Murphy Oil takes long view of US Gulf amid industry downturn

Houston — US-based Murphy Oil, which revitalized and grew its US Gulf of Mexico presence in recent years, sees the region as one of the world's best despite this year's oil demand and price downturn, the company's top executive said Dec. 15.

Last month's lease sale confirmed the value of US Gulf of Mexico assets, Murphy CEO Roger Jenkins said, speaking at the online MKM Partners Virtual Conference.

During the Nov. 18 lease sale, 23 companies offered high bids of more than $120 million at a time of industry fiscal austerity.

While the $120 million is historically low for an offshore auction, the event came after a highly contested presidential election where the winner, Democrat Joe Biden, is widely assumed to favor restricting new well permits, Jenkins said.

"If [operators] didn't feel they could continue working in the US Gulf, they wouldn't have spent that money" on the 93 leases that received bids, Jenkins said.

"If you follow the money, BP, Shell, Equinor and all the major European players who supposedly want to lower their carbon footprint...are still drilling in the US Gulf because it's super-economic and it's the lowest carbon intensity basin there is."

Many US-based large independents at one time operated in the US Gulf, but exited years ago to pursue domestic shale oil because low oil prices made the longer-lead offshore play more risky than onshore shale. Those who persevered in the US Gulf have found it a profitable arena for many reasons, Jenkins said.

Gulf royalties lower than onshore

The US Gulf offers "the best terms in the world on taxes and royalties," he said. "Corporate taxes are low, royalties onshore Texas are 25% but the US Gulf of Mexico is lower. And...the offshore Gulf of Mexico is the lowest-carbon intensity [operating area] in E&P by a long margin."

Jenkins said as a preliminary figure, Murphy plans capital spending of about $700 million in 2021, about even with this year's capex. Nearly half of that, or $300 million, will likely be devoted to the US Gulf, he said, compared to $285 million in 2020.

A finalized budget will be released early next year.

Murphy is currently tackling several offshore tieback projects – wells near existing infrastructure which can be easily hooked up and produced – that are expected to come online next year and 2022, Jenkins said.

These projects should capture larger free cash flows from what are expected to be higher oil prices heading into 2022 and beyond, he said.

NYMEX front-month WTI settled 63 cents higher at $47.62/b Dec. 15, but has spent much of the year at around $40/b or lower as the coronavirus pandemic hammered global demand.

Some of Murphy's short-term projects include a tie-in well at the Kodiak field, which should flow first oil in Q1 2021. A rig is on location to complete the well – a task deferred by low oil prices after it was drilled earlier this year, Jenkins said.

'A lot of pay' in Kodiak field

"The well has a lot of pay in it," he said.

Murphy holds 48% of Kodiak, which Kosmos Energy operates.

Also awaiting further work is the Calliope field offshore Louisiana's "big toe," which will be produced from a BP platform and should come online in Q2 2021. Pipeline installation on the field is "progressing," according to a Murphy presentation slide.

A large cache of hydrocarbons were also found by two wells drilled by Occidental Petroleum near that company's remote Lucius field in the southern US Gulf, where Murphy is a 9% working interest partner, said Jenkins. The wells should come on in Q1-Q2 2021.

In addition, a waterflood project to raise oil production at the Chevron-operated St. Malo field, also in the remote southern Gulf, is currently drilling its first producer well and first injector wells, he said.

Incremental oil from the waterflood could be about 5,000 b/d per well, Jenkins said. Murphy has a 20% stake in St. Malo.

St. Malo, a celebrated large field when it came online in December 2014, has "the most pay I've ever seen in a well in my career," Jenkins said.

"St. Malo probably could be one of the biggest margin projects in the world," he said.