Murphy Oil Earnings Call Insights: Congo Production and Earnings Guidance

Murphy Oil Corporation (NYSE:MUR) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Congo Production

Leo Mariani – RBC Capital Markets: Just a question here on Congo. Do you guys expect to get some production on that asset? In the first quarter you kind of mentioned writing it off couple of your blocks. I previously thought that you guys were planning on hitting some stales in the first quarter, is that still accurate?

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Roger W. Jenkins – EVP and COO: Yes it is. Leo, it’s Roger. We are going to continue to produce the asset. It’s time – we have a long-term lease obligation there and while we did impair the book value et cetera, we are continuing to operate and probably we’ll do so through this year.

Leo Mariani – RBC Capital Markets: I think you guys incurred decent chunk of cost in the fourth quarter in the Congo, do you expect to continue to see significant cost there, I think maybe you guys are trying to do some workover to boost that production. Any color you have around that would be helpful?

Roger W. Jenkins – EVP and COO: That workover is unsuccessful and I see very little spend in Congo going forward outside of normal OpEx this time.

Leo Mariani – RBC Capital Markets: I guess just looking at your LOE, you lease operating expenses, I mean it looks like to me that came down pretty significantly in the U.S. in the fourth quarter versus the prior quarter. Is there any color you had around what was driving that and how we should expect that to behave in 2013?

Roger W. Jenkins – EVP and COO: well we rolled that all into one U.S. Leo this is Roger. Again our Thunder hawk had a very nice well come on in the fourth quarter and that’s the least FPSO facility. And also we continue to improve in Eagle Ford Shale as we build our production and production more in four-well pads allowing us to accumulate more facilities there and lower our OpEx. So, here OpEx is tending down led by those two.

Leo Mariani – RBC Capital Markets: I guess you guys are saying about 200 in the first quarter goes about 211 in the fourth quarter. You talked about getting some sales volumes at Congo can you just kind of help us out with – what are the other moving parts to kind of get from 211 and 200?

Roger W. Jenkins – EVP and COO: When you say 211, you mean 211 in the fourth quarter down to where we are now is that what you were talking about?

Leo Mariani – RBC Capital Markets: Yeah, 211 in the fourth quarter down to 200 or so in the first quarter trying to close that gap?

Roger W. Jenkins – EVP and COO: We have 4300 coming down from West Patricia as I mentioned in my remarks the SK oil entitlement change, that’s a reduction in pay per barrel, I suppose, primarily. SK Gas had a 7 day shut-in of almost 2,900 equivalents install to compression that I mentioned. We sell in U.K. about 2,800. We then have the (tougher) area continues to decline around 1,600 then Syncrude is not been operating that well about 800 down from the other quarter. Then we have some deals going the other way with the Kakap well on for the full quarter, Terra Nova about the same and then Eagle Ford adding up to that other core net margins (indiscernible) back in that range of where we are. I forgot to mention, we of course had in my remarks we had that part Seal that we just had to rush to add to the last variance before we went out.

Earnings Guidance

Roger Reed – Wells Fargo Securities: I guess a quick question as I look at the performance here in the fourth quarter strictly from an earnings standpoint. And then I look at both the production guidance for the first quarter and the earnings guidance. Is there another charge out there we are expecting to see in the first quarter and if not what else is it that’s occurring the cost side that’s affecting the bottom line so much.

Barry Jeffery – Director, IR: Roger, it’s Barry here, why don’t I walk you sort of through and get you from Q4 to Q1 and might help you see a little bit there. When you normalize Q4, you’re in that $1.50 a share range for Q1 and we’ve come out with guidance here in the $0.55 to $0.90 range. So, let’s just walk through some of the moving parts. Corporate costs as we said before in the fourth quarter, was $21 million, we’re showing $52 million here in the first quarter, so that’s $0.16 a share right there. Higher ForEx expenses, higher interest expenses and higher G&A expenses in that corporate number for Q1. If we go to the downstream when you normalize it and bring back in the Hereford impairment. You are moving from about $78 million quarter to $10 million loss. We got a change there of $88 million, that’s $0.46 a share and that’s all driven by Q1 lower margins in our U.S. retail as well as lower margins projected in our U.K. downstream business. Then we get back to the upstream piece, when you normalize it and bring back in the Congo impairment and then those tax benefits we talked about, that was roughly $1.22 a share quarter in Q4 and we’re showing about $0.86 of our Q1 as being attributable to the upstream here. U.S. is pretty flat from Q4 to Q1, you got growing Eagle Ford volumes offset by some G&G and OpEx expenses that are offsetting that. Canada, you’re down quite bit. You are down about $35 million, $36 million in Canada. You’ve got some higher costs at Syncrude and we’ve got lower volumes for both Seal and Montney gas and lower prices for gas and heavy oil in Canada, as well as we have the well we’re drilling at Muskwa in that same number. So, that’s down about 36 million from Q4 to Q1, and then the other big ones, Malaysia, we’re showing oil sales in Q4 were significantly higher than oil sales projected here in Q1 on lifting. So, we’re down about 1.2 million barrels of oil sales from Q4 to Q1 offset obviously by the OpEx you’re not going to show against those barrels till you lift them. So, those are the big ones and then I would say the Congo and our other four kind of offset each other. Congo will have less in Q4. We have the Opale Marine and the Titane wells that we had to take. We won’t have those repeat, but on the foreign side, we have a drilling program going with Australia, Brunei and Cameroon as well as higher G&G costs. Those kind of offset. So, all that E&P stuff is about another $0.38 a share. So, those are kind of the moving parts that sort of bridge the $1.50 back down to a $0.55 range.

Roger Reed – Wells Fargo Securities: So, it sounds – if I interpret that correctly, the cash impact in the fourth quarter was less so, because you had mostly a charge whereas we’re looking at the first quarter, most of this is either production that’s not going to occur, the liftings or it’s actually higher costs and so we are talking sort of a less free cash flow availability or less free cash flow generation in Q1 than we had in Q4.

Roger W. Jenkins – EVP and COO: That’s fair.

Roger Reed – Wells Fargo Securities: The other question I had. Can you walk us through what’s going on, on the exploration side, during 2013, just kind of what we should be looking for in other wells, that you’ll be drilling on that front?

Roger W. Jenkins – EVP and COO: Steve will walk through some of this. I’ll go through another – a little bit of detail on Block H, on a nice run there, and we’re going to drill a well there sometime this year. These wells are very expensive in drilling we can come in and out of our development plans there and do as we need to. So we probably have a Block H continuation well in third quarter. We are drilling a well now in Brunei with the same type of gas play same type of size or source as we have in Block H or more than likely have a follow-on well there around mid-year. The (indiscernible) block that I mentioned earlier something we worked on for a long time. It has a shallow water well to be drilled here real soon and then they will as cretaceous a pretty big 200 million barrel plus prospect to be drilled at mid-year we would drill a very large 700 million barrel type gross prospect right at year end, we will spud that well. We have the ongoing program in Australia, we drilled very large gas project there one called Bassett West, one called Dufresne. We have just started the Bassett West well and set surface casing and will be drilling there almost continually through mid-year. We have possibly two wells to drill in Indonesia for a continuation of our commitments there. We are waiting on a jack up rig from BP there and when you’ll get back to drilling in the Gulf of Mexico where we are bringing in our own deepwater rig we will first complete our Dalmatian development wells and do some exploration work there. Two of our prospects, getting in to choose from we will be getting back to work in the Gulf in the second half of the year and that would pretty much wrap up a 10 to 11, 12 well kind of program which is where we want to be.

Roger Reed – Wells Fargo Securities: The two Gulf of Mexico wells that you may drill those have not been identified yet?

Roger W. Jenkins – EVP and COO: I have heard about them, but not identifying them. I have many options there partners and things I am working on this time, but they will be an oil amplitude well to drill and a Norfolk well to drill for sure in that two or three pockets.

A Closer Look: Murphy Oil Earnings Cheat Sheet>>