Murphy Oil Corp (MUR) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Murphy Oil Corporation first-quarter earnings conference call. At this time all participants are in a listen-only mode. Following today's presentation instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded today, Thursday, April 29, 2004. I would now like to turn the conference over to Mr. Claiborne Deming, President and Chief Executive Officer of Murphy Oil. Please go ahead, sir.

I am joined by John Eckart, our Controller, Kevin Fitzgerald our Treasurer and Mindy West, our Director of Shareholder Relations who I will now turn it over to.

I would also like to welcome everyone to the call. Today we will follow our usual format. John will begin by giving a brief review of first-quarter results. Claiborne will then follow by giving an update on operations, 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 assurances can be given that these events will occur or that the projections will be attained. There are a variety of factors that may cause actual results to differ; many of these have been identified in Murphy's January 1997 form 8-K filed with the SEC. And with that said I will turn it over to John.

Thank you Mindy and good day to everyone. Our results for the first quarter of 2004 as reported were net income of $98.2 million or $1.05 a share. That compares to 94 cents a share, $87 million of net income in the first quarter of '03. Beginning in the first quarter of '04 we have accounted for our previously announced sale of our western Canadian assets as discontinued operations. And correspondingly we have reclassified previous period financial statements for consistency with this presentation.

The first quarter of 2004 discontinued operating results amounted to $17.5 million of earnings, which was 19 cents a share and compares to this first quarter of '03 of 11.2 million or 12 cents a share. For informational purposes the 2003 first quarter also included a $7 million charge or 8 cents a share for a onetime cumulative accounting assessment relating to asset retirement obligations. By line of business our earnings and expiration of production area from continuing operation increased about $25.5 million in the first quarter of '04 compared to the '03 period. The current period total for earned expiration production earnings was $101 million.

Our Oil production volumes. Oil production volumes from continuing operations increased from 67,800 barrels a day '03 to 95,100 barrels a day in '04 but most of this increase attributable to significant producing fields that had come online after the first quarter of '03, which include two deepwater Gulf of Mexico fields, Medusa and Habanero, as well as the shallow water Malaysia West Patricia field. Our realized crude oil sales prices were higher in this quarter than they were in 2003. The 2003 period did include hedges that lowered the prices somewhat.

Natural gas sales from continuing operations rose about 8 million cubic feet a day in 2004, and again that is also due to the start up of the Medusa and Habanero fields. WE realized a $15.4 million gain in the 2004 quarter, that's on an after-tax basis from the sale of onshore natural gas fields in Louisiana. Our expiration expense was $49 million in 2004 compared to $15 million in '03, an increases mostly higher dry holes in the U.S. and Malaysia.

Downstream operations in North America posted a loss of 10.5 million in 2004 versus 6.4 million in 2003, with the higher loss mostly due to weaker margins at the Meraux refinery. Our UK downstream operating results did improve due to both stronger refining and marketing margins compared to 2003. Our corporate activities posted a $14 million loss in '04 period versus a $10 million profit in '03; really two things going on there. One in the prior period had a one off tax settlement in U.S. of about $20 million, and that was in '03. And we are also capitalizing less interest at the present time in '04 due to start up of Habanero, Medusa and the completion of the Meraux refinery expansion.

Finally our long-term debt at the end of 2000 -- at the end of March '04, stood at 1.02 million. That's 33.5 percent of total capital employed. And with that Claiborne I would like to turn it over to you.

I will review development projects, production, current drilling and then downstream activities, starting with development at Medusa. We have three wells on producing right at 30,000 barrel equivalent per day. The next well comes on in mid-May, and then we'll have two more to complete after that. We should be at 40,000 barrel equivalents a day right around midyear. At Habanero we are producing right around 30 or 33,000 barrel equivalents a day. At the Front Runner the Spar hole will be on location in Green Canyon, or is on location in Green Canyon and the top sides will be mated in May or June. And the first production is still slated for October.

At Kikeh the Murphy Board sanctioned development of the field in April. It will now be reviewed by Cheridolly (ph) and Petrimass (ph) and we expect approval sometime in midsummer. On production, as you know we're selling 20,000 barrel equivalents a day in western Canada, and in fact these assets are being sold or were sold in two discrete packages. And one is already closed. The second will close sometime in mid-May.

Taking into consideration the sale, our guidance was 130,000 barrel equivalents a day average for the year. I'm lowering that to 125,000 barrel equivalents a day to 130,000 barrel equivalents a day due to two reasons. One is Block 16 Ecuador performance which I previously highlighted, and the other is a slower ramp up of Medusa field as the wells are taking longer to complete than we had originally planned.

The proceeds from the Canadian sale we previously announced are right at $830 million Canadian. On the (indiscernible) side in the Gulf Thunder Hawk, which we have a 37 1/2 percent increase in and the Mississippi came in and bought at 734 (ph) still in progress. After Thunder Hawk, our next well in the Gulf is not until the fourth quarter when we split safabaxin (ph) for a 50 percent interest located in (indiscernible) Ridge Blocks 1 and 2 in the eastern Gulf. This is about a 200 Bcf prospect.

Dalmatian which is 150 Bcf prospect in DeSoto Canyon Block 48 and also in the eastern Gulf where we have a carry 50 percent interest is now pushed back until the fourth quarter. In Canada, the Wildcat that were tested Crimson prospect where we have a 25 percent interest. Indianapolis block offshore Newfoundland should spud in June. This offsets the Annapolis discovery made two years ago in the same block. Crimson is about six miles away from Annapolis but is on a separate structure. It should be about a ninety-day plus well.

In the Congo it looks like our well will be pushed back into the fourth quarter there when we will pick up a rig and drill our first prospect. In Malaysia the announced results this week of the Kikeh #7 well. The well did not materially extend the downdip limits of the Kikeh Field but we were quite fortunate in the deeper part of the hole which is about 1300 meters below the deepest pacing in Kikeh. We encountered around 60 to 80 feet of section in the original hole and also in the downdip side track. We got fluid samples out of the original hole and have a higher gravity oil then we have in Kikeh so we have a different source.

At this point there is more that we don't know than we know. We think there is likely better places to test the sand than in this particular locale because the location was influenced by the Kikeh Field delineation part of the well. Its the deepest penetration in this part of the Sabah trawl (ph) and is the first time this sand has been tested in this particular area. And it is likely has quite or very significant (indiscernible) implications. We need to analyze our data and see where the next well needs to be to test this horizon. The rig has been moved and is now drilling the K cap prospect in (indiscernible) of TK (ph) and offsetting the nearby Gamonsut (ph) discovery. This is a large structure with the same targets as Kikeh. We should be down at about 25 days.

We then farm the rig out to another company and then we get it back in the summer to drill the Sinagan (ph) prospect which is another large feature outboard of Kikeh. In Peninsula Malaysia we are drilling the Kenalong (ph) prospect where we have a 75 percent interest looking for natural gas in the Malaysian basin. We should have some results in the near future.

Lastly we started up an exploratory program south of the West Patricia field in June or July on newly acquired acreage with a new 3-D survey. Prospects look quite encouraging with the first prospect named Karimbid. (ph) In our downstream business Meraux has current margins of around $2.27 a barrel. The hydrocracker is at 40,000 barrels a day. The ROSE unit comes on in November once its rebuilt and we will switch from a light sour slate to a sweet crude slate and the difference right now between those two crudes is roughly about three dollars a barrel.

Superior is breakeven, but we start selling asphalt in mid-May and we'll start making money then. Milford Haven is doing quite well $4.00 a barrel plus margin there. Wal-Mart is now at 680 sites, and right now as we were in the hole first-quarter we're fighting constantly increasing wholesale gasoline prices. But retaining the margin. With that I will entertain questions.

(OPERATOR INSTRUCTIONS) Steve Enger with Petrie Parkman.

Claiborne, on the deeper sand success in the Kikeh 7 so you're not going to test those sands at K Cap? Did I understand that correctly?

No, Steve. We have an option to, so I won't rule it out.

Okay and what can you tell us about obviously just based on the seismic its early days, but just based on the seismic what can you tell us about the potential regional extent? Does it look like the deeper sand packages tend to exist where the Kikeh pays exist? Are there any differences in that regard?

In this particular instance the deeper sands are not immediately below the field; they are offsetting the field. And so we need to understand how that works. It is part of the same general structure, structure shifts a bit at depth. I think there is a reasonable chance of the sand has got a wide regional depositional are characteristic that we need to understand. It was a bit of a long shot to make it happen or to find some success here. And so we need to have a better sense of where is the best shot for this? Probably we will offset this well; we got some other things to do. We may penetrate the sand some other places first, and then we may come back here. If we see it better developed, thicker than other area we may chase it there. So it's early. It's early, but I think it is in, I think it's good news.

How about specifically at Sinangon (ph) since that is nest on the list, do you see potential for deeper sands there?

Yes.

A little more specifically, how long are you not going to have the rig?

I don't know, but I will guess for you that it is 30 to 45 days. I'd say 45 days. It's a one well, deepwater shot but I know the company and we've been taking 30 days to drill them. But I don't know the characteristics of their prospect, so it may take them longer.

Okay. Thanks a lot.

Gene Gillespie with Howard Weil.

Three quick ones. Claiborne have you decided whether or not to bring a partner in the Congo?

No, we haven't decided.

Secondly are there any special items in your second-quarter earnings guidance?

No.

Thirdly, the success you had in the deep sand package on the number seven, how many -- can you give me just generally -- how many additional prospects would that unlock for you on Block K?

I simply don't know. We see the sand. We just need to understand amplitudes, what does it mean, does it mean sand thickness? We need to understand the depositional characteristic of the sand. But certainly multiple.

Does this enhance the prospectivity of Block H? Given the regional nature of this as you described it?

Block H is a long way off, but certainly it enhances the prospectivity of Block K for sure.

Jennifer Rowland with J.P. Morgan.

I have two questions. First on your production guidance for the second quarter of 117, was wondering if you could break that down between U.S., Canada, Malaysia, Ecuador, and the UK.

We can do that for the U.S. in liquid it is about 23,000 barrels per day. Heavy oil is about 4400. Offshore a little over 27,000. Syncrude around 11. UK 11.5. Ecuador 7500 and Malaysia around 11. On the gas side a little over 190 cubic feet of gas a day in the U.S., around 7 to 8 million cubic feet a day in the UK. And around 15 million cubic feet a day in Canada. That should get you there.

On the U.S. production it looked a little lower than what we had modeled in for second quarter. Is that driven by what you had mentioned earlier about lower production at Medusa?

Yes, we're just taking 45 days to 60 days to complete the wells, and that wasn't our plan. Our plan was to do it substantially quicker than that. And the completion is critically important here because they are real loosely consolidated sands and the completions have been going fabulously. But it is slower, that is the issue.

Last one, on your earnings guidance for the second quarter, what is embedded in that for expiration?

For the (indiscernible) exploration expense total all in exposure is around 30 to $35 million. It includes big ticket wells like Pertain (ph) and Peninsula Malaysia, the Kenalong well which is still growing. Thunder Hawk in the Deepwater Gulf which is still drilling and K Cap in the deepwater Block K.

Great. Thank you.

Paul Cheng with Lehman Brothers.

You talk about the second quarter maybe I missed it, did you give us a revised 2004 (indiscernible) guideline?

I did in my opening remarks. What I said was we had previously did 130,000 barrels equivalent per day. We are dropping that to 125 to 130, and there is two places where we're dropping it or causing the drop. One is Ecuador, which is we thought would be 75,000 barrels a day for the year, but we are at 50 and I do not see that going up anytime soon. And then the second one is Medusa where we are 30,000 barrels a day now going to 40 midyear, we thought we would be at 40 sooner but those are the two issues.

If I could switch gear a little bit, in the U.S. (indiscernible) I think maybe it's just me, I thought that with Medusa and all the new project coming the production base gets much quicker, so your unit costs on both the (indiscernible) and DD&A is going to come down quite significantly. So far in the first quarter we haven't seen it. Any kind of best guess from your part what is your U.S. unit costs trend is going to look like for the remainder of this year into next year? So we assume that is going to come down meaningfully from the 2003 level?

I don't see it coming down significantly. We entered into a contract to build or we sold part of our Medusa spar to a third party that we have an interest in. And so our operating costs are two dollars higher than we thought. Our DD&A is lower but not by quite that same amount. So as we bring additional wells on, I don't see a material change in that. Medusa's got real low operating costs but it's about at where its going to be for the balance of the year. Front Runner should be a bit lower than Medusa, but not hugely, so I don't see anything big there the balance of the year.

From that standpoint, Claiborne, are you satisfied with your cost structure in the U.S.?

Well, you would always like it smaller, I mean lower, but it is what it is. Basically we are going to have three big fields with Medusa, Habanero and Front Runner. And so far it as when you add the capital and you divide it by the barrels that we booked there is probably more barrels to be booked at Medusa in particular but so far that's what the number is. (multiple speakers) Operating costs I will tell you that, but we decided that we would prefer to enter into an agreement and take some money out now.

So you really don't see much of a restructuring opportunity or take the cost out in the U.S. upstream?

I really don't from this point forward, I think what you see is pretty much what you're going to get.

Okay. On the Kikeh #7 it seems like you encountered some oil sand in the deeper zone, can you tell us what is the oil column that you encountered? Is it 100 feet, 200 feet or any further that you can show us?

The column, I think you must have missed the first part of my remarks. The section that we encountered is 60 to 80 feet, probably a bit more but let's just say 60 to 80. The column itself is going to be longer than that, but just the section that we encountered is 60 to 80.

Excellent. And then finally, can you talk about what is the current marketing margin in your Wal-Mart perhaps that pertain to the first quarter average? And I also know you do not to disclose too much information about the Wal-Mart but can you tell us what is your average size throughput now and more (indiscernible) that we may be talking about in the first quarter?

Paul, we averaged around 240,000 gallons a day, I mean per month, in the first quarter with Wal-Mart. We made money. Margins were compressed because I was looking at it the other day wholesale prices went up 27 cents a gallon in those three months. Despite that we made money and you're right, we've been pretty discreet about disclosing how much -- just for a lot of proprietary reasons. We didn't make a lot, but we made a net income in the quarter.

Actually in the first quarter.

Yes.

That's great. (inaudible)

It is a heck of an asset, and if you ever have flat wholesale prices or declining wholesale prices I think you will see a pretty significant profit contribution.

When the Meraux new unit is going to be back up or when we are going to see that unit operating in a more normal way?

We are at 48,000 barrels a day on the hydrocracker and it's been up since the first consistently, since the first week of March. And it's got great performance. Its got super performance. We are processing the light sweet crude which is not optimal at all because there is really wide dispsarity between sweet and sour and heavy and light crudes. But having said that, we are processing all of our vacuum bottoms through the hydrocracker piece. And so we really don't have any residudal production to speak of. So our yields are strong especially on the distillate side. We only have three or four percent essential yields right now which is for us is spectacular. So it's real profitable for us right now.

Excellent, thank you.

Mark Gillman (ph) with the Benchmark Co.

A couple things. What happened with the Medusa South prospect?

Dry hole.

I know. What did you learn, why?

Salt.

When you say salt, elaborate if you could.

It was a reflector up against salt and the reflector into the being salt. It was real bright, and it tied into what we call the P4 at Medusa. And so I thought it had a real reasonable chance of success probably one out of three, but the risk was that the reflector would be salt, and that's what would light up and that's what in fact happened. We found some pay above it, but I don't think you could call it commercial. Main reflector was salt.

Any implications as to other potential satellites in Medusa?

No, Medusa North worked and will start working on hooking that up next year. There is a prospect being drilled by another company near Medusa South in fact, that out to be down in about a month. And there's another prospect actually that comes out of the Stonemaker dry hole, that either will drill or have cause to drill. So there's two or three other things to do around the spar facility.

The onshore South Louisiana sale, does that entail your exit from (indiscernible) and things of that sort?

It was actually residual or legacy North Louisiana assets, the old Simsboro field discovered in the '40s and '50s, in fact is what we sold. And so we kept the South Louisiana onshore White field. So as a practical matter we clearly are in the process of repositioning our company, and kind of methodically we are drawing from mature areas and putting the money in much more aggressively in the frontier. And that step was a small step in that same direction. Obviously the sale in Canada was a real big step.

Can I infer from the quarter's results that Ecuador is now in a taxpaying position?

Yes.

And will be so going forward?

Assuming reasonable oil prices.

Pardon my ignorance on this one. Just because there is no ROSE unit doesn't I guess justify in my own mind and I'm probably thinking about it wrong, running a sweet slate. If the ROSE unit was just essentially desulfurizing bottoms, what am I missing here?

I'll have to get (indiscernible) up here to walk you through it, Mark. I can't specifically address your issue on the downstream equipment is being maximized to the nth degree. And sulfur is not our issue because we've got 200 tons a day of sulfur removal capability at the plant. And so it is just the bottom of the barrel that physically -- how much can you take out of your vacuum tower -- how much can you physically put into your hydrocracker and ultimately into your (indiscernible) and you need a ROSE unit to get additional feed stock for those particular units.

Don't you have back end desulfurization on the cat unit?

We have got plenty of desulfurization. It is just what do you do with the bottom of the barrel, and I am just not enough of a chemical engineer or process engineer to walk you through step-by-step but I can assure you I will have one call you.

No. We will talk about it in ten days.

Arjun Murti from Goldman Sachs.

You had a 400 to 700 million barrel range for the main Kikeh reservoirs. And just wondering if you had any update on the range? I believe you are still within it but do you think you're closer to the high-end, middle or low end? Can you provide any color on that?

Arjun, I would say that not primed in water pretty -- not extending the oil rig of those fields probably puts you towards the lower end of it. Is what I would suggest. But early days. And when we finally get the sanctioned approval by the government of Malaysia we will give you approved undeveloped number real specifically how we go through it for the field. But I would say you are in the 4 to 7 number, and just intuitively you probably guide you lower.

400-500 somewhere in that kind of a range rather than 700-sh or something like that.

That's real reasonable, but it's early. But yes, I think that is a reasonable expectation.

Are we still looking at production rates around 100,000 barrels a day in the fourth quarter of '07?

Yep.

I guess that is when it starts up it will little probably plateau at that into '08 I would say?

No, it will, you are right, it will plateau to that. We will gradually complete and pentolite Medusa and you may see plateau rates above that.

I think the key to meeting that date is going to be at (indiscernible) going and I believe that key date becomes sometime this year's fourth quarter so if you do get approval by the summer you should be then well on track to meet the startup date in the fourth quarter of '07?

Yes. That is the critical path item is really FPSOs. It will be likely another unit which will be a drive three unit, probably some type of tension wag (ph) facility. But that would make (technical difficulty) critical path is the FPSO.

And just finally then, any update on the timing of Thunder Hawk? Assume its not too far away.

No. We are in process, and I don't suspect we will be that much longer.

Thank you very much.

Ken Beer with Johnson Rice.

A couple questions actually let me just stick with the development plan. The 100,000 barrels a day plan looking at '07, '08 type of a timetable, is that plan been altered at all given the success of the lower discovery at Kikeh?

No, it has not. Now we will probably have some ability to expand capacity on our facility. And so there may be a way to do something to accommodate additional reserves. We do not know what we have now, but I will quickly say that at the worst we have something you could process through the facilities that we're building. And at the best, maybe it means something else but it is too early to know that. But it's not going to stop our Kikeh plan.

That's really ongoing with a thought of maybe adjusting as you find out more about the deeper.

Yes. We have to understand what the sand is.

And actually in that why did you all stop drilling? Was there clear -- was it just.

(multiple speakers) a hole but there's probably deeper sands, we think there is.

And --.

Our pacing program wouldn't let us go any further.

Understand. And kind of your next time around maybe Sanangan (ph) would you maybe then try to go deeper or be satisfied with kind of what you saw?

I don't know if we would go deeper than where we went in this well in K 7. I don't know that. We think there is additional sands. I'm not sure that how prospective we know they are but it is an unknown. It's an unknown, I will say that.

Just last question, any thought of actually bringing in another -- I'm trying to remember what is your plans in terms of rigs in the back half of this year? Is there some thought of bringing in another rig? I'm trying to remember.

In the deepwater program likely not. We are going to have three rigs running, at least we do right now and I can see that going on through the third quarter. We are going to have of course Kenalong (ph) and then we're going to follow with Katang (ph) and that is over in Peninsula Malaysia. And then we are going to start up a program south of West Pat and some real good-looking prospects. We will start the exploratory part of that in June or July so we will have the deepwater rig and then the two other jack ups going -- I would say through the beginning of the third, probably into the end of third quarter. I would anticipate the rig that we've got going deepwater Malaysia could be occupied the balance of the year.

No plans to bring on a second or deepwater and in terms of again trying to establish whether there are some even deeper horizons that's probably not going to be in the appraisal well (multiple speakers) looking at.

I wouldn't rule -- I wouldn't rule it out. I just know I don't see it because it's like me talking to our explorationist -- one of (indiscernible) some things they don't know and so they don't really know yet the implications of is there a deeper package below this. Does it have a charge, does it justify the costs. Does it justify the time? Because we've got to get about this thing. There is a lot to drill in this area. We need to get about it.

And although would there be some thought after Sanangan to as you go to the more optimal spot on this structure.

Yes, certainly. We have to see what happens between Kikeh #7, obviously we are going to drill Kikeh cap and obviously we will drill Sanangan and then we have to see where we are at that point. Maybe some other options that we have that we might pursue. Or we might come back and drill this. This will have an appraisal at some point I probably should add.

Fair enough. Thanks so much.

Ray Deacon with First Albany Capital.

I was wondering in the second quarter your R&M number what is in the earnings per share number that you -- what are you assuming for R&M?

We are assuming an overall return to profitability probably one dollar average margin in the U.S. or so, in the $3 range or something like that in the UK. And then a fairly good contribution from retail, as well.

What gravity oil was the deeper sands at Kikeh?

24.

And just lastly what -- as far as it sounds as though Peninsula or Malaysia could be a growth platform. Also looking at the heavy oil spending at Seal. And I guess between now and 2007, what do you think the outlook is for your current base now that you've divested the kind of non core non growth Canadian assets?

What do you mean, based on spending?

Do you think you can maintain the base production level, and what type of CAPEX would that require? Between now and when Deepwater Malaysia comes online?

Because we are such frontier oriented people and it comes in bunches and then droughts, it is hard for us to just give you a number, but we will have Front Runner coming on in October, and we should be able to be up flat to up next year through '05 and the beginning of '06. We need some help in the back half of '06 to make it happen. We just up every single year otherwise I think you'll see a decline in '06 beginning of '07 before you see a ramp up back up with Kikeh coming on stream.

That's great. Thanks.

Fred Leuffer with Bear Stearns.

Just want to learn a little better how you will sanction Kikeh. Is it only Kikeh or Kikeh Kecil or how are you going to proceed at least with what the Board is approved so far.

It is Kikeh, and we -- our Board has done it. And then we hand it over to PETRONAS Carigali and there is a clock that starts running once you officially hand it off and that handoff occurs in the next couple of weeks. And then there is a prescribed period of time, 60 to 90 days where they need to respond to you.

And then Kikeh Kecil what more do you want to do there before you make a decision?

We are up in the air. We've got to process we need to work through Kikeh first, get it approved, get everything done. And then will look at our options. The main thing to do here is to get first oil on and probably not deviate too much from your plan. And as reasonably quickly as we can get sanctioned and get moving.

Just looking at my Malaysian schedule here, and you got the gas development funding, what is the sense of that?

The Kenlong well is offsetting Mundy (ph). And that is an exploratory well testing, we are testing the same sands that were tested at Mundy and then we're going to deepen it. And that is in process right now and we will have some news here, I said shortly a couple weeks, maybe a bit longer.

And we could see startup in '05 there possibly?

If it worked you could do '06 for sure. If it worked and you could negotiate a gas contract, you could make this pipeline nearby, and that is a reasonable possibility expectation.

Okay. Thank you.

John Gerdes with Southwest Securities.

Talk a bit more about Kikeh. You mentioned FPSO being a critical path here. You mention getting oil on production. What kind of capacity, I mean the question was just asked about Kikeh Kecil. You mentioned $100,000 barrels, I take that it that is the development scheme you are submitting to the Malaysian government but do you have, obviously you mentioned scalability but what does that mean? Where could we go with that individual FPSO structure I guess?

Until we get it sanctioned by the government we've been pretty discreet about what our plans are. As for all the appropriate relationship issues, we guided people somewhere between 80 to 100 to 120. That's the range that we tell people to expect from Kikeh. 100 is the middle and that is a reasonable shot. It maybe we end up we might be a bit more aggressive than that. We will have the ability at least our current thoughts are to have some ability to expand and increase that number processing ability on the FPSO. But again, until we get sanctioned, until we establish what we get approval for, I don't want to get too far out.

Kenalong (ph) up in PM 3 11 (ph) what are the size of those? Are those 100 bcf-sh type of prospects?

No. It has actually got potential that could range from 150 to 200 on the low side up to 3, to 4 to 6 to 600 on the high side.

Gas market you would sell into there fairly attractive price wise -- I know that's getting ahead of the curve here a bit.

Way ahead of the curve there. It is -- there is a need in Peninsula Malaysia for gas. They are importing it now, and so domestic gas would certainly have a way to get into the market.

Competitor put out the news on a Front Runner Northwest Prospect, Quatrain South Prospect, that potentially being drilled later in 2004. Any interest on your part? Are you in these prospects?

Yes, we will be in them and will operate them, I do not know which ones we are going to drill yet. Probably if I was guessing I would say Front Runner Northwest. Each of them have got some potential to go deeper but I'm not so sure that we will agree to do that. But we're certainly looking at it.

Size on those?

You know, there is a wide range here.

That's only fair.

When you get different views by different partners you have different opinions here. I think you can go anywhere from 10 or 15 million barrels up to 50 million barrels, something like that.

Last question, Crimsons size wise there, you mentioned it is a separate structure, what kind of size there?

You are certainly in the T's.

Okay. Thank you very much.

Mark Meyer with Simmons & Co.

I just have one. I wonder if you could compare and contrast the Front Runner completion and I guess ramp schedule with what you've experienced in Medusa? I guess refresh my memory on mix of dry trees and subsea and what kind of completion time you have budgeted in and if you could.

You know we've got six wells ultimately in the first in Medusa, and they are taking about 45 to 60 days to complete. And I think we've got eight or nine wells in Front Runner, eight wells in Front Runner. And I would assume the same schedule unless we get some learning curve benefit. I think we will try to have the same service company and the same actual crude doing the completions if we can, so we might gain some speed here. But I would assume the same pace.

Is it just mostly mechanical difficulties or the complexity of the well? Are you having to kind of baby the ramp up a little bit?

No, I don't think that there's an issue of mechanical difficulty. I think when you get into it methodically step by step by step is you just want to make sure that you keep the sand in the right place and don't let it get into the well bore, and you have enough penetrations in the sand, enough perfs. We just likely underestimated the length of time it takes to do it well.

Just to clarify, you're now assuming 45 to 60 days on Front Runner? Per well?

You know I haven't seen a number, Mark, and so I'm shooting from the hip, but I think it would be wise to use the same number that we used at Medusa. Maybe we can beat it, but if you want to be prudent, I would say use the same number.

That's all I had. Thanks.

Steve Enger.

Just to clarify Claiborne, on Medusa you are getting individual well rates and well performance that meets your expectations?

Yes, we are. We're ahead on two, and we are banged on one.

Follow-up on a previous question if Kikeh Kecil is not being included in your current development, I assume Kikeh 5 is not as well? Is that true?

Right.

What is the logic for not including Kikeh Kecil? Is it a function of where you have to put that FPSO or are their larger questions in your mind there about development?

You know we just got started down this track, and the process is so complicated and involved, but you don't want to deviate from it. It's a little elaborate procurement process. And so rather than delay production, we decided to stick with the same plan. But we will get to it.

Let me ask it this way, could you reach if you decide to, could you reach Kikeh Kecil from where you envision putting the FPSO and can that happen physically?

Sure.

Okay. And then on Kikeh cap, I guess one question on the strategy obviously there is a pro in the fact that Shell is an absolute discovery; on the other hand that prospect clearly extends over into a disputed area between Brunei and Malaysia. Why go ahead and drill that one now given that any development planning would seem to be put on hold until that gets resolved.

We need to know what we have. We need to know what we have, we are at the crust of the structure and we need to know what's on our Block. It is just part of understanding what is on Block K. And that's what the whole process is.

Okay, thanks.

(OPERATOR INSTRUCTIONS) Dan Rothschild with Rothschild Capital Management.

Just wondered if any of your targets in the Malaysian Basin area are geographically approximate to the talisman productions.

Yes, they are pretty close. In fact I can't give you a kilometer distance, but I can guess, I don't have a map in front of me, but I think we are adjacent to them. Our block is adjacent to their block but our prospects aren't right on the lease line, so they are not -- I couldn't say that.

But you are next door?

Yes.

William Kidd with Central Securities.

Claiborne, have you guys given any more thought to financing Malaysia in terms of bringing in a partner?

We have, and our current plan is to slowly monetize maturing assets into a real strong market and redeploy into Malaysia and other areas that are growth targets. And so if you do that and with the money we've raised with the sale in Canada and with the (indiscernible) prices that we've had for the last six or nine months to a year we can pretty comfortably do all this yourself. Now if we end up having multiple discoveries we've always said I think the issue becomes more binding, so we may have to think about some options there. But for now the way it has worked -- I mean at one point we thought we probably need a partner for Kikeh but the way it has worked I don't think we probably will.

Is there a framework or a metric that you would use to describe how this strategy -- certainly raises the growth profile of Murphy -- how it raises the risk profile, or is that not some thing that is.

I think it's a reasonable question. There is two strategic issues with us. I think that certainly I think about that lot, one is that we're going to be extremely concentrated, in one particular part of the world. It is a function of success, so it is a good news problem to have, but it's an issue that you have to understand, and I think about it a lot, and I think to the extent that you have concentration issues you have to be aware of it. And secondly, we are a real oily company, and so if oil prices have a dramatic or sudden or remarkable decline, I think that presumably natural gas will as well but we certainly will feel the brunt of it immediately. That's an issue we think about a lot. One of the drivers behind Wal-Mart in fact because it's got a nice cushion on that particular scenario.

Thank you very much.

Ron Oester (ph) with A. G. Edwards.

Regarding the Gulf of Mexico program you mentioned following Thunder Hawk nothing till the 4Q. Has your strategy changed there, or can you expand on what's going on in the Gulf of Mexico? And also if the permit issues with Dalmatian have been cleared up.

To start with the last question the permit issues have not and so Dalmatian is going to be put off until the fourth quarter. On the issue of what is our current thoughts in the Gulf, we (indiscernible) very successful. We had a string of dry holes, and we have had a number of prospects that we otherwise would have drilled that we decided to shelf. And we're going to wait until we can access the prospects in the Eastern Gulf before we restart our program. And so it is a function of just a void of prospectivity from what we considered now to be a riskier set of prospects than I would have told you a year ago. And yes, it causes us to rethink. Obviously we have a lot of opportunities elsewhere. We need to be just steely eyed about it and see what our prospects are there and compared to the other parts of the world, and act appropriately.

Is there any timetable on the prospects near Front Runner at Johnny's Wagon in Lecomte? Are those still on the board for maybe '05?

They are, and probably '05, we just had kind of a lot of thoughts in our partnership on which way to go ands will it be resolved in '05? I think there is some chance but I can't guarantee it.

Okay. Thank you.

Paul Cheng.

Given that you have (inaudible) seems like outside America (inaudible) and the Gulf of Mexico over the past year and a half or so would that be too radical to think that maybe at some point over the next 12 to 18 months if you don't have better success you decide to totally get out from the deepwater Gulf of Mexico from an exploration side? Sort of similar to what you have done several years ago in the shallow water Gulf of Mexico?

I doubt it Paul. There is a great deep (indiscernible) we need to think about it differently than we thought about our (indiscernible) where we operated typically had pretty good interests. I think there is a play to make, a lot of sand in the Miocene and deeper waters that probably will trap and probably will create some nice fields yet to be discovered. And probably take smaller interests, may look at more deals, you'll generate some, need to spread your risk a bit more. And we're trying to understand how we need to proceed about it but we understand the play pretty well. And Thunder Hawk of course is a Miocene play. So we are starting to play it. But there is too much prospectivity still but we need to recalibrate, we need to think about how to go about it, we need to expose less dollars there.

Very good, thank you.

Ray Deacon.

Claiborne, with Thunder Haw, what would be the development plan if that is successful?

We've got some options, Ray. One is just have it stand alone, put it right there, put a floater out there and like a spar, something like that and make it happen. there is a lot -- you are pretty close to the Eastern Gulf and there's been a lot of some work and study done about combining Thunder Hawk with a structure that has already have been built or will be being built so you get it on stream a bit faster. And if there was other nearby facilities that had room that wanted to talk with those people. We will just do whatever is pragmatic and get the earliest barrels that we can but get obviously the highest volume that we can.

And could you give a little bit of background on Ecuador. Could volume start to trend up there next year and also at Syncrude, what is the outlook there?

Ecuador I am not usually optimistic. I've been seeing 50,000 barrels a day from the block now for four months, more water than was anticipated and water handling is an issue, it takes a lot of power to handle water, you got to reinject it. It's an issue of capital, how much more do you want to spend. So I'm beginning just to see the world as it is there and say maybe its 50,000 barrels a day. I don't like it. But maybe that's what it is. But I haven't seen a definitive program from our operator, so I can't give you a definitive answer but I am certainly starting to think that way myself.

Syncrude had a great first quarter. I think it average 255,000 barrels a day, a record and I see good things happening there. I would love for the price of natural gas to come down in just that one little piece of Alberta would help lifting costs there but otherwise I think it is a pretty good picture.

And other than the gas certain lease operating costs going the right direction?

They are. We had a discrete thing in the first quarter where we had $2 a barrel that we added to cost because of a pension catch up from '03 and '04 there. But otherwise I think it is about like we would have hoped. In fact, it's better than we had hoped.

Great. Thanks.

Mark Gillman with a follow-up.

Claiborne I hope you can clarify something for me. In the release you issued on the Kikeh 7 you used the phraseology that you have lowest known oil in three of the sands as opposed to having to find an oil water contact. Clarify for me how that is defining the limits.

Mark, we've extrapolated really where the water is and some of the sands and some of the sands through pressure data and analysis we can see where they are and have a good sense of where they are. So in some cases we have empirical data, in some cases we are extrapolating.

Okay. Thanks very much. Appreciate it.

That was our last question. Please continue.

Okay. Thank you very much, and I will see hopefully most of you all in South Arkansas week after next. Look forward to it. Thank you.

Ladies and gentlemen, this concludes the Murphy Oil Corp. first-quarter earnings conference call. If you would like to listen to a replay of today's conference you may dial 1-800-405-2236 followed by access number 577079. Once again, we thank you for your participation. Have a pleasant day. And at this time, you may disconnect.