Drilling campaign in Gulf of Mexico on Murphy’s agenda for 2023
Houston-based oil and gas company Murphy Oil is working on progressing its strategic priorities and its exploration portfolio provides an upside to its long-term plan of realising average annual production of approximately 210 MBOEPD with about 53 per cent oil weighting.
Murphy Oil disclosed within its 4Q and full-year 2022 results on Thursday, 26 January 2022, its intention to focus on high-impact, operated exploration wells in the near-term period from 2023 to 2025, which would enable it to achieve its long-term production strategy in 2026-2027. With this in mind, the firm has provided more information about its 2023 drilling campaign in the Gulf of Mexico, which aside from the well being currently drilled includes two additional wells.
Regarding its plans for 2023, the U.S. player reveals that it will focus on drilling its operated Oso-1 exploration well (Atwater Valley 138) in the Gulf of Mexico, which was spudded in 4Q 2022 with drilling activities still ongoing in the first quarter of 2023. Murphy holds a 33 per cent stake and its partners are Anadarko (33 per cent) and Ridgewood (33 per cent).
As disclosed in September 2022, Murphy hired Transocean’s Deepwater Asgard ultra-deepwater drillship for a one-well contract in the Gulf of Mexico, which includes a one-well extension option. According to Transocean’s fleet status report from October 2022, the 2014-built drillship was expected to kick off work in November 2023 under a day rate of $395,000. The work was expected to end in January 2023.
Murphy is also setting the wheels into motion to spud its operated Longclaw-1 well, located in Green Canyon 433 in the Gulf of Mexico in 1Q 2023. The U.S. company has a 10 per cent stake and its partners include Houston Energy LP (47.5 per cent), Red Willow Offshore (15 per cent), Ridgewood Longclaw (17.5 per cent), and Ridgewood Institutional (10 per cent).
In addition, Murphy intends to advance approvals to prepare for the drilling of its third operated well in the Gulf of Mexico in 1H 2023, however, no further information was revealed at this point. Additionally, the firm is working on progressing longer-term exploration plans with its partners at other locations.
The company’s production in the Gulf of Mexico averaged approximately 84 MBOEPD, consisting of 81 per cent oil during the fourth quarter of 2022 and the firm brought online two operated wells in the Samurai field during this quarter, thereby completing the initial phase of the Khaleesi, Mormont, Samurai field development project. Murphy underscores that it continued to achieve an average 97 per cent uptime at its operated King’s Quay floating production system since production started in April 2022.
Back in January 2022, Murphy hired the Valaris DPS-5 semi-submersible rig for two one-well contracts. With a minimum duration of 30 days, the first deal was expected to start in the third quarter of 2022 in the U.S. Gulf of Mexico and entailed a one-well option with an estimated duration of 90 days while the second contract was for work offshore Mexico and was slated to start in direct continuation of the first contract.
In November 2022, Murphy said that it had spud the Dalmatian 1 – Desoto Canyon 90 – well, reaching total depth after quarter-end with positive results from initial evaluations. This well is expected to come online in 2023. The U.S. player also highlighted at the time that all permits were secured for the Tulum-1 exploration well located in Block 5 in the Salina Basin.
The company confirmed in its results for 4Q 2022 that it had concluded drilling activities at the Tulum-1 exploration well without finding commercial hydrocarbons. Therefore, the well was plugged and abandoned and the partners are evaluating the results.
Murphy’s 2023 well programme is expected to deliver oil production growth of 10 per cent with lower capital expenditure (CAPEX). The U.S. firm is also targeting a $500 million debt reduction goal in 2023, resulting in around $1.3 billion of total debt outstanding at year-end 2023.
Murphy’s 2023 CAPEX and production guidance
Meanwhile, the U.S. oil and gas player outlines that its 2023 CAPEX plan is expected to be in the range of $875 million to $1.025 billion while the production for 2023 is anticipated to be in the range of 175.5 to 183.5 MBOEPD, consisting of approximately 99 MBOPD oil and 109 MBOEPD liquids volumes, equating to 55 per cent oil and 61 per cent liquids volumes, respectively. This reflects a 10 per cent increase in oil volumes and a 7 per cent increase in total volumes from 2022.
Furthermore, the production for the first quarter of 2023 is estimated to be in the range of 161 to 169 MBOEPD with 92 MBOPD, or 56 per cent, oil volumes. Murphy highlights that this range is impacted by planned downtime of approximately 7.1 MBOEPD, consisting of 2.0 MBOEPD of operated offshore downtime, 2.5 MBOEPD of non-operated offshore downtime and 2.6 MBOEPD of onshore downtime.
Regarding its activities in the Gulf of Mexico, the company plans to spend approximately $335 million of its 2023 CAPEX for development drilling and field development projects, including executing three operated subsea tie-backs and three non-operated subsea tie-backs, while advancing the non-operated St. Malo waterflood project prior to its completion in early 2024.
On the other hand, Murphy has allocated $325 million of 2023 CAPEX to the Eagle Ford Shale. This includes $250 million to drill 25 wells and bring online 35 operated wells, as well as drill 11 wells and bring online 17 non-operated wells. The remaining $75 million is allotted to support field development.
The U.S. firm also plans to spend $130 million of its 2023 CAPEX onshore Canada with approximately $100 million to be allocated to the Tupper Montney to drill 14 wells and bring online 16 operated wells, and the remaining $30 million supports field development in Tupper Montney and Kaybob Duvernay.
Moreover, $30 million of CAPEX is allocated to activities offshore Canada, with $18 million for non-operated Hibernia development drilling and $12 million for non-operated Terra Nova for field development ahead of returning to production in the second quarter of 2023.
Murphy has also allocated $100 million to its 2023 exploration programme, with the majority of spending designated for drilling operated exploration wells in the Gulf of Mexico while other capital of approximately $30 million, or 3 per cent of CAPEX, consists primarily of capitalised interest costs and corporate CAPEX.
Roger W. Jenkins, Murphy’s President and Chief Executive Officer, remarked: “Murphy is positioned for another successful year with capital spending primarily allocated to high-returning, oil-weighted Gulf of Mexico and Eagle Ford Shale assets.
“At current commodity prices, our 2023 capital and production plans position us to progress into Murphy 2.0 of our capital allocation framework, which allocates 75 per cent of adjusted free cash flow to debt reduction and 25 per cent to enhanced shareholder returns.”