Murphy Oil Corp. reduced its full year budget an additional $40 million at the midpoint, to $680-720 million—a reduction of more than 50% from original guidance, and with the revised budget, anticipates production volumes of 153,000-163,000 boe/d for the third quarter.
This guidance range is primarily impacted by two major factors—assumed storm downtime of nearly 5,000 boe/d, and repairs at Delta House facility of 8,000 boe/d—as well as planned maintenance at a non-operated Gulf of Mexico field, resulting in 1,200 boe/d of third quarter downtime.
The CAPEX guidance excludes Gulf of Mexico noncontrolling interest (NCI) and King’s Quay floating production system (FPS) construction spending.
The budget reduction was reported as part of Murphy’s second-quarter 2020 operating and financial results, in which Murphy posted a net loss of $317 million for the quarter.
Adjusted net loss, which excludes discontinued operations and other one-off items, was $110 million. The adjusted loss from continuing operations excludes the following after-tax items: a $146 million non-cash mark-to-market loss on crude oil derivative contracts, a $32 million charge for restructuring expenses, a $16 million non-cash asset impairment charge, and a $12 million non-cash mark-to-market loss on liabilities associated with future contingent consideration.
Second quarter production averaged 168,000 boe/d with 58% oil and 65% liquids. Volumes were negatively impacted by a total of 17,500 boe/d for the second quarter, of which 16,000 boe/d were the result of shut-ins due to market prices, in addition to nearly 1,600 boe/d as the result of Tropical Storm Cristobal in the Gulf of Mexico. Production volumes from the shut-in wells came back online in June.
As of June 30, Murphy had $1.6 billion of liquidity, comprised of $1.4 billion undrawn under the $1.6 billion senior unsecured credit facility and about $146 million of cash and cash equivalents.
At the end of second quarter, Murphy had outstanding debt of $2.8 billion in long-term, fixed-rate notes and $170 million drawn under its senior unsecured credit facility.
For the quarter, Murphy accrued a total $174 million of CAPEX, including about $33 million for the King’s Quay FPS which, along with previous King’s Quay expenditures, will be reimbursed at close of the transaction, which is anticipated to occur in the third quarter.
Operations
The North American onshore business produced 90,000 boe/d in the second quarter.
Production in the Eagle Ford shale averaged 38,0000 boe/d with 74% oil volumes in the quarter. Early in the quarter Murphy brought online 11 operated wells in Karnes, comprised of nine new wells and two refracs. The five non-operated Karnes wells scheduled to come online were delayed to the third quarter. An additional three non-operated wells are scheduled to come online, for a total of eight non-operated wells to come online in the third quarter. Drilling and completions have been reduced to about $5 million/well for first-half 2020. No further operated activity is planned for 2020.
Natural gas production from Tupper Montney averaged 237 MMcfd for the quarter. No activity occurred in the second quarter, and none is planned for the remainder of 2020.
Second quarter production from Kaybob Duvernay averaged nearly 11,000 boe/d. One well was brought online during the quarter, with production from the remaining four new wells deferred to the third quarter. No drilling and completions activity is planned for the remainder of 2020.
Placid Montney produced 2,000 boe/d in the second quarter through Murphy’s non-operated position. Six non-operated wells were brought online in April, and shut in for May and June due to low commodity prices. Production from these new wells resumed in July.
The offshore business produced 78,000 boe/d for the second quarter, comprised of 80% oil, excluding production from discontinued operations and noncontrolling interest. Gulf of Mexico production in the quarter averaged 72,000 boe/d, consisting of 78% oil. Canada offshore production averaged 6,000 boe/d, comprised of 100% oil.
In the Gulf of Mexico, the second well in the Front Runner rig program, A7 (Green Canyon 338), was completed and brought online during the quarter. The planned third well in the program has been postponed as part of Murphy’s revised capital budget due to ongoing low commodity prices.
Also in the quarter, the Dalmatian DC 134 #2 (De Soto Canyon 134) and Cascade 4 (Walker Ridge 250) well workovers were completed and the wells returned to production for total net workover costs of $20 million, representing nearly 15% of total operating expenses for the quarter.
Murphy’s operating partner in Kodiak #3 (Mississippi Canyon 727) drilled the well to total depth in the second quarter, with completion delayed until prices recover. Additionally, the non-operated St. Malo waterflood project continues to progress, and the producer well PN005 (Walker Ridge 678) was spud during the quarter.
The non-operated Mt. Ouray well (Green Canyon 767) was drilled in the second quarter for $7.8 million cost net to Murphy as 20% working interest owner. The well has been classified as a dry hole.
The King’s Quay FPS transaction documentation is progressing, with the logistical effects of COVID-19 delaying closing, which is now targeted for the third quarter. During the second quarter, construction on the FPS with Hyundai Heavy Industries achieved the significant milestone of 1 million man-hours with zero Lost Time Incidents.
As previously announced, non-operated Terra Nova offshore Canada is expected to remain offline for the year.