Murphy Oil Earnings Call Nuggets: Eagle Ford Production and OpEx Outlook

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

Eagle Ford Production

Leo Mariani – RBC Capital Markets: Question on the Eagle Ford, it sounds like they had a really big ramp up in the second quarter. I guess talked about 39,000 barrels a day and changed, where is that production currently?

Kevin G. Fitzgerald – EVP and CFO: Our production today is around 45,000 BOE per day, probably in the near 90% oil range.

Leo Mariani – RBC Capital Markets: I guess just in terms of number of wells. What’s the plan for total number of wells in 2013? Would you happen to have the number of wells you brought on in both the first and second quarter of ’13?

Roger W. Jenkins – EVP and COO: Yeah, happen to have that, just one second. We brought on 49 wells in the first quarter, 48 in the second. We’re going to be probably tailing down on our current plan to have 41 in the third and 30 in the fourth because we’re so efficient, we’ve out-drilled our self, worked our self out of a job a little bit here and we’re trying to keep our capital in check and we have less wells coming on, and kind of front loaded our CapEx there.

Leo Mariani – RBC Capital Markets: I guess obviously that’s a – it’s a pretty good program. I guess is that potentially to accelerate next year at all, how should we think about that?

Roger W. Jenkins – EVP and COO: I think we should maintain it. We have a strategy of being an E&P explore and offshore and complementary onshore business that we said many times, we’re running about $1.4 billion CapEx business here. I’d see that – trying to keep that same at this point. I think it’s a 160 wells Leo, could be added up a little more than that, but it’s around that number…

Leo Mariani – RBC Capital Markets: I guess Seal, it looks that you guys saw a really nice increase in production at Seal during the quarter. Should we expect that to kind of continue to trend higher for the rest of the year or that might plateau a little bit?

Steven A. Cosse – President and CEO: Probably not, we had a far – in February we’ve recovered very well from that. We’re probably a little ahead of our plans. I would imagine with break-up being pretty rough in Canada this year, no drilling, we have no rigs today and we don’t have any rigs usually drop, it won’t drop a whole lot, but I don’t see the growth we had quarter one to quarter two continuing that out.

Leo Mariani – RBC Capital Markets: So basically just watching your polymer pilot, and you stick with steam pilot and if you get results there, might you accelerate those at all next year or how are you guys thinking about it?

Roger W. Jenkins – EVP and COO: It is probably not. We have this 1.4 billion CapEx trying to get ourselves back to cash flow CapEx parity really working that issue in our budget. When you compare – while we are excited about the EOR opportunity, we do have a long range vision of price there and it has been very volatile and very good at times but the Eagle Ford is pretty hot running card to play right now for us in our capital allocation.

Leo Mariani – RBC Capital Markets: In terms of the retail spend, I guess, your Board is meeting next week. I guess, my understanding was that you guys have sort of already approved that (formerly of the) Board. So, it sounds like maybe you are just making decisions on exact capital structure and amount of dividend been back to the parent. Is that right? Am I missing anything?

Steven A. Cosse – President and CEO: The Board has not decided to actually do the spin but we are moving on that direction and I’d like to answer that question in the middle of next week…

Leo Mariani – RBC Capital Markets: And I guess, in terms of RINs you talked about $18 million of income benefit this quarter. I guess, prices are still strong, I guess, we should expect to see continued incremental income from that for the rest of the year and I guess could you potentially highlight roughly what the cash flow impact is of the RINs?

R. Andrew Clyde – President: This is Andrew Clyde. We’ve been doing the 12 million RINs a month and that’s a consistent rate for our proprietary blending. We can buy more barrels and blend more when the economic support it. But we look to continue to do around 12 million conservatively for the rest of the year.

Leo Mariani – RBC Capital Markets: So, any idea what that translates into and sort of rough cash flow?

R. Andrew Clyde – President: Not until I could predict RIN prices. So, currently they are around $1 and we are selling ratably on a monthly basis. So, we are blending and generating – capturing RINs of about 12 million a month and we will be getting the market price on a ratable basis.

OpEx Outlook

Guy Baber – Simmons & Company: I wanted to talk about production cost and you are focused on margin improvement, but your U.S. production costs seem to hit their lowest per barrel level about two years and the Malaysian production cost this quarter hit their lost level in three year, I believe. So, my question is, was there any unique to this quarter that caused the cost to be abnormally low. And then also could you maybe just elaborate on efforts to continue to reduce OpEx and what per barrel trajectory might be for some of your key assets in the U.S. and in Malaysia to the end of this year and into next year?

Kevin G. Fitzgerald – EVP and CFO: First just some general comments. Offshore probably up a little bit this quarter to the first and that number will probably be fairly consistent throughout the year. Big improvement in our Eagle Ford Shale, we are in the $15 per BOE, which is a big improvement that was due to the big ramp up and building of facilities and more concentrating of the build out of all of our equipment in (last) rental equipment. I would see that drifting down and (kennings) throughout the year going down into the ’14 level in the fourth quarter. I don’t see it making – at least continuing to (indiscernible) improvements. Over Malaysia we did have one-time credit. We sell condensate or NGLs come-off with the gas project in Malaysia at the Sarawak gas and we’ve had been accruing certain level of operating expenses long-term negotiation with our partner there, PETRONAS and received a credit, a one-time credit for this quarter bringing that down in that business slightly. In the next quarter, in Malaysia, we’ll be up. Again we have this Kikeh shut-in and we shut-in Kikeh with the least FPSO we anticipate, operating expenses to go up. Then we get kind of back into where we are – where we were at the first quarter in Malaysia towards the end of the year…

Guy Baber – Simmons & Company: Then I was hoping you could also just touch on Gulf of Mexico volumes, really how you see your base performing, but I noticed in some of the charts that you’re not really building in any decline to the base in the Gulf of Mexico over the next couple of years, so just looking for some detail on how that base is performing now and what type of activity is going on right now for you to mitigate any declines you might see there?

Steven A. Cosse – President and CEO: Well we have around 15,000 barrels a day business, not having a very good year in the Gulf, quite frankly, had some operational problems and rig delays here and there. About a 15,000 barrels a day business would be declining on base, but we have the Dalmatian project coming on next year, it’s quite prolific, almost the same size of what we’re producing to date net. That’s on schedule to come on in the first quarter. And later from there we have Medusa subsea development where we – Medusa is one of our better fields in the Company, one of the better margins in the Company, very nice field, it’s still producing, it’s original well-boards, so we’re unable to produce some success, we have left the hole if you will. We need to put in some subsea equipment working with our partners to gain that approval and that should work into ’15, kind of maintaining that Gulf of Mexico and that toward the ’20 is kind of business until we have a hopefully a discovery guy.