Murphy Oil Corporation (MUR) Earnings Call Transcript & Summary

Great. And Sergio, maybe I want to ask a bit about your outlook for M&A and your outlook for exploration in the Gulf of Mexico. Is there any appetite to increase exposure potentially internationally? Or do you intend to kind of continue your operations and your concentration within the Gulf of Mexico?

Yes. No, that's a great question. Look, our -- the Gulf of Mexico is our backyard, is our home, right? We think we understand it very well. We do a tremendous job operating in the Gulf of Mexico. So that's always going to be the first place that we -- that we look for M&A or anything else. But I do think that in the journey of the company, eventually having an international leg will make sense. We're not there today, but I do think that eventually that will make sense. So in terms of exploration, we talked a little bit about Daenerys early on. I'm personally excited about that. I do think that this is going to be a well that a lot of people in the industry is going to be watching it's an interesting structure. So we're all very excited about that. There are other exploration potentially in our portfolio as well. But for the size of company that we are, we kind of have to manage a little bit the exposure of capital to exploration projects in any given year and have in Daenerys as such a large project and we own a bit of a larger working interest that we typically do in these high-risk projects. We're -- that's probably the only one that we're going to do this year. Maybe next year, we're going to take a bit more of a different stance on exposing more capital to exploration. But this year, it's that big one. Obviously, we're drilling other deepwater wells as well. So we need to keep them manageable. From an M&A perspective, as you asked. I think in '24, we made a really large acquisition for us of QuarterNorth. It was a fantastic acquisition. I am really, really proud of the team for having pulled that off. And then we took a little bit of a break. We wanted to make sure that we're focusing on operations, focusing on what was right in front of us. We did some bolt-on acquisitions. But I do think at some point in '25, it will make sense for us to start focusing again on making some larger acquisitions, either assets or businesses. But then we'll see what presents itself to us. There are a couple of leads on conversations that we're having, but it's still very early days. But I hope and I expect that later in the year, we're going to be more active on that front.

Sergio, in the past, you've talked about discretionary and nondiscretionary spending. What's your appetite to lean into nondiscretionary spending this year? How do you think about that, please?

Yes. I don't know if we've made a distinction between discretionary and nondiscretionary. I think what we said before was we've had some projects that we have already committed and there are projects that are not yet committed, but we are expecting to deploy capital towards. But if something else in the market, let's say, commodity prices were to drop or other circumstances in the market, we still have the ability to cancel those projects or not commit to those projects. That's still very much the case today. The budget that we are working on and having discussions with the Board are including some of these projects that are not yet committed to. We don't have to commit to them for another couple of 3 months. So we're still going to continue to observe the market. And if things change from where they currently are, we still have the ability to pull some of that capital. But when I say the capital in 2025 is going to be slightly up compared to 2024. It does include some of these projects that have not yet sanctioned or have not yet committed.

Makes sense. Eric, you have a diversified portfolio throughout North America as you think about competing for capital across the asset base and maybe across your portfolio even. Is there a rank order that you think is the right way to go for this year and the next few years?

Yes, the way we think about our capital across our portfolio with our onshore and offshore, we're investing in projects in the Gulf of Mexico, really through the end of the decade, we have a pipeline of known projects in existing fields that are really high return, great projects to invest in basically through the end of this decade. Vietnam development project is a key for us. We'll spend a little bit more in '25 and '26 than we did in '24 as we start drilling the wells and build the facility. If you look at our Eagle Ford business, we've been managing it over the last few years, kind of in a range of 30,000 to 35,000 barrels a day. We'll allocate capital to that to do something like that. We should have, in the Eagle Ford, about 10% year-over-year growth. The Montney business for us onshore, pretty stable. We filled the plant capacity with our plan in '24, we'll refill the plant in '25. We always explore with about 10% to 15% of our total budget, and we'll expect to keep doing that. Obviously, we'll have -- we're working our budget a little bit for '25 to include an appraisal well in Hai Su Vang that will be one of the more impactful things that we could do. We've communicated now for several years kind of a range of CapEx to expect from us, and that's pretty consistent. One thing I will say -- what we've done over like maybe the last 18 to 24 months with our exploration team, we've significantly enhanced the capability of our team and sort of shifted our strategy to be a little more balanced between international exploration and emerging basins where we're testing large opportunities with relatively low well cost. And in the Gulf of Mexico, less expensive higher risk things and a little more near infrastructure, admittedly smaller, but higher chance of success things that supports our assets. And that's a little bit of a shift for us over the last few years. I'm really happy with our success so far on that. In the Gulf of Mexico, we drilled 3 wells in '24. We had a nice discovery at Ocotillo. The 2 unsuccessful wells we had both found hydrocarbons and we're very close to being commercial. So the teams hit rate on finding the things that we're looking for has really stepped up over the last few years. And we, again, really excited about this discovery made in Vietnam. I think we're building momentum on that. And as we're headed into our Côte d'Ivoire exploration program, I think it's potentially transformational for us and really differentiating and super excited about it.

Makes sense. Neal, how do you think about organic versus inorganic opportunities? What's attractive to you this year and beyond?

Yes. So I think for us, in the medium term, it's about both. We have -- like I mentioned, we do have an organic pool of opportunities that we have discovered over the last few years, and we want to move those forward over time. The pace will be dictated by sort of where -- how quickly we get to on debt reduction and then ultimately, how much capital do we want to deploy on the growth side of the equation. Inorganically, again, I think for us, finding opportunities that are unique in areas that we have a really good understanding on and can generate attractive returns. It will be an opportunity for us, both internationally and in the Gulf of Mexico. And so when you look at the deals that we've done, the transaction in Equatorial Guinea, the transaction we did in Ghana, we know those assets extremely well from a subsurface perspective, and we're able to pay back our investment in about a year. And so finding unique things that sort of fit that mold that are value accretive and at the same time, enhance the financial resilience of the business. Those we will continue to look for, it's hard. And again, we'll continue to be really disciplined around those opportunities. But we look at a lot to see if can we make it work in that context and increase the scale of the business.

I wanted to ask about efficiencies. And what you're seeing in the market as you go through your operations, what are you focused on for efficiencies going forward? Anything on -- in terms of cost inflation expectations or deflation expectations that you have as you look at your program for '25 and next few years, maybe Sergio, let's start with you.

Sure. In terms -- we're not seeing any inflationary pressures in our business. We have not seen deflation either. So it's a very stable, I would say, price environment for our services, which helps on the planning of things. Obviously, I would wish it was a little lower than it currently is. Obviously, over the last 2 to 3 years, we've seen some inflation in that, and they've kind of stabilized at a higher place where they used to be, but it's still very manageable for us. From an efficiency standpoint, our drilling program that started later in '24 and it's continued on. It's been incredibly efficient. The team has done an amazing job at managing that drilling campaign. So I'm really proud of that. On our day-to-day operations, we're always looking for opportunities to create efficiencies. But I think we're very -- not satisfied, we're always want more, but I think I'm very happy where we are in terms of our cost structure in the business. We're consistently 1 of the highest margins in the business. So we've maybe top 3, top 4 in the entire E&P space in the U.S. So that means that we always operate very, I would say, in a very nimble way. We're always very cost conscious, and we always do a lot more with less. So I'm happy about that. And as efficient -- as far as efficiencies go, we're seeing a lot of that in our drilling campaign this year. So we're excited about that.

Makes sense. Neal?

Yes. So I would echo what Sergio said, which is around -- on the cost side of the picture, I think we are fairly efficient in terms of where we are. I'm kind of pleased with the operating costs. When you look at Ghana, EG, the Gulf of Mexico, they're all pretty low and therefore, deliver high margins on a consistent basis. But I would say there's opportunity for efficiency and where we focus on is more on the top line, which is actually how do we get more barrels through each facility and amortize sort of the fixed cost over a larger pool and particularly when you look at an asset like GTA, our objective is actually now we've got the infrastructure in place. We've got the people in place to operate the infrastructure. Can we double the capacity and keep the operating costs of roughly the same amount. And so for us, that will be an issue around how do we increase the throughput and therefore, every barrel that goes through or every piece of molecule that goes through will create a higher margin on. And so that's been our big focus, not just in GTA, but across the portfolio.

Eric?

Yes. I guess I'll start with our offshore business since it's an offshore-focused panel. A couple of things that we're seeing in the market in terms of price signals. The subsea infrastructure, subsea trees, subsea installation, we're starting, for the first time, to see a little pressure there, especially for projects of a smaller scale, and it's something that I think might be driven by overall activity level, maybe Guyana, I mean how many trees is Technip FMC is going to deliver to Exxon, right? It's industry issue that I think we'll start to see developing. So one of the things that I think is good for us because we maintain a portfolio of different kind of things is like our shallow water Vietnam business is completely immune to that, right? So maybe our Côte d'Ivoire business could have some exposure. Our Gulf of Mexico tieback business could have some exposure to that. None of that's going to make our projects unattractive, but it is a little bit of cost pressure that we're kind of keeping an eye on. And so it's kind of nice when you have a nice shallow water thing where you're not buying subsea trees and doing subsea installation kind of stuff, to have that in the business right, something to pivot to, which I'm happy with. I'm really proud of our drilling and completions teams. I think our execution over the last few years of our development work has been quite high, quite high performance when we benchmark our typical drilled well in the Gulf of Mexico deepwater. Our completed well is kind of in the top quartile performance on cost or days. And if you can keep that up, you're really winning because rig rates matter about how efficiently you are conducting your operation is really the most important thing. And so when your team continues to find ways of enhancing, improving, having less downtime and executing termly completion project successfully, you really win. Offshore, that's kind of the story. Onshore, we really had quite a bit of improvement in our Eagle Ford Shale business and our Tupper Montney business in terms of our completion execution. We had our lowest cost per foot completion costs in our Eagle Ford business in '24 that we ever had in the history of the asset, which I think is pretty impressive. And it's driven on the back of operational efficiencies of pumping more hours a day, pumping more sand, more lateral foot per day, doing it through not supply cost savings, but really through operational efficiencies and doing it in the context of also delivering some of our best wells. I'm really happy with our team's execution on that. It's always hard to have clarity of what's the next thing we can do to make that more efficient, but pretty pleased with our team performance as we're sitting here right now.

Makes sense. Eric, maybe if I stay with you in the last few minutes here. As you think about your conversations you've had with investors throughout the conference throughout today, what do you think is underappreciated that you would want investors to be focused on as they think about the story?

Great question. I wish I could figure out what investors needs to do to understand our business. It's not easy. I do think, in general, it's common for probably all of us, I think an average investor, a generalist investor struggles to understand the offshore business. It's easy to see what happens in the near term, but what happens 4, 5, 6, 10 years out. We do the best we can to communicate the opportunity set to invest in our existing assets. I think they struggle to understand that well even though we try pretty hard. That's something that we'll keep working on, trying to communicate. I think that we're viewed as -- the offshore business is viewed as things can happen that are expensive and time consuming to resolve, which isn't totally untrue. But we also generate tremendous free cash flows from our offshore assets and I think that the enterprise values of our companies reflects a lack of understanding of the durability of those cash flows. And so that's something that I think we can work on as individual companies, but also kind of collectively help people understand just how durable, just how solid our free cash flows are from our offshore business.

Neal?

Yes. So yes, it's a good question because I don't think it's a fundamental misunderstanding, but I think the challenge is ultimately one that Eric hinted on, which is around duration. Again, I think, everything that we do in the offshore business tends to take longer. We're in a multiyear investment cycle for most of our projects to get online even if they're tiebacks to existing facilities. And so matching a capital-intensive front end versus something that sort of pays back within 30 or 60 days or you can turn online within 30 or 60 days is a different investment proposition. And so investors having a, call it, time frame that's aligned with the investments that we're making is a challenge for people. And so I think from our side, what we can do, I think, to get people more excited about things is really around the delivery side. So as production -- and we've seen this in various circumstances, but as companies have delivered production from longer duration projects as you see in the earnings power, as you've seen the cash flows come through, it's hard for investors to ignore that, right? And so that's what we're focused on at Kosmos is how do we deliver the cash and demonstrate the value of the portfolio organically. And then I think separately, I do think there's a piece around technology and how do we move the business faster. And so again, I think another area where we spent a bunch of time is how do we standardize things. How can we shoot better seismic, how can we accelerate the processing so that the cycle time between investment and payoff comes down. So there's a bit of self-help in that realm as well. But I think the combination of those 2 will create sort of a situation that's harder to ignore, if you will.

Sergio?

Yes, I echo both Eric and Neal's comments. I do think that there's a little bit of -- maybe not a lack of understanding, or fundamental misunderstanding, but there's less understanding of the offshore business than sometimes in the onshore business. But I also think that there's a bit of a different cycle, investment cycle, right? So it's not as easy, especially as a small cap for you to maintain the consistency on the quarterly results that investors come to expect, especially on a shale company, if you drill 1 or 2 more wells, you can actually maintain certain things whereas offshore, things take longer. So it takes a little bit of a different perspective on what to expect from offshore companies. So I think that is kind of fundamentally the issue. I also think that it's naturally difficult for people to understand the inventory that the companies have, right? It's easy to understand inventories on a shale basis -- on a shale business that you think of as a manufacturing type of situation. And offshore, it's very different, right? You can be drilling a really big exploration well one day you could bring like there's an infield well in the next day and propositions are different. It's hard to understand sometimes that those differences and what you need to do. But eventually, I agree 100% with Neal. We need to have more consistency on delivering the free cash flows. We have to have the execution on the business and eventually investors will understand that. And the other part to me that I think people understand, but they're not necessarily willing to lean in just yet is there's a lot of conversations about inventory -- lack of inventory or inventory durability onshore and the ability that the offshore companies have to consistently generate new inventory, either from acreage that we already own or for acreage that we can get still. I think that is probably a very underappreciated characteristics of an offshore company. It's an evergreen generation of inventory. It's not just drill your highest return well. And by definition, the next well that you drill is going to have a lower return. So that's almost like a finite business. I think our business is -- has way less of that, and we can regenerate our inventory, it's not easy, but it's in a much better way than some of the onshore companies can't, without, obviously, acquisitions, et cetera.

This has been a great conversation, guys. Thank you so much, Eric, Neal, Sergio, thank you for taking the time.

Thank you.

Thanks for having us at your conference.

Appreciate it.