.
As you know, we're not able to provide specifics today on our 'twenty three budget because our board board has an approved this yet we're working on it and we will be announcing this along with many other peers in our fourth quarter earnings call in late January I'm, not going to give the specifics on your capital question, Paul Black and pass on today are preliminary thoughts.
We're looking to maintain our prior plan as the scope of work in our onshore business.
Reviewing ongoing inflationary pressures that are primarily related to our onshore business. We're also reviewing a dish cope with the Gulf of Mexico, two of which we talked about today, we're obviously drilling our samurai well that will cross into 'twenty, three and will need to be completed and tied in with just a small jumper to our ongoing facility.
We also announced today it hasnt been discussed much that we've drilled a very nice successful development well at Dalmatian.
That well will need to be completed as well.
We are reviewing our tupper montney calculations and I'll talk about that in a minute as we just said from the previous call with Leo if you're around five to $5 50, a co for next year see dollar that would be a 20% royalty which is higher than we had in the past.
So our capital 'twenty three we will for sure be less than 22, Paul for sure in our oil production will be higher.
And we're gonna be announcing those numbers here soon as to your long term question on production the way we're looking at it today and we're still in the middle of our long range plan is that while that 200 to 220 is still a very viable answer going forward I would anticipate that next year would be lower due to montney royalty.
At 20% that was projected and then longer term.
A co gas we do not have these higher prices, which will get us back to the range that we've always discussed and I'll review that closely this week, we see this as a 23 issue.
If it were to go further, though Paul and have lower production with our forward sales coming off that were put on board to handle our execution would have enormous positive free cash flow and well Eric said earlier that the montney doesn't impact our immediate free cash flow or capital allocation framework. It is set up to be.
A solid 200 million dollar per year free cash flow business from 24 onward, as we feel that plant next year. So none of those plans have changed we do not anticipate a.
<unk> been at that level long term. It is will be incredible homerun ball for us doubling the free cash flow that I just mentioned if it comes back in line will be back to just as the numbers. We discussed here the last couple of months.
I think that answers your question Paul if not just asked.
Alright.
Then that is probably too early to get any granular.
Okay.
Just curious what is the inpatient way that you guys are seeing or that you have.
At this point for next year.
Eric is going to be my inflation man. This morning are Paul for you. Please greatly prepared.
Okay, Paul obviously for our business most of the pressure we're seeing is in our onshore business as.
As we head into 2023, we're seeing cost pressures in drilling rig rates casing pressure pumping costs and obviously, we're still working our budget in <unk>.
Finalizing our plans to present to our board for approval. We recognize that we are seeing those cost pressures and what were anticipating to do in response is to increase the lateral lengths of our wells both in the Tupper Montney in the Eagle Ford shale. So we might see her well costs increase in 23 from 2022.
Levels by say, 10% to 25%.
Maybe 10% to 15% in the Montney, maybe 20% to 25% of the Eagle Ford, but in those assets, we intend to increase our lateral lengths even more than those per well cost. So.
Maybe tougher would be around 20% longer wells, so on a cost per lateral foot basis, we'll actually see a reduction.
In well cost if that makes sense.
In our offshore business.
The primary area, where we see cost growth in our offshore business is in rig rates.
We are fortunate that we have secured some what is currently below market pricing for more than half of our year of offshore activity next year.
Beyond that we will see rig rates approach current markets our rig rates in the market right now are in the ballpark of 40% higher than what we've been executing on recently and in the first half of next year, So our contracting and our work plans and the things we've locked in for our offshore business.
Really mute the inflationary impact to our offshore business next year.
Hopefully that helps kind of frame, where we're seeing changes for you.
Yes.
Thank you and one final question.
One of your peer just announced a bolt on acquisition in Eagle Ford, which is why Ed domain.
Can you discuss about say the opportunity set and why.
So far that you may not be the interest that given we have seen <unk> from your peers recently.
Thanks, Paul for that question.
As we said earlier and I've told you know as you know we feel we have a competitive advantage offshore because they have really people coming to us with a lack of competition due to our execution ability and the ability to make one plus one three I mean, that's what we've done in all of our M&A and offshore as to the Eagle Ford area. Paul We're an oil weighted player. There this asset is.
Not bad at all.
We have years of oil weighted inventory as you know, we're holding our production at 30 to 35, and making a lot of free cash flow there, especially at any kind of price of the eight handle.
We feel that the locations that we have are better than gassy condensate locations.
So if we were to purchase something like that and not invest in it over our oil weighted assets it'll become almost investing is a PDP and that's too much money to pay for that in that tough environment for us.
You mentioned the price of this and.
But I'm really enjoying about it Paul is we're executing there at a very high level I don't want people to believe it's just about offshore Eagle Ford teams doing tremendous work do we love to see the Supermajor partners and peers buying very expensive Eagle Ford right around me and my ZIP code I really liked that a lot. So it means our company's undervalued.
And.
Because I think we can compete with that level of value as well as any time, so we'd like to see people paying a lot where we work Paul and that's kind of how we feel about it.
Alright, thank you.
Thank you Paul.
We will go to Charles Meade with Johnson Rice. Your line is now open.
Hi, Charles good good.
Good morning, Roger to you and your whole team there.
I wanted to ask about the Gulf of Mexico.
And it really king's key it so.
It looks to you.
You guys mentioned in your in your press release that you're seeing or rates.
20% over what you guys had a had projected and I'm wondering if you could talk about how that facility is performing I recognize a lot of times facilities can perform over nameplate.
How that facility is performing particularly with.
With respect to this samurai, two well, which which evidently.
Evidently was not in the original plan and will be additive to the to the full rate that you guys expected there it seems.
Okay I'll try to address your question there.
We highlighted in our release and some of our comments earlier that we're producing at 120000 gross Boe per day.
Equivalent basis, and that was about 100000 barrels of oil a day that rate is significantly higher than the expected rate. We thought the facility could process before we brought online we are very proud of our team's performance and execution.
Being extremely high uptime at 96% uptime in the quarter, which we think is industry leading.
We expect that the future production rates from the field will be at about that level on a gross basis for the foreseeable future and including up to the next say three years as.
As we bring online additional samurai wells, the samurai four which will come online in the fourth quarter and the semi five well, which will come online in the second quarter of 'twenty 'twenty three we will displace existing production into those fields that will slightly increase our production on a net basis.
Because we have a higher working interest in the samurai than in the other fields. So if you think about how you would kind of model out there once we bring online the third samurai well in the second quarter of 2023, we ought to have a pretty stable business and again, a total gross production quite similar to what we're experiencing right now.
Samurai wells semi Williston right now has produced in the eight to 10000 barrel a day gross range.
And future wells will and samurai, we believe will.
Half the production contribution from samurai getting to about 25000 barrels a day gross.
Yes.
Just to close that out Charles we've got six wells, making 120000 barrels a day that's pretty good.
No.
It's quite stout, but if I if I have the right sense of it. These are these.
It means your your success there is you're going to be at that you know Max gross rate for longer and your net is going to nudge up a little bit because of the higher working interest is that the right understanding.
That is exactly right, yes, okay. Thank you and then I Wonder if you are you guys talking about Youre drilling a well in are you going to spud. It in <unk> and can you give us can you set expectations for us on the timeline that we should be thinking about for when you spud when you get to TD and then when you.
Be in a position to.
To make some disclosures about what you are.
What you guys find the T D.
Okay. Thanks, Charles Yes, good question.
Another thing to point out about exploration, we're very excited about these two wells you know it's kind of unique to have two wells that cost the same amount of money and deliver about the same amount of reserves being drilled simultaneously.
Our net reserve some of that would be incredible increased job proven which gives murphy and our unique perspective and investing with us.
The way to think about we're also what's key about where operated now and you go through phases of exploration, where we're now entering an operated phase where we control our permits. Unlike the earlier well this year, we control the Capex, we control the timing so the rig that's the again drilled a very successful well at Dalmatian over the last couple of weeks.
Is which we operate of course, we're towing that rig not totally moving that rig to Mexico under our own with our own team and spud, our well peer probably in two to three weeks and we think Thats a 50 to 60 day, well and then we will be picking up the other rig for osso around Thanksgiving and taken that in there.
For about the same period. So we have two wells that last 50 to 60 days both operated by Murphy both control by our team has shown incredible credible job drilling this year with the rigs that we know and understand and a real real happy about where we are Charles.
So Roger if things go according to schedule, which you know.
We could be looking at TD around around four keep reporting maybe at the end of February is that the broadly the right about it.
Charles you're ending on to exact statements to questions in a row.
Thank you guys I appreciate the added detail.
Appreciate Charles Thank you.
Okay. 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, we had incredible quarter, an all hands on deck to deliver another great quarter in our oil weighted assets and thanks, everyone for calling in and we'll see you in late January I appreciate it.
Ladies and gentlemen, this concludes today's conference call. We thank you for your participation you may now disconnect.
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