Murphy Oil Corp (MUR) 2002 Q2 法說會逐字稿

At this time all participants are in a listen only mode. Following the formal presentation instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference please press the star followed by the zero. As a reminder this conference is being recorded Thursday July 25th of 2002. I would now like to turn the conference over to Mr Claiborne Deming, President and CEO of Murphy Oil please go ahead sir.

Thank you and I'm joined by our controller, Kevin Fitzgerald our Treasurer, Mindy West out Director of Shareholder Relations and I'll turn it over to Mindy now.

Thank you would also like to welcome everyone to the call. We'll will use our usual format today will begin with a brief review of second quarter results, Claiborne will follow with an operations update and then we will take your questions.

Please keep in mind that some of the comments made during this call will be considered forward-looking statements as such no assurance can be given that these events will occur or that the projections will be obtained. There are a variety of factors that may actual results to differ many of these have been identified in Murphy's January 1997 Form-8K filed with the SEC. With that I will turn it over to .

Thank you Mindy and a good day to everyone. Our income for the second quarter of 2002 totaled $14 million, which was 30 cents, a diluted share. That compares to our second quarter 2001 earnings before a one-time gain of 95 million or $2.08 per share. The second quarter of 2001 did include a $67 million one-time gain on the sale of the Canadian pipeline asset, which brought our total earnings for that quarter up to 162.6 million.

In the second quarter of '02 looking at our results by segment our operations earned nearly $30 million off about half from the prior quarter in '01 same quarter in '01. Our downstream operations lost $8 million compared to profit of $37 million last year and our corporate area which is our financing and unallocated administrative cost with a net cost of seven and a half million dollars compare to 2.7 last year. In looking at the earnings decline there are two primary reasons for that decline which I'll comment on. A significant reduction in our North American natural gas sales prices our gas prices were down by 30 percent compared to the same quarter in'01 and we had higher exploration expenses this quarter including $31 million for dry holes in Malaysia and of course there we have no tax relief.

We did achieve record production of both oil and natural gas, which partially offset the effects of the gas prices and exploration expense. Our record oil production of course relates to field, which came on in January of this year, and our gas record production relates to our field in western Canada.

Our oil sales in the second quarter exceeded our production by about 5,000 barrels a day so the second quarter of this year did benefit from that over sale position and that over sale did occurred primarily offshore Canada where and were both over lifted compared to production. In total the two fields at the end of the quarter are over lifted by about 560,000 barrels.

In the U.K. I wanted to comment that we did record a $2 million charge to tax expense in this second quarter and that was related to and announced 10 percent increase in the North Sea profit tax. Our depreciation costs are higher this quarter compared to the first quarter of this year on a per unit basis and that's related to the fact that we had a higher mix of production and production.

Our downstream results were down primarily due to losses in U.S. refining operations. Our U.S. downstream segment lost nine point eight million this year versus a profit of 34 million last year. our corporate costs are high as I mentioned previously and that's due to a combination of higher interest expense as we've increased our long-term borrowings and lower interest income as we've had lower invested cash balances in the bank earning interest. in terms of looking at the year to date, our 2002 we've generated a profit of $16 and a half million or 36 cents a share compared to nearly 193 million in the first six months of '01 when you exclude the before mentioned sale of the Canadian pipeline assets.

all the segments are off as well as we made $50 million in versus 141 last year for the first six months in downstream has lost 22 million nearly this year to date versus making 56 last year and the explanation for these variations are virtually the same as we've just discussed for the second quarter. and with that I want to turn it over to Claiborne.

Thanks John, and what I thought I'd do was go through drill and wells, talk about expiration for the balance of the year, mention the status of the various development projects, talk about downstream then end with just a summary of our capital program for'02.

starting with exploration drilling wells, first is Kikeh, it's roughly operated as you, its in black cave, deepwater Malaysia, we have an 80 percent interest planned out as 3,400 meters and the gross draw hole exposure is about $20 million; results which record at the end of this month perhaps beginning of next month, nice looking four way dip with amplitudes, and we'll have some results here relatively shortly. switching over to Eastern Canada, the deepwater right of the shelf and that was where the 19 percent interest throttles costs on a gross basis of around $50 million and here again we should expect some results by the end of the month perhaps early next month. third profile Frontier will deport a gulf that's quartering in green canyon 382; we operated 37 and a half percent, 60 to 80 million barrel type prospect under 3,600 feet of water and the planned total depth is measured around 26,000 feet, probably 22,000 feet straight hole. Dry holes cost us $24 million and we should expect results here mid-August, maybe late August likely mid August.

third wall branch is a non-operated well at South Louisiana, 17 percent, its' gross dry hole costs four million bucks going to 17 thousand seven. its still aboard old Mitch and it's a Canadian foothills, with old Swan hills gas we operate it, pay 30 and end up with 35, 500 target, going to 19,000 the dry hole cost of $18 million, its going to be a long drill with hard rocks, so we'll have results at the end of the year. and then lastly we're drilling well in the UK, 48 10, it's probably the last of our commitment roles there as we're winding down that program and really have made no additional commitments. pretty shallow, six, seven hundred feet measured is nine million bucks we have half of that, 50 percent, we should have that by the end of the month.

For the rest of the year. exploration, deepwater gulf, 17 hands which is in Mississippi canyon 343, we operate 37 and a half percent. all sets of discovery we made last year we're looking for a paid .should split that up towards the end of the third quarter, and then , which is in the general or greater area of front runner at 336 380 operated by Dominion 37.5 percent, 82,000 million barrel potential, and that should split I think in the fourth quarter. I've heard some discussion of first quarter of next year but also sent he fourth quarter this year.

We picked up a block northeast off Medusa at Mississippi Canyon 495, a 100 percent 20 to 25 million barrel potential, nice to entice it to the Medusa amplitude. 2000 feet of water likely drill that fourth quarter of this year just to see what we have, and then , which has been on and off of our drilling schedule is potentially fourth quarter this year first quarter next year. We have 85 percent to 900 feet of water, 80 to 100 million-barrel potential.

The volume reached drilling will pick up this winter. We have around 10 wells that we have scheduled in, and the program will start approximately December 1st looking for Ladyfern type prospects probably smaller, however one of the better looking ones is called . We'll spread that I think it's September we've got some access, and we figured out it doesn't need freeze up we have 50 percent there.

We just got awarded some anchorage in Malaysia you might have seen. . It's our first anchorage off shore anchorage of a peninsula of Malaysia's. 2.7 million acres, we have 75 percent got the balance, and we operate at, we won't do anything the balance of this year but we'll start shooting 3D next year on this anchorage. A lot of structures they're not be huge but I think there's a real strong likely hood we'll find oil, and we'll find gas, and there's markets for both.

On development projects Medusa our first oil is now first quarter of '03 probably February. As you know we'll get up to 25,000-barrel equivalents a day. We've been awarded the five adjacent at the lease sale which I've eluded to one of them, and which we'll drill more likely later this year. Hibernia should start up September, October of next year it's either going to be a one or a two well deal. It was down to one well with the second well in '04. That is being rethought now it's maybe two wells next year but it hadn't been concluded or decided. The front-runner should be on stream in the first half of '04 with no issues there. which is an SK309 back in Malaysia. We have 85 percent in first production, and it's targeted for April of '03, so the beginning of the second quarter of '03. Gross 15 net, 10,000 barrels a day to Murphy, Ecuador. Heavy crude pipelines about 40 percent complete, and the finish date is still set for the third quarter of '03.

Downstream Meraux margins are about a 50 percent loss, it's been worse than that substantially worse than that but that's were it is now. Superiors about $1.50, which is profit, which is about were it's been our gross margin wall mart we're in the eight to 10 cent range. We have 445 wall mart stations in operation. We just opened our first one in Canada in Dryden, Ontario, yesterday or two days ago, and then we're open one next week in Cam Rosé, Alberta.

Construction at Meraux is about 25 to hot cracker, and related facilities are about 25 percent complete.

, projected spending is in the range of 850 to $870 million and there is ENT about 600 or 610 with being about 140 million of that. R and NB in the balance with 175 million of that being in the refining business that is all we know. In April we issued 350 million 6 and three eights percent ten year notes to help fund this and that concludes my remarks and I will be happy to answer any questions.

Thank you sir ladies and gentlemen at this time we will begin a question and answer session. If you have any questions please press * followed by 1 on your push button phone if you want to cancel your question please press the * followed by the 2. acknowledging your selection. Your questions will be pulled in the order they are received and if you are using appointment please lift the handset before pressing the numbers. One moment please for the first question

And the first question comes from Tyler Dann, please state your company name followed by your question.

American Securities how are you guys

how are you

Glad they got my name right this time. A question on Annapolis just trying to figure out I know you really can't say a lot about what is going to happen there but maybe you could tell me a little bit about what has happened and some of the events or issues that you may have encountered with that well and it seems it is going a little bit over the timing that you would have liked.

Tyler, I really can't describe how it has taken longer but then initially it was put in December if you can stand it now the first from the course is going to be covered by insurance and the redrills is on us but on and all it is worth 50 million bucks which is unexpected, but really I am not in a position to say and when we finish it then we will announce

The person though that will be covered by insurance when you mention the 50 million gross dryhole cost, of that what would be covered by insurance or is it 50 million in excess of what would be covered by insurance

Yeah, 50 million is the excess

Goodness OK that is all we have for now

We have 19 percent of that

I know, I know OK thank you

Thank you the next question comes from Bruce Lanning, please state your company name followed by your question

A J Edwards, Hi

Just a couple of quick questions first could you give us some outlook as far as what you see the production forecast for this year and if you can extend that for '03 broken down if you can by

We were ditches through '02 and we had said that we had ranged between 120 and 125 equivalents for the year and we will be at the high end of that basically and we should exit the year I don't know somewhere close to 120 I would say something like that. As far as next year, it may be premature I haven't looked at our budget to really tell you what we got to be honest with you. I am trying to look at some numbers and bide some time while talking to you, and so you may have to come back to me.

OK

that will get you through '02, this is I mean the drill is when starts I hope in February we should start out what is paid in April and we should see Hibernia in September, October

Well you are probably pretty well taken care of on the oil side, but the gas side I suspect are fairly in short declining rate

for declining that is just gonna to happen.

Claibourne can you shed any further light on Ladyfern, two things I guess first would be if you could discuss what you think the anticipated the decline rate might look like and then secondly you know as a result of the decline I don't know if it was anticipate at this high of a rate but potential any type of reserve right down with Ladyfern?

Oh gosh not from our stand point I think we have being telling people to expect a pretty dramatic decline for six months or nine months and pretty so now there is no reserve issue for us and the decline is no surprise to us either by the way it may be a surprise for our partners but it is certainly not to Murphy Oil Corporation and so I don't like it . But that is what happens when you have a real and you have got three different people trying to get there share out of it.

Oh sure I understand that cause the .

We probably take to the company about 150 out of it a day

150 as a peak?

Yeah Murphy and will be below a 100 by the end of the year, some where round there.

What do you think you will stabilize Claiborne or do you think you will have a normal decline rate down from that 100.

I don't know that .

OK.

We don't know how the size of it and I will tell you why cause we have to put in a pressure bomb to get cause if we do somebody else will get the gas to show how hard the whole dam exercise is, so we have being real conservative I think , I know we have with our projections on gas there in fact every time we do a production forth cast we Ladyfern than we had additional thought cause we had been pretty aggressive about planning it internally .

OK just one other question on and then I will get off the cracker when is it suppose to be up and running?

The turn around in the third quarter of next year and that is when we will put every thing in at least we will start it up, but we want to leave the that goes along here as well cause we are to take the plan up to 125 and there some related other issues that need to be expanded. That will take place then the cracker will be fished and so we will integrate that up and then we will have a start up which I can only say will be a slow start off it is a big mother piece of equipment . And it is really half again as big as our existing reminder just about, and so we are going to take it real slow bring up the.

OK so then the profitability should see improvement next year is what you are saying.

Well we will certainly see greater yields and of course we will be making greater volumes. I can't predict the over all market is going to be but we will be better positioned in that market to make money.

OK great thank you very much.

Thank you .

Thank you and the next question comes from please state your company name followed by your question.

good afternoon every body,

Hi .

Good couple of questions obviously we had a fairly big increase on working capital in the first quarter and it was highlighted in the call that was related to the obviously the front run of development and obviously working capital continued to built in the second quarter I was wonder if you could indicate what is going on behind there . I know normally there is a built in the second quarter?

And secondly you play on to again this confused me was it one or two wells and I was wondering if you could just update us to the thinking behind that and the shell thinking on the project as well?

Matthew we are all looking at it ourselves with a working capital question we got pressed from that bond issue, that increased cash but I don't know if there is anything else unusually going on working I don't think inventories were unusually higher in the first quarter so doing the homework for you.

Right.

At , they go back and forth and the driver there and it's an issue of how fast you wanted to play it and the availability on the mother platform and I think there's availability there and so I think there's been discussion of adding another well.

Right. OK. Thanks very much.

OK.

Thank you. The next question comes from . Please state your company name, followed by your question.

First Albany. Hi Claiborne.

Hi . How are you?

Good, thanks. The U.K. production numbers are holding up very, very well. What are you doing there to hold it in place and can you sustain it?

, it's just the nature of the beast, because we've got , which is going to be flat for a fairly long time. The field gets bigger and has not started to decline yet. That will start declining probably next year, I think we can hold our this year, and are so low in a way, they're past the real fast declining parts, so they're low and just going to gradually decline from there so I think next year you'll start seeing some decline from and, you know, we'll go from the 20, 000 down to the 16/17,000 barrel a day range for that, for that basin.

OK. Yeah.

It's mainly and have been flat for two or three years, which is what we thought they'd do and they have.

OK. John mentioned that you took a 2 million U.K. tax charge. I wonder if you could clarify what you were trying to do with that, I guess my arithmetic says that resulted in a sum like a 57 percent U.K. tax rate in the quarter .

Yes, you know, they announced in the first, in the first quarter that they were going to raise the profit tax there and what the rules, in the North Sea, and what the rules require is, you know, we have deferred tax liabilities on our books. I've related to the timing and the difference between what goes to the tax returns and what goes through expense and the P&L, and because we have deferred tax liabilities, we raised that future expectation of the turnaround of those liabilities from a 30 percent CT rate to a 40 percent CT rate, thereby driving up the deferred tax liability by 2 million dollars , so that charge came through as a one time charge.

I see. So you booked it on a 40 percent basis, then took the adjustment to deferred taxes John.

: Yes, we took the 2 million dollars I referred to with an adjustment to the deferred taxes for the one time change in the deferred tax liability due to the 10 percent rise.

But your, you accrued on the basis of 40 percent on operations.

Yes, go for it basis.

OK.

Starting in the second quarter.

When you guys did your release a couple of weeks ago, I believe you indicated exploratory expense was going to run 62 to 75 million and if I read the release correctly it ran 50. What changed?

It's taken longer, basically to complete Kikeh, in Annapolis for, they could have been finished in this quarter but their not. We don't have the results until the third quarter.

OK. I guess I had thought that 62 was without either, but I get that wasn't correct.

No, that's not correct.

OK guys. Thank you.

john. Yes sir.

The next question comes from . Please state your company name followed by your question.

Hi guys.

Hello.

Several quick questions. Any plan to the Canadian oil production given the at this time.

The answer is yeah, I mean you can't ramp to quickly because by the time you get it all differentials widened but we're at about nine ten thousand barrels a day where we have been and we're going to take that up to 15 over the next year something like that, we've picked up drilling a bit. And I tell you we're concentrating on vertical wells not not I think that's the way to go we have the inventory to do it. So we'll be at 15,000 barrels I hope and expect middle to the end of next year.

So for next year for planning purpose we can use the ?

I think that's reasonable, yes I think that's reasonable.

And that we delay in the coming on stream how about are we still looking at the first half of '04, any change on that?

Yes, it's early but I think everything's in the slot.

Claiborne in Malaysia for you have drilled two wells in the deep water and you're during the third one now is there anything you've learned that you would be able to share with us related to the region over there?

No there's not.

OK last one on the have you guys made any adjustment on the of return?

For what?

The assumption for the long term of return have you guys made any adjustments or do you plan to make any adjustments?

Oh I'm sorry, I'm sorry yeah we reduced ours from and I will tell you we will look at that as we go forward we're not going to jump of the cliff, we'll slowly but surely reduce it I think that's what you have to do. bottom end of the ranges companies use as you know and we did that about four or five months ago.

Well then maybe let me ask you the other way Claiborne in the second quarter if the expense already a higher contribution to the pensions fund or we should expect that into the next several quarters we may see some in expense item due to a higher contribution?

Yeah it's not a contribution it's just an expense item related to it and year there should be, there's a higher number I was looking in fact at some numbers this morning and we're $2 million above our budget on corporate G&A and that $2 million as it reflects that change from eight and a half to eight.

OK excellent, thank you.

It should be four or five million dollars for the year.

Thank you.

Yes sir.

Thank you the next question comes from please state your company name followed by your question.

Hey Claiborne just a question for you on Canadian production which gas production which obviously you've got to be real happy with in the second quarter with 231 million a day versus 200. The variance there that me and increase is that all from peaking or are there other things happening there?

No. It's primarily Ken.

OK.

And you know as I've outlined you'll see a pretty dramatic decline and we've got some other things working but I can't point to them and that's for Murphy it's kind of an ongoing issue for us and if you go buy the stuff I think it's hard to make money that way and if you explore for it we got lucky with Ladyfern.

Right.

But that's it double or sorts unfortunately, and I'm real aware of it, and we 're get oilier as we go forward.

Right.

That happens.

And again you have been very vocal on suggesting that by year-end that does beaver off so that what your saying is that if your 230 for the second quarter you could be 170-180 in the fourth quarter if it rolls over as you think it might?

Yeah, yeah I think that's fair.

OK, all right.

I think that's fair, and you know we'll hit a place were it stops because we'll start get gas fed in from the matrix, and the big void will be evacuated, so.

No problem.

So I don't know were that is cause I don't know how big it is.

So, so far it's worked well?

Well yeah we made a lot of money it's kind of a heroine high, which is what we used to call the that. How do you get off of it, and we're going to get off of Ladyfern cause it's get off of us.

Right. One more quick oil-refining question, if you look that you got almost all of July now behind you now how did July compare to let's say the whole second quarter results if your trying to look ahead, and model the third quarter downstream segment.

July was poor, and we shot ourselves in the foot at Meraux because we had some down time in our cracker for that 10 days plus we had lousy margins, and so July was not a beneficial month for us.

Relative to the second quarter even worse?

Similar.

OK.

I'd have to dig up a number.

No I'm just trying to get a sense .

Yeah, no, I'm looking at it now, yeah, it's similar. Things are a little bit better now I will tell you but I can't go screaming holler about it but we're 50 cents a barrel negative in Meraux. We're a $1.50 positive at , and making good money. made good money in the second quarter by the way.

OK. Well thank you guys hang in there.

We'll do it.

OK.

Thank you the next question comes from . Please state your company name followed by your question.

Hi guys.

Steve how you doing?

Good. Couple of varied things, on Canadian gas production Claiborne I think you had a little bit of success at . Is that on or if not when will it come on? What do you think the net rate impact might be?

No it's on, and it's about four or five million a day. Net rates are 37.5 percent, and operators proposing a real aggressive program next year. We'll probably non-consent some of them cause I think they'll be hard to justify but there's two or three for sure, which we'll drill. I would look for the program, and what happens there. We can get it on because the infrastructure is in place pretty quickly. One in ten wells and I suspect we'll have some success there none of them will be a Ladyfern but I think there's a reasonable shot at some pretty good potential there with some good looking prospects. Then we're three years into it, all 3D know what we're looking for, and have some good things identified, so I'm hopeful that first quarter, second quarter of next year you'll start seeing some new production there.

Stolberg is a high-risk well prospect with its it gets really but it is a good-looking prospect. You're on trend with , really big fields, and it has the same characteristics, and so we'll know that by December if we have any luck there. But you have to risk it pretty heavy one in five.

And how quickly could that gas come to market?

I'm sorry 17 hands I think is a pretty strong likelihood of success. Murphy that's just a an ongoing issue for us, and if you go buy the stuff I think it's hard to make money that way, and if you explore for it we got lucky with Ladyfern.

Right.

But that's it double or sorts unfortunately, and I'm real aware of it, and we 're get oilier as we go forward.

Right.

That happens.

And again you have been very vocal on suggesting that by year-end that does beaver off so that what your saying is that if your 230 for the second quarter you could be 170-180 in the fourth quarter if it rolls over as you think it might?

Yeah, yeah I think that's fair.

OK, all right.

I think that's fair, and you know we'll hit a place were it stops because we'll start get gas fed in from the matrix, and the big void will be evacuated, so.

No problem.

So I don't know were that is cause I don't know how big it is.

So, so far it's worked well?

Well yeah we made a lot of money it's kind of a heroine high, which is what we used to call the that. How do you get off of it, and we're going to get off of Ladyfern cause it's get off of us.

Right. One more quick oil-refining question, if you look that you got almost all of July now behind you now how did July compare to let's say the whole second quarter results if your trying to look ahead, and model the third quarter downstream segment.

July was poor, and we shot ourselves in the foot at Meraux because we had some down time in our cracker for that 10 days plus we had lousy margins, and so July was not a beneficial month for us.

Relative to the second quarter even worse?

Similar.

OK.

I'd have to dig up a number.

No I'm just trying to get a sense .

Yeah, no, I'm looking at it now, yeah, it's similar. Things are a little bit better now I will tell you but I can't go screaming holler about it but we're 50 cents a barrel negative in Meraux. We're a $1.50 positive at , and making good money. made good money in the second quarter by the way.

OK. Well thank you guys hang in there.

We'll do it.

OK.

Thank you the next question comes from . Please state your company name followed by your question.

Hi guys.

how you doing?

Good. Couple of varied things, on Canadian gas production Claiborne I think you had a little bit of success at . Is that on or if not when will it come on? What do you think the net rate impact might be?

No it's on, and it's about four or five million a day. Net rates are 37.5 percent, and operators proposing a real aggressive program next year. We'll probably non-consent some of them cause I think they'll be hard to justify but there's two or three for sure, which we'll drill. I would look for the program, and what happens there. We can get it on because the infrastructure is in place pretty quickly. One in ten wells and I suspect we'll have some success there none of them will be a Ladyfern but I think there's a reasonable shot at some pretty good potential there with some good looking prospects. Then we're three years into it, all 3D know what we're looking for, and have some good things identified, so I'm hopeful that first quarter, second quarter of next year you'll start seeing some new production there.

is a high-risk well prospect with its it gets really but it is a good-looking prospect. You're on trend with , really big fields, and it has the same characteristics, and so we'll know that by December if we have any luck there. But you have to risk it pretty heavy one in five.

: And how quickly could that gas come to market?

I'm sorry 17 hands I think is a pretty strong likelihood of success, I don't want to shoot myself in the foot but that can get on stream relatively quickly, hopefully get back into next year and that'll be pretty good gas production; so there's some things in the hopper but I can't point to anything that replaces .

Could the still board gas come to market pretty quickly or is that going to take a while?

No it comes and you hook it up and the wells have huge, huge deliverability, if it's not what we're looking for 50, 60, 70 million a day, real long, slow gas, really what you're looking for. it's a reasonable shot, I will say that. we promoted it out, which is hard to do with expensive gas wells in the first quarter of this year, it tells you how good it is, so we'll see.

OK. in shallow water Malaysia, I think at the analyst meeting you indicated potential to do some drilling back on the SK309311 blocks, is that still in the plans?

Yeah, third quarter, two wells, probably in and around but different structures. we done a lot of math and a lot of and I think they got good shots.

OK. and then...

Sorry, I was saying Tyco, one would be smaller than was Patricia, one would be a little bit, about the same size as was Patricia.

OK, and then finally on , Hibernia, can you update us on plans there, you've had a success in the far east and I think there's another appraisal well coming, what's going to happen there over the balance of the year?

that wells', that was in fourth quarter and that's a relatively important well because we've got one well in the far east, a big well and we need to see if it's continuous, if it has a big impact there which is all to the good. Hibernian it is real good we just had a high rate test there that took the field up to, a little over 200,000 barrels a day. and it worked, some of these can handle it and so over time now actually the consorting is either been disbanded or is disbanding and we're going to have a single country operator, and they're going to take it up. the field is just performing wonderfully and I can say no more.

OK, you know there are important Ben Nevis, Avalon, Tester this year or does that come later?

we have drilled from some of the shallower zones and they're successful, now we've drilled the best and we thought they'd be successful and as we go into next year we'll be reaching out further and looking at the Avalon and less bright spots on the size brick and that will tell us a little bit more about reserves. so far so good, I think we got three, I think we have three wells into that one now producing.

OK, great, thanks.

Thank you the next question comes from please state your company name followed by your question.

I'm with Goldman Sachs, but I think net of cash or debts around just under 30 percent and I don't think our numbers and your numbers weren't too different, has it peaking somewhere in the mid 30's as the development program rounds up, obviously commodity prices will impact that, is that still a level your comfortable being at or reaching and certainly will get debt pay down as the projects come on; but just curious of the current environments made you think any differently about appropriate levels of debt and any actions you may or may not take?

this is where it is and we're more than comfortable with it and it's going to bump up right along the line that you've mentioned as the year goes on and we will, I'm not saying we don't have any choice, we can stop exploring but the development projects obviously need to be funded and its because you know things that say might be comfortable to filed that is internally different environment that then?

I can't help you as much as the the block is about two and a half million it was carved out of a old block and there had never been 3D on it which is the attraction to us plus it has being drilled but relatively under drilled I would to the SK block so we that extra shell block. Obviously we haven't seen three diggers that shot we seen some 2D lines and it is clear that there is structures there and in fact it was discovered problem 250 of gas that has being discovered but never produced there. goes by I think you are looking for 30, 40 , 50 million barrels fields and I think you are looking for 200 BCF to 500BCF gas fields.

It is 150 feet of water pretty environment. I think there is a real reasonable short at finding some pretty good reserves and really good productions that could help early impact.

And the block would be subject to new DFC ?

Yeah it is the same of the sea, we have a SK and we have at block K.

OK Claiborne thank you.

Than you the next question comes is a follow up from please go ahead.

I was just wondering if you could update us on the settlement has the money being received, have you accounted for it and also if you could just confirm the price that you have used on your guidance in the text but if there is any point numbers on the both oil and gas behind the range that you used?

OK dust and done has not been booked and we have not received the money and as you know we are trying to revive half the money from the other folks received and taken and sign the lease it's self but that is going to close I presume in the third quarter in fact I haven't got a update on that in the last couple of weeks on that, all I guess I was Kevin is telling me that will go ahead and book it.

And lastly our projections on numbers I mean on prices, third quarter let me see July, August gas in the US is little bit north of three bucks. And in the UK it is around two 50. and then oil is around 25 bucks.

What is the price you have used in terms of the 75 range.

Yeah.

OK that's it.

And September probably goes down. Yeah I am looking at two month forecast real . September had not been so we probably went back down September to our bases case which is a little bit more than that.

OK thanks very much.

OK

Thank you, the next question is a follow up from please go ahead.

in Malaysia when the production coming through from the SK is the earning there able to use to offset the .

Yeah.

At any expense I mean you are the same corporation it is not in a different company?

No I am sorry, I am sorry that is not correct it is a different company its an Murphy , verse Murphy Saba and the way that we will get tax foot is if we have some production Murphy Saba which is .

Right so that means from shallow water you can use the earning to offset the ?

No, no I don't think we can.

OK

They are two separate has got the expense of the and the expense of the dry hole side.

. I note that in the past you guys are not willing to share with us the possibility now that we are at a level that you may be able to talk about that, how much earning that you've been making over there.

You know we have been trying to keep it all together for a while. We earned roughly around three million bucks in the second quarter, three plus from . It wasn't a great quarter it wasn't a terrible quarter.

Right and so far in July the warm up of the I assume is slightly lower than the average in the second quarter?

It's pretty close.

yeah I don't think so . I think we're about the same.

About the same.

It may have had a little bump in the last day or two.

OK on the capital spending is 850 million it's sort of like a on going forward for the next several years or would that number is going start to come down after next year, it seems a lot of your existing is pretty much that it is going to come on stream.

Yeah all things being equal it'll come down. All things being equal.

But next year should be pretty similar to this ?

Yeah.

OK very good thank you.

Thank you the next question comes from please state your company name followed by your question.

. Three things Claiborne, one could you talk a little bit about your plans for block K and block H going forward you know after . Second question is will there be a reserve reduction related to the 56 settlement and lastly if you decide to lease the facilities how much would you get back in let's say in January if the developments funds had been spent or will be spent to that date?

OK let me in order of being asked let's see. Next year K and H preliminarily we're talking about two wells on K and two wells on H that's just real preliminary. If we were going to, if we had any success at and if it merited follow up then we might do something this year but we'd have to have success and access to the rig that we're using because there's not another rig weighted enough water depth. So there's two imponderables that would lead to some additional drilling this year. If those two things are occurring.

Second question was , we've got 60 I think booked and to be honest with you I don't know if we take a reserve right there, we own the blocks obviously but with a so I just don't know that answer to it when I do obviously we'll tell the market.

Thirdly on if we make a deal there I then I think we get back 65 million bucks was that in the range ... 60 or 70 and that's half, yeah if end up with a deal we won't sell all of the facility so part of it, we're talking about 65 or 70 million dollars that's in the range. Not a done deal though.

Thank you.

Yes sir.

Thank you the next question comes from . Please state your company name followed by your question.

It's . Claiborne at Ladyfern this winter how many you know will your working interest be fairly high on the, what is it six or seven exploratory wells you'll drill?

It's 10 is what we have planned now.

: 10?

And I'll try to you from between 50 and 100 percent is not enough. Maybe one odd on at 37 but 50 to 100.

: OK, and is the government stake officially for sale at Hibernia, and you know would you look at that it sounds like your pleased with the change on operator ship there.

No I think it's been for sale on and off. Any one that's man enough to step up to the play.

: OK.

No I don't have an .

: OK, OK. If you were to you know step up and throw some whiles on K and H this year you know would you keep a 100 percent or do you think you'd find something down there?

Well you know it's the eternal Murphy collector dilemma. We'll just have to wait and see.

: OK.

Certainly all always an option, and one that we'd probably odiously have used to do, so I'll just keep my mouth shut for a while.

: OK, alright, I'm about to go through a tunnel here on the train so thanks.

Thank you, and that was the final audio question please continue with any further comments you wish to make.

Thanks very much I've nothing else, and we'll talk to you with our fourth quarter conference call. Thank you.

Thank you Mr. Deming. Ladies and gentlemen this concludes the Murphy Oil Corporation second quarter conference call. If you'd like to listen to a replay of today's conference please dial 1800-405-2326 with access code 484711. Once again your dialing number is 1800-405-2236 with access code 484711. We thank you for participation, you may now disconnect.