Murphy Oil Q3 2023 Earnings Call Transcript

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November 2, 2023

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to the Murphy Oil Corporation Third Quarter 2023 Earnings Conference Call and Webcast. I would now like to turn the conference over to Kelly Lichtley, Vice President, Investor Relations and Communications. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us on our Q3 earnings call today. Joining us is Roger Jenkins, President and Chief Executive Officer along with Tom Morales, Executive Vice President and Chief Financial Officer and Eric Hambly, Executive Vice President, Operations. Please refer to the informational slides we've placed on the Investor Relations section of our website as you follow along with our webcast today. Throughout today's call, production numbers, reserves and financial amounts are adjusted to exclude of non controlling interest in the Gulf of Mexico.

Speaker 1

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 to differ. For further Discussions of risk factors, please see Murphy's 2022 Annual Report on Form 10 ks on file with the SEC. Murphy takes no duty to publicly update or revise any forward looking statements.

Speaker 1

I will now turn the call over to Roger Jenkins.

Speaker 2

Thank you, Kelly. Good morning, everyone, and thank you for listening into our call today. As we turn to Slide 3, I'd like to highlight Murphy's strong value proposition. We're a Long term sustainable company with decades of future drilling in our onshore business and significant running room offshore with exploration upside And low carbon intensity. Offshore Murphy holds a competitive advantage with our execution capabilities.

Speaker 2

Murphy continues to generate strong cash flow. Since the end of 2020, we've reduced debt by approximately $1,400,000,000 and paid more than $330,000,000 of dividends and within the past quarter We purchased $75,000,000 of stock, all while maintaining our cash balances and replacing reserves. As we move to Slide 4, Murphy has remained focused on our priorities to delever, execute, explore and return. I'm excited to say we advanced Murphy 2.0 of our capital allocation framework in the 3rd quarter through share repurchases And redemption of $249,000,000 of 20.25 senior notes, and we remain on track to achieve our $500,000,000 debt reduction goal for the year. 3rd quarter production of 202,000 barrels equivalent per day Again, exceeded the upper end of our guidance range with oil production averaging 103,000 barrels per day.

Speaker 2

Our 2023 onshore program delivered strong well performance improvements with over 50% of our new wells Achieving all time highest well performance for their respective areas. I'm pleased to announce today that our Board has sanctioned the Loc Dovang Field development project in Block 15105, Vietnam with 1st oil forecast in 2026. Also during the quarter, as previously announced, Murphy closed the divestiture of certain non core assets in Canada and a portion of those proceeds are redirected to fund our new country entry into Cote D'ivoire and advance our Lac Du Vain field development project. We have since commenced We are now ready to take our

Speaker 3

production to the Q3 of 2019.

Speaker 2

We are now ready to take our production to the Q4 of 2019. In the Q3, we repurchased $75,000,000 or 1,700,000 shares outstanding at an average price of $44.53 per share. Additionally, our Board approved a $300,000,000 increase in our share repurchase authorization today and we have $525,000,000 remaining. I look forward to further progressing through Murphy 2.0 as we continue delivering rather shareholder returns and reducing debt. On Slide 5, Murphy produced an average of 202,000 barrels equivalent per day with 51% oil in the quarter.

Speaker 2

Production was nearly 10,000 barrels equivalent per day above the midpoint of our guidance due to a combination of stronger onshore well performance, lower realized Tupper Montney royalty rates and the absence of any hurricane events in the Gulf of Mexico. In the quarter, we realized $82.58 Per barrel for our oil, while our realized NGL price was just over $21 and natural gas was just over $2 per 1,000 cubic feet. Strong oil pricing in addition to our production outperformance led to Murphy generating $900,000,000 of revenue in the quarter excluding NCI. I'll now turn the call over to our CFO, Tom Morales, for an update on our financial results.

Speaker 3

Thank you, Roger, and good morning, everyone. Slide 6. Murphy reported $255,000,000 of net income or $1.63 per diluted share in the 3rd quarter And adjusted net income of $249,000,000 or $1.59 per diluted share. Operations remained strong in the quarter, resulting in adjusted EBITDA of $597,000,000 with minimal accrued CapEx of 100 and $2,000,000 excluding non controlling interest. Slide 7.

Speaker 3

As Roger said earlier, we are excited to have executed on Murphy 2.0 of our capital allocation framework. During the quarter, we redeemed $249,000,000 of debt and repurchased $75,000,000 of shares outstanding as well as paid our quarterly dividend of $0.275 per share. Overall, we returned 106 percent of our adjusted free cash flow in the 3rd quarter. To further support the framework, our Board has approved an additional $300,000,000 share repurchase program and we currently have $525,000,000 remaining under that total authorization. As of September 30, we had total debt of $1,600,000,000 We will continue to allocate adjusted free cash flow funds as prescribed in Murphy 2.0 until we reach Murphy 3.0 with $1,000,000,000 of total debt.

Speaker 3

With that, I'll hand the call over to Eric Hambley, our Executive Vice President of Operations to discuss our operational update.

Speaker 4

Thank you, Tom, and good morning, everyone. Slide 9. Murphy's Eagle Ford Shale assets produced 38,000 barrels of oil equivalent per day with 88% liquids in the 3rd quarter, Exceeding guidance by 1200 barrels of oil equivalent per day. As planned, we brought online 7 operated wells with 4 wells in Catarina and 3 wells in Tilden. 3 non operated Tilden wells are planned for the Q4.

Speaker 4

We've seen great results from our wells this year, particularly as we return to the Tilden area for the first time since 2019 and apply the revised completion design. Overall, more than 40% of our 2023 new wells are top 30 performers in our portfolio on a 100 to 180 day cumulative oil basis. In particular, the Jammers wells in Tilden that came on Line midyear continued to significantly outperform at twice our pre drill forecast, while our 3rd quarter wells have produced in line with plan after adjusting for lateral length. Slide 10. In the Tupper Montney, Murphy achieved record quarterly production of 414,000,000 cubic feet per day in the 3rd quarter.

Speaker 4

There was no new well activity as all 2023 planned wells came online In the first half of the year, we continue to see record production levels and Murphy was recently highlighted as having 2 of the top 10 and 4 of the top 15 Natural gas wells in all of Canada in an external report. Internally, 8 wells have each achieved an average IP30 of more than 18,000,000 cubic feet per day in

Speaker 5

2022 and

Speaker 4

2023 and 2 wells have each achieved a new company record IP30 of more than 21,000,000 cubic feet per day. Additionally, 80% of our 2023 wells are top 15 all time performers in Murphy history based on their IP30s. Needless to say, we are excited about the results we have achieved from our revised completion design in this area. Slide 11. Murphy produced 5,000 barrels of oil equivalent per day with 67% liquids in the 3rd quarter.

Speaker 4

As announced in September, we closed the divestiture of a non core portion of our operated Kaybob Duvernay asset as well as our entire non operated position in Placid Montney for for $103,000,000 in net cash proceeds. The divested assets produce approximately 1700 barrels of oil equivalent per day with 39% oil. Post close, we maintain nearly 500 future locations in the Kaybob Duvernay and are able to maintain base production through various optimization initiatives. Slide 13. We produced 89,000 barrels of oil equivalent per day with 81% oil across our offshore assets in the 3rd quarter.

Speaker 4

Our operated development and tieback projects continue to progress with the new Dalmatian No. 1 well in DeSoto Canyon 90 Now online and drilling underway for the Marmalade 3 well in Mississippi Canyon 255 ahead of first boil in the Q1 of 2024. The 2 non operated Lucius wells are moving forward and are forecast to come online in mid-twenty 24. Our non operated major projects are also advancing with the Terra Nova asset life extension project anticipated to return to production by year end and the St. Malo Water Flood Project working toward 1st water injection in 2024.

Speaker 4

Slide 14. We have had 2 mechanical issues occur at separate operated fields in the Gulf of Mexico this year. The Dalmatian No. 2 well Had a problem earlier this year with the subsurface safety valve, while the Niedermeier number 1 well encountered mechanical issues in the 3rd quarter. We have workovers planned for both wells next year and anticipate the wells will resume production by mid-twenty 24.

Speaker 4

Additionally, the non operated Lucius No. 9 well workover is scheduled for the Q4 2023 with the well forecast to return to production in Q1 2024. The previously disclosed non operated Kodiak number 3, well stimulation and zone addition is scheduled for mid-twenty 24. And with that, I will turn it back to Roger.

Speaker 2

Thank you, Eric. On Slide 15, we're pleased to announce today that our Board has sanctioned the Loc Du Vang field development, Block 15105 in Vietnam, The first oil forecast in 2026. The field will be developed in phases through 2029 to ensure capital efficiency, Targeting 100,000,000 barrels of oil equivalent on an estimated gross recoverable resource basis. Overall, we forecast the field to achieve gross production of 30,000 to 40,000 barrels equivalent per day or 10,000 to 15,000 barrels equivalent net to Murphy. The field is 96% oil weighted and is currently receiving a premium to Brent oil pricing in that region.

Speaker 2

On Slide 16, during the quarter, Murphy reviewing commerciality and field development concepts for the pond discovery in Block CI-one hundred and three, which is appraised with multiple wells by previous operator. As part of the agreement on this block, we committed to submitting a viable field development plan by the end of 2025. We'll move on to Slide 18 and talk about Vietnam. Look forward to additional upside possibilities that near field exploration provides us With 2 planned wells in Vietnam next year, the Lac Domingue exploration well is located in Block 15,105 just to the southwest of our Loch Dibang field development project. The well will target a mean to upward gross resource potential of 65,000,000 to 135,000,000 barrels of oil equivalent.

Speaker 2

In Block 15 twoseventeen, we're planning to drill the Hai Souvang Exploration well, which will target a mean to upward gross resource potential of 170,000,000 to 430,000,000 barrels equivalent. These two outstanding prospects will be advantaged by the infrastructure provided by the nearby El Loc Naveing field. On Slide 19, we're excited to have commenced initial work during the Q3 on our newest country entry, Cote d'Ivoire, By initiating seismic reprocessing across 4 of the 5 blocks, overall, we look forward to advancing the exploration opportunities in this country. Slide 20, our long term Gulf of Mexico business. In the near term, we're moving our rig back on location to resume drilling in the Murphy operated Oso 1 Exploration well in Atwater Valley 138.

Speaker 2

This well targets a mean to upward gross resource potential of 100 and So we talk about our guidance, plans and capital on Slide 22. For the Q4, we forecast production of 181,500,000 to 189,500 barrels of oil equivalent per day with 51% oil. This range includes 2,000 barrels of oil equivalent per day of planned downtime, primarily onshore. Quarter 4 is impacted by our front end Weighted capital program that maximizes free cash flow in support of our capital allocation framework. Additionally, our production guidance today includes the loss of production of a well in the Needham Meyer field, which is producing 4,000 barrels of oil equivalent per day prior to being shut in late in Q3.

Speaker 2

For full year 2023, we're raising our production guidance range to 185,000 to 187 1,000 barrels of oil equivalent per day, which represents a 3,000 barrel of oil equivalent per day increase in our midpoint. This range is comprised of 53 percent oil and 59 percent liquids. Lastly, we are maintaining our crude CapEx Guidance range of $950,000,000 to $1,025,000,000 excluding $49,000,000 of acquisition related costs. On Slide 23, as first announced in August 22, Murphy has a multi tier capital allocation framework fill out traditional Share returns beyond the quarterly base dividend while advancing toward a long term debt target of $1,000,000,000 This framework is supported by $525,000,000 remaining on our authorized share repurchase programs. Since we first announced the capital allocation framework, I'm pleased that we have returned an additional $15,000,000 annually to shareholders through quarterly dividend increases of 0.275 per share annualized and purchased $75,000,000 of our own stock as well as paid down nearly 7 I look forward to continuing our progress in Murphy 2.0 and further rewarding our long term shareholders in the quarters to come.

Speaker 2

On Slide 24, since it's closing our multiyear plan back in January, we've had tremendously positive events this year Through the approval and sanction of the Loc Vang field development plant in Vietnam as well as our new country entry in Cote D'ivoire, including a possible field development there. As we work through our annual capital planning process, we're also reviewing our longer term strategy to incorporate these events and we will share updates as we normally do in our report in January. However, I can say today that our underlying strategy of maintaining capital discipline And slight production growth, so that we may progress our capital allocation framework with delevering and increasing shareholder returns through buybacks remains fully intact. As we close our call today, I'd like to highlight On Slide 25 that we're a uniquely positioned company with our capital discipline and our oil prices the past couple of years. We're well on our way to establishing a pristine balance sheet With approximately $1,400,000,000 in debt reduction since year end 2020.

Speaker 2

Murphy has significant amount of well locations to support decades of in North America Onshore in multiple fully delineated basins. Offshore, we're a competitively advantaged company. We're adding new development and exploration opportunities internationally. We're continuing to allocate capital to our long standing Gulf of Mexico business. Well, I'd like to thank our incredible employees for the great work this quarter and we're looking forward to another successful quarter to end up the year.

Speaker 2

With that, we'll end our comments today and take your questions. I appreciate it.

Operator

Thank you. And ladies and gentlemen, we will now begin the question and answer You will hear a 3 tone prompt acknowledging your request and your questions will be pulled in the order they are received. And your first question comes from the line of Bert Dons from Truist. Your line is open.

Speaker 6

Hey, good morning, Roger. Good morning, Barbara. Good morning, Barbara.

Speaker 5

Good to

Speaker 6

see you and I hope to see you at Mardi Gras this year.

Speaker 5

Yes.

Speaker 2

It looks

Speaker 6

like your Gulf of Mexico volumes kind of helped drive part of that 3Q beat and outperformed your guidance. I was just wondering if you could Talk about maybe your future exploration prospects that you have in the field maybe after those so well and maybe if you also Plan to participate in future lease sales as well.

Speaker 2

Well, thank you for that question. Really appreciate that about our gold business, a real Solid part of our company where we've been in this business since 1950s. We of course will be active in all these sales going forward. We're in the middle of that right now. We are participating primarily next year in 2 Very significant wells in Vietnam now that we have our Vietnam field development plan approved at the LDV field.

Speaker 2

And these are Very large prospects and very nice and lower risk and lower cost wells. We're all participating in and we haven't had our budget finalized, but we're We highly like to participate in a non op well with one of our partners in the Gulf and reviewing another opportunity on some of our prospects at this time. So we're going to be active And exploration active in lease sales, but also we bring to the table a long level of experience working internationally. Murphy is a sought after company To work internationally because we move faster, we it's very critical to us where we enter our country and we bring a competitive advantage and countries want Murphy. And we have 2 real nice positions now internationally.

Speaker 2

And so doing really well and well positioned in the Gulf and internationally right now, which is A differentiator for Murphy Oil Corporation. And then thank you for that

Speaker 5

question. That's

Speaker 6

great. Look forward to the updates. And then Just the second part, I just want to make sure I understood the Murphy 2.0 payout. What percentage did you target in 3Q? And maybe is that supposed to be every quarter?

Speaker 6

Or is that more of an annual target For that 25%. And that's all I got. Thanks.

Speaker 2

I'm going to let our CFO, Tom, walk you through that, if you don't mind.

Speaker 3

Sure. Thanks, Bert. Yes, we're really excited about actually moving into this phase of our framework. And the way we think about it, there is a timing part of this and there is an execution strategy part of this. And on the timing side, We aren't trying to be precise on a quarter to quarter basis.

Speaker 3

It is more of an annual basis. And that gives us a little bit of flexibility to see if we see any disconnects between our share price and our intrinsic value. So while we generally stay to the framework, you may see some differences there and it's really we focus on this as being an annual

Speaker 2

target for us. But Bert, one more thing and then we've got to get this debt down and we're really focusing in on that $500,000,000 goal and Where we are, Dave, feel real good about that. Just to close out this year, but trying to be down the line on the formula the best we can and Go on from there.

Speaker 6

That makes perfect sense. Thanks guys.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Leo Mariani from Roth MKM. Your line is open.

Speaker 2

Good morning, Leo. How are you doing?

Speaker 5

Hey, good morning. Question on 4th quarter CapEx here. Wanted to see if you can kind of help us out in terms of what the ballpark number should be there in 4Q? And you also talked about this $49,000,000 of acquisition Kind of related costs you've had of late, have those kind of already hit in terms of the balance sheet and the numbers here? Are those kind of on the come here into 4Q?

Speaker 2

What was that last part of your question again? The first was CapEx. It broke up just a second. One more time, Leo, I'm sorry.

Speaker 5

Oh, yes. So you guys you mentioned $49,000,000 of kind of acquisition related costs with some of these new areas where you're entering. Just curious, have those already been incurred or are those kind of on the come into the Q4

Speaker 2

here? No. Those have been behind us primarily. We do have some seismic work that's covered in exploration, Expense in Cote D'ivoire, pretty much that's over here. So you have the CapEx, Eric?

Speaker 4

CapEx for the 4th quarter ought to come in under $200,000,000

Speaker 2

It maintains our guidance. So we don't have that number right handy with us, but adds up to midpoint of our guidance and we're in good shape on all that. Our CapEx is lower And we're in really good shape on free cash flow for the Q4.

Speaker 4

Yes. Just Leo, just restating, I mean, we're comfortable with the range of CapEx that we've expressed. Obviously, we give a range because we have uncertainty of outcomes primarily in our non operated business where we have major projects ongoing with Fields we don't operate. There's a bit of uncertainty and that's why we give the CapEx range, but again, we feel really good about our full year CapEx range.

Speaker 5

Okay. And can you provide a little bit more color in terms of the activity in the Q4 because I know that there's a handful of kind of non op Eagle Ford wells, but it sounds like that's de minimis There's nothing really onshore. So what kind of comprises the bulk of those expenditures here in 4Q?

Speaker 2

I have air count left for you, Leah.

Speaker 4

Yes. As you pointed out, our onshore business, we're essentially done with our program there. We have a little bit of activity from non operated Eagle Ford. That doesn't drive our CapEx too much. We do have a little bit of facility spending.

Speaker 4

We're doing a number of projects to get ready for our drilling activity in the Eagle Ford and in the Montney in 2024. That's kind of normal for our business. In offshore, we have quite a bit of activity Picking up here in the Q4 with 2 rigs working in the same Malo non operated project and our resumption of drilling Oso As well as our ongoing development work that we highlighted at the Marmalard number 3 well.

Speaker 5

Okay.

Speaker 6

I'll take

Speaker 5

that. That's helpful, guys. And then just yes, I appreciate that. And just on the share buyback, obviously, you kicked it off this quarter. It was kind of great to see.

Speaker 5

Can you maybe just kind of talk a little bit about how you're sort of balancing that with debt reduction as we go forward here?

Speaker 2

I'll let Tom go through that, but it's our formula, Leo. We're trying to stay to the formula for the rest of the year, 70 five-twenty 5 split. Don't see coming off that with a little more bias toward getting the debt down at year end is how we're working it. Yes, any further color to that?

Speaker 7

No, I

Speaker 3

think that I think Roger covered it. We have a stated goal of debt reduction this year and it fits with our Priorities for the year of delevering.

Speaker 2

But we do anticipate stock just to be clear though, Leo, we do anticipate

Speaker 4

I appreciate it.

Speaker 2

Thank you.

Operator

Thank you. Your next question comes from the line of Charles Meade from Johnson Rice, your line is open.

Speaker 7

Good morning, Roger, to you and the whole Murphy team there.

Speaker 2

Good morning, Charles. Good to hear from you.

Speaker 7

Roger, you touched on Vietnam just briefly earlier in your Q and A. And I want to see if I could get you to talk a little bit more about that. Can you characterize These two exploration prospects for us and my understanding is that that's going to be your first activity Over there. So could you characterize what those prospects are like? I think you said they're relatively low risk, but you put some numbers to that.

Speaker 7

And then also clarify for us that 10000 to 15000 BOE a day Net to you guys in I think it's starting in 26, does that include any risk exploration success from these 2 prospects or is that just the Is that just locked to bang only?

Speaker 2

No, that is 100% just from the project, nothing to do with exploration in any number, any forecast, Anything with Murfuhl. I appreciate that question. Vietnam has been a sleeping giant for us. We had it held back For a while also held back by them, it's come to life with this approval of the field development plan, meaning they're ready to put their money in with us here at PetroVietnam. We've had these nice prospects.

Speaker 2

One of the prospects, these are draped fractured sands over carbonate In a very simple geologic setting, one of the wells is resembling that, which is similar to how the field is laid out. Another is a large stratigraphic trap That has some level of structure to it. Also nearby is a rumor of some very good success by one of our partners In Vietnam, they recently drilled a very nice well targeting the same zone. It's a very large prospect, can change our world there and make this a very You know, 30,000, 40,000, 50,000 barrel day business for us long term and we can have some exploration success. As for the risk component, It's not low risk, but it's lower risk than big sub salt $100,000,000 wells in the Gulf of Mexico.

Speaker 2

And you're talking about wells half the cost with lower risk. And also in Vietnam, which most people are not familiar, this is the basin of Vietnam. There are multiple platforms, pipelines, infrastructure, FPSOs, FSOs everywhere here. This would look like a segment of South Louisiana 30 years ago, A lot of production here in shallow water. So it's not like we're in a ranked wildcat country here.

Speaker 2

So that kind of frames what we're doing in Vietnam, unless you had a follow on to that, Charles.

Speaker 7

No, no, that's it. That's great detail. Thank you, Roger. And then my second question is, it's kind of About your Murphy 2.0 and really by my modeling, it kind of It's obviously an achievement to get to Murphy 2.0, but for me, it looks like a rolling stop in the sense that you guys are going to be In 3.0 territory, by the time you report 4Q 'twenty three, if not on an absolute debt basis, certainly on a net debt basis. And you guys, you just had a Board meeting, you guys must see the same thing.

Speaker 7

And so I'm curious If you to what extent that you guys have discussed that with your Board? And if there's as you roll forward 2024, you guys are going to be it's possible that you could exit the year With a 0 net deposition, without giving effect to any share repurchases. So has that can you characterize the conversation that you're having at the Board level? And if there's any shifts on what you guys are thinking about for 2024?

Speaker 2

No. Obviously, we are discussing this. We have a Finance Committee for our Board will review our modeling in great detail. We're in the middle of our budget and putting things into our new plan. But like I said in my comments, Overall strategy over time, there would be very similar returns.

Speaker 2

We can get to the 3.0 next year depending on oil price, as you know, Then we'll go to fifty-fifty. I would say we just keep it down the fairway honoring the framework, get to the Murphy 3.050-fifty and then we have You know, worlds are Orestron opening up there. We can go to more returns and could be more opportunities come our way. So we're very, very well positioned. Also, we're still in the oil business.

Speaker 2

We're not orderly depleting our assets. We picked up 2 incredible assets here to do with our offshore competitive advantage on execution. The countries want us there because of that Because it's important to us and we move quickly. So we have opportunities in front of us. We're doing extremely well.

Speaker 2

And with higher oil prices above $85 or so, we can move to this 3.0 as you said very quickly. We want to probably at least One quarter of each of the numbers before we change. But we're it is I haven't heard that comment rolling stop, but it Sorry is that way, Charles. I appreciate you coining that great line for me this morning.

Speaker 7

All right. Well, thank you for the added detail, Roger.

Speaker 2

Thank you and good to hear from you.

Operator

Thank you. And there are no further questions at this time. I would like to turn it back to Roger Jenkins for closing remarks.

Speaker 2

Thank you everyone for attending our call today. We appreciate we had a really good quarter, one of the best in a long time and we're looking forward to another one and we'll

Operator

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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