25 Jan 2024 | 17:58 UTC

Murphy Oil to devote around 10% of yearly capex in 2024-2029 to exploration: CEO

Highlights

Capex in 2024 targeted at $970 million at midpoint

Current assets have output forecast past 2050

Output in 2024 eyed at 186,000 boe/d, flat on year

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Murphy Oil plans to devote about 10% of its annual capital budget in the years 2024-2029 to exploration, which will build a portfolio that can sustain the company for decades, its top executive said Jan. 25.

The company's 2024 capital budget, unveiled with its earnings release the same day, is between $920 million and $1.02 billion, with $120 million or $12 million devoted to exploration. This year's capex is up about 6% from $914 million spent in 2023.

"You have to have some level of exploration if you're an E&P company, otherwise you're just a 'P' company," Murphy CEO Roger Jenkins said in webcast remarks during a fourth-quarter conference call. "We have raised that because you need to build a better portfolio for the long-term value of the company."

"To me sustainability is having an asset base which lasts for decades," Jenkins said. "Our board is seeing a production forecast past 2050 with the assets we own today. We'd like to augment those assets with oil-weighted exploration, because we have [Tcfs and Tcfs] of gas in the Montney [a shale play in Canada].

"So we feel that with roughly a 10% level of capex we can build a long-term, lower-risk exploration portfolio that evens out the risk profile," he said. "We're within 1%-2% of that execution on our first year."

For its $120 million of exploration capital in 2024, Murphy targets discovery of around 120 million barrels of oil equivalent of resource around the world, including two wells in each of the US Gulf of Mexico and Vietnam's Cuu Long Basin.

Two US Gulf prospects to be drilled in 2024

In the US Gulf, Murphy will drill two non-operated wells, managed by Occidental Petroleum and located in the Mississippi Canyon area offshore Louisiana. One well is Ocotillo, where Chevron is also a partner and all companies have just over 33% working interest, and Orange, where both Oxy and Murphy hold 50%.

Both US Gulf wells are anticipated to spud in the second quarter and are near existing infrastructure, Murphy said in its presentation slides.

Moreover, the 2024 level of capital spending allows enough money on the balance sheet to "pounce" on M&A when assets are lower-cost, Jenkins said.

The company acquired a rather large package of US Gulf assets in 2019 which is "getting better on the subsurface," he said. He said the company aims to own more prospects near its substantial production infrastructure where it can "flow those barrels to us."

Murphy owns the King's Quay production hub which came online in April 2022. King's Quay produces three mostly oil fields – Khaleesi, Samurai and Mormont.

The company typically replenishes its US Gulf acreage through offshore lease sales, as do most of that arena's operators. Murphy was high bidder, either alone or in consortia with other producers, on nine deepwater US Gulf leases at US Gulf Lease Sale 261 in December 2023.

The US Bureau of Ocean Energy Management has 90 days from the Dec. 20 sale date to review bids and award them based on bidders' fair market value. All but one of Murphy's high bids in Sale 261 were in the Green Canyon area of the Gulf offshore Louisiana. One bid was also in Atwater Valley, east of Green Canyon.

Eyeing high return rates in US Gulf

"People want to flow [their production] to us and there's an opportunity for us to make an incredibly high rate of return," through that, Jenkins said. "People want us in their projects even though we're not operators, to help with our expertise."

Besides $120 million earmarked for exploration, Murphy's intended 2024 total capex of roughly $970 million at midpoint includes $450 million total devoted to the company's onshore assets, including $320 million for the US Eagle Ford Shale and $130 million for the Kaybob/Duvernay play in Canada.

In addition, $370 million is to be spent on offshore projects, including $300 million in the US Gulf of Mexico, $25 million for the Hibernia/Terra Nova project offshore Canada, and $45 million for offshore development which includes $40 million for Lac Da Vang field development in Vietnam and $5 million for the Paon field development plan in Côte d'Ivoire.

Murphy's full-year 2024 production should be in the range of 180,000-188,000 b/d of oil equivalent, 52% oil, and 58% liquids. That would be about flat to up 1% compared with nearly 186,000 boe/d in 2023.

Jenkins said Murphy earns $1 billion or more of free cash flow every year from 2024 to 2029, and still has its onshore assets to back it up which will last for "decades and decades."

Along the way, Murphy plans to buy "a lot of stock," he added. "One of [our] key advantages ... is that we've never issued equity since we went public in the 1950s, and we only have 154 million shares, so we can buy 5% to 6% of the company every year. Our shareholders today a $1.20/share dividend, same as 2016 with way less net debt, so we're well protected."