Murphy Oil Corporation (MUR) Earnings Call Transcript & Summary

Okay. We're going to keep things moving. Thrilled to have Murphy Oil to present again this year. They've been long-term supporters of the conference. Roger has been here every year, since we started the conference 8 years ago. Roger Jenkins has been CEO of Murphy, since 2013. That's 10 years, a lot of volatility in the space. But thrilled to have Roger give his presentation this afternoon. Thanks, Roger.

Thank you, Arun. I appreciate JPMorgan for their conference are a long-term participant. Of course, JPMorgan is a long time history of our banking within our company in a great relationship there. I have the cautionary statement as most presentations have these days. We'll, of course, follow that and more information on that on our website. Agenda today, I'm going to talk about our company at a glance at a high level. Today, we published a new slide through this conference called a quarterly update that we do often when we're out on the road and focus a lot of presentation on that. Our priorities remain the same, look at some of our portfolio and looking ahead in our company. A very simple business. We operate in just 3 places in North America. We're an onshore player in the Eagle Ford Shale on private lands have been there for a very long time with a unique set of long-term locations. We feel we're underdrilled in that place with new technology coming to our vantage, a significant business in onshore Canada, where we've been for over 70 years in a primary gas business in the Tupper Montney and an ever-increasing business in Duvernay around us, a very valuable business, a very unique player in the offshore been in offshore business since the mid-1950s. Real King of our portfolio is the King's Quay facility, doing extremely well in the Gulf and a large producer there. We have a unique exploration portfolio for a company of our size and have been in the exploration business for decades and decades. In the first quarter, made about 172,000 guiding to the 177,000 range midpoint this time. We have a 700 million barrel reserve base that's been quite consistent for well over a decade. Why our company? From a highest level, we're a sustainable company. When we say sustainable, ofttimes that's with the connotation of carbon, which we have a great, great, low-intensity carbon business, one of the leaders in all of the industry on that due to our strong offshore business. But it's also sustainable with multi decades of locations, undrilled locations, and we're now setting ourselves as a conventional player in the offshore with an unconventional business backing that up instead of the other way around, which makes us unique situation, high potential exploration. We announced some new exploration activity today, strong generation of cash flow, make free cash flow in all of our businesses. We have a long 61-year history of paying dividends in this company. We're a leader and returning to shareholders in our market cap space. Of course, we're supported by a multi-decade founding family ownership on our board, significant ownership with at the table results, including myself. Second quarter update for us. We're advancing our exploration portfolio and program. We have a significant well being drilled in the Gulf of Mexico called Chinook #7. This is in the shadows of an FPSO. We operate the cane to us through a JV with Petrobras the well is get currently drilling and doing well to plan. We had new country entry in Côte d'Ivoire, we've been working on that for over a year. I'll talk about that more in a second. Have a new word of a field development plan approval in Vietnam. This has been a long-awaited approval. We're very excited about this. We'll open up further exploration for us. In the onshore and offshore businesses, it's all about in our company, focused on getting the wells on time, on schedule and producing to their ability, doing a very good job of that having a really good year and maintain all of our guidance ranges. Oftentimes in our company, we're asked about Terra Nova. Terra Nova is a significant asset East Coast of Canada. It's greatly delayed by the operator there. But what's positive in that store is we're able to overcome Terra Nova and handle our original guidance with the outstanding work in the Gulf and in the Eagle Ford Shale. A little bit about our country entry, Côte d'Ivoire next door to Ghana. Ghana, of course, has the big successful Jubilee field. It's a significant production for both Tullow and Kosmos, multi-hundred million barrel field. TEN, also a big development in Ghana. Coming into the eastern side of our block is a very large discovery called Baleine operated by ENI, multiple hundreds of millions of barrels here that they're going to be developing and ordering FPSOs for. So as you march down our acreage position here in the 102 block in the top of these shallow water historic type opportunities. Moving into the Block 531, we have a look-alike structure to the ENI discovery, a carbonate discovery a different type of discovery to have opportunity for us. In the middle block, C103, is a long-term discovery by Tullow then operated by Anadarko in 2013 to 2016. If you Google this, there's a lot of information around this block and a lot of information around flow tests and rigs and operatorship. And it kind of fell off the radar. We feel possibly because of the gas need for gas for power generation in the country, which is greatly improved. And part of the request of our field is just for Murphy to file a field development plan with them on this, which we hope to commercialize that over a time period. And in 709, be a large block with multi features like Jubilee more of a turbidite type play there. So very exciting new entry for us. As we look into Vietnam, it's a place we've been in for a very long time. We recruited into Vietnam by PetroVietnam, because of our long-time success in Malaysia. We had a very successful shallow water business there to complement our deepwater business, both in gas and oil there, partnering with Petronas. We formed in years ago to something called LDV or Lac Da Vang. It's a very successful field with multiple penetrations and well tests, been long awaiting the field development plan approval that came kind of early in our surprise here by PetroVietnam. We're very happy about that. What it also does is open up additional exploration areas for us nearby. We've been holding back on the exploration due to the time it takes to do the field development plan, we feel very well positioned here. So these 2 announcements are adding to the longevity of our offshore business, our very strong, highly free cash flow delivering conventional business and things that we do very, very well in executing. Our priorities have not changed for a long time here, 2 to 3 years of delever our balance sheet, execute and explore. This year, we added a fourth priority to return to our shareholders. We have a big goal to reduce debt this year, hope to equitize our equity through debt paydown and help our stock improve. We have a pretty lofty goal here and need some help on prices, not getting that help today, but still, we'll be reducing debt this year. We're in 2.0 of a capital allocation framework, which would allocate adjusted free cash flow, $75 million for debt, $25 million for stock buybacks. We feel we'll be executing that the second half of the year, quite proud of that, improved our credit rating. Execution as just mentioned, doing very well across all fronts there. In exploration, we had a successful well we announced last quarter at Longclaw in the shadow of King's Quay. We're drilling a well in the shadow of an FPSO at Chinook, and we back to an OSO we're in an area that was very hot in the last lease sale with a new data set that's a really coming area for us. We're partnering with Oxy there, very proud of that relationship with them. We're the operator. And of course, our Côte d'Ivoire business that I just talked about at length. And returning, we're in a mode of returning to our shareholders here real soon, and I feel really well positioned around that going forward this year and into next, for sure. This is like a money slide for us. In this mid-cap space, we are the leader in returns to shareholders over a 10-year period. It's not even close. It's almost a tenfold reason to own our stock. And we're having a business today that can deliver this and beyond for the next decade back to our shareholders. As I said earlier, in my entire life, we paid a dividend in this company. I'm 61 years old, and we have never issued equity, since we went public and only 3 companies of this market cap group did not issue equity and primarily most of them impaired it in shale, when they did it. So we feel that we are very uniquely positioned to return back to shareholders here very strongly going forward. This is a picture of our framework that's been quite disclosed, it's maintained. Everything about it's the same, and we're in the middle feature of that today and feel real good about that and very excited about getting into that and think that we have the ability of our stock price to run up as we execute on this plan and all systems are go in our company to do that today. Looking closer to our portfolio, only made 27,000 Eagle from first quarter, we're going to make in mid-30s this time doing extremely well there. Very successful REIT frac performance in that business. So a lot of success with that earlier announced. Very nice area coming into Tilden with some new fracking techniques and new fracking technology that we're employing, had a continued outperformance of prior years in Eagle Ford where Order of Merit [ won ] by Arun in the Eagle Ford as a top operator last year, noted by JPMorgan and a really nice business here, where -- when we collapse capital in '16 and '20, we're now didn't drill it all up with the prior technology, and we feel we're one of the more underdrilled running room players in the Eagle Ford ahead, and we're very, very well positioned there. In our Montney business, actually, we did some forward sales to execute the field this plant. Those are now with the crazy ups and downs in the market, where we find ourselves almost advantage in the gas price there, again, with a very, very low netbacks and a differentiated view of forward sales and some gas coming out of AECO going into Malin and et cetera, where we have very, very high netbacks, very low risk, long-term business in the Montney that we think could be helpfully with the offtake of LNG in '25 and '26, where we've partnered with all partners involved with that LNG project before. Kaybob Duvernay is something we pulled into the deck just to kind of remind shareholders again of how fully delineated it is, and we described all of our locations. You can see we drilled across the play. There's public results to these wells. This is a very oily basin for us, very unique, a lot of activity in that area today. And this is our go-to and the future of our Eagle Ford and Duvernay business to maintain our sustainable company for decades with ample locations to go in a place that we fully delineated successfully. Really nice offshore business, making 90,000 barrels a day plus there every day. We brought on some wells earlier in the year, all online. We have a big set of work in the future. We're moving a rig on to donation in the next month or so to complete a well there that's previously drilled, another opportunity to drill a well in Marmelo another field that we bought a few years ago. That's a very successful field. Lucius, where we partner with Oxy as a non-op got some work at the end of the year. And St. Malo continues one of the crown jewels of Chevron's portfolio. We're quite proud to be a partner with Chevron there. King's Quay continue to just to be a home run ball for us for a month after month, another production record set there a few days ago, 130,000 barrels a day from only 8 wellbores there with a very high uptime. This is now the crown jewel of our portfolio. And big projects coming. Terra Nova will produce at the end of the year. We're quite confident about that. We've had a team visit that in St. Malo, again, another large field operated by Chevron, very good field. Exploration, a lot going on there. We had a successful well at Longclaw. This is drilled right outside of King's Quay doorstep there. A big well at Oso with a lot of activity in the recent lease sale coming back there in the third and fourth quarter and Chinook ongoing today. Looking ahead in our company, we really want to advertise at this conference and have been advertising out on the road a good bit about the unique nature of our company as we have the inventory to drill in our onshore business with a new technological-based onshore execution plan that's second to none, multi-decades of inventory multi-decades of low-cost wells to drill and are doing extremely well here from a sustainable company approach from -- in our company today with a big conventional business in the offshore. With our offshore 2, we have locations there. We've been mimicking onshore location, where these are absolutely certified known things to do, sidetracks, recompletions additional wells to drill, tiebacks. We distinguished them all. We know the size of them. We know the F&D of these opportunities. And it's very, very positive for us to keep this business running flat to 27 without any exploration success of any kind just executing what we have. And then today, we've announced a couple of things that can enhance that and build that even further into the future. It's what we're trying to do here in the short term, trying to pay down debt and need a little price help to make this level, but we will have significant pay down this year. We have a low reinvestment rate in our company, a light CAGR, like most companies do today with a big position to pay down debt and return to shareholders, trying to maintain a lower CapEx level best we can, enhanced payouts to shareholders. Our calling card has been our company history, and we're taking this further into the long term as well. We'll be a larger company, still maintaining our oil weighting through our Eagle Ford, Kaybob, and of course, our offshore business and the 2 announcements today, again, continued low reinvestment percentages, and we'll be achieving the metrics of an investment-grade company, and quite proud of that, of course, and allocating capital into high-returning investments, which we have a load of today. So that's what we have. And I'll close that with this, we're a diverse multi-basin conventional, unconventional business, low breakeven wells and a big future of things to do in both businesses on and offshore. We have low-cost exploration optionality. We're talking about a deal yesterday, where we bought the whole Gulf of Mexico for one lease sale in the Gulf is what this costs. This is low-cost entry, a lot of upside based really on our reputation as a leading deepwater executor is why Côte d'Ivoire wants to partner with us. A lot of people want those blocks, and we're very proud of that. We're a high-performing execution company. We have a big advantage of working in the deepwater, we've built enormous assets all over the world, FPSOs, FSOs, FPS, drilling, completion and also a very successful shallow water business in Malaysia that we're now taking into Vietnam with opportunity in Côte d'Ivoire as well. And we have a durable return set up for our company, shareholders going forward with a long-term dividend level and a history of returning with a big forward look at that. We're quite proud of that. We think that's unique for us, and that's all I have Arun. I'll take your questions or from the group. Thank you.

Okay. Well, let me start with your list on Slide 6, Roger, and what's new. Let's talk about the Chinook #7 well in the Gulf of Mexico. Could you tell us what your thesis is on that well, where you're at in terms of drilling operations and potential chances for success?

Well, we've disclosed it in our slide about Chinook. We feel it's a 50 million barrel minimum opportunity on a mean basis. It can be also larger. This is a completely undrilled fault block of the Chinook. There's 2 fields that are called Cascade Chinook and has an FPSO parked in the middle of those 2 fields. It's one of 2 FPSOs that operate in the Gulf of Mexico. We also have operated FPSOs around the world and have the ability to operate that. It's a very highly efficiently run business. We need it to get larger to help the operating expenses of the FPSO. When we became a partner at St. Malo with Chevron, we learned a lot about the Wilcox. Also, we're the leader in deeper water injection globally in the world. And so by taking a long look at St. Malo, it too has some undrilled fault blocks. There are some additional unfilled -- undrilled fault blocks around St. Malo that we've seen success and we decided to go form a program to test the big undrilled fault block here. We're -- it's a 28,000 foot pretty deep well. We're well along and drilling it now and real pleased with the execution of the cost and our ability to execute there in the middle of it right now.

When do you expect to get the TD?

We would hope to have results on our call, but may not. I'm not sure.

Okay. Great. Let's talk about the new country entry Côte d'Ivoire's. Could you talk about maybe the fiscal regime in that country?

I think we're an international player and been involved in international for several years. We backed more domestic now. This is a production sharing contract, typically in those environments. You would be benchmarking yourself on a total government take in the '70s. We find this one to be lower. It's probably one of the better production sharing agreements we've had in a while, hence, taking a long time. But we are a good partner there, they welcome us there, and we feel we have an advantage PSC. We rarely share those details, but I would find it on a benchmarking basis internationally to be very well positioned.

Okay. How much data do you have in terms of the block and just the quality of data? And how long do you think it will take you to do your science?

The -- what's unique about this much different than exploration post the 2012, '13, '14 boom was that there's a lot of 3D data. There's 3D data shot across this entire area. It's owned by a major seismic company. We'll be purchasing that data and reprocessing a lot of that data over the next year. We have no well commitments in a 2-year period. So we need to get after and see what we want to do and then extend with drilling in the future, may be highly unlikely for us not to find things to drill because there's a lot of leads and prospects and offshooting a major discovery by ENI. So very pleased about how that's looking.

And just your technical team, what kind of experience do they have in this basin?

Well, we have some Anadarko people on our team. When you're a smaller stay with it deepwater company, people that were involved in deepwater want to be with you in a way. You can be with a super major of Murphy in a way. So Anadarko people have come our way through the transition to Oxy. So we have some people that are familiar with it. We've been looking in this area for a very long time and very familiar with turbidite with fan plays. We've been in 4 or 5 different countries in Africa. We've back in Gabon in the '70s. So we had a big development in Congo. So we're very astute about international, Africa operations and really not a big move for us, really.

Okay. And can you do your technical work in Houston? Or do you have...

Yes that's the plan. And that's another thing I didn't get into today, but I don't know if people are appreciating the changes in the company post-COVID with the closing of our corporate historic office in El Dorado, the closing of our Calgary office, the change of our G&A, the change in our organization and the one culture company and the strong execution, building off of our long-term history of being a great deepwater player and also onshore as well. And that's part of our secret sauce today, we're doing very well in our organization in Houston, probably best ever company we've ever been run and real proud of that. And we're able to run things out of there and look at the seismic there and run that like it's in the Gulf and really, really well positioned there.

Okay. Let's talk about the Vietnam, the LDV field, you have government approval for your development plan. What does that really entail?

This was a discovered field that had 4 penetrations and 2 different well tests. It's a unique feature laid out on top of a basement rock that we've been working on for quite a while. We then had to do an extensive field development plan. They have a very extensive field development plan process. We completed that. It was held back a lot during COVID. It's a country where quite helpful to have executive management travel there as part of the ongoing process. We're very used to that culture and very used to working in Southeast Asia. But it's a real issue during COVID, both this being approved and traveling there, if you will. That's, of course, greatly improve. They recently visited our office. And that's been going on for a while. We didn't know when we get it approved and suddenly, it's approved and they want to work. This is the key energy base in Vietnam. We're the only Western company to be invited to be in this basin because we were so successful in Malaysia and shallow water, also deepwater as well. And been part of our business for a while. We didn't really have the capital. They didn't have it approved and now it's coming into a thing we can fit into our future. And the big main thing is it opens up further exploration. These are jackup countries, shallow water, 40 meters of water, a lot of opportunity, very simple type structures to drill. There's enormous infrastructure here, FPSOs, FSOs pipelines, gas to shore. This is not remote. And then we have a significant exploration block immediately to the south of what's in this slide. And we probably have 7 to 8 great prospects there.

Should we expect Murphy to be committing development capital to Vietnam next year, the following year?

Probably not much. We'll be sanctioning it probably at the end of this year, and we'll announce it when we do that.

Okay. Great. The other update in the U.S. onshore and offshore, everything is going according to plan. You're reiterating your 2Q and full year guidance range in this is correct?

Absolutely. Doing extremely well.

Great. Well, let's shift gears, talk a little bit about cash return. When -- obviously, we did see some volatility in commodity prices. When do you expect Murphy to reach the balance sheet threshold to implement Murphy 2.0 of your capital return framework?

Second -- third and fourth quarter, for sure.

Third and fourth quarter of this year. Okay. And just maybe for the generalist in the audience, what does that entail in terms of cash return when you get to that threshold?

Well, it will depend on oil prices and depending on the adjusted free cash flow. If you look at the detailed formula in the deck, which you've seen many times Arun, and as you noted to our investors, there was a significant contingent payments to be paid that hurt this framework, but those are behind us now. It's also on the end of a very successful M&A months and months paid out unreal success M&A that had contingent payments. That's why I like to think about the positive side of it. So you can picture that being gone, our capital decreasing. We have only 1 rig in the Eagle Ford about to let it go. We've quit drilling in the Montney. We're moving our drillship off Chinook into lower working interest in the Gulf. Our CapEx is decreasing greatly. We've already spent 70% of our CapEx for the year. So we should have a lot of free cash flow as for that formula and try to honor that formula.

Okay. Let's talk about A&D activity. We have seen a lot of consolidation within the broader E&P space.

Yes.

What do you -- could you talk about any deal flow that you're seeing in the U.S. Gulf of Mexico backyard?

There's a lot of deals. There's a lot of people wanting a lot of money for it. We have a unique way of a proprietary way, quite frankly, of how we value 1P, 2P and the kind of things we're looking to do. We're not -- don't usually buy a lot of older fields with asset retirement obligation on decline. That's not really our game. We need to bring something to the table through our development ability. And we've, of course, been looking at the Petrobras deal for quite a long time. That's held up there in a moratorium, if you will, on their own. That would be something we're focused on. But really sticking to our execution, drilling great wells and exploration, entering new acreage, field development plan approval, our onshore been doing extremely well, both in Canada and the Eagle Ford and just focusing on the ball in the fairway in let these things come to us. We -- it's always good to be in an M&A position where you don't need it and then never need to do it, and that's the way to do it. That's the best position to be.

Let's talk about your key development project, Khaleesi, Mormont, Samurai, I think you brought on the Samurai #5 well. Yes. What is your expectation to keep production flat from the King's Quay facility?

Well, we said it would be flat for 3 or 4 years. We stand behind that. Of course, the field is probably larger than we thought, and we'll probably be adding some additional wells to that, probably maybe up to 3 over the next 3 to 4 years. And maybe even to next year, well, it's a very prolific field, 130,000 barrels gross from only 8 wells. We -- I was told earlier this week. It's one of the largest producing platforms in the entire Gulf today. That includes all the super majors. This is a hell of a big field. And great for our Samurai exploration success flowing to it as well at a very favorable position to us and just hit one out of the park there and we're real fortunate and really glad to have it.

Okay. Also, when do you plan to get the rig? I believe that rig is in Suriname?

Yes. It's -- I believe it's for the Apache Total and Suriname. I'm not sure that, but it's coming to the Gulf in the third quarter with the equipment we need to continue drilling that well, we have a new plan to execute that well, been working closely with our partner, OXY there as well, who have experience of this equipment is too and looking forward to drilling that. It's a big focus of the last lease sale, and there's a new on-bottom node seismic survey taken in that region, which we, of course, participated in. A lot of activity coming out before that data and the lease sale by almost all super majors. And then we're active and have some nice prospects there, too, for the long term.

Okay. You mentioned you sent a Murphy project team out to Canada to look at the Suncor operated, the status of that. For the investors here, I get a lot of questions on what's going on with this project, obviously operated by Suncor. Can you give us an update of your understanding of where we're at in terms of this field extension of project?

Number one, as I said earlier, the positive thing for us is we've overcome that with our outstanding results. So that's super positive. That's the thing to focus on. I think it's a big old super major executed thing. It's late. I'm sure Suncor doesn't want it to be late, and the Suncor had some executive management change there, which they're working through. It's impacted that schedule probably. We see it turning around a very focused team by Suncor. We took our best and brightest development people there. And with Synovus made a 2- or 3-day detailed trip across the FPSO. We feel comfortable about the execution. Photos of the vessel a really nice-looking vessel. It's not some hodgepodge creature out there. It's quite positive. Suncor is a very professional company and improving. We see that they've added the focus, and we think it will float to the end of the year, and our team feels that way, and that's how we're planning for it.

And would you characterize that the things needed to get this facility started, are these relatively straightforward?

Yes. This is around identification of further work past the shipyard work of corrosion and some matters that need to be improved. This is not one-off technology or large compressors or things that would have a long delivery line. And this should work. You have to also kind of always kind of think about what's positive about it. We've made $3 billion free cash flow in our history in East Coast Canada. And this project is funded by the government without a working interest, leading to 100% rate of return. The economics are still very robust, and this is Brent-weighted all. This is Brent plus $2 or $3 typically. This is a good asset. It's light. In 1923, Murphy finally found a big discovery near El Dorado, and it was so big of a discovery, it probably was a little bit late. So -- and everyone focuses on that. So sometimes it happens, but it's oil breakeven margin business.

Okay. Well, we have a couple of minutes left. I'll turn it over for any investor questions. Okay. If not, I'll keep going.

Oh, yes, you can go all day and I just waiting for an hour about a month ago.

Is there a closet lithium play at Murphy?

It'd be a small silver closet. We, for a long time, owned the brine royalty rights near our hometown. Around that area was a very -- like I just mentioned in 1923, a major oil discovery there and do the outlay of rocks and the sediments there. There's a brine businesses there. And we receive a royalty from the brine water and have received this 3 years, we probably made $6 million or $7 million a year on this royalty. When the particles of lithium are in the water, we feel that we'd be hold a royalty for the lithium as well. And this will be decided ultimately by the Arkansas Oil and Gas Commission headquartered in El Dorado, and that will be brought forward to that. We're monitoring that with our legal team. This will not be the end on new King's Quay for us. It could be a decent little business, folding money as they say in Arkansas. And so we'll -- we're uniquely kind of positioned there. But the recent acquisition by super major Exxon is really to the west of El Dorado and not where we are located.

All right. Roger, with that, we'll cut things off. Thanks for your time.

Thank you. And it's always a pleasure to be with you.

Thank you.