Murphy Oil (MUR) Q4 2026 earnings call transcript

Thank you, Fern. Good morning, and welcome to our second quarter, 2026 earnings conference call. Joining me today are Eric Hambley, President and CEO, Tom Morales, Executive Vice President and CFO, and Chris Lorena, Senior Vice President of Operations. Yesterday, after market closed, we issued our second quarter earnings release, a flight presentation, and a stockholder update. These documents can be found on Murphy's website, and we will reference them today throughout our call.

As a reminder, today's call contains forward-looking statements as defined under U. S. securities laws. 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 discussion of risk factors, please refer to our most recent annual report filed with the SEC, where if we take no duty to publicly update or revise any forward-looking statements except as required by law.

Throughout today's call, production numbers, reserves, and financial amounts are adjusted to exclude non-controlling interests in the Gulf of America. I will now turn the call over to Eric for opening remarks.

Thank you, Artif, and thanks to everyone for joining us. We released detailed earnings materials yesterday, so I will keep my comments focused this morning. I want to spend most of my time on the key developments in the quarter, including what we learned through our exploration and appraisal program, how those learnings are shaping our capital allocation, and why we believe these investments strengthen Murphy's long-term outlook.

The most important development in this quarter was the Bubal discovery in Code of Walk. Just as important as the result itself is the discipline exploration process that led us here. We entered Code of Walk with a clear thesis and a three-well exploration strategy, and although the first two wells were non-commercial, we remained confident in Bubal's prospectivity and continuing to execute the plan. That patience and technical conviction paid off as the well encountered oil in both the Tyronean and Centimanean reservoirs.

Now, we want to be very clear about where we are in the process. While Bubal has the potential to become a significant growth driver for Murphy, there is still important appraisal work ahead. The next step is to understand the scale, quality, continuity, and economics of the resource. That work is now underway with the Bubal West 1x, which we spot in July to begin appraisal of the Tyronean reservoir.

It is the first of up to five potential appraisal wells. I emphasize potential because this will be a staged data-driven process over the next 18 to 24 months, with each well determining the scope and direction of the remaining appraisal program. In 18 to 24 months, appraisal program may sound lengthy, but this is how we protect value. In our business, value can be destroyed long before development well is ever drilled by misunderstanding the resource, overbuilding the project, or committing capital too early.

Appraisal helps us avoid those mistakes by giving us the technical confidence to right-size the development and make discipline capital decisions.

Hysubong in Vietnam exemplifies the importance of that discipline. Hysubong 4x was a dry hole, and based on the new data, we have reduced our resource estimate. There is no sugarcoating it. This is not the outcome we were hoping for. However, the appraisal program gave us critical insights, allowing us to now calibrate the field development plan before we commit significant capital in the coming years.

Following the Hysubong resource estimate revision, I want to emphasize two important points. First, even at the revised estimate, Hysubong remains a material 200 to 300 million barrel oil equivalent opportunity, approximately two to three times the size of locked to Vong. And second, our Vietnam peak production outlook of 30,000 to 50,000 barrels of oil equivalent per day remains unchanged. We may come closer to the lower end, based just on what we know today, but the final outcome will depend on what additional tieback opportunities we identify as we move forward.

The key takeaway is that we now have greater clarity around our opportunity set with many compelling projects competing for capital. That brings me to our revised capital program and how we're thinking about investments going forward.

We're increasing the midpoint of our 2026 capital expenditure estimate from 1.25 billion to 1.55 billion dollars. This is not about chasing activity or reacting to price. It's a deliberate decision to fund specific high value opportunities now in front of us, with almost all of the increased supporting Murphy's organic growth. Roughly $190 million relates to football, including $100 million of incremental spend on the discovery well, and $90 million for the first appraisal well.

Another $70 million is going into the Eagleford, which is expected to add approximately 5,000 to 6,000 barrels of oil equivalent per day in 2027. I want to take a minute to talk about the Eagleford decision, because it highlights the key role that sat at place in our portfolio. As our offshore opportunity set expands, we can fund part of that growth through near-term high return production and cash flow. Eagleford is one of our best assets to do that. It is flexible, well-weighted, and capable of efficiently translating capital into production.

Going forward, we expect the Eagleford to become an increasingly important source of cash flow and financial flexibility across the business. This is the strength of our multi-basin portfolio in action, not a change in capital discipline. Our ability to fund growth through our base business while maintaining financial strength was evident this quarter. We generated $110 million of free cash flow for sure and $50 million to shareholders through the dividend, maintained leverage below one time, and entity with approximately $2.5 billion of liquidity.

Even with the revised capital program at current commodity prices, we expect to generate positive free cash flow for the full year.

Operationally, second quarter production averaged 169,000 barrels of oil equivalent per day above the midpoint of our guidance, led by stronger performance at Tupper-Mottney and continued outperformance in the Eagleford. In the Gulf of America, Chinook number eight is now through drilling after reaching a total depth of 26,000 feet and remains on track to come online in the fourth quarter.

Lock the Vong is also on schedule for first oil in the fourth quarter with the pipeline, top sides, and FSO milestones now complete. As we look ahead, years of capital discipline and technical rigor are beginning to translate into a portfolio with multiple exciting pathways to growth. This is the murky model in action. Identify the opportunity, test it with discipline, develop it safely and efficiently, and fund it through resilient cash flow and financial strength.

This full cycle capability and track record across geographies, asset types, and development stages sets Murphy apart and positions us to convert the opportunity ahead into lasting shareholder value. With that, we are ready to take your questions.

We will now begin the question and answer session. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Please stand by while we compile the Q&A roster.

Great question. Obviously, we're disappointed that the forest well was a dry hole, but I will say that we're still very excited about what is a very significant development for us. You know, 200 to 300 million barrel field in shallow water will have very attractive economics. I would have loved for it to be larger. We now have a lot of confidence in the size of the resource and gaining increasing knowledge about how we're going to develop the field in terms of the well count well spacing and the type of facility concept is something will be evolving over the coming year or so.

We're looking at a number of options for the development. One option would be an FPSO. The other option would be a processing platform with a series of well had platforms tied to an FSO similar to our locked upon project. Those are things that we will assess as we plan a development of the field over the coming 12 months or so.

We're going to work closely with our partners on the series of approvals required to achieve an approved field development in Vietnam. And after we do that, we will take the project to our board for final investment decision. As we highlighted in our letter, we're targeting that in the fourth quarter of 2027. And I think we're well on track to do that. Really happy with this significant discovery that will help us build a really material business in Vietnam.

And yeah, I think we're going to create a lot of value for our shareholders. And I don't think we're getting a lot of recognition of that value creation today. And we're happy to demonstrate our ability to continue to execute developing projects 40% faster than the industry.

Yeah, thanks for that. As we feature before, we drill the discovery well in a position where the Toronian and the Centimanean cross. There was one location where we could test both reservoirs. We were fortunate to be able to find oil in both Toronian and Centimanean. And that leaves us with a need to understand the lateral extent of the field, the variability in reservoir quality and thickness across two different reservoirs.

And also importantly learn how much of those structures are oil field. So the next well that we're moved to the ball West one X is moving down dip in the Toronian, the main objective of the well is to test for continuity and variability of reservoir. Sands and also hopefully determine to prove a deeper oil level than is proven at the base of the ball one X well. We're very intentionally targeting the well to give us high confidence that we have a resource in the Toronian that is in line with or in excess of the volume we need to have a commercial development. As we sit today, we think what we found is a commercial, but we have don't have high confidence because we have one penetration and two reservoirs, very large reservoirs to test very large lateral extent.

And we're hoping this well gives us high confidence that we'll be able to then move forward with the development as quickly as possible while we continue to assess and appraise the full size and value of the field.

Yeah, thanks for that. Before I get just into the Eagle for it, I want to back up a bit and talk about how we've been thinking about our overall company business. You know, what we've said over the last few years is we thought we could develop our kind of base business, continue to develop that and also are emerging and growing Vietnam business with a capital program that's sort of in a 1.2 to 1.3 billion range. And that any additional spending to develop something like Boo Ball would likely be additive or largely additive. And I would say where we sit today, that is still true. So as we look forward and think we want to maintain our Canadian entrepreneur business effectively flat, maintain the scale of our Gulf of America business relatively flat through the rest of this decade.

We look at an additional need for CAPX for appraising and developing Boo Ball. And the place that we've found was most optimal to help provide part of that is through accelerating our Eagleford. If you look at our Eagleford business, we've had increasingly strong well performance over the last few years, generating strong free cash flows, even in periods of fairly low oil price in the past couple of years. And so the reliability of it and the flexibility of it, we look at it and say, this is a great place to invest a little bit more that will generate more free cash flow next year and likely through the end of the decade that will help us fund the appraisal of Boo Ball.

And then as we move into additional volume growth out of Vietnam will have even stronger cash flows. So it's the best place to find the oily production and we can do it scalably and we've had very strong returns and increasing well performance from Eagleford. So it's kind of the go to place to do it. And I think you'll see as we highlighted in our materials increase spending this year, which leads to increase free cash flow next year.

And while we haven't formulated a plan that we've released for 28 through 29, 2030, I think you'll see us increasingly lean into that. If it allows us to continue to generate more free cash flow. So really about creating shareholder value. I think it's nice to be able to generate incremental, oily production growth in the short run. But the primary reason is it's pretty cash flow generative and can help us fund what we think is an exciting opportunity in code of law.

Yeah, that's a fair question. We don't have a number to give you for next year's CAPX, but I'll talk just about how I think about it. I think that you should expect us to increase slightly more in the Eagleford than in the past with that alone without any change to investing in code of law. That would likely put our typical capital program toward the high end of our kind of previous one two to one three range, maybe slightly above that's still something we're going to work on. And then spending on blue ball is likely additive to that. So we'll probably see a higher CAPX in 27 than you've seen from us recently. I don't know the number and importantly, I want to kind of go back to the comment we made about the appraisal program.

We're going to drill. We're drilling a well who ball West one X now. Depending on what we find, we may have no appraisal program or a limited appraisal program. We're going to learn from every well. And next year's capital spending will be materially driven by what we continue to find. If we keep finding more oil at the ball, we'll likely keep spending. If we have less wells required to define the size, scope and quality of the ball, then we'll spend less. And so there's a pretty big range around that we're going to still work on that. The results from the wall one West one X well will probably materially shape our view of likely spending and spending ranges for 2027.

But I think I don't want to try to make you feel like we're likely to come in below 1.25 billion next year. It's going to be higher. I don't know how much higher, but we're going to be disciplined focus on creating shareholder value and investing in things that are going to be very valuable for our company and our shareholders.

Yeah, thanks, Carlos. I'm happy to provide more context there. Let me go back to where we were at the end of the 2x well. So we drilled 1x2x. We had extremely encouraging results, strong DSTs. We had a view at the time that the field was likely toward the high end of our previously guided, which was a pre drill range of resource.

And we told everyone that because we wanted to inform and keep everyone appraised of how we were thinking about it. And we said at the time, we thought it was possible that the resource could be even larger. But importantly, we had drilled a fairly central area of the field and we needed to test the northeast and southwest extensions of the field, which is what the purpose of the 3x and 4x wells was. So with the 3x, we were testing for lateral extension to the northeast, how continuous are the sands are the same quality.

We weren't really chasing a deeper oil water contact there. We were just chasing for continuity. And then with the 4x well, we were testing what we thought would be an expanded reservoir section with potentially a deeper oil water contact. And what we found from the program from the 3x and the 4x was that the reservoir thickness was not as extensive as we expected over the entire structure, which tightened up the resource estimate. With the 4x, we found the interval we were looking for, but the reservoir quality was low, so we didn't have any net pay. So the story for 4x was not really about oil water contact. It was really about the extent of productive reservoir being limited.

So now that we have bounded the reservoir and with these 4 wells, we have high confidence and a developable resource that we're going to move forward with the field development plan.

Yeah. I think what you'll see from us is investing in our Gulf of America business to try to maintain production relatively stable there. And in our EGLE for likely incrementally more spending than historical. And in Canada onshore, stable investment, stable production. Vietnam, obviously, we're working through additional development drilling and our locked upon project. We won't have likely additional drilling in high subong next year.

So we'll be moving to engineering studies, which is not a lot of spending. And then in code of law, what we spend will be driven by what we keep finding, as I mentioned before, with Neil. And that's really driving a significant uncertainty in our spending. But as I said, we're going to learn from every appraisal well and we'll decide what does that mean about the next well. And so this is a probably broad uncertainty.

If we needed to pull back spending for some reason, if oil prices went to be extremely low, we could change our plan for practically any. Part of our business, we are fortunate in Vietnam and in code of law that we operate so we can control the pace of any spending. We believe it is valuable for shareholders to quickly appraise the ball, determine if we have a commercial project definitively and determine the extent of it so we can move on for them planning. But if we needed to, we could slow the pace of appraisal.

We could we could go as low as zero appraisal wells and we'll ball next year if we chose to. And so we have a lot of flexibility. We're going to continue to spend money where we think it's value creating for shareholders and maintain flexibility to spend less if it's necessary.

Thanks, Carlos.

Sure. Our Eagleford inventory has fairly limited amount of Austin chalk. Our development programs in cards over part of our car and position will include an occasional one or two Austin chalk wells in a 10 to 12. Well, pad that is mostly lower and upper Eagleford locations. So we have been developing them there. Limited to part of our car and position in terms of what we're investing in near term. And so they're not a huge feature for us. We we like them where the reservoir quality is good. So we could develop them where it makes sense. I don't think it's a big driver for our program.

So it's not it's not something that is really worth calling out or highlighting as unique. It's fairly limited, but but where we do have them in part of our car and position, we really like them.

Sure. Before we drilled the ball one X well, we estimated that a dry whole cost for the well was $65 million. When we drilled the well, we encountered section in the shallow terrain in above the discovered terrain interval that was slow to drill. We had fairly slow rate of penetration as we drilled it slower than we had anticipated.

And we've incorporated that learning into our dry whole cost estimate for the goo ball West one X well. So instead of assuming it's $65 million, we're moving it to $90 million. If we encounter hydrocarbons in the West one X well, we're likely to spend additional funds with formation evaluation logging core. Fluid samples, et cetera. And that might push the well cost above $90 million, which is normal how we conduct our business.

Yeah, that's a really good question. We are drilling the lock the Trong North one X well now. And as you mentioned, it has a pre drill mean to upward resource range of 40 to 80 million barrels, which is a nice, a nice prospect to drill. And with success, it likely sets up of development as a tie back of lock the Trong North and lock the Trong to the infrastructure. I'd locked a long as locked a long comes online in the fourth quarter will generate revenue.

Over the course of a few years will recover the costs of our historical investment in the block that the all of our exploration costs in block 15 105. And also our development costs of long. And then we'll be able to use the revenue from locked a long to recover costs from the exploration that we're doing going forward. What we're doing now and in future years, we have significant remaining prospectivity on both block 15 105 and 52 17. And we'll test those likely between now and the end of this decade and stage in a development with standalone developments where the resource size is large enough to be necessary. Or tiebacks to existing infrastructure.

And what are likely to be two key hubs, a locked a bong and a high subong hub in kind of a north and south position. So we're really excited about the potential there. We have a pretty strong record of having successful exploration here. We keep finding oil and we need to find about eight to 10 million barrels for an economic tie back. So if we can find 40 to 80, we'll be very happy. It'll be very value trading for us and allow us to maintain a long production plateau of our overall Vietnam business. So we're creating a lot of value here with our shareholders spending very little money to do it.

Yeah. So where we sit today, we do not have a rig actively drilling an eagle for. We completed our drilling program that we had originally contemplated and are working through the last of our completions and well on lines. And what we decided to do is resume drilling instead of resume drilling in January to pull that forward to begin in October.

We'll drill a patent car and a patent catarina this year. We'll probably begin completing the catarina pad at the end of the year. And we'll bring those new wells online early in 2027. And I think what you'll see is that's just the beginning of an active program next year. I think your range of rates for Eagle for next year is reasonable.

I would assume we're a little toward the higher end of what you said than the lower end, but we still have to formulate exactly what our 2027 program is.

Okay.

It's a great question, Josh. The way I would frame it is we have not changed our capital allocation plan or framework at all. We still have the exact same priorities to plan to prioritize investing in our assets to maintain or grow the scale, pay dividend, focus on balance sheet and occasionally share buybacks when it makes sense. And so we really have no change in that. Our plan, as we've been very clear about, is based on adjusted free cash flow, which is after our dividend and a few other things, including M&A.

We will likely going forward have modest free cash flow. We're going to be measured in our pace and we're going to be very conscious of protecting our balance sheet. We're not afraid of using our liquidity and our balance sheet as necessary, but we're going to keep ourselves in a strong balance sheet position at all times. That's a priority for us. So we will definitely be maintaining our dividend that's core to us. We paid a dividend since 1961. We're going to continue to pay a dividend. I would imagine going forward for the entire 10 year of me being here.

And as if we encounter situations where we think our share price is significantly out of whack with intrinsic value, then we'll be active in share buyback. So I think that's the same story you've heard from us in the past. We're fortunate to have even more organic growth opportunities than we had a few years ago. It provides us more challenges in terms of how we choose to allocate capital.

But we're in control of the pace as operator everywhere. And we're going to do what we think is best for shareholder value going forward. Again, not being afraid to use our balance sheet, but always with an eye toward protecting a strong balance sheet at all times.

Yeah, thanks for that. I think you'll see next year that we'll invest in the Gulf of America and exploring in one or two wells. You'll likely see us invest in Vietnam in our Coulomb blogs, most likely in 15105.

The inventory that we were just talking about a few minutes ago. And I don't expect other than appraisal drilling in West Africa. We'll have more West Africa drilling activity. We're intentionally phasing in opportunities in West Africa that have there are different parts of our prospect maturation time frame. So we signed a block in Morocco recently. We're going to reprocess seismic there. That's very little spending. We're hoping to finalize agreements for Cameroon and Mauritania in the end by the end of this year and next year spend small money with studies. Maybe the beginnings of seismic reprocessing small dollar spending drilling in in Cameroon, Mauritania or Morocco. It was probably a 20, 20, 20, 20, 20, 20, 20, 30 thing depending on what we find.

We're going to follow our recipe of very detailed regional study leading to detailed prospect maturation and drill or not drill based on the merits of the prospects. That takes some time. And as you saw, it led to some success here for us in Code of Law. So we think we're setting up for a repeatable business model of exploring and emerging on frontier basins and doing it with low entry costs. Relatively low well cost targeting large resource, and that's very value creating if we can continue to have some success.

Yeah, Leo, our decision to invest more in Eagleford is not driven by near term higher oil price. It's driven by ability to generate strong free cash flows with a significant range of oil prices. If we saw oil price below $50 for a year, we would probably pair back our investment in a lot of places, including Eagleford. But with even a significant range of oil prices in line, what we've seen over the last three years, we feel that Eagleford investment makes sense. We've generated strong free cash flow over the last few years doing it. We have increasingly strong well performance.

And even the modest oil prices will be investing in it to generate strong free cash flows. So we're not reacting to oil price. We're saying we now have a strong portfolio of organic growth to invest in. And part of the way we can fund that is by generating more free cash flow from Eagleford by investing more in Eagleford.

Sure. As you mentioned, we'll have fairly limited contribution to production this year because of a fourth quarter online, first oil for a lockdown. We will continue to drill development wells through this year and into next year. If you look out toward the end of 2027, locked the vong net production is probably in the five to nine thousand barrel a day range.

And as we continue to drill the remaining development wells in our face development program through 28 and 29 will ultimately ramp up to 10 to 15,000 barrels a day.

That's exactly right.

We haven't characterized that, Leo, is if we are conducting our typical sort of assessed opportunities and drill an exploration well occasionally, then that would not materially push our capital higher. Obviously, move ball is likely to push our capital higher with success.

Exploring and drilling an occasional well is something that fits into our overall exploration program kind of in line with what we've been spending. If we are fortunate to have a discovery in Morocco, Cameroon, Mauritania, then that would lead to additional appraisal drilling and then development drilling, which would be great. That's obviously a long way away. And as, as you know, exploration wells tend to be dry holes. So I'm not too worried about it yet. I think we'll continue to expose ourselves to opportunities that are at various stages. And I'm not concerned about a strong draw for capital between now and the end of this decade and any of those new entries, but excited for the potential that they may help us continue to have opportunities to develop and grow as we exit the 2030s and head into the 2040s.

Okay, thanks Charles. So the West one as well is designed to test Toronian down dip. It is testing for variability of reservoir, that'd be reservoir thickness, reservoir quality. We're hoping to get confidence that is where we drill with the Toronian at that location is connected to the ball one x location. And also hoping to demonstrate an oil water or an oil level deeper than the oil down to in the ball one well. So it's doing it doing multiple things. And we think that location is important because with significant oil presence in that well in the ball West one as well to be clear. That will have a high confidence that we have a commercial development, but still significant uncertainty about the range of resource.

So the location of the one x well was drilled in a position where there was significant up dip reservoir in the centomanian and the Toronian and potentially significant down dip potential in both. And the reservoir and the Toronian and the reservoir in a centomanian, they cross. If you were looking at them from above, they cross like an X. We drilled the one x well right where they cross. So like I said, potential up dip and down dip from that in both reservoirs.

And ultimately, if we have success, we'll continue to identify and drill appraisal wells that will over time reduce uncertainty and give us high confidence in what we need to develop how we need to develop it. So this next well is really key for us to having high confidence in a commercial discovery.

Correct. Going to Vietnam, and I appreciate your comments earlier about the basis that if I understood right, that when the Forex, HSB Forex, you basically just didn't find reservoir quality rock. I'm curious, does that affect your, the prospectivity for some of these other, you know, blob you have on, on your map in block 15 to 17. I think they're, they're labeled like both them and high school hall. Does this diminish your appetite to drill those somewhere down the line?

Those other prospects will obviously will have learned a little bit from drilling high through various reservoirs, and we will incorporate that into our understanding of those. I would say because of the diversity of different play types there and different reservoirs that those prospects are targeting that we probably still have quite a bit of confidence that they make sense. But again, there's a little more work to do to plan and expression program there. In 15105, we have, I would say, a very well characterized and the learnings from HSB don't significantly impact our prospectivity there.

So you'll see us focus on exploring in 15105 in the next couple of years with probably activity in 15 to 17, maybe in 28, 29, not in 27.

Thank you. I'll close by thanking our employees for their commitment and execution to our shareholders. We appreciate your continued trust and support.