Murphy Oil Corporation (NYSE:MUR) Q1 2024 Earnings Call Transcript May 2, 2024

Murphy Oil Corporation beats earnings expectations. Reported EPS is $0.85, expectations were $0.82. Murphy Oil Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. And welcome to the First Quarter 2024 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Kelly Whitley, Vice President of Investor Relations and Communications. Please go ahead.

Kelly Whitley: Thank you, Jonah. Good morning, everyone. And thank you for joining us on our first quarter earnings call today. Joining us is Roger Jenkins, Chief Executive Officer; along with Eric Hambly, President and Chief Operating Officer; and Tom Mireles, Executive Vice President and Chief Financial Officer. Please refer to the informational slides we placed on the Investor Relations section of our website as you follow along with our webcast today. Throughout today’s call, production numbers, reserves and financial amounts are adjusted to exclude non-controlling interests in the Gulf of Mexico. Slide 2. Please keep in mind that some of the comments made during this call will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

As such, no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, see Murphy’s 2023 Annual Report on Form 10-K on file with the SEC. Murphy takes no duty to publicly update or revise any forward-looking statements. I will now turn the call over to Roger.

Roger Jenkins: Thank you, Kelly. Good morning, everyone, and thanks for listening to our call today. As we turn to Slide 3, I’d like to reiterate our corporate priorities of deliver, execute, explore and return. We remain firmly on track for achieving our $300 million debt reduction goal in 2024, leading to $1 billion of total long-term bond debt outstanding at the year-end 2024. In the first quarter of 2024, we exceeded production guidance in the Eagle Ford Shale and Tupper Montney with total production of 170,000 barrels equivalent per day at the high end of our guidance range. Murphy’s Gulf of Mexico Workover Program is ongoing. In addition, I’m pleased to report that the Mormont #2 subsea well is back online in the first quarter after equipment repair.

We will continue to progress our well delivery programs and in the second quarter, we will have a new well at Khaleesi and 23 new operated wells all to come online. In exploration, our operating partner is currently drilling the Ocotillo exploration well in the Gulf of Mexico, and we will move to the Orange exploration well immediately following. In the first quarter, Murphy was awarded six deepwater blocks from the Gulf of Mexico Federal Lease Sale 261. We’re also progressing our exploration plans in Vietnam as we’ve contracted a rig to spud our exploration program in the beginning of the third quarter. We’re pleased to continue our hallmark of consistent returns to our shareholders through buybacks and longstanding dividends. We’ve repurchased $50 million of stock in the first quarter at an average price of $39.25 a share.

Additionally, as announced in January, we increased our quarterly dividend to $0.30 per share, our 120, I am sorry, $1.20 per share annualized and our Board maintained this level in April, which is back to a 2016 annual level. Our cap allocation focus has been primarily focused on debt reduction since 2020. Between August 2020 and August 2022, excuse me, we reduced total debt by $730 million. Since announcing the framework in August of 2022, we’ve consistently executed a combination of debt reduction, share repurchases and dividend increases. And since the total year 2020, we’ve reduced debt by $1.7 billion. We purchased a total of $200 million in stock or 4.7 million shares at an average price of $42.68 a share and raised our quarterly dividend 140%.

In the first quarter of 2024 specifically, we generate sufficient adjusted cash flow to allow us to purchase 50 million of stock and capitalize on stock price dislocation prices to oil prices. For 2024, we’re solidly on track to achieve our $300 million debt reduction goal and reach Murphy 3.0 of our capital allocation framework, especially with current oil prices. Looking forward to reaching this next step and further increasing shareholder returns to 50% of adjusted free cash flow later this year. Slide 5, Murphy produced at the high end of guidance at 170,000 barrels equivalent in the first quarter of 2024, with 89,000 barrels of oil per day. We achieved a slight premium to WTI as we realized $78 per barrel and our realized NGL price was $23 a barrel and nat gas was $2.12 per thousand cubic feet.

Overall, we generated $746 million of revenue in the quarter, excluding our non-controlling interest. I’ll now turn the call over to our Executive Vice President and Chief Financial Officer, Tom Mireles, for an update on our financial results. Tom?

Tom Mireles: Thank you, Roger, and good morning, everyone. Slide 5. In the first quarter, Murphy reported $90 million of net income or $0.59 per diluted share and $131 million of adjusted net income or $0.85 per diluted share. We achieved $405 million of adjusted EBITDA due to a combination of strong production and realized prices, with $264 million of accrued CapEx, excluding non-controlling interest. Overall, as Roger mentioned previously, we had an outstanding quarter in returns to shareholders as we repurchased $50 million of stock, paid a higher dividend and increased our cash balance. In total, we returned over 60% of our free cash flow, all while supporting a front-end loaded CapEx plan with approximately 60% of spending in the first half of 2024.

Slide 6, Murphy maintained strong liquidity in the first quarter, with $1.1 billion as of March 31st, including more than $300 million in cash and equivalents. I’m pleased that during the quarter, we received positive outlooks from both Moody’s and Fitch, revised from stable outlooks previously, with the corporate ratings affirmed at Ba2 and BB+. At quarter end, we had $1.3 billion of senior notes outstanding, with a long-dated weighted average maturity of nearly eight years. We remain on track for further debt reduction this year and I look forward to reaching Murphy 3.0, with total debt of $1 billion before year end. Slide 7, at Murphy, we seek to continually minimize our impact on the environment, whether that’s using natural gas rather than diesel to fuel our onshore operations or utilizing recycled water for our well completions.

We also support the communities in which we work, like the City of Uvalde in South Texas or here in Houston. Because of this service, we have been presented with awards, such as the United States President’s Volunteer Service Award from the Houston Food Bank and I look forward to Murphy developing further initiatives to enhance our positive impact. With that, I will turn it over to Eric Hambly, our President and Chief Operating Officer, to discuss our operational updates.

Eric Hambly: Thank you, Tom. Slide 10. Our Eagle Ford Shale wells performed above expectations in the first quarter, achieving total production of 29,000 barrels of oil equivalent per day, with 86% liquids volumes. Our operating partner brought online four Tilden wells during the quarter, while Murphy progressed our 20-well operated drilling program for the year, as planned. We are on track to bring seven operated Catarina wells online in the second quarter, plus an additional four non-operated Tilden wells. Slide 11. In the Tupper Montney, Murphy produced 348 million cubic feet per day and progressed our 2024 well delivery program, with 13 wells that are either now producing or will be online in the near-term. This will complete our plans for the year.

We are excited to announce that Murphy has joined the Rockies LNG Partnership, which may create future LNG opportunities for our Tupper Montney acreage as projects in the area near completion. This partnership is comprised of Western Canadian natural gas producers, driving LNG export optionality and we are eager to be a part of it. Murphy maintains a strong price diversification strategy, mitigating against AECO price exposure. For the first quarter, we sold approximately half of our natural gas volumes at the Chicago, Dawn, Malin, Emerson, Henry Hub and Ventura price points. Slide 12. Our Kaybob Duvernay asset produced 4,000 barrels of oil equivalent per day, with 68% liquids in the first quarter of 2024. We progressed our development program for the year and have three operated wells coming online in the second quarter, as planned.

Slide 13. Our Gulf of Mexico assets produced 73,000 barrels of oil equivalent per day, with 82% oil volumes. This production was impacted by approximately 13,000 barrels of oil equivalent per day of planned downtime events during the quarter. Murphy is advancing our development program for the year and we look forward to bringing online the sizable Khaleesi #4 well in the second quarter, as we found approximately 200 feet of net pay when drilling. We are also progressing the drilling of a new well at our Mormont field, which is scheduled to come online in the third quarter. Additionally, our operating partner has brought online wells at the St. Malo and Lucius fields during the quarter. In Offshore Canada, we produced 6,000 barrels of oil equivalent per day in the first quarter, according to plan.

Slide 14. During the first quarter, we completed the zone changes on the Marmalard #1 and #2 wells, as planned, as well as the subsea equipment repair at Mormont #2. Murphy also initiated work on the Neidermeyer #1 well workover, with the plan now updated to drilling a sidetrack well, which will delay the online date to the third quarter of 2024. Our workover expenses, which are included in our lease operating expenses, total $50 million for the first quarter, with $65 million forecast for the second quarter. This figure includes the cost of the Neidermeyer sidetrack well. Additional work is planned later this year at the Dalmatian #2 well for the subsurface safety valve repair, as well as the non-operated Kodiak #3 well, stimulation and zone addition.

Slide 15. In Vietnam, we have been progressing our plans for our Lac Da Vang Field Development Project, including advancing a ward of major contracts this year. We look forward to begin drilling our development wells in 2025 and remain on schedule for achieving first oil in late 2026. Slide 17. In the Gulf of Mexico, we’re excited to begin our 2024 exploration program. Our operating partner is currently drilling the Ocotillo exploration well. Immediately following this well, the rig will shift to drill the nearby Orange exploration well. These two Miocene prospects are located near existing infrastructure and could be brought online quickly if either is a discovery. Also in the first quarter, we expanded our portfolio and were awarded six deepwater blocks from the Gulf of Mexico Federal Lease Sale 261.

Slide 18. We’re continuing preparations for our Vietnam exploration program later this year and are excited to have contracted a rig which is currently drilling in-country. Murphy will first bud the Hai Su Vang exploration well in Block 15-2/17 in the third quarter and target a mean to upward gross resource potential of 170 million barrels of oil equivalent to 430 million barrels of oil equivalent. The rig will then move to drill the Lac Da Hong exploration well in Block 15-1/05, targeting a mean to upward gross resource potential of 65 million barrels of oil equivalent to 135 million barrels of oil equivalent. We look forward to seeing the results of these wells as they provide the potential to create a more sizable business in Vietnam. Slide 19.

Our seismic reprocessing work continues to progress for our acreage in Côte d’Ivoire and we are pleased at the multiple opportunities available across exploration play types. Importantly, ENI recently announced positive results from its Murene1 exploration well on the Calao discovery nearby. Murphy is excited at this news and I note that our Blocks CI-502 in particular is very near this discovery. In general, our Côte d’Ivoire acreage position is now bookended by two significant ENI discoveries. We will continue to progress our analysis of the data as it comes in, with the final seismic data due by year-end 2024. And with that, I will turn it back to Roger.

Roger Jenkins: Thank you, Eric. On Slide 21, for second quarter 2024, we forecast total production of 176,000 equivalents per day to 184,000 equivalents per day, with 93,000 barrels of oil during that period. This range is impacted by 2,000 barrels of oil equivalent per day of offshore non-op unplanned maintenance primarily related to a third-party downstream facility, 1,250 barrels equivalent per day of Eagle Ford Shale downtime as we have offset frac impacts and a significant downtime of 11,700 barrels equivalent per day at Tupper Montney for plant maintenance that’s ongoing. Murphy plans to spend approximately $325 million of accrued CapEx in the second quarter. The full year 2024, we’re maintaining a production guidance of 180,000 equivalents per day to 188,000 equivalents per day, with 52% or 95,000 barrels a day of oil.

This guidance is supported by stronger own-well performance and better results at non-operated offshore fields. We’re also maintaining our CapEx range at $920 million to $1.02 billion, excluding NCI. These ranges will support us achieving our 2024 debt reduction goal of $300 million, thereby allowing us to reach Murphy 3.0 and enhance our shareholder returns. On Slide 22, effective at year end, our long-term strategy remains unchanged since we first disclosed the refreshed projections following last year’s opportunities captured in Vietnam and Côte d’Ivoire to support our new opportunities and long-term oil production growth. We’ll continue to support and grow our returns to shareholders during this time. In particular, we’ll be executing Murphy 3.0 of our framework after reaching our debt reduction goal this year.

Longer term, we plan to reinvest approximately 45% of operating cash flow, enabling us to achieve average production of approximately 210,000 equivalents per day to 220,000 equivalents per day, and as always, over 50% oil weighting. Murphy will continue generating ample free cash flow to allocate towards further shareholder returns, accretive investment, as well as supporting exploration success. Additionally, as part of this plan, we remain committed to achieving metrics that are consistent with investment-grade rating. And I’m pleased that the rating agency outlook improvements achieved this spring that Tom just spoke of. On Slide 23, I’m glad to have a solid first quarter behind us as we continue to execute our plans for the remainder of the year.

Our long history of consistently returning to shareholders will expand as we reach Murphy 3.0 later this year. We’re already ahead of the game with share repurchase in the first quarter. I view our 2024 debt reduction goal as a given. I look forward to buying back more stock to enhance shareholder value. Additionally, we have exploration upside with drilling two wells in the Gulf of Mexico and two wells in Vietnam. Our future is bright, especially considering our long runway of Gulf of Mexico projects, as well as significant future locations across our North American Onshore business and our exploration upside. As we approach annual meeting season, we often benchmark our peer group on 2023 10-K data. When doing so, we find that Murphy is rated one or two in many categories, a few of those.

Free cash flow per production, the per debt adjusted share growth, production per debt adjusted share growth, lowest reinvestment rates, debt reduction, total debt, debt due 2024 to 2026, debt to EBITDA, total cash return for shareholder change year-over-year, and lastly, G&A for EBITDAX. Solid company, solid plan, diverse portfolio, exploration upside, locations sustainable, the long history of shareholder returns. That’s Murphy Oil Corporation. As always, I want to thank our outstanding employees for their consistent effort and determination to help us reach all of our goals. With that, that’s the end of our prepared remarks today and we look forward to our questions.

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