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Murphy Oil returns to offshore exploration; plans wells in US Gulf, Vietnam, Mexico

Houston — Murphy Oil has taken a bold step amid sustained higher oil prices, saying late Wednesday it has returned to offshore exploration at a time when the energy industry is showing growing interest in such ventures, but is not at that point just yet.

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After three years of low oil prices over 2015-2017, when many upstream operators were either exiting offshore entirely or vastly pared down those operations, Murphy has several offshore wells to spud around the world in second-half 2018, Roger Jenkins said during his company's Q2 earnings conference call.

"Our exploration strategy has changed so much, and is so different now," Jenkins said. "We've implemented a focused new strategy."

For one thing, the company has increased its acreage stake in plays where it can add low-cost resources with what Jenkins called "meaningful" upside.

And in the deepwater Gulf of Mexico, Murphy has brought in an exploration shop to help it develop prospects in that play, where fortunes have waxed and waned over the years but where industry consolidation has accelerated in recent months.

"We're building a nice portfolio, to where we can drill 2-3 wells [in the Gulf] every year" that can either be tied back to an existing production facility or for larger or numerous finds, may require a stand-alone facility, Jenkins said.

In one notable instance, the company took a higher working interest and reconfigured its partnership on an existing Gulf lease that contained an unproduced discovery made in 2009. During Q2 Murphy drilled a successful appraisal to the find, named Samurai, which encountered 150 feet of total pay. That is a relatively small column, but the company also delineated existing pay zones from the original discovery and discovered oil and gas is new pay zones.

The appraisal well also discovered gross resources estimated at more than 75 million barrels of equivalent oil - a figure above pre-drill estimates, Jenkins said.

"We also encountered thicker and better quality sand in the second well ... and we found additional pay zones not in Samurai-1," he said. "As a result, we plan to extend the planned depth of the well to over 32,000 feet and are currently logging a deeper interval."

Murphy and new Samurai field partner BHP was also evaluating options to drill a sidetrack well to an adjacent block to the south to further appraise the discovery.

"We could see upside [to the 75 million boe] if the sidetrack and the current evaluation is successful," Jenkins said.

Murphy and original Samurai block partners Anadarko Petroleum and Samson Offshore had acquired the lease offshore Louisiana in 2008 for a rich $105.6 million during a period of intense demand for deepwater Gulf acreage.

After a few years, Anadarko sold down its stake in the discovery and eventually exited the play, as did Samson. Murphy took over as operator in 2013 and earlier this year brought in BHP, which has beefed up its US Gulf presence in recent years.

Samurai is north of two recent BHP finds in the US Gulf - Wildling and Caicos, which are northwest of BHP's producing Shenzi field in the Gulf's prolific southeast Green Canyon area. Samurai is also sited several miles north of Warrior, an Anadarko discovery.

Murphy operates four legacy fields - Medusa, Front Runner, Dalmatian and Thunder Hawk. It also has stakes in three other non-operated fields: Habanero, Tahoe and Kodiak.

Later in Q3, the company plans to spud King Cake, a deepwater prospect Murphy operates. The prospect contains an estimated mean 50 million boe of gross resource potential.

In Q4, Murphy plans to spud the LDT prospect offshore Vietnam in Q4, with roughly 30 million boe of mean gross resource potential. Also in Q4, Murphy will drill the Palenque prospect offshore Mexico, with a projected 200 million boe of mean gross resource potential.

In Q2, Murphy produced an average 171,000 boe/d worldwide, 53% of it oil. That was up 2% from the previous quarter and up 5% year on year. Crude oil production totaled 90,000 b/d, up 2% sequentially and 1% from the same period of 2017.

--Starr Spencer, starr.spencer@spglobal.com

--Edited by Wendy Wells, wendy.wells@spglobal.com