Murphy Oil Exec Insights: Workover Issues, Production

On Thursday, Murphy Oil Corporation (NYSE:MUR) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analysts and investors.

Workover Issues

Blake Fernandez – Howard Weil: David, if I you could go back to Kikeh, could I just confirm, the workover issues, does this have to do with the previous workover wells or is this ongoing maintenance that you just haven’t completed yet?

David M. Wood – President and CEO: Blake, there was really some things in the first quarter that impacted Kikeh; one of which we changed the rig out that was not moving very well and we brought a semi-rig over from Indonesia. It’s been in (relation) before we brought it back. So, it’s performing much better. We did that at the end of January. We did on the other rig – so this is two rigs working on the field one on thus far have a stuck pipe incident which kind of lost six weeks on our workover program and that has impacted us. We also had a manifold installation there for wells that are going to be brought on later in the year. So, all of those had an operational impact. Then we had two wells that went – that were shut in for screen failure basically, and these are carryover from wells that we had before. So, if we look at our workover program, we have six expandable screen wells to workover, including these two that went off, and we will work those over during the course of this year; the two that have gone off.

A Closer Look: Murphy Oil Earnings Cheat Sheet>>

Blake Fernandez – Howard Weil: And just to confirm though, the previous – the kind of gravel packs – and are you experiencing problems with those that were done last year?

David M. Wood – President and CEO: No, no. If we look back a year ago, we now have equipment in the field to remedy this and we now have done seven wells where we’ve completed them with this openhole gravel-packs or frac packs. Four of those were wells that had problems. We have no problems with any of those seven including the four that were remedies. So, I think we’re in a good shape here now with both equipment in the field to perform the workovers if needed, and also with the technique that has shown that it fixes the problem. So, this time a year ago, we didn’t have that, now we have that.

Blake Fernandez – Howard Weil: And then on the commodity outlook, you suggest that you have now a higher Brent, I guess, and WTI assumption. Are you alluding to potentially a shift in strategy or maybe CapEx – higher CapEx? Is that where you’re going with that comment?

David M. Wood – President and CEO: Well, it’s just a recognition of where kind of we see oil prices. I think our budget for the year was about $3.5 billion, and now it’s likely to be about $3.7 billion. We’ve (flowed) some money out of Tupper, as I mentioned, about a 100 – a little over 150, and we’re doing some more spend in places like Eagle Ford and like Seal and like Malaysia, and so that’s the reason for the change.

Blake Fernandez – Howard Weil: If I could sneak in one last one; I’m just curious, it’s kind of outside the typical upstream realm, but I noticed you retail same-store sales were down 6%, which seems a bit inconsistent with what we’re hearing from some of the I guess downstream players. Is there anything unique you’re seeing? Whether it’s Walmart traffic or what could be driving that? That seems much lower than what we’ve heard.

David M. Wood – President and CEO: It was a poor quarter for us. We typically in our business have poor first quarters, because we haven’t got into the main (driving part). Remember we don’t sell much in a box. We sell mainly gasoline, and we struggled in the first quarter because wholesale prices rose pretty steadily which is a pretty tough environment for us. So those are the real reasons. We’re looking at it and I can tell you that since then we’ve rebounded nicely, and so to me this second quarter is setting up from these early numbers like it should do for us.

Producing Wells

Leo Mariani – RBC Capital Markets: Just wanted to follow up on (Kikeh). How many total producing wells do you have in the field?

David M. Wood – President and CEO: There’s 21 wells completed to produce, there’s 19 currently producing and the two wells I mentioned are shut in.

Leo Mariani – RBC Capital Markets: Okay, and then you’ve got gravel packs on seven of those and you mentioned you’re going to do essentially the same thing I guess on six more. Is that right?

David M. Wood – President and CEO: Yeah, where we had the problem was these expandable screen completions and we have four more to do, and when those wells go off and they’re not off yet. They are producing now, so at some point if they do go off, we will recomplete those.

Leo Mariani – RBC Capital Markets: Okay, and what happened with the twos that were shut-in here for failure as well recently?

David M. Wood – President and CEO: The screens failed and so we have to replace those.

Leo Mariani – RBC Capital Markets: Those were also the same expandable screen design then?

David M. Wood – President and CEO: Yeah, we have to replace those. They were making about 5,500 barrel a day net between the two of them.

Leo Mariani – RBC Capital Markets: So just to clarify, so that will be a total of six wells where you have to replace the screens at? I am just trying to understand the numbers here?

David M. Wood – President and CEO: Yeah, left to do Leo, that’s right.

Leo Mariani – RBC Capital Markets: Could you give us some information about this Julong discovery well in Brunei, what did you guys find, any idea about (indiscernible)?

David M. Wood – President and CEO: (Actually) the operator needs to report. What’s been said, which I would confirm is, it’s a discovery, has some oil and gas in it. Our size going in was kind of less than a 100 million barrel size. I don’t know that that’s the right number because we have to appraise it. So, that’s kind of really all I would say Leo until the operator reports.

Leo Mariani – RBC Capital Markets: I guess, in terms of your Seal volumes, looks like they were sort of flat this quarter with the prior quarter. I guess, obviously spring breakup right now, just any color on how we should expect those to grow during the year?

David M. Wood – President and CEO: Yeah, we’re going to be as I mentioned in my comments, we’re going to be a lot more active in Seal this year, and so as soon as spring breaks a little earlier this year, as soon as we get back with our three rigs working, I think we’ll have a pretty active program. So, we’re pretty high on what we’ve seen so far in our Polymer Pilot in Seal. As I mentioned in my comments we’d be a lot more active there. So, as soon as we can get to 20,000 barrels a day, I’ll like it and our guys are focused on it.