Murphy Oil Corporation (MUR) Q4 2015 Earnings Report, Transcript and Summary

Please stand by. Good afternoon, ladies and gentlemen, and welcome to the Murphy Oil Corporation Fourth Quarter 2015 Earnings Call. Today's conference is being recorded. I would now like to turn the conference over to Kelly Whitley, Vice President, Investor Relations. Please go ahead. Kelly L. Whitley - Vice President-Investor Relations & Communications: Good afternoon, everyone, and thank you for joining us on our call today. With me are Roger Jenkins, President and Chief Executive Officer; John Eckart, Executive Vice President and Chief Financial Officer; Gene Coleman, Executive Vice President, Offshore; and Mike McFadyen, Executive Vice President, Onshore. Please refer to the informational slides that we have placed on the Investor Relations section of our website as you follow along with your webcast today. Today's prepared comments will be a little bit longer than usual, so that we can give you more color on our recently announced joint venture. John will begin by providing a review of the fourth quarter financial results and key year-end balance sheet position. Roger will then follow with an operational update as well as more details regarding the Montney midstream monetization and Duvernay-Montney joint venture opportunity we just announced. We will end the call with a question-and-answer period. Please keep in mind that some of the comments made during this call will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussions of risk factors see Murphy's 2014 Annual Report on the Form 10-K on file with the SEC. Murphy makes no duty to publicly update or revise any forward-looking statements. I will now turn the call over to John for his comments. John W. Eckart - Chief Financial Officer & Executive Vice President: Thank you, Kelly, and good afternoon to everyone. Consolidated results in the fourth quarter of 2015 were a loss of $587 million. That's $3.41 per diluted share, and that compares to a profit of $375 million or $2.11 per diluted share a year ago. Excluding discontinued operations, continuing operations had a loss of $583 million in the fourth quarter of 2015, $3.39 per diluted share. And that compares to the fourth quarter 2014 of $442 million profit, $2.48 per diluted share a year ago. The fourth quarter results for 2015 from continuing operations included non-cash property impairments of $192.2 million, which after taxes amounted to $123.5 million charge. These impairments were attributable to a decline in future periods' oil prices and primarily were related to an oil and gas property in the deep-water Gulf of Mexico. The just completed quarter also included an after tax expense of $183.3 million to reflect the cost to exit two deep-water drilling rig contracts in the Gulf of Mexico. We chose to stack these rigs, as low oil prices led to significant reductions in our capital expenditure program in the Gulf of Mexico. And the company was no longer able to obtain partner support for U.S. deep-water drilling, as these partners are experiencing significant capital constraints. Murphy also recorded a U.S. income tax charge of $188.5 million in the fourth quarter due to U.S. taxable income generated by a foreign dividend declared in December. The company had previously recorded U.S. income tax benefits earlier in 2015 associated with an anticipated U.S. operating loss carry forward, prior to our decision to make this foreign distribution to the parent. The foreign distribution was made through a combination of $800 million in cash and the remainder in the form of a 10-year note. This distribution effectively was cash tax neutral in 2015, due to operating losses and availability of foreign tax credits. This U.S. tax charge was recorded in the company's corporate reporting area, which led to a higher corporate net cost overall in the 2015 quarter compared to the prior year. Let me speak about adjusted earnings. These adjusted earnings adjust our GAAP numbers for various items that affect comparability of earnings between periods. And this adjusted earnings was a loss of $130.5 million in the fourth quarter of 2015, down from a profit of $69 million a year ago. This decline in adjusted earnings was primarily attributable to the lower oil and natural gas sales prices in the current period. Our schedule of adjusted earning is included as part of our earnings release. And the amounts in this schedule are reported on an after-tax basis. The company's average realized price for its crude oil production fell more than $28 per barrel in the fourth quarter compared to the prior year, which amounted to a 40% drop between periods. Natural gas prices also were weaker in the fourth quarter compared to the prior year quarter. Realized oil index natural gas prices offshore Sarawak fell 31% to an average of $3.81 per Mcf, following the decline in global crude oil prices. Sales prices continued to be soft in January. And therefore revenues continued to be under pressure, as quarter one 2016 prices remain significantly below prices a year ago. As a reminder however, the company has oil price hedges for – excuse me, for 20,000 barrels per day at a WTI price of $52.01 for the remainder of 2016. At December 31, 2015, Murphy's long-term debt amounted to slightly more than $3 billion, which represented 36.4% of total capital employed, while net debt amounted to 32.8% As of yearend we had $600 million borrowed under our $2 billion revolver. Plus we had a total of cash and invested cash of about $450 million worldwide. Murphy's sole debt covenant is a total debt to total capital ratio of 60%, which obviously we're well below. I believe we have adequate liquidity to weather the lower for longer oil price environment currently being experienced. That concludes my comments. And I'll pass it now to Roger. Roger W. Jenkins - President & Chief Executive Officer: Thank you, John. Good afternoon everybody and thanks for listening to our call today. Our company remains focused on balance sheet metrics, as the entire industry experiences further commodity price drops. With this focus comes an extensive drop in capital spending. However, Murphy intends to be in the business for the long haul. And as evidenced with news of our two purchase and sales agreements we released yesterday, when closed, will allow Murphy to sell the natural gas midstream business and use a portion of the proceeds to purchase a long-term asset that'll deliver value to shareholders, especially in a price recovery. Looking back at operations over the course of the year, the following highlights stand out. We spent $2.2 billion in capital, which is 42% down from the prior year, while still growing production with the prior year, when factoring in the 30% sell down in Malaysia. On the call side we made significant improvements in reducing both operating and G&A expenses. We lowered our operating cost excluding Syncrude by $1.82 per boe to $9.21 per boe or 17% over the course of 2015. And lowered our G&A expenses by over $57 million or 16% compared to 2014 levels. In our onshore business the Eagle Ford Shale continues to outperform expectations, where we averaged just over 57,000 barrel equivalents per day for the year, delivering a frontloaded schedule of 136 new wells, of which 27 were in the fourth quarter. We drilled our first Austin Chalk well in Karnes County, achieving a very successful IP30 flow rate of 1,500 barrels equivalent per day. We're planning on drilling our second Austin Chalk well in the first quarter of 2016. In Canada we recently completed – our recently completed wells in the Montney continue to produce above plan, where we averaged 194 million cubic feet per day for the year. In the Gulf of Mexico the Dalmatian South #2 well, which was drilled in the third quarter, achieved first production ahead of plan late in 2015. The well is currently flowing back to the Petronius facility. Development work continues at the non-operating Kodiak project, where the first two wells will flow in the coming days. In Malaysia fourth quarter Sarawak natural gas production was over 134 million per day net and oil production was over 14,000 barrels a day. Full year production from Malaysia was over 65,200 barrel equivalents per day. We're seeing continued drilling success at our South Acis field in Sarawak, where we now see sanctioned volumes doubling. In addition, we drilled the Keratau well, offshore Brunei, finding commercial natural gas that were in line with pre-drill estimates, adding to our resources in the Kelidang field. On the fourth quarter production was just over 200,700 barrel equivalents per day. And our full year – for the year we produced close to 208,000 barrel equivalents per day. We're pleased with the ongoing efforts we're making on cost reductions. Our LOE for quarter four 2015 excluding Syncrude is $8.25 per boe, showing a reduction of 19% from the fourth quarter of 2014. This is in line with the 17% reduction for full year 2014 on LOE. And Eagle Ford Shale had a fourth quarter operating expense of just under $8.50 per BOE. And we expect this to be a reasonable run rate going forward. In 2015 we produced over 207 (sic) [207,000] (10:11) barrel of oil equivalent per day. Our strong production variance over the course of the year is attributable to Sarawak oil and natural gas fields performing better, the Eagle Ford Shale, new well volumes exceeding plan due to EUR increases and completion performance, and higher natural gas production from the Montney. More importantly we spent $2.19 billion as compared to our original CapEx plan of $2.3 billion. Even with the significant reduction in capital for 2015, we grew annual production by 3%. In 2015 based on preliminary data we expect to add reserves at a replacement rate of 123% with a finding and development cost of $18.70 per boe. Year-end 2015 reserve volumes represent a reserve life index of 10.2 years, an increase from 9.2 years from a year ago. This is consistent with our five-year average reserve replacement rate greater than 180% and is our 10th consecutive year over 100%. During this same timeframe we have more than doubled our production, including a sell down of our Malaysia assets. The capital program for 2016 is currently $825 million, which is approximately 62% lower than the $2.19 billion we invested in 2015. We expect production for the full year to be 180,000 to 185,000 barrel equivalents per day, which is lower than 2015 due to significant CapEx cuts. That's common in our industry. The capital program still remains under review for further reductions, should commodity prices persist. Moving onto subsequent yearend's events, as you have read in our news release from last night we signed two purchase and sale agreements announcing the monetization of our midstream in Montney and a joint venture in the Kaybob Duvernay and liquids rich Montney area. We signed a definitive agreement with Enbridge to divest our natural gas processing sales pipeline assets that support our Montney natural gas fields in Tupper and Tupper West. The cash consideration is expected to be C$538 million and is expected to close early in the second quarter. In a separate but related transaction we signed a definitive agreement for a joint venture with Athabasca Oil Corporation to acquire 70% operated working interest in Athabasca's acreage, infrastructure and facilities in the Kaybob Duvernay lands and a 30% non-operated working interest in the liquids rich Montney. The total consideration is C$475 million, of which C$250 million was in cash at closing and the remaining C$225 million was a carry for a period up to five years. In the Kaybob Duvernay there were 230,000 gross acres, 200,000 currently prospective that are currently producing 6,900 barrel equivalent gross per day of production, of which 58% is liquids. This area also includes 247,000 gross acres with overlapping rights in the conventional Montney. In the liquids rich Montney area there are 60,000 gross acres, 21,000 currently viewed as prospective, that are currently producing 900 barrel equivalent a day gross at 44% liquids. We're very excited to enter into the Kaybob Duvernay and liquid rich Montney, as it complements our current onshore North American resources, fits well with our in-house expertise, and be our third significant North American unconventional position. The C$225 million carry and long lease terms associated with the Kaybob Duvernay is flexible over five years, which is key in this period of low commodity prices that we were able to control the pace of spend. We're allocating partial proceeds from our Montney midstream monetization into this project, and I see it as efficient use of capital that has a positive impact to cash on hand for our balance sheet this year, as well as use of Canadian funds in Canada in a tax efficient manner and enter a project expected to be self-funding within Canada over the life of the carry. The primary marketable product here as realized will be produced condensate, which is used as diluent for oil sands bitumen production and transport. The Western Canadian Oil Sands projects have long demonstrated a record of production resiliency that will continue to generate demand well in excess of regional supply, resulting in relative price stability for the foreseeable future. Our joint venture has oil battery capacity of 30,000 barrels per day of oil and a gas pipeline with over 100 million scufs per day of capacity. The Kaybob Duvernay is an emerging play and has three same segments seen in the Eagle Ford Shale, natural gas, gas condensate, and light oil. The gas condensate area has included several prolific wells of late. And the light oil area that we now have a significant position in is in the early stages of development. We're seeing all signs of a shale play success with increasing EURs, improving completion techniques, as well as lowering drilling and completion costs. We feel that with three to four wells per section, we will have over 500 gross locations in the play. And this number could greatly increase should down spacing opportunities exist here as seen in other successful North American plays. We have seen many successful wells across the play now approaching 30 test intervals of over 2,000 barrel equivalent per day, with yields ranging from 200-barrel to 950-barrel per million, and a clear indicator of the oil rich nature of this basin. The Duvernay areas have been heavily drilled through other types of plays through the years in the basin, which leads to thousands of penetrations and knowledge of the shale characteristics. Additionally, we have a black oil area in the play again matching success seen in the Eagle Ford Shale area. Our new joint venture partner Athabasca has been successful in the play with the results in the condensate region and most importantly in the light oil area of the play. Athabasca has recently released information about a key well in the gas condensate light oil area that has flowed 1,300 (sic) [1,380] (16:23) barrel equivalents per day with 62% liquids. This appears to be a very good well by any measure. As in any shale play the optimization of the fracture treatments are key to the learning curve. Of late, higher proppant concentrations have been used in the region. This slide highlights the increase in EUR seen with data up to two years in duration, illustrating recent higher treatments lead to consistent EUR levels. Some wells are now seeing above the 1,000 – 1 million, rather, barrel type curve. These wells shown here in the condensate window are now partnered in the 33,000 acres with a 70% working interest. We see the same well performance with higher stimulation treatments in the Duvernay light oil area, as wells – as where we are working – at 70% working interest with our partner in 67,000 acres. We believe there is significant upside in the black oil area, where our partnership has 110,000 gross acres. Current data is showing high proppant content at the 670,000 barrel equivalent EUR level. Our joint venture also includes the liquids rich Montney, which is among the top active plays in Canada. We participate here at the non-op 30% working interest. The region has a minimum of 30% of the flow stream containing liquids similar to the condensate in light oil areas. The results in the liquid rich area are also showing increasing EURs, due to completion enhancements and the lowering of costs with 750,000 barrel equivalent EURs seen in the dataset. This area has significant running room in the range of 100 to 200 locations with down spacing. We see a tightly leased up area around our new acreage with many known North American shale players. Rates here are also prolific in the range of 800 barrel equivalents with high liquid yields. Like all major shale plays in North America, the key economic driver is the lowering of drilling and completion costs, while simultaneously improving the completion techniques for each area. We are seeing the early stages of a major improvement in costs for the region. And our expertise in two other plays, where we are a top quartile drilling and completion company, will enhance our ability to quickly move up the learning curve here. Our partner Athabasca is active in the cost reduction business. And we will be able to quickly adapt to the area where they have recently seen incredible improvements, as we see great upside in lowering costs from the current $C9.4 million per well down to C$6.5 million per well. Athabasca has recently seen wells being drilled for as low as C$3.25 million, which is an outstanding performance. As we close our call today here are few takeaways. We're focusing on our balance sheet at Murphy. The purchase and the sale agreement to monetize our natural gas midstream and use a portion of the proceeds to enter into new onshore conventional shale play, that allows for balance sheet neutrality with a five year carry and further liquidity this year for our cash positions. We see this venture as an investment for the long term with total spend flexibility over a five-year period, as we anticipate a price recovery. Cost reductions will continue to be our focus. Our Eagle Ford Shale continues to perform very well for us. Budget reductions will lead to a very limited exploration spend this year. We continue to illustrate the execution advantages we have in the offshore. We had an excellent year operation in our company with reserve additions, significant capital reductions, and lowering costs leading the way. I would now like to open the phone lines up for any questions. And thank you.

Thank you. And we'll take our first question from Roger Read, Wells Fargo. Roger W. Jenkins - President & Chief Executive Officer: Hey there, Roger. How are you doing?

I am good, Roger. How are you? Roger W. Jenkins - President & Chief Executive Officer: All right.

Good. Can we talk about the acquisition? I mean I know the sell down in Malaysia, a little over a year ago – I think that's right. Yeah. The – or at least the announcement. Roger W. Jenkins - President & Chief Executive Officer: Right.

Then the talk of a transformative acquisition. Is this one of those transformative acquisitions? Or should we still consider something in the lower 48 as the more likely and still desirable opportunity? Roger W. Jenkins - President & Chief Executive Officer: No. I think of it as transformative for us. I mean it's got all the things we're looking for today. It's very rare to get into M&A in North America and have flexibility on the first year of capital spend. And have no continuous drilling clauses, be able to drag out the carry over a very long period of time and a very low oil price. I've said for a long time that I would like a 10% cost to capital type return at a strip price. And with the drilling costs we're seeing here, we're able to do that here. Even on a strip that we used on January 19, which was probably $4 behind where we are today. So I see this as transformative for us, Roger, honestly, because it has a 200 million to 300 million barrel ability for us. It's a pretty low cost entry. It's different from buying from a company that's flipping acres, because we have a partner that's working there and has drilled there and has infrastructure there. And we're able to work with them and take over as the operator. They were able to operate a piece, where they've been very successful. It's in Canada. We'll have Canadian proceeds. There's a little forex right now for this transaction, where the USD equivalent of that would not get you what it used to get you here in the United States. And all those factors led to this decision.

Okay. That's great. And then as you think about lower 48, are there still opportunities? Are we still too far apart on a bid/ask spread? Just curious, any update you would have on what you're seeing there? Roger W. Jenkins - President & Chief Executive Officer: No. I mean we look at many opportunities. I do the same thing, whether it's off shore or in the Permian or in the Eagle Ford or wherever. We look at the rate of return we get at strip prices. And with cost and how it affects our balance sheet and how – will we have to drill so much capital and hurt our balance sheet further? And that's come up as a new factor in the M&A analysis that we had from a year ago. And that just as important now in the balance sheet of how one of these projects would impact you as anything for me now. So we saw the returns here very similar to a project we were working in the lower 48. But we ended up – with a project in the lower 48, totally down spaced, every zone working to have this same rate of return as one in Canada, where we have no down spacing at all, a built in partner, a five-year lease program, five-year carry period. And it just offered every advantage to me in $30 oil that I don't have down here right now.

Okay, great. And last question I'll ask on the acquisition front. You've always talked about wanting to use cash or debt. Obviously now debt is a little more questionable as an opportunity for a whole host of reasons. Would you at all consider issuing equity? I know that's not something the company has historically done. But as you think about that cost of capital, does that factor in? Or not so much? Roger W. Jenkins - President & Chief Executive Officer: Well, Roger, we've been working pretty hard on these two transactions. And I don't have another one in my pocket today. I'm pretty tired. And it has taken us a lot of work to do these two. And we didn't have to use debt, and we didn't have to use equity. And I'm very pleased. And not looking for a deal today to issue equity at this price in my company.

Great. Thank you, Roger. Roger W. Jenkins - President & Chief Executive Officer: Thank you.

Moving on, we'll take our next question from Kyle Rhodes, RBC. Roger W. Jenkins - President & Chief Executive Officer: Hello. How you doing?

Hey, guys. Is there any more light you can shed on the new midstream agreements with Enbridge? Just maybe in terms of minimum volume commitments? And what that means for future drilling obligations there? And then maybe run rate, gathering, and processing expense we should be modeling in going forward? Roger W. Jenkins - President & Chief Executive Officer: We have a very nice transaction there. We're very pleased with it. We're not disclosing the tariff arrangement there. You would have to look at cost of capital, those top players, residual value, and you can work through that. I think the way to think about this business is if you have a $1.90 to $2 ACO (25:10) run through that business every year, we're able to drill our wells and have cash flow neutrality and not hurt our balance sheet in any way. Lot of optionality around how many wells we drill. We're doing very, very well there on an EUR per well basis. We're able to get the money at a – from these guys at a favorable rate to us, as to how this works. And we're able to use these proceeds of selling steel and getting into 200 million to 300 million barrel reserves, type P2 number. And I like the sound of it. I like the transaction. And we're not concerned about the level of drilling that we'll need to do or allocate capital here, because of the incredible reduction in our operating expenses, our improved fracturing techniques, our lower drilling costs, and all the positives attributes of shale we have in the Montney too. And we have a very good partner there, one of the dominating players in North America in this space. And we're very, very happy about it.

Okay. Great. And then maybe just kind of circling back to the Duvernay. Realize the ink's still not even dry yet on this deal. But how are you guys kind of just high-level thinking about development over the next couple years? Is kind of the light oil window going to be the near term area of focus? Or just how should we be thinking about in terms of de-risking that new position there? Roger W. Jenkins - President & Chief Executive Officer: Well, I mean we have – we just got the ink dry on the thing. These deals are complex. And today in the price collapse and doing a deal like this with our partner, very happy about all the areas. And I would say that we concentrate in a mixture of both the condensate, which is very, very successful by many successful shale players. Pretty big light oil window that we're creeping northward, if you look through the slides today. And we have a limited capital in 2016, because of severe drop in price. Now most of that capital will be allocated toward completing wells that are owned by the partner today, if we – when we close the transaction. And got about a six- or nine-month period to plan out where we want to execute on that. But very pleased with all the areas. And be happy to drill wells in any of it to be honest with you.

That's helpful. And one last one for me. Roger. Just what's your kind of current comfort level with the dividend? Roger W. Jenkins - President & Chief Executive Officer: Well, we've had a dividend policy here for a very long time. And the oil prices just collapse for a short time. But like any company today, if these price levels persist, then the dividend discussion will be on the table here in our company. And we will have that and review that as necessary. And I would say it would be on the table in these prices more than before. And that's really all I have to say in that matter.

Got it. I appreciate it, Roger. Roger W. Jenkins - President & Chief Executive Officer: Oh, thank you.

Moving on, we'll take our next question from Guy Baber from Simmons & Company. Roger W. Jenkins - President & Chief Executive Officer: Good morning, Guy. Guy Allen Baber - Simmons & Company International: Good morning. Congrats on the transaction. Roger W. Jenkins - President & Chief Executive Officer: Thank you. Guy Allen Baber - Simmons & Company International: On the JV transaction I wanted to follow up on a comment that you made earlier, Roger, about the returns. But can you just help frame for us and maybe discuss the economics that are underlying the deal? On the last call you talked about running four price decks, I think to screen deals. And wanting to get a return at the strip. And we aren't as familiar with these assets. So any return framework or how you think these assets compete for capital in the current environment or a rising oil price environment I think would help us better understand this. Roger W. Jenkins - President & Chief Executive Officer: Well, we were in a very big collapse in price here recently of course. And when we say strip, we were using a January 19 strip. And it was around $32.76, 2016, $37 for 2017, and up to $44 in 2020. Of course today these numbers are about $4 better than that. And when we run through this entire thing, as we've always said and always desired and have a requirement here, is we'd be above 10% when we look at current drilling and completion costs, which are very critical. And that's without any down spacing at all. And then when we have another price deck here we call the low – our low planning price from January, it's a very low price for 2016 around $29, $41 in 2017, and going up to $60 in 2020. And this project looks very good, as good as any M&A we've seen in the above 15% range. And then when you get a big cost – big price recovery deck here, we get into the 20% range. So we're very happy about it. It stacks up well with all the opportunities we reviewed across the spectrum. And we've looked at a lot. And very, very happy about it. Guy Allen Baber - Simmons & Company International: Okay. That's very helpful. Roger W. Jenkins - President & Chief Executive Officer: Thank you. Guy Allen Baber - Simmons & Company International: And then can you talk a little bit more about the flexibility that you have, the minimum level of activity you all have to progress there with the JV in terms of holding acreage or the minimum commitments that you have when it comes to allocating capital? Because it sounds as if that was an attractive element to this deal. So if you could just talk about that a little bit more? Roger W. Jenkins - President & Chief Executive Officer: Yeah, it's very attractive element. Because as at the whole time we looked at it, we've had another level of price collapse. And looking in the $130 million, $140 million U.S. capital through the first three years on our low basis. And going into the $200s million in 2020 to get this carry behind us and kind of smooth $200 million a year doesn't lead to incredible growth for us. We're talking about a 30,000 barrel a day type number in 2023 or so. Of course that can be greatly enhanced with – we feel we have conservative EURs in this analysis. And start drilling some wells and proving and try not to build up the big overspend here. And the key thing for us is in our – if you look at our Mocal (31:21) cash position day of $240 million, $250 million, whatever it is. Take this money in from midstream. Have a big Western Canada business, Syncrude, East Coast Canada, and our Montney business, and our new midstream business, and we're able to run through this business here. And it's EBITDA accretive to us. It's income, a slight income accretion to us with very, very low prices. And we're able to run through that and keep all of our Mocal (31:52) cash balances intact. And it's some $300-something million the whole time. And that's very attractive for us, because we have to get on the balance sheet here. Have to get back to free cash flow. Have to get this debt worked down over time. And that's about the only project we had that had the returns I wanted and had the ability to do that for me right now. Guy Allen Baber - Simmons & Company International: Okay, great. And then final one from me. On the capital budget for 2016, you made a comment that the budget would be under review for further reductions. So just trying to understand that comment. Is that if the current strip persists? Is that if we see another leg down in price? Help us understand that comment. And then it seems as if you've hit the CapEx budget pretty hard obviously. Where do you have incremental flexibility to flex lower if you choose to do that? Roger W. Jenkins - President & Chief Executive Officer: Well, we have a lot of flexibility in the Eagle Ford. And we can go down $100 million there if we want to. And that's the beauty of these plays is you can slow it down. More difficult in offshore. And that would be where that would come from. And while price is on a rampage the last four days, it's still not too exciting to me. I can tell you that. So we have got to keep this balance sheet intact. We cannot be lulled into believing this is back here headed in the $40s. And just not headed that way. I'm not scared to cut the CapEx. And I will. And we're going to getting on balance sheet instead of production, because I've grown production as much as anybody through the years. And so we're going to stay in business for a long time. We're going to keep our balance sheet in the right ZIP code here. Guy Allen Baber - Simmons & Company International: Okay, great. Thanks for all the comments, Roger. Roger W. Jenkins - President & Chief Executive Officer: Thank you.

Moving on, we'll take our next question from Ryan Todd, Deutsche Bank. Roger W. Jenkins - President & Chief Executive Officer: Ryan, how you doing?

Great, thanks. How you doing, Roger? Roger W. Jenkins - President & Chief Executive Officer: All right.

Maybe following up on capital allocation a little bit. I mean can you talk a little bit about relative competition to capital between the Eagle Ford and the Athabasca JV going forward? I mean what are the relative rates of return? Or – yeah. What is the relative rate of return right now between the two plays? And if we were to see incremental upward pressure on the commodity, where would we see capital go first? Roger W. Jenkins - President & Chief Executive Officer: I think that our Eagle Ford, because of its oily nature and not the U.S. ACO (34:25) nature, it will always be slightly ahead of our wells up there. But then you have this balance sheet issue of U.S. costs and repatriation and tax efficiency and working in the Mocal (34:39) area. But if we were to move it around pretty good, they compete very well. A condensate well and an oil window well up in Canada competes very well with a lower Eagle Ford Shale in Karnes. And that's what's so interesting, Ryan, about this deal and about these shale plays is that four years ago, the Catarina area, where we have an enormous acreage position in the Western Eagle Ford Shale, was one of our lowest rate of return areas in the company – in the Eagle Ford I mean. So over this time the EURs have doubled, the drilling costs have halved, and it went from the bottom to the best. So it's the best individual well economics, around 25% on that January 19 strip day where we normalized all our costs. And this project up there is competing with there. But the point is as things change, some areas become better than others. Places not so good last time are better this time. The costs in this northern light oil area are very, very good and getting much better. And when we put those costs in here, this project going to compete with the Eagle Ford very well for us. And then it'll be a matter of our capital, what we do about repatriation, and how we want to work in our Mocal (35:55) cash balance. But on the overall allocation capital it will work well, and it'll be some hard decisions there.

Great, thanks. And then maybe one – maybe another one on CapEx. In the Eagle Ford – the level of spend in the Eagle Ford seems fairly high for running 1.25 rigs. I mean is there a timing issue related to there? How much of that's infrastructure related? Or is there – as we look forward over the next year or two, is there some of that CapEx that we should expect to see roll-off going forward?

Go ahead. Roger W. Jenkins - President & Chief Executive Officer: I'll have Mike answer that for you.

Hi, it's Mike McFadyen here. The – I guess the – could you repeat the question again please?

I mean I think the question is I think – it looks like you're spending about $340 million in the Eagle Ford, running 1.25 rigs roughly for the year, which I mean the absolute level of spend seems a little high. Is that – can you – how much of that, the additional capital in the Eagle Ford, is infrastructure related? Or – and should we expect to see any of that roll-off over the – or is it a timing issue over the next period of months or years?

It's primarily drilling and completions. We're going drill 45 wells. And we're going to complete between 55 wells and 60 wells. So we have some well inventory that we'll complete with that capital as well. So it's a fairly significant amount. There's a little bit of electrification work that'll help lower our operating costs, probably about $30 million, $40 million of that. But as Roger mentioned that capital could be considered to be cut as well. And we could consider going down to less than one rig in the Eagle Ford and putting back $100 million to the corporation.

Okay. Thanks. That's great. I appreciate that and I'll leave it there.

All right. Roger W. Jenkins - President & Chief Executive Officer: Thank you.

Moving on, we'll take our next question from Paul Cheng, Barclays.

Hey, guys. Good afternoon. Roger W. Jenkins - President & Chief Executive Officer: Paul, how you doing?

Very good. Look like you said, very good transactions. Wanted to – just curious, the $825 million CapEx that you put out. I presume that's not including the JV spending. Right? Roger W. Jenkins - President & Chief Executive Officer: That's correct, Paul. We're going to have a year of explaining this. The $825 million is Murphy as is. We go into this transaction. We of course have to pay the down payment. And I'm speaking to you now. And it's another confusing thing, Paul, we have to keep in mind is I'm speaking now in USD. So this CapEx would go up by $223 million. But most of it is the purchase, a down payment. And then we will have very limited capital at $30 million to $40 million this year is the current plan. And we have to get with our partner, get with what's going on with their production reserves, et cetera, and allocate capital there efficiently. But we had planned – keep in mind that this deal was structured between November 30 and January 20. And it was an exciting time for oil prices, Paul. And so we have very limited capital there planned in 2016, kind of get our feet on the ground, get in there with a partner. And it has been working. It has been working well. And able to pick up and move forward and get it on into 2017. But very little this year, Paul, but that is correct. The guidance here for production and the capital in these remarks today do not include the transaction we did with our joint venture partner, Athabasca.

Wonder, on the first couple years when you start spending money in this joint venture, are those sort of the sands project? Or that it's going to be really already in the manufacturing side? Roger W. Jenkins - President & Chief Executive Officer: Oh, no, I don't see that. There's loads of wells here. There's incredible amount of information being released by nearby shale players like Encana, very successful here. And Canada is a little different than Texas, it's incredible, accurate, data released publicly. A lot of what all the proppants are, what are the length of the wells are, the orientation of the well. Canada does a very good job in that regard. And I see us getting into pads and drilling four well pads much earlier than we did in the Eagle Ford. And I think that it's critical to understand that Murphy had zero shale presence in our company four years ago, 900 wells today. And know what we're doing. And we're going to get in there and get going, hopefully in pad drilling here pretty quick, Paul.

Yeah. Can you give us some idea that in 2017, what kind of range of oil price and what kind of the JV spending going to look like? Roger W. Jenkins - President & Chief Executive Officer: In 2017 we'll probably...

So you said that the oil price would be at $35. Then what will be – and if you're at $60, what kind of spending we may be talking about? Roger W. Jenkins - President & Chief Executive Officer: I only have the low case in front of me, Paul. When we get back to $60, we'll be glad to speak with you about that. I'm seeing capital in the $130 million U.S. range for 2017 and 2018 right now in front of me as I look at this, Paul.

Okay. And wondering if you're going to stay at $825 million on your base operation? Roger W. Jenkins - President & Chief Executive Officer: Yes.

And if you stay here for 2017, what's going to be 2017 decline rate look like? Is it going to be the rate that's similar... Roger W. Jenkins - President & Chief Executive Officer: Paul, we've been doing very well in production here. Now Eagle Ford has been resilient. We have it declining in here this year. And we've gone through two or three budgets here, have a board meeting next week in that regard. And really not getting off into 2017. We've had a pretty big collapse in price. We're trying to focus on our balance sheet above all. And not leading the way on the 2017 guidance parade there, Paul.

Okay. Two final questions. One, can you give us some idea that how is the Eagle Ford production trend by quarter look like? Or that I mean we start out from what – and end the year at roughly what run rate? And then finally, it looked like you guys didn't have any research write-down or markdown on the full time research like maybe some of your peers. So I just wanted to make sure that's the case? Roger W. Jenkins - President & Chief Executive Officer: Yes, true, Paul. Mike McFadyen is going to look up the caps – the production for you. And I'll speak about the reserves. We're had a very good year in reserves in this company. And we've done a good job on it for a long time. And we added some PUD locations in the Eagle Ford. We've had some very small negative revisions in our performance as a company. We've had some type curve enhancements in Eagle Ford Shale. We had some operating expense help into the long cycle. Actually, Paul, with our company in Malaysia you're able to get some adding in barrels with price and as our entitlement goes up. So it's an advantage then of not just being in one spot. It's not significant. But it helped us there. And of course we sold down 20 million barrels in Malaysia and produced 76 million. So to replace, we've hacked the budget. And we're a company that's very proud of our EURs and our costs. And very happy about the lack of a write-down in our calculations, Paul. And now Mike is going to talk to you about the production in the Eagle Ford, which is – have a lot less CapEx this year.

Sure, thanks. On the production side, so we finished the – quarter four of 2015 at about 57,000 barrels of oil equivalent. Forecast forward for the first quarter is about 54,000, second quarter is 48,000, third quarter is 47,000, and then the fourth is about 44,000 for a 2016 average of 48,400.

Okay. And final one. John, do you have a rough estimate of the 2016 DD&A for the company, given all the reserve markdown and everything? Roger W. Jenkins - President & Chief Executive Officer: Wait, Paul, we didn't have reserve write-downs. We had impairments.

You had – sorry that...... Roger W. Jenkins - President & Chief Executive Officer: No reserves, Paul.

(44:07) John W. Eckart - Chief Financial Officer & Executive Vice President: All right. Yeah. Thanks for that correction, Roger, that's correct. We are looking, Paul, at DD&A rates in the $16 range companywide for 2016. So down significantly from where we were, due to the impairment expenses that we're taking in 2015.

Thank you. Roger W. Jenkins - President & Chief Executive Officer: Okay, Paul, thanks, man.

Moving on, we'll take our next question from Ed Westlake from Credit Suisse. Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker): Yes. Roger W. Jenkins - President & Chief Executive Officer: Hey, Ed, how you doing? Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker): Good, very well. And congrats on getting this deal done. Roger W. Jenkins - President & Chief Executive Officer: Oh, thank you. Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker): So I just wanted to get a little extra detail if I may. I mean obviously C$9 million (sic) [C$9.4 million] (44:54) getting down to C$6.4 million (sic) [C$6.5 million] (44:55), in terms of the well costs, 11,000 feet of total vertical depth. I mean maybe just get – walk us through what the biggest things are that will get you to get that cost down? And then I'll follow up on the EURs. Roger W. Jenkins - President & Chief Executive Officer: Mike McFadyen, our Head of our Onshore business is going to comment on that for me, Ed. Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker): Thanks.

Yeah. I'll speak to that. So the light oil window, which represents the lion's share of the acreage, we value 67,000 acres of that, is – can be drilled without intermediate casing. And Athabasca just drilled two pacesetter wells there in 2015, one at 13 days and one at 16 days. So it's that kind of drilling performance at – and in the C$3 million to C$3.5 million is what they spent, including lease construction cost, is what's going to get us there. It's similar to the Northern part of our Eagle Ford, where we've started in the basin with drill times of 25 plus days and are now down to seven days in the Catarina area. It's also similar to our Montney operated area, where we're continuing to improve drill times and costs there, where we've driven – we're down now in the C$6 million – sub C$6 million drill and complete cost in our Tupper, Tupper West area, where we're targeting anywhere from 12 days to 14 days a well this year. Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker): Okay. And then on the recoverable resource of 200 million to 350 million [boe], I'm just looking at the bubble map you've got on slide 12, I mean as with the some of these other combo plays, you've had the better results in the gas condensate, light oil. I don't know how many wells have actually been drilled in the black oil area. Maybe talk a little bit about that there's a decent chunk of acreage up there. Maybe talk a little bit about what was included in that resource number? And then what economics would be needed to get the black oil window to work? Roger W. Jenkins - President & Chief Executive Officer: We didn't count any of – above the black oil line on page 12 right now. And we used only the light oil and the condensate and then the liquids Montney that shows up in some other slides. And this acreage is quite de-risk, and the gas condensate area is successful wells all around it. Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker): Yeah. Roger W. Jenkins - President & Chief Executive Officer: And we used a no down spacing there and used no down spacing anywhere to arrive at that number, Ed. And we then took a – over in the Western part of this thing called light oil on page 12, some very successful wells. And we took a higher EUR curve there. You can see some of the EUR results in the back here as to the concentration of proppant, Ed. And moving to the east we took a more conservative one. These wells have rate of return in the 14%, 15% range at a $30 oil type strip. I think in the black oil area it's a matter of there would be some experimentation there to figure out how to make that work. That's the issue now with capital allocation. But the advantage here is that a lot of long life leases, like leasing in the Gulf of Mexico if you will, it's a government Crown lease and no continuous drilling clauses, a lot of flexibility, a lot of information to come to us. There's constantly wells being released for information in this region. And we're going to be monitoring that and real excited about just a portion of it working is incredibly valuable to us, Ed. Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker): The final question from me is on the Alberta royalty review. I mean obviously a part of the reason why Canada does better than the U.S. is because you have more attractive fiscal terms. So maybe any color in terms of what you think is going to happen there? And how that might impact the economics? Roger W. Jenkins - President & Chief Executive Officer: Well, we have about a 5% starting off royalty there, probably going to 15% over the life. There are some discussions about that royalty, they've been – I view the Alberta government in general being helpful on some of these things as the price collapse has gone down, probably unlike our administration here. And we're happy. We think that could impact like a – less than a digit type of rate of return and not significant from the Alberta group that's coming up. And real happy with the comment that you made and agree. And happy about the royalty situation up here. Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker): Okay. Thanks so much, Roger. Good luck. Roger W. Jenkins - President & Chief Executive Officer: Oh, thank you.

Moving on, we'll take our next question from James Sullivan, Alembic Global Advisors.

Hey, good afternoon, guys. Roger W. Jenkins - President & Chief Executive Officer: Yeah, James.

Congrats on the deal first off. And I just wanted to quickly ask on infrastructure up there. Athabasca has obviously talked about they own some of the infrastructure processing and so on. So they have some kind of graphics on what they've got up there. But is that – is there anything in there that would be an impediment to the pace of development? I know you guys are obviously sounding like you're going to move pretty slowly. But just wanted to see whether there are any roadblocks there? Whether you'd be dependent on third-party build-outs? Roger W. Jenkins - President & Chief Executive Officer: No, not at all. I mean today, they have 30,000 of oil batteries and ability on oil, over 100 million of gas. There's a lot of MLP type activity and people reactivating gas plants. This has been a historic producing basin, kind of similar to the Eagle Ford Shale in many ways. A lot of gas pipes headed to Edmonton, lot of transport of condensate. There's two exits for gas coming out of here, which are very helpful. And we now have a part of that infrastructure as to our working interest with our partner there and glad to have it. It's valuable as well. It's up and going. They're adding to it, used to adding to it, know how to add to it. Pleased to not have to start over in the infrastructure business at $34 oil.

Yeah, makes good sense. Thanks for that. Last one – the last two from me are just quick kind of modeling ones. Where did you guys take the accrual for the rig termination on the balance sheet? I was trying to – obviously you didn't mean to be... Roger W. Jenkins - President & Chief Executive Officer: John Eckart will answer that for me, if you don't mind. John W. Eckart - Chief Financial Officer & Executive Vice President: Yes. That – James, that expense was taken in the U.S. E&P business. So you will find it on our oil and gas operating results as an expense in the U.S. business.

Oh, great. Great. And then the on the balance sheet, where did you guys take the – where is the credit for that? Because I understand the cash is going to be paid in Q1. Is that right? John W. Eckart - Chief Financial Officer & Executive Vice President: Yeah. It's a current liability, James.

Perfect. John W. Eckart - Chief Financial Officer & Executive Vice President: And so in the balance sheet information we gave, it would be in the other current liabilities section.

Perfect. Great. Thanks. And then last quick one here. With the Montney midstream sale, can you guys give any – I know you don't want to comment on the terms obviously there. But can you guys characterize in any way the impact on costs or realizations or – well first off, maybe just where the costs live? Whether it's in the gas realizations? Or whether it's in LOE per boe? Or – and then what kind of order of magnitude would be there? John W. Eckart - Chief Financial Officer & Executive Vice President: Okay. James, we expect at this point and have modeled it as there would be a LOE type expense on our books that we report in Canada.

Perfect. John W. Eckart - Chief Financial Officer & Executive Vice President: Conventional business. Roger W. Jenkins - President & Chief Executive Officer: And that's just a nice way of asking, James, and I appreciate it. But I can't disclose it.

All right, great. Thanks, guys. Roger W. Jenkins - President & Chief Executive Officer: Appreciate it. Thank you.

Moving on, we'll now take our next question from Paul Sankey, Wolfe Research.

Hi, Roger. Roger W. Jenkins - President & Chief Executive Officer: So, Paul, how you doing?

Fine, thank you. Happy New Year. Roger, firstly just very specifically on the Montney, what are the sort of if you like operational costs of that deal? I mean what are the impacts on your business from not having the midstream any longer if any? Roger W. Jenkins - President & Chief Executive Officer: Well, we have a very good partner that operates a lot of midstream in North America and a lot of midstream in Canada. This is a competitive process. Very, very glad with the winner there if you will. And they – if they lower our operating expenses at the plant level, we were able to share in some of that with them. They should be able to do that as they do that for a living there. And we operate just those two plants. I think we're a very good operator. But I think they could help, and we could share in that. And we got our operating expenses probably down in the $0.30 range per Mcf. It's an incredible job by Mike and his team. And so that's where that stands. And I'm real pleased to move that midstream into an upstream and not impact my balance sheet, Paul.

Yeah, so the idea is obviously they're going to bring down the costs for you, and you benefit from that. Roger W. Jenkins - President & Chief Executive Officer: If they do, we get to benefit. Yes.

Got it. And then if I could go from micro to macro. When we met in December you – I think kind of rounding the numbers, you were talking about $1 billion of CapEx. And then it was sort of implied to be more like $900 million. I seem to remember that you were saying that you could go down as low as $800 million, but it would be very painful to go any lower than that. And this being a kind of $100 million number throwing around for less activity in the Eagle Ford. Roger W. Jenkins - President & Chief Executive Officer: Yes.

Are those numbers about right? And can I just clarify it? I wasn't sure exactly what you were saying or implying that – were you saying that the dividend would or would not be part of a potential change in spending? I couldn't understand whether you – kind of saying (54:43)... Roger W. Jenkins - President & Chief Executive Officer: We're going to take a – I would – first on that matter what I said is that if these prices persist – and I'm not greatly enthused by the run-up today. I still believe we're going to be in a low $30s world. But I'm very happy if it's up to – a little bit I suppose. As we have that persist we will have to take a closer look at our dividend than we have before. And it'll be done as go through the year. And on your prior questions I mean, yeah, I said the $800 million would be very painful. And it is, because our production levels are down. But we got to get control of our free cash flow goal. And then when we get this rig issue behind us this year, which requires a lot more capital had we kept it, we will work toward not running up our debt at all. And look to lowering debt best we can. So that's – things have changed. Since I saw you, we probably lost $10 a barrel crude, Paul.

Yeah. Yeah. Roger W. Jenkins - President & Chief Executive Officer: So it is a lot more. So if I said it was painful, it is. So and we have to realize it, get on it, focus on cost. We've done a great job on costs. And we are seeing very competitive prices from service companies as to fracking services in North America. And these continue to compete well with each other and help us as through this collapse. And we're going to continue to stay on it. And that's what we're going to do.

Okay, Roger. Thanks. Good luck. Roger W. Jenkins - President & Chief Executive Officer: Oh, thank you, Paul.

And we'll take our final question from Pavel Molchanov from Raymond James. Pavel S. Molchanov - Raymond James & Associates, Inc.: Hey, guys. Just two kind of housekeeping items. On the Canadian – dual Canadian deals, is there a tax efficiency to keeping your proceeds from the midstream deal in Canada, rather than repatriating? John W. Eckart - Chief Financial Officer & Executive Vice President: Well, I mean obviously if you – if we were to consider repatriating and declaring some type of dividend, Pavel, then we'd have to pay a toll for doing that, because there is withholding tax of 5%. And there is quite frankly a – and always has been – a differential in the tax rate in Canada being at 25%, 26%, 27% range, as opposed to a 35% tax rate in the U.S. So we've always been declared indefinitely reinvested in Canada. You keep it that way up until you couldn't do it anymore. And because you don't really want to pay that toll if you don't have to. But there is cash up there. So it's an evaluation of how you have to look at it on an overall basis, and what's best for the corporation in total. So yes, keeping it up there saves cash taxes is the short answer. Pavel S. Molchanov - Raymond James & Associates, Inc.: Okay. And on your oil sands, the legacy oil sands asset, have you calculated what the $20 a ton carbon tax is going to amount to in extra LOE next year? Roger W. Jenkins - President & Chief Executive Officer: I believe it's only around 10%. We don't see it to be astronomical there. There was a – Suncor is partner in that and heavily involved in that. Was a part of that negotiation if you will with the government entities there. And we do not see that to be a major impact on that project. And Suncor must not, because they invested in more of it I suppose. Pavel S. Molchanov - Raymond James & Associates, Inc.: Is it couple bucks in LOE? Or a couple bucks a barrel? What's the... Roger W. Jenkins - President & Chief Executive Officer: Oh, it'd be less than that. I mean the OpEx in this thing is quite changing. And you got to watch the USD forex on that. But if it's in the C$30-something, it'd be a couple bucks the way I see it. Pavel S. Molchanov - Raymond James & Associates, Inc.: Okay. Appreciate it. Roger W. Jenkins - President & Chief Executive Officer: Oh, thank you. Roger W. Jenkins - President & Chief Executive Officer: Okay. That's all we have today. I appreciate everyone for calling in. And we will be back next quarter and continue to focus on costs here at Murphy. And are excited about our new deal that we had today, both of them in fact. And we'll be back to it. And thank everyone for calling in. I appreciate it. Thank you.

Thank you. That will conclude today's conference. We thank you all for your participation.