Murphy Earnings: Pruning Its Duvernay Assets and Entering Another Offshore Arena (Cote D’Ivoire)

Murphy MUR delivered net production of 184 thousand barrels of oil equivalent per day in the second quarter, topping the high end of its guidance range (173-181 mboe/d). This includes 1.4 mboe/d from lower royalty rates in the Tupper Montney in Canada, where royalty volumes are contractually dependent on commodity prices. The residual surplus to the guidance midpoint reflects better-than-expected well performance across the portfolio (management attributed 41% to the Gulf of Mexico, 34% to the Tupper Montney, and 25% to the Eagle Ford Shale). As a result, guidance for consolidated full-year volumes was increased by 3 mboe/d (2%). However, the 2023 capital budget also increased by $90 million (of which $45 million is acquisition-related and $7 million is associated with consolidated minority interests, which means organic spending increased by $38 million, or 4%).

The firm also announced the sale of a portion of its Kaybob Duvernay assets in Canada for CAD 150 million ($112 million). This includes flowing production of 1.7 mboe/d, plus 157 operated drilling locations in the Saxon and Simonette areas, and a 30% working interest in 77,000 nonoperated acres in the Placid area. The undrilled portion won’t move the needle on our net asset value, as these locations were far down in the firm’s drilling queue, so the consideration essentially translates to $65,000 per flowing boe, which looks like a reasonably attractive price for Murphy. Meanwhile, the firm has added operations in Cote d’Ivoire. It has signed production-sharing contracts with the national oil company there and will operate five deepwater blocks (one of which contains an appraised discovery). Offshore exploration is a core competency for Murphy, and we think investors are better off following this slight portfolio reshuffle.

We intend to incorporate the firm’s second-quarter results shortly, but for now, our $33 per share fair value estimate and no-moat rating are unchanged.