Murphy Oil : Morgan 2020 Energy, Power & Renewables Conference Presentation Transcript

Murphy Oil Corporation

Murphy Oil Corporation presentation delivered at the 2020 Energy, Power & Renewables

Conference on Wednesday, June 17, 2020 at 11:30 AM

Arun Jayaram: Good morning. This is Arun Jayaram from J.P. Morgan's E&P research team.

Welcome to day two of our conference. We're delighted to have Murphy Oil as our next presenter and also delighted to have Roger Jenkins, who's the CEO of Murphy, longtime CEO, since 2013.

He's on the board of directors. He's also a big LSU Tiger fan, so it started off as a good year.

Roger, we have some difficult challenges with the sector. He's going to discuss some of those. As a reminder, Murphy is a diversified E&P with key operations in the US Gulf of Mexico, the Eagle Ford in Canada, as well as an intriguing exploration portfolio that I'm sure Roger will talk about that. With that, I'll turn it over to Roger.

Roger Jenkins: Thank you, Arun. Yes, it seems like a long time ago from that national title game which we dominated and were 15-.

Arun: [laughs]

Roger: One of the best teams in the history of college football. It's been a while. To my presentation today, thank you everyone for dialing in to the meeting with J.P. Morgan today, virtually here. Naturally, I'll be making forward-looking statements on slide two. It's typical to a format like this. For further information on that, you can check our corporate website.

Today, I'll be talking about an overview of the company and what we've done in this current environment. We've made a lot of significant changes in our cost structure to continue to be well-positioned financially.

A brief update of our onshore and offshore portfolios and, as Arun mentioned, a look at our exploration business, which we have some major drilling to happen over the next year and which we're very excited about.

On slide three, naturally, Murphy has a long corporate history. We've been in business a very long time. On June 1st of this month was our 70th year anniversary being incorporated. We'veseen our shares of ups and downs in this business, something we're used to. This is, of course, a very significant one but one we've adapted before.

We feel our oil-weighted price-advantaged assets with our margins help us in these times when the prices are difficult. We do have adequate liquidity in our company. We do have low costs, big exploration potential in our company.

Something I'm quite proud of on the safety and efficiency side is we were a leading company in handling COVID offshore. We were the first company to buy over 4,000 test kits in February to start testing offshore workers to ensure that COVID did not infest our operations. We had zero impact from offshore operations or onshore operations covered COVID.

We also had a very successful run at working from home, and now phasing back into work in our in our Houston office. I'm very, very proud of our crisis management team in handling that. We've enjoyed during this period some of the best safety and environment performance we've had in our company in several years.

If we look at page four, these are reserves at the end of the year. In our 10-K, we 800 million barrels of proven, 57 percent liquids waited. We made 186,000 a day in the first quarter. A good bit of that being liquid weighted at 66 percent. On the map on the right, if you've been following Murphy for a long time, there's significant changes in this map since 2013.

When we spun out our retail business became a standalone E&P company, we will now have one office in eastern Texas. Here in just a few days, we have a very small office in Vietnam with only nine personnel.

We're operating primarily in the Western Hemisphere. Now, a significant change from our major presence in Southeast Asia, and also much less areas in which we explore, so much tighter, focused company. If you look back at 2013 with all significant changes, we still today have about the same oil reserves as we had back then with all these changes in our portfolio.

In the current environment slide on page six, this is more high level, how we adapt to this energy landscape. Fortunately, we did some major changes in our portfolio in the last seven years of being an independent E&P, of which we position ourselves out of a more gassier weighted long-term business in Malaysia.

We sold out in Malaysia twice at the top of the market, and then positioned ourselves with lowertax structure and higher EBITDA/BOE in the Gulf of Mexico. That has helped us a lot during this period of time where prices have collapsed. We are contained to support our long-term projects in the Gulf because they have low breakevens.

We're going to be a big supplier of EBITDA for our company. We made significant changes in costs. We do have strong liquidity, and over $1.8 billion over $400 million of cash at the end of quarter, at December to today.

No debt maturities. I'll talk about that in a few minutes. Really our portfolio diversification, where we sell crude in various markets and various differentials, provides us a lot of advantage when dealing with collapses like this.

Page seven is a real nuts-and-bolts of what we've been doing lately. Starting off with production, we announced on our quarterly call, I guess, in early May that we were looking to shut in 40,000 barrels in May. May was a very poor month for pricing. We made some decisions to shut that in primarily in the Gulf.

All this production is back on. We are now producing about 180,000 barrels a day, post to recovery from a tropical storm that came through the Gulf last weekend or two weeks ago. We're well-positioned there.

We're cutting CAPEX further. We announced today that we now have a CAPEX of 700 million, down an additional 40 or 50 percent CAPEX cuts. We now can cover our dividend -- a reduced dividend -- and our capital with prices anywhere close to where they are right now, and delayed some projects in order to do that.

Big focus in our company on costs and reducing G&A. We're now forecasting G&A between 130 and 140 million, 40 percent year on year reduction and a 50 percent reduction. Back in 2013, when we first spun out, G&A was 379 million in Murphy, so this is significant.

It also shows that Murphy will do what it takes in these difficult times, with the closure of a historic office in El Dorado. But these office closures are not easy, and one that requires a lot of change in how we're going to operate and work in one office going forward.

Also we focused a lot on operating expenses, and lower that, and maintain our $8 to $9 OPEX, which is quite good for a company with our portfolio, even with reduced production that we had due to the May shut ins.

On page eight, we have a balance sheet that has resilience. We started off the year...If you go back to some early slides at another conference in February, we highlighted our strength of our debt leverage multiple as to EBITDA. We're very, very well-positioned in groups compared to ourselves and our similar bond rating.

Again, we have unsecured credit facility. We do not have semiannual borrowing redeterminations or RBL. We do not have that in our company and we have no near-term liquidities -- rather maturities. In 2022, we do have a little over $500 million of two bonds that would need to be repaid or refinanced. One is in June and one in December, so a long runway to that, and a nice maturity profile with our revolver, heading into this go-forward price situation.

In our onshore business, we do have a price advantage at Eagle Ford asset, very close to Three

Rivers refinery. In Phillips and Corpus, long term relationships there. This field was not shut in, as some onshore was in North America, but very price-advantaged area.

Very nice long-term position in Tupper Montney, and there have actually been some nice prices there of late, as less and less production in that region is taking place by peers. We can, of course, move a lot of capital in and out of this business.

In a very de-risked business, we've delineated fully the Kaybob and Montney and Eagle Ford, and have over 1,400 producing wells, so it's quite a de-risked, large piece of business for us.

In our Eagle Ford Shale, quite proud of the lower right, where we've increased EUR every year, the median of EUR, which I think is important, which is not always the case. We've seen some publications. Many, many locations left to go here, left to drill.

We've always viewed ourself as conservative on our inter-well spacing and type curves and the way we do business. We've actually been performing very, very well in the Eagle Ford of late from that prior drilling.

In our Canada onshore business in slide 12, Kaybob Duvernay is actually performing incredibly well. It's supposed to be the backup of the poor locations long-term in our Eagle Ford business, and still can easily fulfill that. 170,000 acres, 700 locations again, and in our full deck that we shared, many conservative spacings again, which is real key to how Murphy runs our business.

All of our land is retained. Our prior carry obligation from our partners is fulfilled and over, and wenow have a big asset sitting here with some very, very successful wells.

Tupper Montney again. Large BCF per well here. Large total resource in the company. Over 1,400 locations to go and continuing to perform well there, even though we are in and out on the operations there on occasion. We continue to perform very well in executing that business when we're executing.

In our offshore business, we're quite proud of the changes we made in our portfolio. Now the fifth largest operator in the Gulf, operating four significant facilities in the Gulf. A lot of exploration acreage there. This is a high-margin, high-EBITDA business, and a long runway of work to do here in the Gulf of Mexico.

As we look at slide 15, our revised budget is now $285. We've deferred an Ourse and a Son of

Bluto project into a further time. We're still trying to analyze when we bring those back. We're still supporting our very successful long-term Khaleesi/Mormont/Samurai field. These projects are progressing well.

There'll be a good bit of spending here over the next couple years involving that, low breakeven projects. In the bottom right is what all these projects, including St. Malo, produce.

When I see this slide, I see a near 20,000-barrel-a-day business for a decade there, and typically running at some mid-cycle prices of around $24, $25 a barrel of EBITDA here, so a significant

EBITDA business coming as we come off the production we have and then replace that with these projects in the near future.

King's Quay fabrication going very well. We were very proud of the actions we took around COVID response in Korea. We never stopped construction there. Able to monitor the construction remotely and had a very nice system to monitor and execute that. We're still negotiating that agreement to sell down 50 percent. I consider it to be progressing well.

I do not see that in the ditch where we can't get it done, but it's a lot of complicated agreements.

It's been hurt, quite frankly. If there is an impact of COVID in our business, it's the inability to get everyone in a single room and resolve this. We are working toward doing that starting today in our Houston office. We now feel like we're going to be progressing that to closure.

In our exploration business, we're quite proud of our exploration business. On slide 17 is where we're focusing on. The Gulf of Mexico on the US side, the Gulf of Mexico in Mexico itself, the