Murphy Oil Corp., whose portfolio extends across North America’s onshore, into the offshore and overseas, is raising its capital spending this year, with an eye on pumping up oil and natural gas volumes.
The management team of the Houston-based independent provided some insight on the strategy for 2022 during a recent conference call to share fourth quarter and 2021 results.
“We produced more oil than originally planned, with less capital, while also lowering our total debt by 17%,” CEO Roger W. Jenkins said. “We had our best year on record for protecting the environment.”
Murphy works in the Eagle Ford Shale, as well as Western Canada’s Montney Shale and Duvernay formation. In addition, the company has stakes across the deepwater Gulf of Mexico (GOM), offshore Canada and in Brazil. Geographically, 25% of reserves are in the Lower 48, with 26% offshore – primarily in the GOM. Almost half (49%) of the reserves are in Western Canada’s onshore.
Fly Like An Eagle (Ford)
In the Eagle Ford, the company has been able to “improve and enhance completions” using a number of tactics, said Executive Vice President Eric Hambly, who oversees operations. “We have been optimizing our landing zones and improving how we’re drilling our wells to be more consistent and exactly the target we want…” Teams also are optimizing completion designs to be more cost effective.
“And with that, we’ve seen some strong results,” Hambly said. For example, three wells in the Catarina leasehold exceeded the type curves by “more than 50%…They were nice, long lateral wells,” he said.
Murphy has been working in oil and gas basins for decades and was in at the start of the unconventional boom in the early 2000s. Jenkins was asked whether the Lower 48 has reached “shale maturity,” with producers faced with spending more money to extract fewer volumes.
“We have been in shale for a long time,” he said, including about a dozen years in the Eagle Ford. “I think it’s not so much what the shale would deliver. It’s more of a discipline” in capital expenditures (capex) and not recklessly pumping out gas and oil at a high rate when there are higher commodity prices.
The onshore may be seeing flatter production today, Jenkins said, but there’s “more free cash flow, which fits well with Murphy…But as I look at shale in this new, flat world, and I look at when we cut our capex back, our team was able to have incredible production engineering efforts, which allowed us to really improve our base production.”
Eagle Ford maintenance has revolved around improving compression and surface engineering. The maintenance upgrades have ensured the independent has the “best base production ever and our lowest decline ever…I see that getting better…”
To reduce costs and continue to improve efficiencies, more remote operating centers are planned. Those gains should help the company overcome inflation issues, Jenkins said.
“We’re continuing to see improvements, and we’re targeting $5 million well drilling completion costs throughout North America, no matter what.” Engineering and technology improvements are likely to “keep these fields flatter longer and deliver a lot of free cash flow.”
Total oil and gas output during 4Q2021 increased from a year earlier to 150,000 boe/d from 149,000 boe/d. For the full year, production averaged nearly 158,000 boe/d, compared with 164,000 boe/d in 2020.
Natural gas volumes improved in 4Q2021 to 365,252 Mcf/d from 341,641Mcf/d in 4Q2020. Natural gas liquids production was nearly flat at 10,047 b/d, while oil and condensate volumes fell to 87,960 b/d from 89,934 b/d.
In the Lower 48, natural gas production increased in 4Q2021 to 30,982 Mcf/d from 24,799 Mcf/d a year earlier. Canada’s gas volumes from the onshore climbed to 279,906 Mcf/d from 255,933 Mcf/d.
Lower 48 crude/condensate output improved to 22,993 b/d from year-ago volumes of 21,875 b/d, while output in the GOM inched up to 57,181 b/d from 56,648 b/d.
Bringing On Major GOM Projects
Murphy was able to maintain its schedule of “major” GOM projects last year, Jenkins said, “despite the continued headwinds of a pandemic and significant hurricane.” The company has stakes in around two dozen big projects underway in the deepwater.
Murphy completed repairs in the final three months following Hurricane Ida, with 1,500 boe/d still expected to be offline through March as a third party completes downstream repairs.
The Khaleesi/Mormont and Samurai project in the deepwater GOM is expected to produce first oil before the end of June through the King’s Quay floating production system.
Offshore Canada, production averaged 3,000 boe/d in the fourth quarter, 100% oil weighted.
Murphy’s planned 2022 capex is set at $840-890 million, with full-year output forecast to average 164,000-172,000 boe/d. Production in 1Q2022 is estimated to be 136,000-142,000 boe.
“Our 2022 budget is higher than 2021, with capital designated toward finalizing key development projects in the Gulf of Mexico while maintaining oil volumes across the portfolio,” Jenkins said.
Murphy has earmarked $330 million, or 38%, of 2022 capital to the GOM for development drilling and field development projects. Another $200 million, or 25%, would be directed to the Eagle Ford, which is $50 million higher than in 2021.
Most of the U.S. onshore wells set to be brought online this year are to be in the Eagle Ford, with 23 in the second quarter and four planned in the third quarter. Twenty wells are scheduled to ramp up in the Tupper area of the Montney Shale, split evenly between the second and third quarters. Thirty-two wells also are to be brought online this year in the Eagle Ford in which Murphy has a stake but doesn’t operate. Three wells also would go online in Western Canada’s Kaybob Duvernay formation.
The company plans to spend 16%, or $140 million of its 2022 capital, in Canada’s onshore across the Tupper Montney and Kaybob Duvernay operations.
“With our offshore projects on track and significant onshore spending coming online by the middle of 2022, we see production increasing each quarter this year…far ahead of 2021,” Jenkins said. “Also, our 2022 oil rate is planned to be the highest in over three years in the fourth quarter.”
For its U.S. onshore gas, Murphy fetched an average realized price of $5.40/Mcf in 4Q2021, versus $2.63 a year earlier. GOM has garnered a $5.02 average price of $2.46, while Canada onshore gas had an average realized price of $2.70 versus $2.32.
For its domestic onshore oil and condensate, the average realized price was $76.28/bbl in 4Q2021, compared with $40.26 in 4Q2020. GOM realized oil prices averaged $74.73, versus a year-ago price of $42.94.
Fourth quarter net income totaled $168 million ($1.09/share), reversing year-ago losses of $1.72 million (minus $1.11). For the year, Murphy lost $74 million (minus 48 cents), compared with 2020 losses of $1.15 billion (minus $7.43).
Revenue more than doubled in 4Q2021 year/year to $739 million from $330 million. For 2021, revenue totaled $2.3 billion, versus nearly $2 billion in 2020.
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