Murphy Oil Corporation

Good morning, ladies and gentlemen, and welcome to the Murphy Oil Corporation third quarter 2021 earnings conference call and webcast. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. I would now like to turn the conference over to Kelly Whitley, Vice President, Investor Relations and Communications. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us on our third quarter earnings call today. Joining us is Roger Jenkins, President and Chief Executive Officer, along with David Looney, Executive Vice President and Chief Financial Officer, Eric Hambly, Executive Vice President. Operations, and Tom Morales, Senior Vice President, Technical Services. Please refer to the informational slides we 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 non-controlling interest in the Gulf of Mexico. Slide 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, see Murphy's 2020 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, Kelly. Good morning, everyone, and thanks for listening in to our call today. As you look at Side 2, we'd like to briefly remind our investors of our story as each tenant of this slide remains in effect this quarter and in the future. Our ongoing execution in our three producing areas continues to support our offshore long-term projects. Our competitive advantage of executing in offshore is illustrated by our outstanding progress zone, our Khaleesi Mormont Samurai field, and the King's Key project. We've maintained strong cash flow due to capital discipline that covers our planned spending and debt reductions for 2021, and support shareholders through our long-standing dividend. Lastly, our meaningful level of board and management ownership highlights our personal interest in the company's long-term success. Leading to slide three, Closing out the quarter, we remain focused on progressing our three priorities, delever our company, execute, and explore. We continued on delevering during the quarter as we redeemed $150 million of our 6.875% notes due in 2024. And earlier this week, you saw that we announced the redemption of additional $150 million of these 24 notes to occur in December. Therefore, we have achieved our goal of reducing long-term debt by $300 million this year. I'm even more pleased at our total debt reduction of $530 million, or 17% for all of 21, as we progress towards our long-term debt reduction goals. We remain on schedule for our Gulf of Mexico major projects, including transporting the Kings Key floating production system to the Texas coast ahead of Hurricane Ida with no impact, while maintaining our timing of first soil in the first half of 2022. Our strong execution and capital discipline has led us to be able to reduce the midpoint of our capital budget by $20 million for 2021 down to $680 million. Lastly, we are pleased that the partner group has come to an agreement on the Terranova Asset Life Extension Project and where it will begin in the third quarter. With regard to our exploration program, we completed drilling the non-operated Silverback Exploration Well during the quarter. The well has been plugged and abandoned and Murphy has fully expensed the well. We will continue to evaluate results across our working interest blocks. Looking forward, we're excited to begin the drilling of the Cutthroat Exploration Well in Brazil this quarter and advance our 2022 exploration drilling plans with our partners. On slide four, A third quarter production of 155,000 barrels equivalent per day was comprised of 59% liquids. Hurricane Ida had a significant impact on the industry in the Gulf. We were able to safely redeploy our people offshore five days after evacuation, but we experienced minimal damage to our facilities. We could have restarted production at that time. However, the issues affecting third-party downstream assets kept our production offline longer. with a slow return to full activity. As a result, we had 12,800 barrel equivalents of impact due to Hurricane Ida in the quarter. Even with the storm impacts, our consistent onshore operations and capital discipline placed our net accrued CapEx at 103 million, which was below guidance. We also saw stronger realized pricing, averaging just over $68 per barrel in the quarter, where natural gas averaged $2.77 per thousand cubic feet. Natural gas liquids, also very high, averaged $33 per barrel in the quarter. On slide five, Hurricane Ida hit the Gulf Coast this August as a Category 4 hurricane. Its path put it directly over critical third-party offshore pipeline hubs, onshore terminals, and natural gas processing plants. This unique track, combined with intensity and physical impacts of the storm this size, created devastation and operational loss not seen since Hurricane Katrina 15 years ago. As a result of this hurricane, mercury production for the year was reduced by approximately 4,400 barrel equivalents per day. Fortunately, we have long-standing agreements in place for our temporary shore bases, which enabled us to redeploy personnel quickly and safely only five days after the event, much faster than most of our peers. Also, we were one of the first companies able to resume our drilling following the storm at our Khaleesi-Mormont Samurai project. On the ground, we followed our disaster response plan and quickly activated our incident team, sourcing supplies and arranging transport to deploy the items to our impacted workers so they could take care of their homes and families. Overall, I believe we had an exceptional hurricane response. that put us in the best position possible to resume operations as soon as third-party downstream capabilities were back online. And I'll turn the call over to our Chief Financial Officer, Mr. David Looney, to give a financial update of the company.

Thank you, Roger, and good morning, everyone. For the third quarter, we reported net income of $108 million, or 70 cents net income per diluted share. Certain after-tax adjustments included a $44 million non-cash mark-to-market gain on derivative instruments, a $22 million non-cash mark-to-market loss on contingent consideration, and a $54 million non-cash gain on asset retirement obligations due to the multi-year deferral of expected Terra Nova abandonment expenditures following the project's sanctioning. As a result, we reported adjusted net income of $37 million, or 24 cents per diluted share. Cash from operations for the quarter totaled $405 million, including the non-controlling interest. After accounting for net property additions and dry hole costs of $119 million, we achieved positive adjusted cash flow of $286 million. Slide seven. Our third quarter CapEx was notably lower than original original guidance for three primary reasons. Number one, we received an $18 million credit for Terranova from exiting owners upon close of the agreement. Number two, we were also able to reduce costs for various Gulf of Mexico projects by a net of $18 million. And number three, a portion of our spending was shifted from the third quarter to the fourth quarter this year due to timing differences. Overall, our capital discipline and offshore execution has enabled us to reduce our CapEx midpoint by $20 million, down to $680 million, with our range tightening to $675 to $685 million. This is even more significant when noting that this number includes the $20 million acquisition of additional working interest in the Lucious field in the first quarter of 2021. Slide 8, turning to the fourth quarter, we're forecasting a production range of 145.5 to 153.5 thousand barrels of oil equivalent per day, with a midpoint of oil production at 81,000 barrels of oil per day. This range includes approximately 4,500 barrels of oil equivalent per day of Gulf of Mexico facility downtime for the quarter, which occurred in October. as well as planned non-op downtime of 2,200 barrels of oil equivalent per day later in the quarter. We are reinstating and revising our full year 2021 production guidance with the previous low end of the range set as our new midpoint after experiencing Hurricane Ida, which averaged out to a 4,400 barrels of oil equivalent per day impact for the full year 2021. We now forecast 2021 production of 156.5 to 158.5 thousand barrels of oil equivalent per day. Our full year oil midpoint of 87,000 barrels of oil per day is up 6% from our original guide and is forecast to comprise 55% of total production for the year. All of this reflects our priority on execution as we have been able to lower CapEx while increasing our oil production and ultimately generate sufficient free cash flow to redeem $300 million of long-term debt, all despite experiencing production impacts from a significant hurricane. With that, I'll turn it back over to Roger. Thank you, David.

As you look at slide 10 in our North American onshore business, our onshore drilling and completion activity is nearly complete for 2021. We plan to bring online four operated wells in the Eagleford Shale in the fourth quarter, and that will wrap up our program for this year. On slide 11, in the Eagleford, we produced 37,000 barrels of equivalents per day in the quarter, comprised of 70% oil and 86% liquids. We plan to bring online, as I just said, four wells in Katerina in the fourth quarter, two upper Eagleford Shale, two lower Eagleford Shale, and one in the Austin Chalk. The total capex this year will remain at $170 million in this place. We're pleased that for 2021, we're now achieving approximately nine-month payout wells across our Eagleford Jail business. Slide 12 in Catarina. As mentioned previously, we have four Eagleford Jail wells coming on here this quarter. All four wells are located in our Catarina area, and we've seen incredible results this year, and it's part of our operation, including achieving the highest oil cut in Dimmick County, and producing 60% above the type curve, resulting in six months payouts in Catarina. Other companies have also reported strong production results in this area, particularly in a new Austin Chalk zone play in this area. With our Austin Chalk test we plan in the fourth quarter, we're hoping to further de-risk approximately 110 Austin Chalk locations in Catarina for future developments. Slide 13, in Tupper Montney, we produced 292 million cubic feet per day. Our 2021 wells have achieved record high IP30 rates for the company, and also in comparison to industry, through modifications in flow back facilities, wellhead equipment, and procedures. Overall, we're seeing IP rates more than 50% higher than the previous three years, and 19% CAGR in IP rates since 2013. As you look on to slide 15 in our offshore business, our Gulf of Mexico project continues to advance and we're now drilling the final well at our Caliseo-Mormont Samurai project before advancing to completions later in the fourth quarter. In September, we were able to quickly resume drilling following Hurricane Ida with no impact to our schedule for first oil in the first half of next year. The non-operated St. Malo water flood project continues to progress with installation of a multi-phase pump We're fortunate these projects avoided the impact from the hurricane and we're excited as we advance this moving forward. Slide 16, the Kings Key Floating Production System successfully transported more than 14,000 miles from South Korea to the Texas coast during the quarter and arrived just ahead of Hurricane Ida with no impacts. Project work continues and the FPS will soon be moved to its final location, the Gulf, ahead of receiving first oil in the first half of next year. I'm very pleased at the incredible work everyone has done to keep this project advancing on schedule, especially during COVID, all while remaining a healthy, safe environment that exemplifies our long-term offshore execution ability. Slide 17, Terranova. During the quarter, the partner group came to an agreement on the Terranova Asset Life Extension Project, which is expected to extend the production life of the FPSO by 10 years. As a result of the agreement, the government of Newfoundland and Labrador will be contributing up to $164 million in royalty and financial support, with the three partners contributing in an aggregate matching basis. Murphy's total future net investment in the project will only be $60 million. Work has begun on the FPSO, which will sail to Spain for dry dock through most of next year before an anticipated online date in the fourth quarter of 2022. Thank you. On site 19, involving exploration of the Gulf, we continue to hold a sizable exploration position in the Gulf. We're excited that we will have a lease sale on November 18th, and it's moving forward with no changes in royalty rates or other matters. Last quarter, our operating partner, along with other major energy peers, completed drilling the Silverback Exploration Well. The well's been plugged and abandoned, and Murphy expensed the well. We continue to evaluate results across our working interest blocks. Slide 20, concerning Brazil, we're excited to work with our operating partner this quarter to spread the cutthroat exploration well in the Sergipe Alagoas Basin in Brazil, with an approximate net cost to Murphy of only $15 million. We hope this well is the first of many in the basin and look forward to the optionality and resource potential the well provides. As you look at our long-term strategy on slide 22, our disciplined long-term plans remain intact As we continue on our path of delivering, executing, and exploring, as previously disclosed, we're targeting an average capex of $600 million from 2021 through 2024, with production category of only 6% during that period. Our long-term oil weighting remains at approximately 50% through 2024, and this combined with our average 75,000 barrels of equivalent per day produced offshore will support significant free cash flow generation, as it's already done this year. We plan on maintaining a low production category and capital discipline, even in a period of these higher prices we're seeing. This will allow Murphy to pay down debt faster and advance returns to shareholders. We have no plans to change the strategy at this time. Our debt will be reduced by half, down to $1.4 billion by the end of 2024, averaging only WTI $55 per barrel pricing. Further, our strong cash flow continues to support our cash returns to shareholders. Our exploration program and portfolio of more than 1 billion barrels equivalent and at-risk potential continues to be another focal point for our company. Longer term, we appreciate the optionality afforded us with significant free cash flow generation, as well as we have the ability to allocate capital more broadly between funding asset development, exploration success, additional debt repurchases, and returning more cash to shareholders. On our focus priorities on slide 23, our team has done a tremendous job this year remaining focused on our priorities, and we've achieved a lot as a result of this discipline. As announced earlier this year, we'll be redeeming another $150 million of senior notes, thereby achieving our delivering goal of $300 million in long-term debt this year. This is a great first step in our plan of reducing total debt in half by the end of 24. assuming long-term oil prices of $55 per barrel. At current strip prices, we were able to achieve this one year earlier. We continue to execute well in our major Gulf projects, as well as reducing onshore drilling and completion costs through ongoing efficiencies. Most importantly, we maintain a safe working environment for employees, contractors, and surrounding communities. Lastly, our priority of exploring supports Murphy's longevity, so that we may continue to find and produce oil and natural gas to achieve our mission of providing energy that empowers people for the next 100 years. We achieved this by participating in the drilling discovery in Brunei earlier this year. We're excited about the prospect in Brazil that will spread later this quarter with our operating partners. Further, we're advancing and finalizing our 22 exploration plans with partners as everyone completes their budgeting process, and we're looking forward to next year's opportunities. In closing, I'd like to congratulate all our employees for another quarter of strong execution and capital discipline. I'm thankful that everyone remained safe during Hurricane Ida. Incredibly appreciative to those who displaced Murphy's values and helped our colleagues, families clean up and begin repairs for their homes following the storm. With that, I'll turn the call back to the operator for your questions at this time. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, Press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the pulling process, please press the star followed by the two. And if you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Neil Dingman with Truist. Please go ahead.

Morning, all. Roger, I've been pretty excited about the upcoming cutthroat, and I'm just wondering, besides, could you maybe talk about your thoughts on, I know it can vary, but potential timing around that well, and then any other sort of notable exploration wells you'd consider around the corner?

Thank you, Neil, for that question about our program. That's one of our key tenants and a differentiator for us. We see that well here pretty soon, Neil. I'd really like to leave a comment at that, but if We're hopeful to spread the well this month. As far as next year's program, we're looking today, finalizing our budget as typical would be the case, at drilling a nice well in Mexico and another well in the Gulf of Mexico, which we would both serve as operator. Those would be nice wells, the Gulf well especially, Mexico being a larger well on size of mean resources naturally. And happy about those. We have a lot of opportunities, both places to drill, and that's in our plans at this time, Neil.

Okay. And then just one follow-up. I'd really like to see that near-turn upside at St. Milo on the water floods. And I'm just wondering, would you consider, or is there potential for bringing some other water floods on in the coming quarters? I don't know what the plans for that is.

No, today. Thank you, Neil, for that. Historically, water flood projects have really been an international. You may not know this. We're one of the leaders in water injection and deep water in the world because Malaysia was developed totally in that way. It's very uncommon in the Gulf. There are some of these big Wilcox projects that will have this. It's a different cost structure here and a different reservoir-type development in the Gulf. It's not that common. We are evaluating, though, at Dalmatian, which would be, again, tied to more of a reservoir energy perspective to St. Malo and looking at that in our long-term plans. Thanks again. Thank you, Roger. Thank you.

Your next question comes from Paul Chan with Scotiabank. Please go ahead.

Hey, guys. Good morning. Hey, Roger. a number of questions. And you talk about the bond shares start to quickly getting back to shape. And you're going to accelerate the cash return. Can you talk about between, say, fixed dividend, variable dividend and buyback, how should we look at when you reach the point you will be able to accelerate the return? And what's the precondition for that to happen?

Thank you, Paul. That's a good question for us in a company that does have a long policy. Like many others in 2020, we reduced our longstanding dividend by a good portion, 50% in that case. We still feel that we're a very nice dividend-paying company. We put that with our capital discipline that we've been exhibiting here to allow us to allocate our free cash flow to really reduce our debt, Paul. We want to get our debt in half, as we said, and I said earlier this morning. we could reduce our debt in half by the end of 23, you know, with the strip pricing today. So we know that we're an established company. We want to have lower debt by returning cash to our shareholders. That's been our policy and practice. It's no surprise. And at these oil prices, as I just said, we'll be able to accomplish those objectives at a faster pace. And if this were to occur, we do have one big advantage in our company with lack of equity issuance, that only 154, 155 million shares, that an increase that you read about from our peers really isn't a lot of money for us. So that would be under evaluation in near term, and along with our budgeting and pricing. And we'd like to lower the debt first, and we're hopeful to get the debt done But a simple increase in dividend is not an expensive venture for Merfuel.

And that, Roger, can you talk about wearable dividend and buyback, which if you indeed going to have excess cash in addition, because as you say, you only have 154 million shares. So raising the fixed dividend, not necessarily that much money, more that you really want to raise it that high, I assume. So there's excess cash flow in this pricing. So between the variable dividend and buyback, do you or the board have a preference, one way or the other?

We have been so focused on our de-levering, which is the left-hand pillar of our three focus areas, Paul, quite honestly. That's our first step. Naturally, as you go into a budget season with oil around 80, different views can take place. I don't want to get ahead of my board on that, but I would say at Murphy, we're more tuned to dividend and getting our dividend back. We're a dividend payer for 60 years, and that would be best for us. And, of course, a variable dividend, I suppose, can come into that mix. And I would say at this share count, that would be the basis today, Paul. Okay.

And the second question is on hedging. With the bond shares getting better shape, should we, looking at hedging, you're going to significantly reduce your hedging position going forward or that you continue to be very aggressive on the hedging? I mean, statistically speaking, why do a lot of hedging if you have a strong balance sheet and your reinvestment rate is relatively low, your break-even requirement is low?

Yes, Paul. I'm going to provide just a high level and let David get into more of that with you. We are not going to be a company that hedges ever more than about $45,000 a day or higher for oil. And we have some and make sure some protections to ensure that we do not ever have to go to the bond market for the 24 notes that we've greatly reduced. And that's our overriding thing at this time. I'll let David provide you more color on that, Paul.

Yeah, Paul, great question, by the way. Thank you for that. You know, the way we think about hedging at this point, as you point out, really is to think about it in the context of our continued debt reduction plan, which, of course, is 50% by 2024. Roger mentioned, you know, we really don't ever hedge more than about 50% of our anticipated oil production. And recently, as you've seen, as we disclosed, we've chosen to utilize collars for the remainder of our 22 program. And we've been able to achieve a floor price of about $62, a little bit more than that, and an average ceiling of almost $75. We like this structure because it does provide us some downside protection so that if certain things were to happen in the oil market, we'd still have really good cash flow from those hedges that would allow us to continue our debt reduction plan. And, of course, if the prices, you know, stay where they are today, then we're going to be able to reap the benefit of those higher prices, which, as Roger mentioned earlier, would also allow us to pay down our debt faster. So we think about it in that context, and, you know, we've never really been a company that, you know, other than our gas position in Canada and the Montney, we've never really hedged terribly far out, you know, longer than, you know, 12 to 18 months. So, you know, that's been our consistent approach historically, and I think we're sticking with that now. Okay. A final question, Roger.

There's a lot of assets up there for sale, including, I think, Quantico. After they closed the shell deal, probably we do quite a lot of permanent asset sales. And Petrobras, your partner in the Gulf of Mexico, is also putting their assets up for sale. Can you talk about, from an M&A standpoint, how the company is looking at that, whether you think the company is a buyer market or a seller market from your perspective?

Well, Paul, thank you for that question. We have been very active in M&A, both selling and buying over the last eight years, for sure. I think we've done $8 billion of deals in the company to reposition ourselves where we are, and it's helping us pay down debt, and we have a lot of EBITDA for barrel from that. We look at a lot of M&A. I would say we focus our M&A efforts in offshore. We have ample locations in onshore and want to make our onshore business. It's running extremely well right now, a very consistent production, and want it to be a long-term free cash flow provider like all shale piers today. Offshore, we see a competitive advantage. and certain assets and certain issues. But instead of saying buying or selling market, it has to be a certain rate of return at the way we do M&A and how we analyze PDP and 2P type reserves and a price deck with the information that we have of being a long-term offshore player. And that type of return and will it supply the free cash flow to be accretive to all of our debt reduction metrics and the type return that we want and risk and the discounting of those cash flows with that risk is how we think about it more than just being a buyer or seller. Because there's not that much competition to buy, Paul, and we're a known operator and can look at a lot of offshore properties and add value and cost structure improvement to most things. So that's how we're thinking about it today, Paul. Thank you for that question. Thank you. Appreciate it.

Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Charles Mead of Johnson Rice. Please go ahead.

Good morning, Charles. Good morning, Roger and David. I had a little difficulties on my end, got dropped, but I'm glad I got back in. And good morning to the rest of your team there. Roger, I'm wondering if you can share with us, I imagine you have something like a Gantt chart or some kind of schedule that you're keeping an eye on to track the progress of King's Key to your startup. Can you share with us what the key milestones are, what the key lines of activity and heavy lifts are that you are really focused on?

Thanks, Charles, for that, and Kingskey's going well. There is a Gantt chart that has 723 lines on it, and they usually condense it down for me, Charles, when we meet. I understand it's a lot going on there, but we're doing very well there, very, very well. We visited the facility recently. It's the most advanced facility at this stage of the game I've seen in my career. It's in great shape, great condition with the tow over, getting ready to tow it offshore in a week or so. So, to me, the issues are towing it out, which shouldn't be a problem, mooring it up. The mooring are pre-laid. And we do have a lot of pipelines to lay in the field, you know, for each of the wells and manifolds and billicles. There's two vessels in the field laying pipe today. We'll be towing the vessel out very soon and establishing the mooring. And then we're out in the field drilling. We have interface management to manage those. It's common to our business. And I feel well-positioned at Kings Key today. But there's always many items to execute there. But I feel real good about Kings Key and the associated jewelry that's on the mud line to produce these. There are three fields, Galicia, Mormont, and Samurai. And I feel real good about it on the execution of the facility and the pipelines, et cetera.

So if I understood you, Roger, it's really getting the facility out there, getting the mooring lines secured, which are, I guess, prepositioned and really just the ongoing lay of the infield flow lines.

Yeah, if I wasn't clear enough, Charles, I apologize. That is the key part. Then, of course, the rig has to complete the wells on time, and we want to maximize the flow of how many wells we can have before first oil. So it's a matter of organizing that. We may flow earlier, but with less wells, or flow later with more. And we've got to get the rig to complete the wells. Of course, these wells are pre-drilled with pay at Khaleesi and Moormont. We're still drilling at Samurai. But we're progressing every day on schedule, and I've been real fortunate on it and real, real pleased about the progress.

Thank you for that. And then if I could ask a question about the – the Petrobras sale of their, I guess, is the remaining 20% interest in your JV. Can you offer any comments on that process? And then maybe specifically, do you have anything like a pref right for that 20%? Thank you, Charles, for that.

Yes, the Petrobras deal, as you know, has been a very, very nice deal for our company. Helped them as well. They wanted to exit and remain partial owners of us. I think they would be very pleased with our execution and progress so far. They have determined they want to sell their piece. We do have a prep right, and we'll be analyzing that. But just like the previous question, you might have been offline with Paul at Scotia. You know, we have to have the certain returns and the certain – aspects of deal that we would like as to the risking. But we really understand all the assets because a lot of them are ours, and we've run them for a long time. We feel advantaged from that perspective. But they'll have a process. We're going to probably participate in it and move forward after that and see how that goes, Charles.

Thank you, Roger.

Thank you.

Your next question comes from Leo Mariani with KeyBank. Please go ahead.

Good morning, Leo. Good morning, guys. I wanted to just touch base on the silverback well here. Just wanted to get a sense from you guys. Did you see any hydrocarbons in that well, and what type of information do you think you may have learned here? Because I think you have a bunch of other acreage in the area.

Thanks, Leo, for that question on exploration and smelting. What I can say about it, yes, we did find some hydrocarbon in the well, and the well is being evaluated and tied into our blocks and to the blocks that we farmed into. But we expensed the well, and the well was plug-in abandoned, and we have a limiting disclosure among our partner group on it, LEO, quite frankly. And that's kind of where we are today, I'm afraid, to talk about it. Okay, understood.

And just wanted to touch base. I think, Roger, in your prepared comments, you talked about your longer-term plan, 21 through 24, kind of $600 million of CapEx, you know, 6% type of production CAGR. I just wanted to get a sense. I think, you know, you rolled this plan a while back. I think the plan was for 22 to kind of be the high point for capital just due to a lot of the King's Key, you know, CapEx that needed to kind of roll through here. So I just wanted to confirm if that's still – generally the thinking, you know, from you folks, and just want to see if you have any comments on inflation and how that might impact CapEx over that plan.

David Morgan Thanks for that question, Leo. Before I answer that, I think the main thing for us is in probably two years ago, no, a year ago, 2020, a year ago, we formulated this plan to keep our onshore businesses flagged, have our Montney term projects, support our offshore projects, pay down debt, and all that, and we've done very, very well at that. And the CapEx, too, and what I'm proud of today is that after another year of all the comings and goings and the business that we work in, that we can maintain all the attributes of our long-term strategy slide for now well over a year, which I think is positive, considering what we do in our business. And the CapEx for next year will be higher. I've spoke of that before. And it will be the higher year because of what you said. And we're moving along in this plan. I'm very happy for that plan, and oil prices are helping us deliver faster. And keeping the plan in shape with these numbers that I mentioned in my comments, which is a reading of the slide, I'm real happy about. As to inflation, Tom Morales is here, who runs technical services at the company, including supply chain. I'll let him talk about our views on inflation there. Leo, if you don't mind. Thank you. Here's Tom.

All right. Thanks, Leo. Yeah, this is definitely something we keep our eye on in our supply chain group, working with the operations group, try to adjust where we can to make sure we can deliver the plan as Roger described. This year, we definitely saw with the recovery of the global economy that there was in the market some tightening, but it really didn't impact us, fortunately. A lot of what we had planned for 21 was already under contract, especially if you consider the Gulf of Mexico projects with long lead items. And then looking at next year, we're certainly seeing some categories go up, but we're also seeing some come down. In particular, around the OCTG category, that's where we saw some inflation. But really, for us, earlier this year, we talked about our ability to drill our onshore wells for about $5.5 million a well. And when we look to next year, we think we can deliver the same. And for us, it comes down to changes in how we design and operate our wells. It comes down to lateral length and a mix of the drilling areas that we're going to be focusing on. And then longer term, in the longer plan that Roger talked about, We do incorporate the modest inflation around 3%. So a lot of what he's referring to has that baked into the longer-term view.

Okay, that's very helpful. And just last one here for you guys, just on exploration, I guess you have a well-planned in Mexico, you know, for next year. Just wanted to kind of get your thoughts on how you rank, you know, Mexico from a high-level perspective on exploration, given some of the changes in the political and kind of regulatory regime down there. Just want to get a sense if, you know, you look at Mexico maybe as not, you know, being as prolific as maybe it could have been a couple years back as a result of some of those changes?

Thanks, Leo, for that. No, I don't see that changing in any way as the prolificness, if you will, if that's a word, around Mexico. We have been able to permit and gain approvals of everything we've ever wanted. I think there are some issues there around other matters, unitization and things in which we're not a party. There's been some nice success by European majors around the trend that we're drilling. We're operator there. That's also an advantage. It's well offshore. We feel comfortable about that part of the business and treat it as another nice exploration well to drill. Very similar to a project that we would see seismically in our long-term history in the Gulf of Mexico. I don't see the yakking that we hear around that involving us too much, and we're able to do what we need to do.

Okay, thank you.

Thank you. Appreciate it.

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, and we'll be talking to you at the end of our next quarter with our budget and things of that nature. Thanks a lot for dialing in. See you next time. Thanks.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.