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Murphy Cuts Duvernay Well Program 42% for 2019; Q1 Output Hit by Eagle Ford Delay

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   |    Thursday,May 02,2019

Murphy Oil reported its Q1 2019 results.

Cuts Duvernay Plans for 2019 by 42%

As a result of reviewing land retention plans and capital allocation, Murphy has elected to drill and complete fewer wells in the Kaybob Duvernay based on the current market conditions.

The company expects to bring seven wells online as compared to the previously planned twelve wells. The lower well count also includes the three well pad that was unable to flow due to third party mid-stream

Q1 Summary

- Well Activity (gross): TIL 20 wells

• Eagle Ford: TIL 13 wells

• Montney: TIL 3 wells

• Duvernay: TIL 4 wells

Output Hit by Eagle Ford Delays, Canada Midstream Delays

- Q1 Production: Total equivalent production averaged 148 MBOEPD - up +X% from Q1 2018

• Lower than expected by 4,400 BOEPD, with the majority in the Eagle Ford Shale where 3,500 BOEPD was due to a significant delay in the execution of a ten well pad along with offset frac impacts.

• The onshore Canada business was lower than expected by 900 BOEPD due primarily to third party mid-stream specification constraints causing production from three new high-rate Kaybob Duvernay wells to be shut in coupled with cold weather in the region causing unplanned shut ins.

• The North American onshore business produced approximately 86 MBOEPD in the first quarter.

Eagle Ford Shale

Production in the quarter averaged approximately 36 MBOEPD, with 86 percent liquids. The company brought 13 operated wells online during the quarter, of which four were in the Tilden area and nine were in the Karnes area. The nine Karnes wells were completed with four in the Upper Eagle Ford Shale and five in the Lower Eagle Ford Shale, and due to a variety of delays, flowed only two days in the quarter.

The nine new wells had high 30 day (IP30 rate) rates averaging over 1,700 BOEPD, with the Upper Eagle Ford Shale wells averaging over 1,400 BOEPD IP30 with the Lower Eagle Ford Shale wells average exceeding 2,100 BOEPD. The 2019 Eagle Ford Shale drilling and completion schedule has been amended to include a slightly higher average well count per pad. As compared to the original plan, the company now plans to bring two additional wells online, bringing the total wells online to 92.

"Following a weak production month for March in our Eagle Ford Shale business we are back on track with production increasing daily as volumes are currently approaching 44,000 BOEPD. With almost 80 percent of our planned wells to come online in the second and third quarters, we expect to see continued strong growth in this asset," commented Jenkins.

Tupper Montney

Natural gas production in the quarter averaged 223 million cubic feet per day (MMCFD). As planned, the company brought three operated wells online during the quarter. As a result of the company's sales price diversification and hedging strategy, Murphy achieved a natural gas price of C$2.98 per million cubic feet per day AECO for the Tupper Montney.

Kaybob Duvernay

During the quarter production averaged approximately 10 MBOEPD with 61 percent liquids. As planned, the company brought four operated wells online: a three well pad in Simonette and one well in Kaybob North. Due to a third party mid-stream specification constraint, the three well pad in Simonette was unable to flow to sales for the entire quarter. For future production forecasts, it is assumed that the three wells will not produce for the remainder of the year. The one well in Kaybob North achieved an IP30 rate of over 830 BOEPD with 89 liquids with restricted flow rates.constraints.

Global Offshore

The offshore business produced 62 MBOEPD for the first quarter, with 96 percent liquids. This excludes production from discontinued operations.

North America - Production in the quarter for the Gulf of Mexico averaged 54 MBOEPD, with 95 percent liquids. Canada offshore averaged 8 MBOEPD.

Significant planning for 2019 rig operations took place in the first quarter. The company has solidified its rig and partner plans to drill a development well at Dalmatian field in the second quarter. That operation will be followed by the drilling of the Hoffe Park exploration well in Mississippi Canyon 122. Following that exploration well, the contracted rig will move onto the Cascade #5 well to repair a subsea safety valve that is expected to revive production levels, with an anticipated increase of approximately 7,500 BOEPD gross. In additional development work, there will be a rig placed on the Medusa facility late in the second quarter for a one well workover. A different rig will move to Front Runner to sidetrack and complete a three well program commencing in the fourth quarter.

Vietnam - Early in 2019, Murphy received the Declaration of Commerciality for the LDV field and expects to move forward with sanction of the field development later this year.

Exploration

Mexico Exploration - During the first quarter, the company drilled a discovery with its first exploration test on Block 5 in the Salinas Basin, offshore Mexico. The Cholula-1EXP exploration well reached a total depth (TD) of over 8,800 feet in approximately 2,300 feet of water. The well was spud and drilled to total depth in less than 30 days with a drilling cost of approximately $12 million net to Murphy. The exploration well discovered hydrocarbons in the upper Miocene target objectives, encountering approximately 185 feet of net pay. The results of the well have significantly de-risked the block and the company is currently evaluating future appraisal plans. Murphy's subsidiary, Murphy Sur, S. de R.L. de C.V., is the operator of Block 5 holding a 30 percent working interest (WI). Partners in the block are wholly-owned subsidiaries of Petrolium Nasional Berhad ("PETRONAS") (23.34 percent WI), Ophir Energy (23.33 percent WI) and Sierra Oil and Gas (23.33 percent WI).

Vietnam Exploration - Murphy drilled a discovery in the LDT-1X exploration well in Block 15-1/05 in the Cuu Long Basin in Vietnam. The well completed drilling operations in April drilling to a TD of 14,090 feet measured depth at a net cost to Murphy of approximately $13 million. The well successfully encountered approximately 320 feet of net oil pay in the primary objective and an additional 62 feet of net oil pay in a secondary objective. The LDT-1X discovery will be incorporated into the development of the adjacent LDV field where Murphy is operator and progressing toward first oil in 2021. Murphy's subsidiary, Murphy Cuu Long Bac Oil Co., Ltd, is the operator of the block and holds 40 percent WI in Block 15-1/05. Partners in the block include PetroVietnam Exploration and Production Company ("PVEP") with 35 percent carried interest and SK Innovation ("SKI") with a 25 percent interest.

"I am extremely pleased with the early success of our 2019 exploration program. Our drilling team did an outstanding job executing a pace-setter well in Mexico that allows us to dramatically improve the economics for the development of the block. The well confirms our view of the highly prospective Block 5 and, along with our partners, we are planning a Cholula appraisal and further exploration program in 2020. While it is too early to quantify ultimate volumes without additional appraisal, we are excited to have successfully encountered pay in all of our objectives in an oil-charged system. We especially look forward to incorporating the well results into multiple look-a-like prospects that are near the Cholula well," Jenkins stated. "In Vietnam, the LDT-1X well has met our pre-drill expectations and is a positive resource addition to our growing business in the country, with the oil reservoir section having properties exceeding our pre drill estimates. The data collected from the well also yielded valuable information that will be utilized in future exploration activity on Block 15-1/05."

Gulf of Mexico Exploration - During the third quarter, Murphy plans to spud the Hoffe Park exploration well in Mississippi Canyon 122 targeting a gross mean volume of 75 Mmboe at a 60 percent working interest.