Murphy Oil Corporation
Q3 2015 Earnings Call Transcript

Published: 30 Oct 2015

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Murphy Oil Corporation Third Quarter 2015 Earnings Call. This call is being recorded. I would now like to turn the call over to Kelly Whitley, Vice President, Investor Relations. Please go ahead.

[Kelly L. Whitley:]

Thank you, Lisa. Good afternoon, everyone, and thank you for joining us on our call today. With me are Roger Jenkins, President and Chief Executive Officer; and John Eckart, Executive Vice President and Chief Financial Officer. Please refer to the informational slides we have placed on the Investor Relations section of our website as you follow along with our webcast today. Today's call will follow our usual format. John will begin by providing a view of third quarter 2015 financial results and then Roger will follow with an operational update, after which questions will be taken. 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 Form K (sic) [Form 10-K] (1

[John W. Eckart:]

Thank you, Kelly, and good afternoon to everyone. Murphy Oil's consolidated results in the third quarter of 2015 were a loss of $1.6 billion, which equates to $9.26 per diluted share, that's compared to a profit of $246 million or $1.37 per diluted share a year ago. The third quarter 2015 results included non-cash property impairments of $2.3 billion, which after tax has amounted to $1.54 billion charge. These impairments were attributable to significant declines in future periods oil prices, which fell by as much as $15 per barrel at quarter end compared to three months earlier. The impairments were not related to reductions in the company's reported reserves. Adjusted earnings, which adjust our GAAP numbers for various items that affect comparability of earnings between periods, was a loss of $124 million in the third quarter of 2015, down from a profit of $205 million a year ago. This decline in adjusted earnings was primarily attributable to lower oil and natural gas sales prices in the current year. Our schedule of adjusted earnings is included as part of our earnings release and the amounts in this schedule are reported on an after-tax basis. Company's average realized price for its crude oil production fell more than $43 per barrel in the third quarter compared to the prior year. This amounted to a 48% drop between periods in oil prices. Natural gas prices also were weaker in the third quarter 2015 compared to the prior year, with average North American gas price realizations dropping $1.21 per Mcf or a decline of 33%. Realized natural gas prices offshore Sarawak also fell by 27%. Sales prices continued to be soft in October, and therefore revenues continued to be under pressure, as quarter four 2015 prices remained significantly below prices a year ago. The company continues to address its cost structure by aggressively reducing both operating and administrative cost. By year-end 2015, we anticipate a 23% reduction in staffing levels compared to a year earlier. At September 30, 2015, Murphy's long-term debt amounted to approximately $3.3 billion, 35.6% of total capital employed, while net debt amounted to just over 25% at the end of the third quarter. At this time, I'll turn the call over to Roger for his comments.

[Roger W. Jenkins:]

Thank you, John. Looking back, a solid operational third quarter following highlights stand out. Our company remains in a favorable financial position with a healthy balance sheet, it's flexible, take advantage of opportunities that arise both in onshore and offshore. With major pullback in oil prices, we've been able to maintain our net-debt-to-EBITDA ratio at less than 1.5. Subsequent to the third quarter, we hedge for 2016 and currently have 20,000 barrels per day in WTI contracts at an average price of $52 per barrel. On the cost side, we continue to make significant improvements in reducing both operating and G&A expenses on a year-to-year basis. We continue to review our portfolio as we still have many levers remain to reposition the company going forward. We're currently reviewing the value of various midstream assets in North America. We're enthusiastic about the new area that we recently formed into offshore Vietnam. We expanded our Vietnam footprint with the new block and a highly prospective, oil prone; Cuu Long Basin. Our partnership group was successful in testing our first well, and we are working to increase acreage in this prolific area. In the Gulf of Mexico, we drilled the Dalmatian South #2. We like what we see here as it has commercial hydrocarbons in two separate zones. Currently the well is being completed with first production expected early next year. In Malaysia, we achieved record average daily gross production for Sarawak gas at 291 million per day. In addition, we drilled the Merapuh 5 and Marakas wells with positive results and process of evaluating both. In our onshore business, the Eagle Ford Shale continues to outperform expectations, where we delivered 33 new wells online in the third quarter, plus the Montney production continues to be above plan. Our third quarter production is just over 207,500 barrels equivalents per day. We're increasing our 2015 annual production guidance to a range of 205,000 barrel equivalents per day to 209,000 barrel equivalents per day. Over the course of the year, we've increased the midpoint of our production guidance from 201,000 barrels equivalents to-date (6

[Operator:]

Thank you. And we'll take our first question from Leo Mariani with RBC Capital Markets.

[Roger W. Jenkins:]

Hello, Leo.

[Leo Mariani:]

Hey, guys (15

[Roger W. Jenkins:]

I think we see it as a little bit of both, Leo. We have had a pause in our exploration. When I say that, it's primarily related to the big $100 million-plus big wells in the Gulf of Mexico; they're very expensive at very high day rates. But we're not opposed to entry into lower risk opportunities. It was clear to us that the block did have prior discovery zone. I mean, we entered into the block and participated in delineation of all the (16

[Leo Mariani:]

Okay. Can you give us a little more color about this exploration well you're drilling in Malaysia towards the end of the year? And you also mentioned another well in Brunei, which I guess is non-op, can you give us a little more color around those?

[Roger W. Jenkins:]

Yeah, we have commitment wells in our business. We do not have commitments usually in the Gulf, as you would anticipate. So we've had these in. These are again, lower cost wells. The well in Block H has moved up in our schedule from what we thought prior. It's a big world out there on rig contracts, and this is an opportunity for us to be subsidized and drill a very low-cost well in that part of the world. So, if you're in the game for a long time, you're on both sides of the rig equation. I've been in – at that business a long time and we have an opportunity to drill the well cheaper due to that, and it's a very nice well to drill. It's probably a 60 million barrel mean type project near the Conoco-operated Kebabangan area of Block H. It would be different from the Block H wells we drilled in the past from an exploration basis, and totally different from our shallow flat spot gas amplitudes in which we've had enormous success. So we're going to drill that well. It's probably be 18 million to 20 million (18

[Leo Mariani:]

Okay, that's helpful, and I guess you guys also mentioned that you had two recent successes at Sarawak on the oil side.

[Roger W. Jenkins:]

Yeah.

[Leo Mariani:]

I don't know if I can pronounce the two names of these wells. They both begin with an M. Could you give us a little bit more just color around there? I guess it sounds like you're still appraising them. Would these be wells that potential could come online in the near future like 2016. What else can you tell us about those?

[Roger W. Jenkins:]

Well, it's called Merapuh and Marakas. If you live over there five years or six years, you can say it really easily, Leo, like me. So, they're both nearby structures, near two very nice fields. Merapuh is a major part of our gas project in SK Gas; and the Marakas well is a western feature to the west of our south axis platform; that does it very, very well. Marakas is a deeper section. I mean higher pressure, deeper section that was successful and we have to take those pressures and see how we're going to delineate that with the platform. It is not a 2016 event. This would be out in 2017-2018 time, and it will depend on capital allocation next year as we go through – what you can imagine a difficult budget cycle. The Merapuh well found extensions of some prior gas that we produced today in Merapuh and another structure – so we proved downdip gas there and some updip oil opportunities; both of them were 10 million barrel type thing. We probably drilled both wells for less than 20-something million dollars. It's going to fit in well with our nearby development. Some are working on it, and they're successful.

[Leo Mariani:]

Okay, that's helpful. I guess, you sort of went through the math in terms of saying that your fourth quarter production was going to be a little bit lower than 3Q.

[Roger W. Jenkins:]

Yeah.

[Leo Mariani:]

I know you had some maintenance in the third quarter. Just to be clear – expecting some incremental maintenance in fourth quarter or is this more of just sort of risking and the fact that you're saying your nominations for your SK Gas are likely to be lower. Could you just maybe explain that a little better?

[Roger W. Jenkins:]

Well, SK Gas is a place (21

[Operator:]

We'll take our next question from Peter Kissel with Howard Weil.

[Peter Francis Freeman Kissel:]

Hi. Good afternoon, guys, and thanks for taking my questions. Maybe just going back to Vietnam here to start with. Roger, can you give us a projected spend rate over the next couple of years for that asset?

[Roger W. Jenkins:]

There is an extension involved with the block and we're just on the tail end. This well happened in September, Pete, and we're working with them on that. It's possible we could have an exploration well there. This is a pretty complex commerciality field development plan process at PetroVietnam. We're used to that working with Petronas in Malaysia. We're talking about probably spend on that in the 2017, 2018 range, and not next year, very aggressive (23

[Peter Francis Freeman Kissel:]

Got you. Okay. And then, Roger, I know you've been pretty actively looking at a lot of different M&A potential this year. Does the decision to go into Vietnam a bit more aggressively change your stats a little bit, or are you still pretty actively looking for other assets elsewhere?

[Roger W. Jenkins:]

Oh no, it has nothing to do with that. I'm not at liberty today to talk about the cost, but it's a $2 type finding cost number, and F&D number on this project of about 14 to 15 (23

[Peter Francis Freeman Kissel:]

Got you. Okay. Thanks, Roger. Maybe one quick question for John, too. With regards to cost, you've had a very successful year of lowering your costs. And just wondering how much more is there to go from here both on the OpEx side and the CapEx side? Is it in the 5% to 10% range that's still likely, or something a bit bigger or less than that maybe?

[Roger W. Jenkins:]

It's Roger, I was preparing for that one, Pete. I thought (24

[Peter Francis Freeman Kissel:]

Okay. Great. Thanks, Roger, and congrats on a good quarter.

[Roger W. Jenkins:]

Well, thank you, Pete.

[Operator:]

We'll take our next question from Roger Read with Wells Fargo.

[Roger D. Read:]

Hi, good afternoon.

[Roger W. Jenkins:]

Hi, Roger. How are you doing?

[Roger D. Read:]

I'm well. I hope you are doing the same. Hopefully, that Blackberry is not causing you the trouble this year it did last year, Roger?

[Roger W. Jenkins:]

Roger, you've got to get off that story.

[Roger D. Read:]

I always thought it was a good one, because I know exactly how it feels.

[Roger W. Jenkins:]

I moved on to an iPhone. I'm going crazy with technology.

[Roger D. Read:]

All right, all right. Well, it's a different tone anyway. Hey, kind of following up on the M&A question before. I know you don't want to get into the specifics of the property, but what are you seeing in terms of cost bid-ask spreads? Has there been an increase in the properties that are available to look at in terms of data rooms, that sort of thing?

[Roger W. Jenkins:]

There's just everything of the above there. You have some public situations. You have private equity situations. You probably have a vision of more of return of their multiple than probably be able (26

[Roger D. Read:]

Sure. And in terms of the return you would be looking for on one of these acquisitions, to the extent you can share with us, what would be the hurdle rate for something like a meaningful transaction?

[Roger W. Jenkins:]

I'm really not going to probably say that, Roger. You anticipate some level of return on a price recovery deck that would have to be far in excess of cost of capital. And the reason you can't just say exactly what it is because it's more complicated and that depends on the reserves that would be – what are those price for those barrels, do they have flow in (28

[Roger D. Read:]

Okay. And then just my last question. In terms of the cash that's overseas that you could repatriate, can you remind us what the potential tax leakage on that would be?

[John W. Eckart:]

Okay. The tax leakage on that is not that great. We have foreign (28

[Roger D. Read:]

Okay, great. Thank you.

[Roger W. Jenkins:]

Thank you, Roger.

[Operator:]

We'll take our next question from Edward Westlake with Credit Suisse.

[Roger W. Jenkins:]

Hi, Ed. Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker) Good afternoon. So, congrats on the operational performance. I mean, I guess the key focus is the cash flow outspend. I mean, you've got a balance sheet, but obviously, prices are low. People will worry about it. So, you've got a CapEx for this year of $2.3 billion. You've talked about potentially dropping rigs. Maybe walk through what are the big deltas that you see from this year to next year, I appreciate you may not want to give a specific number, but what should we be thinking about?

[Roger W. Jenkins:]

Yeah. Ed, I'm probably not going to be the leader in that and I had a bet around (30

[Roger W. Jenkins:]

The way it works in an offshore (32

[Roger W. Jenkins:]

No, but I consider it significant, and we continue to work that. We're not a company that throws around MLPs, and that does all this wild stuff all the time. So we're taking a measured approach at that. We're very pleased with how that's going, and it would be a termination of the terms and conditions and how that's going to go. And it too would be another liquidity situation that I have not factored in in the discussion I just had with you a few minutes ago. Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker) Do you have the book value of what you've invested overall in infrastructure?

[Roger W. Jenkins:]

Really just going to – the way we're going to do BD on this, Ed, is when we have it, we're going to announce it, and setting up these visions of what would be a good EBITDA multiple's really not where I'm headed today. Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker) Okay. Thanks so much (34

[Roger W. Jenkins:]

Appreciate it.

[Operator:]

We'll take our next question from Paul Cheng with Barclays.

[Roger W. Jenkins:]

Hi, Paul.

[Paul Y. Cheng:]

Hey, guys. Good afternoon. Roger, I know that you're not going to talk about the budget yet, but can...

[Roger W. Jenkins:]

Why are you asking, Paul?

[Paul Y. Cheng:]

No, I'm actually not asking the budget, I'm asking that, what is the CapEx that you need today, based on the current market condition? If you want to hold the production flat and have the same similar asset mix? What the CapEx look like?

[Roger W. Jenkins:]

Asset mix isn't going to change overnight. It's pretty similar, sales very good, everything is going well. I don't have that number exactly calculated, because we're in the middle of our budget, Paul. I would anticipate like $1.3 billion (35

[Paul Y. Cheng:]

$1.3 billion (35

[Roger W. Jenkins:]

Yeah.

[Paul Y. Cheng:]

Okay. And that's, I presume that is including some form of exploration expense, or that exploration will be on top?

[Roger W. Jenkins:]

We're trying to have exploration limited in the $45 world, with (35

[Paul Y. Cheng:]

And on the Midstream monetization, or strategic review, from a timeline standpoint at this point, is it going to be driven primarily by the market condition, or that is based on that how quickly that you guys will go through all the analysis?

[Roger W. Jenkins:]

Oh, it's complicated. We have to have the appropriate person that we want to do business with. They have to be happy with us. We have to get those terms and conditions. We then have to have it approved by our board and really, I'm not in a real bond to do it. I don't have to do it, and I'm not probably at liberty to discuss a timeline, because I'm not in a hard spot.

[Paul Y. Cheng:]

I see. Final one, in Eagle Ford, if we're looking at your best sweet spot, based on your current drilling program, how long the prospect inventory can last?

[Roger W. Jenkins:]

Till I'm well and gone, Paul, probably at 100 wells a year for 10 year to 12 years or more – no – more than that, 20 years.

[Paul Y. Cheng:]

Okay. Thank you.

[Roger W. Jenkins:]

All right. Thanks Paul.

[Operator:]

Our next question comes from Guy Baber with Simmons.

[Roger W. Jenkins:]

Guy, how you're doing?

[Guy Allen Baber:]

I'm good. Good afternoon, everybody. Roger, I wanted to talk a little bit more about the performance, which was impressive, and apologies if I missed this. But do you have an estimate of the split between the cost gains and efficiencies you have achieved, which you might be classified as – or which you might classify as more cyclical versus what is more structural, and the result of what Murphy specifically is doing differently?

[Roger W. Jenkins:]

Any G&A here is not continuing event. So, Guy, it's significant though, 23% of staffing by the end of the year is very significant – that would be both employees and contractors and all types of changes around the company. And we would not want to see that continue for another 23% next year, but we have not got the full estimate of that in this – this type of actions are recent to Murphy, very recent over the last few days, and we need to put that into our budget process, but we are looking at – we do know that, last year, we spent $365 million on G&A, and this year we're in our internal work around $300 million, and then we will have – and we do know that the staffing thing is in the mid-$20 million per year, and we'll have a full help to that to our side, and we are very much significantly down from a couple of years back. On the operating expenses, I mean, we – like I said earlier in the call, we made incredible improvements there. It's driven by a lot of great performance in Eagle Ford Shale, a lot of work in the offshore as well, a lot of sharing of helicopter, sharing – when things go difficult, many people work together to lower the cost, and I'm very pleased with how my staff has performed in that. It's incredible job for us. We're incredibly focused on it, because we're trying to get to cash flow CapEx parity at $45 and every penny counts, and that's how we're working it. And when you work on things with the good people I have, you start seeing the results.

[Guy Allen Baber:]

That's helpful. Thanks, Roger. And then, focusing in on the Eagle Ford, you're now running three rigs there, which is down from four last quarter, and the production was better than we had expected this quarter. In a $45 to $50 world, can you just talk about the priorities which will govern the way you think about managing activity levels there over the next year? Is it about the returns of that specific play, or is it more about the portfolio and cash flow CapEx parity and you having flexibility there? So just, your high level thoughts there would be appreciated? And then, if you could help us out with what the implicit effect might be on the production profile, that would help as well?

[Roger W. Jenkins:]

Well, we have a lot of flexibility around production. Like I said earlier, I don't have that finalized, and I'm probably not going to be the leader in that pack, with the year we've had here. We have some really good wells to drill in Eagle Ford Shale. A $45 based pricing, we have – a lot of wells are 30% rate of return and I think that's pretty decent. And if oil prices are $50, we have many wells to drill at 45% rate of return, incremental going forward. I don't like to do – work that way, but this does help when you're allocating capital. So we're going to be allocating capital on the best areas that deliver the best return on that incrementally. We also do not need a lot of rigs to protect our acreage, that's different than it was in times past, and we'll have to do some big capital allocation study and we're in the middle of doing so about protecting acreage versus protecting efficiency. The reason we have such efficient operations, we've been running same numbers of rigs for a while now with the same teams. So if you go forward to zero, to two, to three, to four, to zero, it's hard to do that. So it's almost a situation of allocating capital to remain some level of efficiency. And we're really trying to get to preparing for lower prices here from a cash flow CapEx parity over other things, because we cannot continue to outspend our CapEx and wake up one day and be – with the credit of other people, we have very good credit situation today, debt to cap and we don't want to wake up with it like to norm (41

[Guy Allen Baber:]

Thanks, Roger.

[Roger W. Jenkins:]

Thank you.

[Operator:]

Our next question comes from Ryan Todd with Deutsche Bank.

[Roger W. Jenkins:]

Hey, Ryan, how you're doing, man?

[Ryan Todd:]

Great, thanks. How you're doing Roger?

[Roger W. Jenkins:]

All right.

[Ryan Todd:]

Maybe, one quick follow-up on, I mean, the Eagle Ford performance was impressive on the quarter with – actually growing sequentially with fewer completions, can you talk a little bit about what, I mean, you referenced better productivity of the wells, high EURs, some enhanced completions, can you talk a little bit about some of the things that you're seeing in the wells, how (42

[Roger W. Jenkins:]

Well, we've recently done a big study and Eagle Ford Shale started over with all of our PUDs, all of our proven locations and our reserves. We're doing very, very well in reserve (43

[Ryan Todd:]

Thanks. That was very helpful. And then maybe if I could – one more I guess from a little bit of a strategy point of view, I mean, I think one of the concerns that people have had with Murphy has been maybe depth of resource and what would drive in an oil price recovery, what are going to be the assets or the resource that's going to drive when the growth, again, when you return the planned offense as opposed to defense? And I guess as you think about that and you think about the resource that you have in your portfolio, what would you see? The Eagle Ford is clearly going to be one, but what would you see as kind of resource that will be the kind of the driver to the next leg of growth for the company? And I guess in that context – and how does M&A fit in terms of either complementing or competing with that resource for kind of the next cycle of Murphy?

[Roger W. Jenkins:]

Well, I mean, clearly, when we do M&A, we look at how it affects our long range plans and how it increase our income, our cash flow per share and every type of metric including R-over-P (46

[Ryan Todd:]

That's great. I appreciate your thoughts. And maybe, I mean, I guess it's – I mean it's safe to say to you that there's probably more resources (49

[Roger W. Jenkins:]

If we could get partners to participate in our wells that had ability and income do so and cash flow, we could grow production there and that's hard to deal with at this particular time. We have some really nice low risk opportunities there like Medusa, where we placed two wells on line and doing very, very well. So we have some additional locations there. It will be a matter of an oil price recovery. However, tiebacks like Dalmatian South #2 and various other things, the tiebacks from the Gulf of Mexico are right up there with returns you have in Eagle Ford, if you take full cycle into account, meaning the drilling of the well, the pipeline, et cetera. These things are very economic. We need a higher oil price, Ryan, to get into facility building big exploration successful things, or where we can enter into a well or enter into the things going forward during this unique pull-back, because we have the balance sheet to be able to do so. Those need oil to be a little higher, so if you have a higher vision of oil, you can participate into the Gulf and many, many favorable projects today. So, our ability to operate there, work there and long history of being there and have our business – so that way it's very advantageous for us right now. So we have great Eagle Ford Shale business going and we are executing incredibly well on. You've got to keep in mind, we built this team for years. It's incredible. And we are then able to look at those opportunities. We have a long-standing deepwater team, where we're not exploring today, but factor is how do we get comfortable in changing staffing to do that again another day when oil prices recover, if we choose to do so. But there's a lot of opportunities in both, and we're very advantaged to able to look at both of them, and I don't know if many people have that.

[Ryan Todd:]

Great. Thanks, Roger.

[Roger W. Jenkins:]

Thank you.

[Operator:]

Our next question comes from Pavel Molchanov with Raymond James.

[Roger W. Jenkins:]

Hey, Pavel.

[Pavel S. Molchanov:]

Hey, guys. You talked about your entry into Vietnam as an exploration opportunity, are there any components of your exploration portfolio that you are considering not staying in or either divesting or simply exiting in 2016?

[Roger W. Jenkins:]

Yes. That's all I'm saying.

[Pavel S. Molchanov:]

Okay. Fair enough. Let me try it this way, given the diverse scope of your kind of geographic footprint and the different host country relationships, or have you noticed more willingness on the part of governments and NOCs to improve the fiscal terms for you, guys, specifically or if you want to talk about the industry in general?

[Roger W. Jenkins:]

I found that in Southeast Asia, Petronas is such a leader there that the physical terms are very similar. We've been very successful. We directly (52

[Pavel S. Molchanov:]

But specifically in Vietnam, were you able to get better terms than you think you would have gotten, let's say, 6 months or 12 months ago?

[Roger W. Jenkins:]

No, I doubt so. Like I say, we're sought after there by them, we have incredible relationship with (53

[Pavel S. Molchanov:]

Okay. Appreciate it, guys.

[Roger W. Jenkins:]

All right.

[Operator:]

Our next question comes from Brian Singer with Goldman Sachs.

[Brian A. Singer:]

Thanks. Good afternoon.

[Roger W. Jenkins:]

Hey, Brian.

[Brian A. Singer:]

Your op costs have seen some wild quarter-to-quarter swings, but as was highlighted here, there was a consistency of strong cost performance here in the third quarter. When we look at the Eagle Ford production cost at $8, the rest of the U.S. at $8, Canada ex-Syncrude sub-$6, is this the new ceiling and base case where costs come down from here? And if your production declines in places like the Eagle Ford or elsewhere, how would that have an impact on the unit op costs?

[Roger W. Jenkins:]

Well, I think in the onshore, we're doing very, very well in that regard, I mean, looking back at 2014, I'm talking about just LOE, Brian, not the taxes and all that. There's different aspect of this, as you know. Last year, around $11. This year in Eagle Ford Shale looking at $10.20 or so for the year – all year-end because we had some higher costs pull over into the first quarter. And next year we're probably looking at $8 and change; that's really good. I think in Canada, we make incredible OpEx improvements at both Montney and Seal. Seal, of course, very challenged from a price perspective. And so, the onshore areas I think are good. The ups and downs are in an offshore business, you have to model it, Brian, a little bit to get that value. And so, we've had a good year in offshore, especially in the Gulf, and that it will come. You have subsea inspections, intelligent piggings of pipelines, and it makes the quarter a little bit jumpy in that regard. But overall as a company, I think that we're, like I said earlier in the call, we're looking at $9.65, it probably is a record here, of LOE, and we're looking at right around $9 for all of here of (56

[Brian A. Singer:]

That's great. And shifting to the Eagle Ford, just another follow-up on one of the earlier questions. You have this push versus pull of budget versus deficiencies, is there a minimum level of completion cadence that you see as needed per quarter in the Eagle Ford to retain a minimum level of efficiencies, and should we expect that production to decline?

[Roger W. Jenkins:]

Well, I mean, obviously, if you go – to answer your question, I say you need to keep two rigs running, and if you have two drill wells and that probably lead to one frac spread and you can always pick up other ones as needed. We're not a company with a lot of drilled uncompleted wells. I think we only have 30. I'm not a guy to build up hundreds of those things. I don't believe that's appropriate thing to do with capital. And so, with that said, obviously, we'd have production decline, Brian, if you go from 8 to 6 to 4 to 2, there would have to be a decline, which is, as your firm speaks about often, which should lead to – which I guess your firm doesn't believe – but it would lead to an oil price recovery, I would hope.

[Brian A. Singer:]

Great. Thank you.

[Roger W. Jenkins:]

Thanks.

[Operator:]

And our final question comes from Paul Sankey with Wolfe Research.

[Roger W. Jenkins:]

Hi, Paul.

[Paul Sankey:]

Hi, Roger. Can you hear me?

[Roger W. Jenkins:]

Yes. Sure haven't heard from you in a while.

[Paul Sankey:]

Yeah, I hope you're well. Roger, just had a couple of – you've been through several permutations of the options and you've talked about transformational, deeper resource inventory than you get credit for, et cetera, et cetera, I just had two questions for you. One was to be considered a merger of equals with someone else is a transformational deal; and the second is, would there be the potential for you just to take Murphy private? Thanks.

[Roger W. Jenkins:]

Well, those are unusual complex questions, Paul. That the complete board of directors of Murphy, in which I am one. We have not, in my view, if you look at my desk today piled with papers. I do not have a merger document there, nor a going private document. So, my focus is to – it's real hard, with these big price collapses. We had a very difficult budget last year, coming from a tough one again this year, make him stand about trying to get to cash flow CapEx parity and going from there is my focus today, over mergers in that effect, that will always be available to any publicly traded company of course, but it's not the focus I have today, to be honest.

[Paul Sankey:]

I understand. And so, the clear frustration you've got is that the share price is low and the multiple is so low. How do we change that?

[Roger W. Jenkins:]

What would change that? By continuing to – when you're in – when you get back to cash flow-CapEx parity and do that first, and continuing to focus on cost, you can only go so far with that, but we're going keep working on those two matters, and we do have singles and doubles here that we've been hitting.

[Paul Sankey:]

Yeah.

[Roger W. Jenkins:]

(1

[Paul Sankey:]

Sure.

[Roger W. Jenkins:]

And we feel like we're pretty well-positioned. But in my view today, we have to maintain balance sheet that we have. And at some point, I suppose, there will be a time when we try to do M&A and have return for our shareholders, and we feel we're unable to do that anymore, and we could look at other things. So I feel a lot good about where we are in a pretty poor price environment, and we're working on that is the answer, Paul.

[Paul Sankey:]

Yeah. Appreciate it, Roger. Thank you very much.

[Roger W. Jenkins:]

Thank you. And good to hear from you.

[Operator:]

And that concludes the question-and-answer session. I'd like to turn the conference back over to Roger Jenkins for any additional or closing remarks.

[Roger W. Jenkins:]

We appreciate everyone calling in today with some active questions today. I loved been participating with you and I think we did have a good quarter. And we'll be back with you again after the holidays, and we'll go from there and I appreciate it.

[Operator:]

Thank you. And that does conclude today's presentation. Thank you for your participation.