Murphy Oil Corp. is advancing several Gulf of Mexico deepwater developments that will not only boost its growing production in that increasingly active arena in the next several years, but also deliver return rates of over 30%, its top executive said on Aug. 8.
The company produced 58,000 barrels per day of oil equivalent from the U.S. Gulf in the second quarter, making it the fifth-largest Gulf operator, Murphy CEO Roger Jenkins said during a quarterly earnings call.
That is more than a third of the company's total production, which includes operations in the Eagle Ford Shale in South Texas and also Canada.
"Our long runway of higher rate of return projects [in the Gulf of Mexico] will provide production and cash flow for several years to come," Jenkins said.
Murphy's renewed thrust in the U.S. Gulf began last year after several subdued years of low oil prices. Crude prices crashed in late 2014, causing a number of U.S. Gulf operators to pare back in that region or even sell their operations. For example, Marathon Oil Corp. and ConocoPhillips exited the arena, although ConocoPhillips continues to operate a field, but is not active in exploration.
Other U.S. Gulf operators, such as Chevron Corp., pared down their operations, although Chevron said in its own earnings call Aug. 2 it is looking to become more active in the Gulf of Mexico. It is planning at least one longer-lead stand-alone project — the big Anchor field, which is slated for a final investment decision next year.
Murphy's second-quarter total production from all operations averaged 159,000 barrels of oil equivalent per day, up 30% from the same period in 2018. The company last month sold its legacy assets in Malaysia for $2 billion.
In the third quarter, total production is targeted at 192,000 boe/d to 196,000 boe/d, of which roughly 118,000 bbl/d will be oil, he said. Fourth-quarter total production is seen around 200,000 boe/d, "a level we have not seen since 2015," Jenkins said.
The company made two major acquisitions in recent months that raised its Gulf of Mexico profile. One transaction was a purchase of U.S. Gulf deepwater assets from LLOG Exploration Offshore LLC for $1.375 billion. The other was the formation of a deepwater Gulf of Mexico joint venture company in which Murphy paid Brazil's Petróleo Brasileiro S.A. - Petrobras $900 million. Both companies contributed all their producing assets to the venture, which is 80% Murphy-owned.
The latter venture netted Murphy 41,000 boe/d of production, 97% of it being oil.
Murphy's second-quarter U.S. Gulf of Mexico production from that region exceeded its production guidance from recent Gulf asset acquisitions by 1,200 boe/d and legacy assets by 1,600 boe/d, Jenkins said.
Murphy is starting three U.S. Gulf developments in the second-half that will come online in the early 2020s. One is the King's Quay floating production system, which will host production from two LLOG fields acquired in the June acquisition. The second development focuses on the Khaleesi/Mormont adjacent fields. They are slated to come online in early 2022.
Gross Khaleesi/Mormont resource is projected at 165 million boe with 90% liquids, Jenkins said, adding Murphy's $200 million investment in the fields over four years will provide at least two decades of production.
"We expect to be able to produce for the next 20 years, generating a full cycle rate of return of more than 30%," he said.
The third project is Samurai, a field discovered more than 10 years ago by Anadarko Petroleum Corp. Samurai, with an estimated 60 million boe of gross resource, 90% of it liquids, is sited less than 10 miles from Khaleesi/Mormont, which provides production synergies and enhances economics by increasing recovery net to Murphy, Jenkins said.
The company expects "several decades" of production from Samurai and a return rate of over 35%, he said.
Jenkins also reaffirmed Murphy's capital budget guidance of $1.35 billion to $1.45 billion, provided early in 2019, which excluded money allotted for work on fields acquired in the two transactions. Murphy has added another $140 million to devote to the newly acquired assets.
About 20% of capital for new LLOG fields are allotted to what are known as "short-cycle tiebacks" — quick well hookups to existing infrastructure, Jenkins said. These will produce first oil within 18 months. Another 20% of LLOG asset capital will be spent on longer-term tiebacks, and the remaining 60% goes to the King's Quay floating production system, he said.
Starr Spencer is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.