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Murphy Oil Corp (MUR) Q2 2019 Earnings Call Transcript

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Murphy Oil Corp (NYSE: MUR)
Q2 2019 Earnings Call
Aug 8, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Murphy Oil Corporation Second Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions]. This call is being recorded on Thursday, August 8, 2019. And I would now like to turn the conference over to Kelly Whitley, Vice President, Investor Relations and Communications. Please go ahead.

Kelly L. Whitley -- Vice President, Investor Relations & Communications

Good morning, everyone, and thank you for joining us on our second quarter earnings call today. With me are Roger Jenkins, President and Chief Executive Officer; David Looney, Executive Vice President and Chief Financial Officer; Mike McFadyen, Executive Vice President Offshore; and Eric Hambly, Executive Vice President Onshore.

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.

Throughout today's call, production numbers reserves and financial amounts are adjusted to exclude the non-controlling interest in the Gulf of Mexico. Since divesting our Malaysia Portfolio, please note these assets are characterized as discontinued operations.

Slide 1. Additionally, 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 discussion of risk factors, see Murphy's 2018 Annual Report on Form 10-K on file with the SEC. Murphy takes no duty to publicly update or revise any forward-looking statements.

I will now turn the call over to Roger Jenkins. Roger?

Roger W. Jenkins -- President and Chief Executive Officer

Thank you, Kelly. Good morning everyone and thank you for listening to our call today. First half of the year was extremely busy at Murphy as we continue to simplify and transform our company, following the close of LLOG in Malaysia transactions.

Our second quarter results clearly illustrate our commitment to be an oil weighted company with production from our US onshore and North American offshore assets generating robust realized prices leading to continued free cash flow. Production from continuing operations averaged 159,000 equivalents per day in the second quarter, 67% liquids and more importantly, 61% oil or more than 94,000 barrels of oil per day with only one month of the LLOG assets contributing to our business.

We also exceeded our production guidance by 5500 barrel oil equivalents per day. Our US onshore production is 44,000 equivalents per day, with 74% oil, this represents more than a 23% increase in production of the first quarter as we -- as our well execution is on track.

Our North American offshore production averaged 65,000 equivalents per day with 87% oil, this includes 8800 barrels of oil equivalent per day from our newly acquired Gulf of Mexico assets above our guidance of 7600 barrels equivalent per day as our new Gulf of Mexico asset base continues to perform.

We returned 342 million to shareholders in the second quarter, including a 300 million share repurchase. Subsequent to quarter end, we received over $2 billion in proceeds from the Malaysia sale and used the funds to repay $1.9 billion of debt incurred from our two Gulf of Mexico acquisitions, along with further increase in cash on our balance sheet.

Over the past several months, we've been made tremendous strides in transforming our company, we've quickly moved to sanction new projects within our expand the Gulf of Mexico portfolio, as well as, drilling a successful development well at Dalmatian that we expect to bring in line in the fourth quarter.

I will now turn the call over to our Chief Financial Officer, Mr. David Looney to give a financial update.

David R Looney -- Executive Vice President & Chief Financial Officer

Thank you, Roger, and good morning everyone. Starting with slide 3. For the second quarter, Murphy generated net income of $92.3 million or $0.54 per diluted share with adjusted income of $35.7 million or $0.21 per diluted share.

These results exclude the non-controlling interests or NCI related to our MP GOM business and reflect our Malaysia business as discontinued operations.

Similarly, all of the balance sheet accounts related to the Malaysian business are rolled up into one of two accounts either assets or liabilities held for sale. Lastly, the cash flow statement excludes the Malaysian operations until you get to the very bottom of the statement where all such cash flows recovered in the section titled cash flows from discontinued operations. In addition to the NCI and discontinued operations treatment, we had several one-off items in the quarter totaling over $57 million pre-tax .

These included $15 million in non-cash mark-to-market adjustments of our potential contingent payment liabilities, $8 million in transaction costs related to our recent acquisitions and divestitures. A $51 million non-cash market-to-market gain on crude oil derivative contracts and a $13 million credit associated with tax reform in the province of Alberta.

Slide 4. We once again generated free cash flow of approximately $63 million more than our capex in the quarter, which benefited from a $93 million working capital benefit. This working capital shift essentially represented the unwinding of the working capital drain we experienced in the first quarter immediately after taking over the MP GOM operations.

It is worth noting that for the 6 months year-to-date, our cash flow from operations after adjusting for working capital changes exceeded CapEx by $15 million. Given the size of the two transactions, we recently closed and the ultimate classification of all of our Malaysian cash generation has discontinued operations.

The fact that we were able to once again generate positive free cash flow during this period is a strong testament to the fact that Murphy takes free cash flow generation very seriously. Other cash flow adjustments for the quarter included approximately $22 million of non-cash long-term compensation, as well as, an additional cash inflow of approximately $20 million in cash proceeds for the sale of non-core Midland Basin acreage in Dawson County.

Most importantly, subsequent to quarter end, we repaid $1.9 billion of debt on the balance sheet, bringing our credit facility borrowings to zero. Combined with our cash, this results in available liquidity of more than $2 billion.

Lastly, in order to partially protect our increasing exposure to oil prices resulting from our greatly expanded Gulf of Mexico portfolio, subsequent to quarter end, we entered into a series of hedges at the WTI level for the remainder of 2019 and all of 2020.

In total, we now have hedged to be a swaps 23,000 barrels per day for August 1 to December 31 of this year and 24,000 barrels per day for calendar 2020, at prices exceeding $63 for the rest of this year and approaching $60 for 2020.

On slide 5, this is how we like investors to think about our new assets , and the high margins they are able to generate. Murphy is really a premium to WTI company now with the majority of our operations in the Eagle Ford Shale and Gulf of Mexico near Gulf Coast markets with existing infrastructure. This slide illustrates the second quarter oil sales by percent and what types of markets they are selling into, such as, Mars, Brent and new Magellan East Houston or MEH that is largely replaced LLS and many contracts.

All have premium differentials over WTI. And while there might be some softening over the next few quarters, we still expect each of these barrels to trade at a premium to WTI. Especially when you take our newest offshore assets, which are very valuable from an API oil quality perspective, we expect to once again realize premium prices going forward. On a combined basis, our portfolio of oil assets realized over $63 per barrel post all transportation adjustments as compared to WTI at almost $60.

At an asset level, our Eagle Ford Shale is able to generate an EBITDA per BOE over $35 and our North American offshore assets generate an impressive $38 EBITDA per BOE.

With that, I'll turn it back over to Roger.

Roger W. Jenkins -- President and Chief Executive Officer

Thank you, David. As previously stated, we produced 159,000 equivalents in the quarter and exceeded guidance for 4%. All our operated assets continue to perform very well as we experienced lower downtime and offshore assets, especially in our recently purchased fields and better online execution across our onshore assets.

On slide 7. Murphy has a long history of supporting shareholders and continue to do so, over the past 10 years, we've returned over 3.8 billion to shareholders and we're not issued equity. In the second quarter, we've purchased 300 million or roughly 7% of our outstanding shares which equates to purchasing our proven barrels for only $9.75 per BOE.

We still have $200 million remaining under our board authorization, which expires at year-end 2020. We will continue to be up -- opportunistic when we're purchasing shares going forward. With recent success in free cash flow generation returns to shareholders, since the price collapse of late '15, we're one of only 6 peers who actually have free cash flow yield and of a history of not overspending our cash flows. During this time, we're the leading company in the peer group, when dividends and buybacks or added together, net of issuances of which we have none are considered.

Move forward now to slide 9. In the second quarter, we brought on 35 operated wells, 23 of which are in Karnes, 12 in Tilden. As completion efficiencies led to advancing our 2019 drilling program, the Tilden wells which were scheduled to come online in the 3rd quarter, were actually brought online in the second quarter. Overall, we expect to bring 91 wells online for the year and relatively equal division between Karnes, Tilden Catarina. Our oil production in the Eagle Ford Shale increased by 28% over quarter one, which, is we feel is an outstanding benchmark for us and as -- and as we anticipate a near 7,000 barrel equivalent add of production increase for quarter three over quarter one -- over quarter two rather in this asset.

Slide 10. In further detail, our second quarter Eagle Ford Shale wells performance have been strong in both Karnes and Tilden. The recent Tilden wells are the best we've ever drilled in this area. This quarter, we drilled all 3 zones Austin Chalk, the upper, the Lower Eagle Ford Shale, with average well results exceeding type curves, importantly, we achieved average IP 30 rates across all 3 zones in Karnes are approximately 1,200 equivalents per day with 90% liquids content. The Tilden wells are important because we applied our latest completion techniques for the first time in this area. Our central Tildren assets specifically align with the robust performance of our Karnes wells and have achieved significant IP 30 rates averaging 1,370 barrels equivalent per day with 92% liquid content. We're encouraged by recent well results and excited for the future development of this acreage.

Slide 11. In the Kaybob Duvernay, our assets continue to perform well, as we brought online six wells for the quarter across our Kaybob North and two creeks acreage. The initial volumes have proven strong with facility constrained IP 30 rates, more than 1,000 barrel equivalents per day and Kaybob North and 750 barrels equivalent per day in 2 creeks. We have also closed the cashless acreage swap in Kaybob East, thereby gaining approximately 20,000 contiguous gross acres in exchange for only 5,800 non-core acres in another area. Following quarter end, the three wells in the Simonette area resume production after third-party midstream spec constraint prevented them from flowing to sales in the first half of the year. Going forward, our focus for the remainder of the year is on acreage retention with drilling 13 wells are scheduled to come online in 2020.

Slide 12. Our Tupper Montney wells continue to deliver steady performance, added 5 wells in the quarter and highlight the new volumes trend in line with our 18 Bcf per well type curves. Our price mitigation strategy continues to be successful as we realize second quarter pricing of a $1.82 per Mcf Canadian, excluding transportation compared to an AECO price of $1.03 Mcf Canadian. This attribute to our excellent marketing team, which remains focused on diversifying our price exposure through hedges and off AECO sales.

Slide 14. We're pleased with our expanded Gulf of Mexico portfolio and after completing two major transaction, Murphy is now the fifth largest producer in the region. We successfully drilled the development well at Dalmatian that we plan to bring online in the fourth quarter, with the growth rate of more than 6,000 equivalents per day. Well is very robust returns as with any nearby infrastructure tie back in the Gulf of Mexico. We drilled successful well at half part number two, we counted all in three zones. The well is just completed logging and the valuation results are ongoing. We discovered resources that can easily be produced to our nearby Murphy operated delta house facility. We unfortunately found volumes below our main projection for the well.

Slide 15. In the Gulf of Mexico have a long runway of higher rate of return projects that will provide production and cash flow for several years to come. Our board sanctioned three of these key projects in June, one of the projects is a King's Quay floating production system, which will host the production from two recently purchased fields and the LLOG transaction, as well as, our recently sanctioned Samurai development. King's Quay is being constructed in Korea with first steel cut last month. We've 50% working interest in the production system and we're currently analyzing our options to sell down a portion of this facility, as it is highly sought after in the midstream asset market. The facility will be designed to capture third-party volumes as well for additional cash flow and tariffs. We expect to flow Samurai development and Khaleesi/Mormont fields to the facility with first oil anticipated in the first half of 2022.

Slide 16. Our board sanctioned two developments at Khaleesi/Mormont and Samurai's well, which was successfully drilled by Samurai which is successfully drilled by Murphy in 2018. Khaleesi/Mormont are two adjacent fields that we acquired from LLOG. Khaleesi/Mormont is a seven-well development project, of which four of the wells were previously drilled and cased, with a total of six well board -- penetrations previously drilled. We will invest approximately 200 million over 4 years with first oil in the first half of 2022. The gross resource is 165 million barrels equivalent with 90% liquids and we expect it will produce for the next 20 years, generating a full cycle rate of return of more than 30%. The reserves have been confirmed by two third-party audit firms.

The third project will start in the second half of '19 is a multi-well development Samurai, which further benefits from our Gulf of Mexico acquisition by achieving synergy being located less than 10 miles from the Khaleesi/Mormont in King's Quay facility. The proximity to now Murphy owned and operate facility not only enhances the economics, increases recoverable resources net to Murphy. We expect several decades of production in this development as well and a project full cycle rate of return of over 35%. We're providing a 10 years of disclosure for all 3 projects to clearly illustrate the timing of spend and the long runway of production and cash flow -- cash flows, following the initial investments.

Slide 17. We've laid out our upcoming short cycle capital projects through 2021 in the Gulf of Mexico, along their spending requirements and associated production gains to highlight the returns of our new asset base. Overall, we generate nearly 12,000 barrels equivalent per day from this work and additional volumes by 2021 upon completion of the 6 projects, which include single wells and workovers and generate an average IRR of more than 80%. The further illustrates a significant runway of long-term growth, provided by the Gulf of Mexico business with excellent returns.

Slide 19. As a review of production, we need to keep in mind that these volumes are from continuing operations net to Murphy, unless otherwise noted. As we look at the third quarter, we expect production to be 192,000 to 196,000 equivalents per day of which approximately 118,000 barrels will be oil. This is a real engine behind our new cash flow generating ability. Our full-year production is forecasted to range between 174,000 and 178,000 barrels equivalent per day. This implies fourth quarter production will be more than 2,000 equivalent per day at a level we have not seen since 2015. This is our new baseline going forward is we've adjusted our asset base the past few years and particularly enhancing the Gulf of Mexico and Eagle Ford Shale.

Our 2019 capex guidance of $1.35 to $1.45 billion remains within the range we guided at the beginning of the year prior to any of the transactions that we've conducted. This tight range includes a reduction of $106 million from Malaysia and an increase of $140 million allocated toward the newly acquired Gulf of Mexico assets. Approximately 20% of the new LLOG capital is allocated toward short cycle tie backs that are expected to have first oil within 18 months, 20% toward long-term term tie back projects and the remainder allocated to the King's Quay FTS.

Slide 20. In closing, we've clearly position Murphy for long-term value creation. We transform the company with no equity or debt issuances and while buying stock and created a new company with more oil weighting and premium pricing. Eagle Ford Shale's performing with production continuing to wrap up. We're executing short cycle high rate of return projects in the Gulf, as well as, the Eagle Ford, and from this, we will generate significant levels of cash flow. As always, we continue to focus on our shareholder-friendly activities, by executing on our share repurchase program and paying our long-standing dividend, while maintaining cash flow parity.

With that, I'd like to turn the call over to operator and be glad to take your questions this morning.

Questions and Answers:

Operator

[Operator Instructions]. And your first question is from Brian Singer from Goldman Sachs. Brian, please go ahead.

Brian Singer -- Analyst, Goldman Sachs

Thank you.

Roger W. Jenkins -- President and Chief Executive Officer

Good morning, Brian.

Brian Singer -- Analyst, Goldman Sachs

Roger , you provided some helpful project detail on the Gulf of Mexico short and medium term impact from, short and medium term project spending and production. When you put these together with your legacy base, can you talk about what Gulf of Mexico total spending in production looks like in 2020 in 2021?

Roger W. Jenkins -- President and Chief Executive Officer

We are still -- that really gets back into another way of really asking, Brian, 2020 capex. And let me frame and start off with that. We, of course, have these projects that we've sanctioned, there will be additional capex that we have, we have a rig program at Front Runner. We have some non-operated wells to do next year.

We have not went beyond that work at this time. And I appreciate the call and focus on this 2020 matter and I know that people are very interested in this. Before we get started on that, I'd just like to start over and frame where Murphy is on this and again, when we look at data for '15 to now, we are one of the few companies that have even free cash flow at oil.

So we're not a -- an overspend or well, being a big dividend and shareholder support to buybacks. So our goal is to be a free cash flow providing company. So there's other projects we'll need to fit into what we do when we decide our free cash flow capex parity as we go into 2020 and 2021, which have triggers that they can change, as well as, the projects we disclose here if we need to.

So -- so we are not disclosing all those other project capex now, we just went with the new projects. We felt it was important to illustrate to investors and analysts that we have purchased some really good assets and what the work is and went out with many years of disclosure trying to illustrate the value of the new assets, as well as, the ones we just sanctioned.

Brian Singer -- Analyst, Goldman Sachs

Okay, thanks. Maybe switching to -- switching to the Eagle Ford, you highlight the big ramp up in production, that's happening there. Can you speak to, once you get to the 57,000 BOE a day, type rate that you expect to approach in the fourth quarter? What would be needed to hold production flat from a rig count and capital perspective and then maybe another way around the 2020 question is, what your strategy is for incremental growth in free cash flow with the Eagle Ford, once you -- once you get to that -- get to that?

Roger W. Jenkins -- President and Chief Executive Officer

I'm going to have Eric answer that for you, Brian.

Eric M. Hambly -- Executive Vice President, Onshore

Thanks for the question. So we've looked quite a bit at what our maintenance capital is to maintain production at a similar rate for average for this year, that looks to be somewhere in the $425 million to $450 million to maintain a 57,000 BOE a day or something like that, would be a little bit more than that. We haven't really worked out exact number, but I think you can do some math to figure approximately what that looks like.

Brian Singer -- Analyst, Goldman Sachs

Great. In the strategy in 2020 beyond the 57 continue with for the -- for the rig out there? Or price dependent and free cash flow dependent?

Roger W. Jenkins -- President and Chief Executive Officer

Well, that Brian, gets into our 2020 capex, let me just stop and take you what we have prepared to say on the 2020 capex today. As I said earlier, we're not a habitual over spender, not by a long shot, not by our long history. When you look at 2020 capex, we really have not worked on this yet, we know the new projects that we just sanctioned with our board and partners, we're just starting to work on it next week. This usually begins after our August board meeting and conference call.

If you ask us for a range of what's going to happen, it would be a low-teens to be -- below 10% to below 15%, an increase in both production and capex for our company. The capex that we've disclosed for this year. But like any, due of those things of free cash flow parity in play, we will continue to work that as to get into our budgeting process. And as I just mentioned, we entered into a very nice floating production system arrangement with LLOG in which we wanted to take over that operatorship of that facility executed in the history and ability that we bring to the table, and we have a big ability to sell that project down.

So our capital as put here today has an ability to sell down the FPS, which is greatly being looked at by many midstream companies that we want to take control of the schedule and have the facilities being built before we took that own. So a lot of moving parts with six months before we disclose the capex here, Brian, this morning that. Does that help you with what you need there? So, the Eagle Ford capex will probably be flat to slightly higher for sure and -- but we want to maintain capital in both there Gulf of Mexico, because that's the key parts of our company. They were make enormous cash flow and have a great operations running there.

Brian Singer -- Analyst, Goldman Sachs

Appreciate the color. Thank you.

Roger W. Jenkins -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Arun Jayaram from JP Morgan. Please go ahead.

Roger W. Jenkins -- President and Chief Executive Officer

Hello, Arun. Good morning.

Arun Jayaram -- JP Morgan Chase

Good morning sir, I wanted to ask you about your comments in the press release about achieving free cash flow growth over the long term. You're clearly in a bit of an investing cycle in the Gulf of Mexico, but I was wondering if you could maybe give us a bridge to those free cash flow comments that you made in the press release.

Roger W. Jenkins -- President and Chief Executive Officer

Well, we have disclosed a plan that's over a billion dollars of free cash flow over a longer period involving an average capital spend in our Gulf of Mexico business over that period. And we stand behind that today until we rework that plan over the next few months. But I have no reason to see a significant change in that plan today. That's been previously disclosed and that we're just reiterating the prior disclosure of our plans, which we will be increasing production at a moderate pace, not an incredible growth trajectory.

A lot of increase in there is oil, which is a good thing. And we stand behind the significant free cash flow that we've disclosed throughout the years -- throughout this year and conferences, et cetera, as we would look at our plan starting next week.

Arun Jayaram -- JP Morgan Chase

Okay. And is there a point in time that you could point to when the inflection comes? Is it --

Roger W. Jenkins -- President and Chief Executive Officer

Inflection of what way?

Arun Jayaram -- JP Morgan Chase

In terms of the free cash flow inflection.

Roger W. Jenkins -- President and Chief Executive Officer

It's, we disclose it over -- over that long period of time and -- and we're just staying with what we have and I do not see that changing over that period. And the inflection point is -- we're not talking about debt to rework it again starting next week.

Arun Jayaram -- JP Morgan Chase

Fair enough. Thanks, thanks for that Roger. Just -- just a follow-up. I was wondering if you could elaborate on your comments on the floating production system, you made some commentary that this could be something that's intriguing from a midstream a monetization perspective.

So I just wanted to get a little bit more insights on that.

Roger W. Jenkins -- President and Chief Executive Officer

It's quite common in the Gulf of Mexico today to have facilities handled by third-party. There are several lease facilities. We also have a long history of dealing with lease facilities in Malaysia and another facility in the Gulf of Mexico that we prior had ownership of. So this is nothing new. The project was going forward in very early stages to when we made the asset purchase.

We have a lot of execution ability in our company and we're not happy with the terms of that, the way that was headed, took over the operatorship of it and sanctioned it. It has very nice -- very nice returns without oil price risk, of course. And we took over that in a range, a tariff system to flow into by other parties and one of our other partners became a partner with us in the facility and the facility continues to be sought after by midstream companies in which we would remove this capex, enter into a leasing arrangement with that party is primarily a take over the project with a really nice rate of return -- wish we could just focus on the return to years of -- instead of the capital.

capex every single quarter and year. However, we take over this project. It's a very nice project. Then we have the ability to swing our capital as we look at oil prices and free cash flow analysis as we look at our Eagle Ford in our other Gulf business. We felt we needed to disclose that our board sanctioned it and we have operatorship and 50% owner of it today.

Unidentified Participant

Great. Thanks a lot, Roger.

Roger W. Jenkins -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question is from Roger Read from Wells Fargo. Roger, please go ahead .

Roger W. Jenkins -- President and Chief Executive Officer

Good morning, Roger.

Roger David Read -- Wells Fargo Securities

Good morning, Roger. I guess what most people are trying to get out here on the capex front just to be the -- the same horse here is understanding maybe what your flexibility would be in 2020 across a range of oil prices and you think about Gulf of Mexico and a little longer lead time, you commit to something, it's tough to change versus we look at the Eagle Ford or Canada. So maybe without giving us a number, can you give us some idea of what your flexibility would be within the Gulf of Mexico next year in terms of pushing things back or not versus what would I think we would consider fairly normal abilities to move things around in the Eagle Ford and Canada?

Roger W. Jenkins -- President and Chief Executive Officer

Appreciate that, Roger, and thanks as I continue to try to explain. We're working on our plan now and have already a big swing just to sell down of this floating production system. So naturally when you look at capital allocation, you have a ranking. We have a very large dividend payment and we're going to make it, so that's first thing. We know we want to work in the Gulf and we want to work in the Eagle Ford because we have the best prices in oil field, Murphy. So why would we not invest there? You get further away from there, we have things like exploration, we have things like Canada onshore and we have international development such as Vietnam.

So, we've a lot of flexibility on those top matters. We've also gone 600 million capex in 2016 and never issued equity like almost every other company as well. So we've stopped offshore projects before we start one of the biggest projects in the world at Block H floating LNG one time. So we have a flexibility to start, stop and do what we needed as we respond to oil prices and our allocation of capital across those things. So naturally, we want to have the Eagle Ford and the Gulf, the primary benefactors of our capex along with our continued shareholder support. That's been a long history for us, also with the strong liquidity, a lot of money in the bank no -- nothing drawn on the revolver and a long history of not overspending here.

Roger David Read -- Wells Fargo Securities

No, I think we appreciate that. It's just, I mean, that's -- that's what the market concern is across the board. You're -- you're getting the same treatment everyone else is. As a secondary question, from an operating standpoint, obviously a lot of moving parts here in the second quarter, get a little more clarity is things roll into the third. Could you give us an idea between the joint venture with Petrobras and then the LLOG acquisition here as you think about cash OpEx in the Gulf of Mexico, how that is progressing and whether you've been able to pull out all the savings and kind of integration expectations there?

Roger W. Jenkins -- President and Chief Executive Officer

The assets are very similar to what we do. The facilities are very similar. All of that is really has been very seamless, we've transitioned very well, our team in Houston. These are a lot of deals that we've done and had to execute on the accounting side, oil sales side, marketing and operations. We're a $10 to $13 kind of OpEx in the Gulf and the total Gulf, we have a workover in the third and fourth quarter, very highly incredibly high rate of return workover to repair safety valve on a well that we purchased in the Petrobras acquisition that will take place in the third quarter. Without that, we'd be a solid $8 or $9 app -- OpEx company. So we're in a really good shape on the price we receive for the barrels and operating expense. And their assets are very similar to ours, enrolled in a very similar OpEx to ours.

Roger David Read -- Wells Fargo Securities

Great. Thank you.

Roger W. Jenkins -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question is from Muhammed Ghulam from Raymond James. Please go ahead.

Muhammed K. Ghulam -- Raymond James

Thanks for taking the questions, guys. A couple of months ago, you mentioned that there were plans for additional exploration on Block 5 in Mexico in 2020. Are there any further details you can provide now that we're in the second half of 2019?

Roger W. Jenkins -- President and Chief Executive Officer

We're doing our work to drill two wells there and the difference between one, two or three wells will be determined when we go through our budget process, but we're eager to drill there. We have oil that was found there, amplitude is oil, we have nearby amplitudes we can drill and we have other prospects we can drill. I'm excited about going down there, when we get to our capital allocation process.

Muhammed K. Ghulam -- Raymond James

Okay. And kind of another area of exploration. Any updates on Australia, are there any plans we should be aware of over the next year or two?

Unidentified Speaker

We have turned over operatorship of about one portion of our blocks to E&I there, will be closing that office and moving back to Houston, a very limited one or two man team to look after that. The big -- so doing a basin, of course, remains a working interest -- large working interest we have there in a very large block. Equinor is supposed to drill a well there over the next couple of years. The outcome of that well could be important to us, but we would need to wait on that execution hence we've closed that office and retreated back to Houston with a very limited team, as part of our global exploration team that we were focused on the Western Hemisphere and that's the update there.

Muhammed K. Ghulam -- Raymond James

Okay, understood. That's all from me. Thanks.

Roger W. Jenkins -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions]. Your next question is from Paul Cheng from [Indecipherable].

Unidentified Participant

Hey guys, good morning.

Roger W. Jenkins -- President and Chief Executive Officer

Paul, I haven't heard from you long time.

Unidentified Participant

Yeah, have been a while that has been I got on leave. Quick question. It looks like with all the M&A transactions Murphy have become a North American onshore and offshore operator. Is that how we should look at the company going forward or you just --

Roger W. Jenkins -- President and Chief Executive Officer

One hundred percent a choice you look at it.

Unidentified Participant

Okay. And that I think --

Roger W. Jenkins -- President and Chief Executive Officer

And very, very powerful company that we have with high oil rates, increasing oil rates, incredible cash flow, top pricing.

Unidentified Participant

And I think what you had previously said, you talked Eagle Ford to be about 90,000 BOE per day by 2021, is that still the target?

Roger W. Jenkins -- President and Chief Executive Officer

No, I'm not sure where that target comes from, that wouldn't be the target. It would probably be in the -- going forward, be 60, 70, 80s as we look through '21 to '23 kind of a number, Paul.

Unidentified Participant

So 60 to 70. Okay.

Roger W. Jenkins -- President and Chief Executive Officer

And 80s into 2023, that would match with the previously disclosed guidance we have on cash flow generation in all of our prior decks we've been using all year. There is no change in that.

Unidentified Participant

Okay. That probably my mistake then. For Murphy, can you just remind me, what your working interest in Samurai Mormont and Khaleesi?

Roger W. Jenkins -- President and Chief Executive Officer

We are 50-50 in Samurai and we're 34% in Khaleesi/Mormont and 50% in the floating production system facility.

Unidentified Participant

Okay. And it looks like, based on what you disclosed on the Gulf of Mexico projects, you appear that to suggest you will be able to hold the Gulf of Mexico production, which is roughly about 100,000 BOE per day, including your joint venture to be at least for the next 10 plus years. Is that correct?

Roger W. Jenkins -- President and Chief Executive Officer

No. No. Our plans that we've disclosed in which we stand behind going into our capex reviewing next week, because it's a focus area, is to maintain Gulf of Mexico near 85,000 with an average capital spend of 325 per year over a 5-year period, leading to significant cash flow from that 5-year period. We stand behind that and we have these assets here, are illustrating -- number one, they were put there to illustrate the returns of the asset, an incredible rate of return and disclosure of the long profile of cash flow. Also, Khaleesi/Mormont has been reserved reviewed by two third-party firm. So the point of the slides are to illustrate the returns and the long cash flow and capex that we have. We have natural decline in our fields and these and other work projects we have inside the capital we previously disclosed, maintains that flat, strong cash flow providing, production base. Our Eagle Ford is our growing oil production base.

Unidentified Participant

Right. When you're talking about 85 years debt, net of your minority interest or including --

Roger W. Jenkins -- President and Chief Executive Officer

No. Everything I say is -- everything I say is net to Murphy, Paul.

Unidentified Participant

Okay. So that when I was talking about 100, it's including the minority?

Roger W. Jenkins -- President and Chief Executive Officer

Yeah, that's -- that's, of course, correct. But as we say in the call, it's written all over the place. It is confusing, I understand that. But we always report when it comes out of my -- my lips, it's my -- not a somebody.

Unidentified Participant

Okay. So whatever is the number that you're talking about is net minority interest?

Roger W. Jenkins -- President and Chief Executive Officer

Correct. Yes, sir, 85 Murphy.

Unidentified Participant

And that, if I -- looking at that, do you, maybe that you probably not ready to talk about yet. If I look at your current asset mix, as a company, as a whole, if I want to maintain the -- the production level and oil and gas mix, what is the debt CapEx number? I think previously that before this transition, you saw talking about in the $800 million or so. So what's that number may look like to date?

Roger W. Jenkins -- President and Chief Executive Officer

The maintenance CapEx number. Paul?

Unidentified Participant

Yeah. To maintain your production mix and your current production level.

Roger W. Jenkins -- President and Chief Executive Officer

Yeah, we feel that's $850 million to $900 million.

Unidentified Participant

Okay, very good. Thank you.

Roger W. Jenkins -- President and Chief Executive Officer

Good talking with you again. Appreciate it.

Operator

Thank you. There are no further questions from our phone lines. I would now like to turn the call back over to Roger Jenkins for any closing remarks.

Roger W. Jenkins -- President and Chief Executive Officer

Thanks everyone for calling in today. We look forward to continue to update you on our continued oil production growth in our North American assets, which are outstanding. Thank you and see you soon.

Operator

[Operator Closing Remarks].

Duration: 40 minutes

Call participants:

Kelly L. Whitley -- Vice President, Investor Relations & Communications

Roger W. Jenkins -- President and Chief Executive Officer

David R Looney -- Executive Vice President & Chief Financial Officer

Eric M. Hambly -- Executive Vice President, Onshore

Unidentified Speaker

Brian Singer -- Analyst, Goldman Sachs

Arun Jayaram -- JP Morgan Chase

Unidentified Participant

Roger David Read -- Wells Fargo Securities

Muhammed K. Ghulam -- Raymond James


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