Murphy Oil Corporation

Good morning, ladies and gentlemen. Welcome to the Murphy Oil Corporation third quarter 2023 earnings conference call and webcast. If at any time during this call you need 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 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 non-controlling interest in the Gulf of Mexico. 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-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.

Roger Jenkins Thank you, Kelly. Good morning, everyone, and thank you for listening in to our call today. As we turn to slide three, 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. Murphy continues to generate strong cash flow. We've been able to more than double our long-standing dividend since 2021, as well as significantly reduce debt. Since the end of 2020, we've reduced debt by approximately $1.4 billion and paid more than $330 million of dividends. And within the past quarter, we purchased $75 million of stock, all while maintaining our cash balances and replacing reserves. As we move to slide four, Murphy has remained focused on our priorities to deliver, execute, explore, and return. I'm excited to say we advanced Murphy 2.0 of our capital allocation framework in the third quarter through share repurchases and redemption of $249 million of 2025 senior notes, and we remain on track to achieve our $500 million debt reduction goal for the year. Third 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. 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 De Vang Field Development Project in Block 15-105, Vietnam, with first 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 Lock Devane field development project. We have since commenced seismic reprocessing projects in Cote d'Ivoire and the Gulf, and our rig will resume drilling the Murphy-operated Oso No. 1 exploration well in the Gulf of Mexico in the very near term. In the third quarter, we repurchased $75 million of 1.7 million shares outstanding at an average price of $44.53 per share. Additionally, our board approved a $300 million increase in our share repurchase authorization today, and we have $525 million remaining. I look forward to further progressing through Murphy 2.0 as we continue delivering 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. 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-Montigny 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 thousand cubic feet. Strong oil price, in addition to our production outperformance, led to Murphy generating $900 million 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.

Thank you, Roger, and good morning, everyone. Slide six, Murphy reported $255 million of net income for $1.63 per diluted share in the third quarter, an adjusted net income of $249 million for $1.59 per diluted share. Operations remain strong in the quarter, resulting in adjusted EBITDA of $597 million, with minimal accrued capex of $162 million, excluding non-controlling interest. Slide seven. As Roger said earlier, we are excited to have executed on MRFI 2.0 of our capital allocation framework. During the quarter, we redeemed $249 million of debt and repurchased $75 million of shares outstanding, as well as paid our quarterly dividend of 27.5 cents per share. Overall, we returned 106% of our adjusted free cash flow in the third quarter. To further support the framework, our board has approved an additional $300 million share repurchase program, and we currently have $525 million remaining under that total authorization. As of September 30th, we had total debt of $1.6 billion, so we will continue to allocate adjusted free cash flow funds as prescribed in Murphy 2.0 until we reach Murphy 3.0 with $1 billion of total debt. With that, I'll hand the call over to Eric Hamley, our executive vice president of operations, to discuss our operational update.

Thank you, Tom, and good morning, everyone. Slide 9. Murphy's Eagleford shale assets produce 38,000 barrels of oil equivalent per day with 88% liquids in the third quarter, exceeding guidance by 1,200 barrels of oil equivalent per day. As planned, we brought online seven operated wells with four wells in Katarina and three wells in Tilden. Three non-operated Tilden wells are planned for the fourth quarter. We've seen great results from our wells this year, particularly as we returned to the Tilden area for the first time since 2019 and applied 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 Jambors wells in Tilden that came online mid-year continue to significantly outperform at twice our pre-drill forecast, while our third quarter wells have produced in line with plan after adjusting for lateral length. Slide 10. In the Tupper Motney, Murphy achieved record quarterly production of 414 million cubic feet per day in the third quarter. 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 two of the top 10 and four of the top 15 natural gas wells in all of Canada in an external report. Internally, Eight wells have each achieved an average IP30 of more than 18 million cubic feet per day in 2022 and 2023, and two wells have each achieved a new company record IP30 of more than 21 million 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 third quarter. As announced in September, we closed the divestiture of a non-corp portion of our operated K-Bob DuVernay asset, as well as our entire non-operated position in Placid Monte for $103 million in net cash proceeds. The divested assets produced approximately 1,700 barrels of oil equivalent per day with 39% oil. Post-close, we maintain nearly 500 future locations in the Cave of Duvernay and are able to maintain base production through various optimization initiatives. Slide 13. We produce 89,000 barrels of oil equivalent per day with 81% oil across our offshore assets in the third quarter. 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 No. 3 well in Mississippi Canyon 255, ahead of first boil in the first quarter of 2024. The two non-operated Lucius wells are moving forward and are forecast to come online in mid-2024. Our non-operated major projects are also advancing, with the Terranova Asset Life Extension project anticipated to return to production by year-end, and the St. Malo Water Flood Project working toward first water injection in 2024. Slide 14. We have had two 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 a subsurface safety valve, while the Niedermeyer No. 1 well encountered mechanical issues in the third quarter. We have workovers planned for both wells next year and anticipate the wells will resume production by mid-2024. Additionally, the non-operated Lucius No. 9 well workover is scheduled for the fourth quarter 2023, with the well forecast to return to production in first quarter 2024. The previously disclosed non-operated Kodiak No. 3 well stimulation and zone addition is scheduled for mid-2024.

And with that, I will turn it back to Roger. Thank you, Eric. On slide 15, we're pleased to announce today that our board has sanctioned the Loc De Vang field development by 15-105 in Vietnam, with first soil forecast in 2026. The field will be developed in phases through 2029 to ensure capital efficiency, targeting 100 million barrels of oil equivalent on an estimated gross recoverable resource basis. Overall, we forecast the field will 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 it's currently receiving a premium to Brent oil pricing in that region. On slide 16 during the quarter, Murphy reviewing commerciality and field development concepts for the pond discovery in block CI-103, which is appraised with multiple wells by a 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 two planned wells in Vietnam next year. The Lac Da Hong exploration well is located in block 15105 just to the southwest of our Lac Da Vang field development project. The well will target a mean to upward growth resource potential of 65 to 135 million barrels of oil equivalent. In block 152-17, we're planning to drill the Hai Su Vang exploration well, which will target a mean-to-upward gross resource potential of 170 to 430 million barrels equivalent. These two outstanding prospects will be advantaged by the infrastructure provided by the nearby Lac du Vang field. On slide 19, we're excited to have commenced initial work during the third quarter on our newest country entry, Côte d'Ivoire, by initiating seismic reprocessing across four of the five blocks Overall, we look forward to advancing the exploration opportunities in this country. In slide 20, our long-term Gulf of Mexico business. In the near term, we're moving our rig back on location to resume drilling of the Murphy Operator Oso No. 1 exploration well in that water valley, 138. This well targets a mean to upward gross resource potential of 155 to 320 million barrels of oil equivalent. So we talk about our guidance, plans, and capital on slide 22. For the fourth quarter, we forecast production of 181.5 to 189.5 thousand 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. Our production guidance today includes the loss of production of a well in the Niedermeyer Field, which is producing 4,000 barrels of oil equivalent per day prior to being shut in late in the third quarter. For full year 2023, we're raising our production guidance range to 185 to 187,000 barrels of oil equivalent per day, which represents a 3,000 barrel of oil equivalent per day increase in our midpoint. This range is compromised to 53% oil and 59% liquids. Lastly, we are maintaining our accrued CapEx guidance range of $950 million to $1.025 billion, excluding $49 million of acquisition-related costs. On slide 23, as first announced in August 22, Murphy has a multi-tier capital allocation framework that allows for additional share returns beyond the quarterly base dividend while advancing toward a long-term debt target of $1 billion. This framework is supported by $525 million 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 million annually to shareholders through quarterly dividend increases of $0.275 per share annualized and purchased $75 million of our own stock as well as paid down nearly $750 million of debt. I look forward to continuing our progress in Murphy 2.0 and further rewarding our long-term shareholders in the quarters to come. On slide 24, since it's closing our multi-year plan back in January, we've had tremendously positive events this year through the approval and sanction of the Loc Vang Field Development Plan 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 delivering 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 whole process the past couple years. We're well on our way to establishing a pristine balance sheet with approximately $1.4 billion in debt reduction since year-end 2020. Murphy has a significant amount of well locations to support decades of activity in North America onshore and multiple fully delineated basins. Offshore, we're a competitively advantaged company. We're adding new development and exploration opportunities internationally. I'll continue to allocate capital to our longstanding Gulf of Mexico business. 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 out the year. With that, we'll end our comments today and take your questions and appreciate it.

Thank you. And ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your telephone keypad. 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 call-in process, please press the star followed by the number two. If you're using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. And your first question comes from the line of Bert Dons from Truist. Your line is open.

Hey, good morning, Roger. Good to see you, and I hope to see you at Mardi Gras this year. It looks 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.

Oh, thank you for that question. Really appreciate that about our golf business, a real solid part of our company where we've been in this business since the 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 two very significant wells in Vietnam now that we have our Vietnam field development plan approved at the LDV field. And these are very large prospects and very nice and lower risk and lower cost wells. We're all participating in, we haven't had our budget finalized, but we're likely, highly likely 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 in exploration, active in lease sales. But also, you know, we bring to the table a long level of experience working internationally. Murphy's a sought-after company. work internationally because we move faster we it's very critical to us where we enter a country and we bring a competitive advantage and countries want murphy and uh we're uh have two real nice positions now internationally and uh so uh doing really well and well positioned in the gulf and internationally right now which is a a differentiator for murphy oil corporation and then thank you for that question that that's great look forward to the updates and then

Just the second part, I just wanted 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, or is that more of an annual target for that 25%? And that's all I got. Thanks.

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

Sure. Thanks, Roger.

Thanks, Bert.

Yeah, 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's an execution strategy part of this. And on the timing side, we aren't trying to be precise on a quarter-to-quarter basis. 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 target for us.

But, Bert, one more thing, and we've got to get this debt down, and we're really focusing in on that $500 million goal, and where we are today, I 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.

That makes perfect sense. Thanks, guys. Thank you.

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

Good morning, Leo. How you doing?

Hey, good morning. Question on fourth quarter CapEx here. Wanted to see if you could kind of help us out in terms of what the ballpark number should be there in 4Q. And you also talked about this 49 million 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, or are those kind of on the come here into 4Q?

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.

Oh, yeah. So you mentioned $49 million 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 fourth quarter 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 there? CapEx for the fourth quarter ought to come in under $200 million. $200 million.

It maintains our guidance. So we don't have that number right handy with us, but it 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 fourth quarter.

Yeah, 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 a CapEx range, but again, we feel really good about our full-year CapEx range.

Okay. And you brought a little bit more color in terms of the activity in the fourth quarter, because I know that there's a handful of kind of non-op Eagle Ford wells, but that sounds like that's the minimum spending. There's nothing really onshore. So what kind of comprises the bulk of those expenditures here in 4Q?

I have Eric handle that for you, Leah.

Yeah. 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 Eagleford. That doesn't drive our capex too much. We do have a little bit of facility spending. We're doing a number of projects to get ready for our drilling activity in the Eagleford 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 fourth quarter with two rigs working in the St. Malo non-operated project. and our resumption of drilling Oso, as well as our ongoing development work that we highlighted at the Marmalard No. 3 well. Okay.

That's helpful, guys. Yeah, no, I appreciate that. And just on the share buyback, obviously you kicked it off this quarter. It was kind of great to see. Maybe just kind of talk a little bit about how you're sort of balancing that with debt reduction, you know, as we go forward here.

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, 75-25 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.

Tom, any further color to that? No, 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 delivering.

But we do anticipate stock. Just to be clear, though, Leo, we do anticipate stock repurchasing in the fourth quarter. Okay.

Along with debt reduction. I appreciate it. Thank you.

Thank you. And once again, if you would like to ask a question, please press the star followed by the number one on your telephone keypad. Your next question comes from the line of Charles Mead from Jensen Rice. Your line is open.

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

Good morning, Charles. Good to hear from you.

Roger, you touched on Vietnam just briefly earlier in your Q&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'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. And then also clarify for us that 10,000 to 15,000 BOE a day net to you guys in, I think it's starting in 2016, Does that include any risk exploration success from these two prospects, or is that just locked bang only?

No, that is 100% just from the project, nothing to do with exploration in any number, any forecast, anything with MerFuel. Appreciate that question. The Vietnams have 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 – of the field development plan, meaning they're ready to put their money in with us here, Petro-Vietnam. We've had these nice prospects. 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 the rumor of some very good success by one of our partners in Vietnam that recently drilled a very nice well targeting this same zone. There's a very large prospect, can change our world there, make this a very, you know, 30, 40, 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 million wells in the Gulf of Mexico. You're talking about wells high at 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 just not like we're in a rank wildcat country here. So that kind of frames what we're doing in Vietnam, unless you had a follow-on to that, Charles.

No, no, that's it. That's great detail. Thank you, Roger. And then my second question is kind of about your Murphy 2.0. And really, by my modeling, it kind of, you know, 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 4Q23, 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. And so I'm curious if you – to what extent that you guys have discussed that with your board. And if there's a, you know, as you roll forward, uh, 24, you guys are, are going to be, uh, uh, it's, it's possible that you could exit the year with a zero net deposition, you know, without giving effect to any share of your purchases. So has that, has that, can you characterize the conversation that you're having at the board level? And, and if there's any, is it any shifts on what you guys are thinking about for 24? Um,

No, obviously we are discussing this. We have a finance committee for our board where we 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. We can get to the 3.0 next year, depending on oil price, as you know. Then we'll go to 50-50. I would say we just keep it down the fairway, honor the framework, get to the Murphy 3.0 50-50, and then we have You know, world's our oyster on opening up there. We can go to more returns and could be more opportunities come our way. So we're very, very well positioned. We're also, you know, we're still in the oil business. We're not orderly depleting our assets. We picked up two incredible assets here to do with our offshore competitive advantage on execution. The country's 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. And with higher oil prices and above 85 or so, we can move to this 3.0, as you said, very quickly. We want to probably at least execute one quarter of each of the numbers before we change. But I haven't heard that comment rolling stop, but it sort of is that way. Charles, I appreciate you coining that great line for me this morning.

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

Well, thank you, and good to hear from you.

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

Thank you, everyone, for attending our call today. We appreciate it. 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 talk to you in late January.

Appreciate it. Thank you.

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