Murphy Oil Corp (MUR) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Murphy Oil Corporation second 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. If anyone needs assistance at any time during the conference please press star followed by 0. As a reminder this conference is being recorded on Wednesday, July 28, 2004. I would now like to turn the conference over to Mr. Claiborne Deming, President and Chief Executive Officer. Please go ahead, sir.

Thank you and I'm joined by John Eckerd, our Controller, Kevin Fitzgerald, our Treasurer Mindy West, our Director of Shareholder Relations. I will turn it over Mindy at this point.

Thank you, Clairborne and 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 second quarter results and then Claiborne will follow with an operations update and then we will be happy to 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. Let me start out by talking about our net income figures for the second quarter of '04 compared to '03. In the current quarter we reported earnings net income of $349.9 million, $3.75 a share, that compares to 79.7 million of net income in the second quarter '03 which was 86 cents a share. The current quarter includes a significant gain of $167 million on an after-tax basis from the sale of most of our conventional oil and natural gas assets in western Canada. This gain as well as the operating results of these assets prior to the sale have been included in discontinued operations line in the income statement. The results of discontinued operations in total amounted to $1.95 a share. Possibly more pertinent to what operations are really doing then, I will speak to continuing operating results which had totaled in the second quarter '04 $168 million which was equivalent to $1.80 a share which is a company record for one quarter. That compares to the second quarter of '03 of 72 million, or 78 cents a share. By line of business I'll speak to continuing operating results. The second quarter of '04 our exploration and production earnings from continuing operations were about 140 million, that compares to 80 million in '03. Our downstream results were income of 39.5 million compared to right at breakeven last year in the second quarter and our corporate operating results, our net cost of corporate, I should say, is $11 million in net cost this quarter versus 8 million last year in the second quarter. The second quarter that was just completed benefited in the E&P segment from higher oil and gas prices and higher oil and gas sales volumes. I realize the oil sales prices increased 39% and we're $34.14 a barrel on an average realized basis.

Our natural gas prices in North America increased 19% to $6.22 1,000 cubic feet. Production increases in oil and gas was mostly attributable to production at Medusa and Habanero in the deep water Gulf of Mexico and a full quarter of production in the second quarter of '04 at West Patricia in the shallow water of Malaysia. Due to the timing of our liftings we did sell about 2400 barrels a day more than we produced in the second quarter and that benefited the quarter as well. Exploration expenses were down a bit in the current quarter than in '03. And I will mention that our Malaysian results in the second quarter '04 include pretax cost of about $4 million related to additional production expenses for the West Patricia operations. Our downstream business, earnings have been stronger in 2004 than in 2003. North American operations earned $27 million compared to losing 1.5 million '03. In '04 the U.K. had record earnings downstream of $12 million. They made 2 million last year this time. Refining margins were particularly stronger in both the U.S. and the U.K. during the 2004 period. Our increase in our corporate net cost is really primarily related to various higher administrative costs. In terms of the six-month numbers we are -- from a continuing operations $248 million versus $155 million last year in the first half of '03. In closing, I will say that our long-term debt at the end of June amounted to 1.047 billion and that represents 30.8% of capital employed. And with that I'd like to turn it over to Claiborne for his comments.

Thank you, John. I will review development projects, production, current and forecast exploratory drilling and downstream activities. I'll start with development projects. First Medusa. We're currently producing white at 38,000 barrel equivalents a day with one more well left to bring on. We have a tool stuck in the hole of one of our better wells, however, which is restricting the flow rate which will require a shut in and workover of that one well in August and September. We're on track, by the way, at Medusa to have payout at the end of this year given the fact that we sold our interest in the spar and the fact that we've had unusually high prices we should get payout in January of '05. At Habanero one of the two wells in the field, which was producing right around 23, 25,000 barrel equivalents a day, was shut in last Friday because of a subsurface mechanical problem that will require a rig workover and not be back up until likely the first of October. At Front Runner first production is still estimated for October. And at Kikeh in Malaysia, Petronas has the field development plan for review and we expect approval sometime next month. On future production. Given the two referenced workovers in the deep water gulf, especially Habanero, we're now estimating to average between 120 and 125,000 barrel equivalents a day this year.

On the exploratory drilling front. First in the Gulf of Mexico, at Front Runner Northwest, where we have a 37.5% interest, this is a 15 to 18 million barrel prospect near the Front Runner field. It's in Green Canyon, block 338. It's currently drilling and we should be down in about a week. The Thunderhawk, an appraisal well, is now planned for the fourth quarter to the west of current penetration and it has a reasonable shoot, by the way, of finding substantially thicker sands. In the eastern gulf, at South Dachshund, where we have a 50% interest in Lloyd Ridge, blocks one and two, the well is still planned for the fourth quarter although the Dalmatian well where we have a 50% carried interest, which is also in the eastern gulf at DeSoto Canyon block 48, may fall over into the first quarter of next year. In Canada the Crimson Wildcat, offshore Nova Scotia and off setting Annapolis, is drilling in intermediate depth. Norse Keydro came back in at the last minute and our interest as a result reverted back to 19% from the previously reported 25%. In the Republic of Congo, where we have a 75% interest in two blocks, we're in the process of opening a local office and we're currently looking for rigs. We should spud a well in the fourth quarter. We'll be drilling in around 4,000 feet of water. We're looking at one of three prospects to drill and we should have a prospect size in the one to 200 million barrel range. In Malaysia I'll start with Peninsula Malaysia, the rig is still on the Pertang well where we have a 75% interest. We should have results in the next several weeks. The rig will then move to test the nearby Airing prospect after which we'll move back to Kenarong, which we now think, by the way, has somewhere between 40 and 60 million barrels of liquids as well as substantial natural gas, to drill an appraisal wall.

In our Sarawak Malaysia program we drilled two wells in the second quarter, Korambitand Golot, both 85%, each located south of West Patricia, each found extensive natural gas columns with excellent reservoir but no liquids, which is what we were looking for. As a result, these wells will be expensed. In fact, Korambit's in the second quarter and Golot will be included in the third quarter. In Saba Malaysia, we should spread the wildcat at Sanagan we have an 80% interest, which is a large prospect located outboard of Kikeh, over the weekend. Should take around 30 to 40 days to get down. The rig will then go drill an appraisal well at Kakap or perhaps drill another Block K wildcat. In addition, we will likely drill a wildcat in Block H which will spud late in the fourth quarter of this year. In our downstream business Meraux is running well at around 125,000 barrel equivalents barrels a day. The rose unit is on schedule for an October startup. Current margins are down from recent highs and they're about a buck a barrel, Superior running well at 35,000 barrels a day, brisk asphalt sales, current margins are around $1.50 per barrel. And at Milford Haven in the U.K. we have $4 to $4.50 margins. At Wal-Mart we opened the company's 700th site on July 21st, we now have 706 in operation and we enjoy quite a robust second quarter at Wal-Mart this year. Early July margins were very weak but have since substantially rebounded. And with that I'll answer any questions you might have.

Thank you, sir. Ladies and gentlemen, at this time we'll begin the question-and-answer session. If you have a question, please press the star followed by the 1 on your push-button phone. If you'd like to decline from the polling process please press the star followed by the 2. You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order that they are received. If you are using speaker equipment will you need to lift the handset before pressing the numbers. One moment, please, for our first question. Our first question comes from Mr. Arjun Murti with Goldman Sachs. Please go ahead with your question.

Thanks. Claiborne, just a couple of questions, just on Sanagan, I know there's a primary objective there, do you still plan on maybe taking that deep to test some of those deep sands you saw, like, I think the Kikeh 7 well, which I believe they're in a better structural location here.

Yep, we sure do, Arjun. And there's a pretty good amplitude at the deeper location and for deeper. In fact, we think this is a better place to test it.

Terrific. The Kenarong liquids numbers sounded good. Can we think of Pertang as being of similar potential? You just seeing more liquid there, now?

Well, we haven't announced. They were similar type prospects. Pertang was four-way dip and Kenarong wasn't. But basically they're the same setting.

Which would mean pertang is bigger.

Could be.

Could be. Okay. That's nice.

But I wouldn't want to raise any expectations either way there. We'll get it down and we'll announce.

Of course. That's great. Thank you very much.

Okay.

Our next question comes from Ken Beer with Johnson Rice. Please go ahead with your question.

Just a question sticking in Malaysia for a moment. You said you've got a rig now drilling on Block K. Any thought of bringing in at a second rig later on this year, kind of help accelerate? You talked about maybe -- maybe going into block H for another -- I mean, for another exploration well. Would that be the same rig or is there any thought of accelerating that schedule?

Ken, right now it's the same rig. We're flexible. Depends on results as we go along. We've got some work to do on K, we've got some work to do on H. If we get lucky and have some success and we have to drill some appraisals, then it might require some additional help. But right now we don't have a plan to do it.

Gotcha. Also, Claiborne, this is somewhat of around the air, but in the Morova refinery I know it was down for a week or so just with a disruption in the second quarter. I'm assuming that's not an issue -- that hadn't been an issue and also what did that do in terms of impacting the downstream results in the second quarter? Was it so small it's just not worth pointing out?

No, we were down in June, our crude unit was down because of a problem with a booster pump. And I will say we were down for ten days. And margins were real stronger in that period and so it hurt us. Right now we're at 125,000 barrels a day on a sweep slate, it's a little bit heavier slate than we've been running before and our anticipation is once we get the Rose back up and we can run some heavy sour barrels that we can bump that rate up a bit more. The sign rate was a 125 but on a different crude slate than what we're having, what we're running now so we anticipate that when we get the slate that we anticipated running with this new equipment actually going through the equipment, that we'll have a -- we'll have a higher crude rate.

Then you may have mentioned for Pertang what was the original kind of targeted size for that prospect?

For Pertang?

Right.

You know, I'm not so sure that we put much out but I would say 500 bcf, plus or minus.

Okay.

Something like that. It's got good amplitude. It's got a lot of amplitudes. And we're looking for gas. And if we get luck up and we get liquids like we did in Kenarong.

That would be great. All right, thank you, guys, appreciate it. Yes, sir.

Our next question comes from Paul Cheng with Lehman Brothers. Please go ahead with your question, sir.

Hi, guys.

Hi, Paul, how are you?

Very good, thank you. Kenarong. Wondering, is there any update you can give us about the bulk tail situation?

About the what?

The bulk L in Malaysia between Banye and Malaysia, any update on that? Or that we are just waiting to see if they can resolve their status in September?

Yeah. No, I don't have an update, Paul.

Okay. On the Meraux, I think I missed that number. What's the current profitability or current crack? I think you had mentioned earlier?

The current margin we're seeing is about $1.00, right around there.

Okay. And Kenarong, I know that normally you do not want to give too much detail about Wal-Mart. I presume in the second quarter the Wal-Mart is a pretty profitable entity. Any kind of rough estimate that what's the profitability in the second quarter from Wal-Mart. If you don't want to give a direct number maybe as a percent of the total earning in the second quarter.

Oh, gee, Paul. Subtle man, you are.

Well, I winged.

We haven't broken it out, yet, but safe to say that we had a extremely good second quarter and most notably in June. And we're selling now 130,000 plus barrels of retail gasoline a day. So the leverage is really quite big when you start seeing some margins that we started seeing in June. So, yeah, we had a helluva quarter.

And, Clairborne, do you have a rough estimate what's the range of exploration expense, maybe, for the third quarter?

Yeah, Mindy does.

I can give you that, Paul. The range -- the total exposure for dry hole cost in the $70 million range as we're drilling some big ticket wells offshore eastern Canada which might be a double hit as we might have to also write-off costs from Annapolis. We're going to have a pretty heavy drilling program also in Malaysia, especially if we drill two exploration prospects on Block K. So you're looking at $70 million worth of exposure and added to that you're going to have other exploration costs in the range of 25 to $30 million which includes a pretty hefty G&G program as well as regular leasehold amortization costs.

So that's about 90 to $100 million tie-up.

Correct.

Exposure.

So that's the exposure.

And Mindy, do you have a -- going forward what will be the best guess from you guys on the corporate expense?

Corporate expense for next quarter should be higher than 2 Q, something in the realm of $15, 15, $16 million.

Is that a reasonable estimate going forward, or that that is just a one-off to be particularly high?

It's probably a fair way to look at it. It varies by 2 or $3 million a quarter depending on the expenses and we also have some foreign exchange effects that go through there so we're somewhat tied to what's happening with the U.S dollar versus Canadian dollar and the U.K. pound and euro. So, it's a little hard to predict, but that's not far, far off of where it probably is going to run, be a run rate.

Excellent. Claiborne, wondering, final question, on the production fund you give us an estimate for 2004. Any changes in 2005 estimate?

Paul, I don't see anything. Medusa obviously ought to be up, Front Runner depends upon the ramp up there would be the only question I would have. And we start bringing the wells on in October.

And I just wanted to -- can you refresh my memory, is it about 135 for 2005 for year?

We never gave a specific target, we just said it would be somewhere in the 130 range. So you're probably not too far off, but we did not give a specific number.

Okay, very good. Thank you.

Thank you. Our next question comes from Jennifer Rowland with JP Morgan. Please go ahead with your question.

Thanks, I have two questions. First is on the crude oil differential in the United States. Looks like that went up about $1.20 over last quarter. Just wondering what was the driver behind that. Are there hedges embedded in there?

No, there's no hedges.

We're kind of scratching our head. I just don't know if I can give you -- whether it's timing of crude sales or what. Medusa, I'll speculate, which is always a stupid thing to do, but Medusa's got a 23 gravity crude, so maybe there's a higher preponderance of that crude in the mix which may make a difference.

Okay. And then secondly, on Medusa, I think you were targeting 40,000 barrels a day by midyear. Is that still the plan or are the wells taking -- are they still taking longer to complete and is that why the production guidance is coming down?

Right now we're at 38 and we have one well left to go, which will push us over. But we do have an issue with this tool stuck in one of our wells and we're going to have to take a well down for about 30 days from the middle of August to the middle of September. And so that will impact us. But we're about where we thought we'd be.

Okay. Thank you.

Our next question comes from Tom Nolack with Merrill Lynch. Please go ahead with your question, sir.

Hello. Just back to Medusa and Habanero, you just addressed this, but would it be possible to get a little more information on the volume impact from both mechanical problems at both fields for 2004? Also, can you give us an update on the number 4 and number 6 wells at Medusa, and would it be possible to get a cost estimate on the cost needed to fix the problems at both fields?

Tom, I can give you the volume impact for the third quarter -- let me back up. For second quarter U.S. oil production was in the 23,000 barrel of oil range. We should be somewhere 20 or right below for the third quarter and then we'll ramp that back up in the fourth quarter. And on the gas side we reported second quarter a hundred and -- 103. We should be down to 92 million cubic feet a day or so in the third quarter and then back up again in fourth quarter. So most of the volume impact that you will see is in the third quarter. There's a debt that carries over into the fourth quarter. However, Front Runner volumes will be ramping up at that time.

Cost of the workover, okay, net to Murphy -- I'm getting queued here -- is $3 million for the workover at Habanero. And at Medusa, five -- I'll just give you -- I just don't know. We'll let you know.

Okay. And just one last one. The number 4 and number 6 wells at Medusa, is it possible to get an update on those?

You know, I have to tell you, I'm not that conversant by well. So I don't -- we have one more to bring on and it should do around 4,000 barrels a day, barrels equivalent a day.

Okay. Great. Thank you.

Thank you. Our next question comes from Mark Gilman with The Benchmark Company. Please go ahead with your question, sir.

Claiborne, good afternoon. How are you?

Hey, mark. How are you?

Pretty good, thanks. Clarify something for me with respect to Kenarong. The liquids assessment seems to be somewhat different than that which you offered in the immediate aftermath of drilling the well. I'm wondering, I guess two things. What changed your thinking relative to that point in time. And secondly, is this just a mix shift in terms of the resource potential or is this an increase in the overall resource potential as you see it now?

Mark, it's early days but we took some mdt's, got lots of samples, and just further analysis of those gave us -- or drew us to the conclusion that we're in the 40 to 60 million barrel range on liquids. It would likely be some take away from the gas. We have to drill a -- an appraisal well at Kenarong to better size it, but I think the 40 to 60 is certainly our best estimate now. I think it's a reasonable number and I think the gas number is going to be 500 bcf plus, somewhere around there.

I'm sorry, repeat that number, Clairborne, if you would.

About 500 bcf plus on the gas side.

That's even with the take-away that you mentioned? Because that's also well above what you might have thought at -- in the wake of drilling the well, isn't it?

You know, I think that's -- I mean, that's the best number that I can give you that we've discussed around here in the last month. It's a lot of pay and so we were just doing a lot of analysis and that's -- I don't think that's unreasonable as a number and, yeah, it is a bit higher than what we told you before.

And, Mark, if you'll remember, when we first released we did not have all the test results back from the well. As we got those results back we were able to further refine what our reserve estimate is.

Okay. Just one or two other questions on Malaysia specifically in the quarter. I think, John, up front mentioned some production expenses and I didn't catch I guess quite what that was all about. And it seems to be influencing the Malaysian lifting costs in the quarter as well. Could you clarify, please?

Yeah, there was a catch-up, Mark. We had some expenses that we had missed and we caught them up in the second quarter, so it distorted the second quarter. What it means on an on going basis is that at West Patricia the costs are more like $5 a barrel to lift and we had been reporting 4. And that's the difference.

Okay. And I also noticed and I don't know whether it's related to the expense issue you just mentioned, the tax rate in Malaysia went way up over statutory levels. Is that a function of a nontax believed exploratory wells or is something else influencing that?

Yeah, Mark, that's really the mix of which wells are tax relieved and which ones aren't. You're exactly right. It's that because if you drill a well that's a dry hole in 309, for example, I mean, it does get tax relief where K and the others don't.

Great. Thanks a lot, John. Appreciate it.

Thank you. Our next question comes from John Bailey with Deutsche Bank. Please go ahead with your question.

Thanks. Hi, guys. I was wondering if you could talk a little bit about prospect generation in the deep water Gulf of Mexico. At your analyst meeting you had highlighted, you know, an approach that included trying to farm into some blocks that some majors were holding that were coming up for relinquishment. How's that going and kind of what do you see happening with the deep water Gulf of Mexico exploration effort moving forward?

John, it's going well. We're looking at a lot of opportunities in the middle miocene fairway which is under horse, Tahiti, that area. We're generating some. I think you'll see next year, in particular, a pretty robust portfolio there, so I don't have anything to tell you right now. But I was just down in New Orleans, in fact, last week and spent, oh, four or five hours, and there's a lot of prospects being generated. We'll call a few, but I suspect you'll see two or three or four next year that will drop out of that, that are this mid-miocene play.

Okay. And so it's fair to say that those that are holding blocks facing relinquishment are amenable to farming in and getting some wells drilled prior to that?

Well, companies are certainly discussing it, yeah.

Okay. Great. Thank you.

You're welcome.

Thank you. Our next question comes from Raymond Deacon with Harris Nesbitt. Please go ahead with your question, sir.

Yeah, hi. Claiborne, could you talk about the prospect on block H that you were planning to drill as far as size, is it the same sands you've found in Kikeh or -- a little more detail there?

Ray, it's early because we're shooting a 3D on it but all of the trend, which is Keebaboggin, Commence Sue, Commence Aways Upthrone, Commence Sue Canyon, on up. We have a prospect called Penaga, on block H up there, it's a real big feature that needs testing and we need to define a little bit better what it looks like in a little more detail. We've got a good 2 D but not a 3-D. That's where we'll -- that's what I was referring to. That's probably, if it holds up which we suspect it will, it's probably a fourth quarter spud.

Okay, got it. Then, I guess, a question for Mindy. Would you expect the DD&A rate to change much going forward into the year as you bring on new wells, deep water wells?

I don't think it should change that materially from where it is now, no.

Okay. Great. Thanks.

Thank you. Our next question comes from Mark Meyer with Simmons & Company. Please go ahead with your question.

Thank you, good morning. Claiborne, was wondering if you could be a little more specific on what happened to the well at Habanero.

Yeah, it's a subsurface safety valve that in the event of a storm or something it shuts the well down and it's remotely controlled, as all these things are, and they can't control it properly. So that's what it is.

So nothing to suggest that hydraulically when it's brought back up that you shouldn't get back to the same rate?

No, it's just a mechanical well problem that is fixable and I don't think there's any reason that anything should change once we start back up.

Okay. Question on Kakap. You cited some gas pay in addition to some high quality oil pay. I was wondering if could you characterize that a little bit more. Are we talking about a gas cap or -- or the gas pays isolated within the oil column interspersed?

No, we have some sands that have gas pay and some sands that have oil pay so there may be some gas cap with oil down dip. We need to understand that better. But there are some sands that are non associated gas and some that are 100% oil.

Great, thank you.

Yes, sir.

Thank you . Our next question comes from Bruce Blythe with Bloomberg News. Please go with your question.

Hi, yes, Mr. Deming just a few hours ago we set a new record in oil prices based on the futures market of 43.05 and I'm just kind of curious as to your thoughts in general on that, so why that's happening and what these price levels mean for Murphy as well as your customers.

You know, if you're the same guy who keeps asking me, you're going to get the same answer, because on balance, fundamentals tell you that prices ought to go down. I mean, there is some gasoline inventory draw which is worrisome but on balance given what you think OPEC is going to do and non-OPEC is going to do in the second half production-wise you should see some significant or maybe some drop in oil prices. Now, I've been saying this for a year and I've been dead wrong. So you have to take that with that record in mind, but that's my view.

Do these prices reflect reality of our supply right now, or what -- how much downside might there be?

Boy, I couldn't speculate with you. I just think on balance, with new production coming on stream and with high prices on the margin probably retarding demand a bit you ought to see some retreat in prices. It's always happened that way before, so unless there's something fundamentally broken or different, I would suspect it's going to happen again.

So what would your message to the motorist?

You know, I really don't have a message. I mean, I don't. Thank you.

Okay. Thank you.

Thank you. Our next question comes from John Beers with Dow Jones News Wire. Please go with your question.

What's your outlook for refining margins in the third quarter?

Well, they've come down. Gasoline cracks in the last two weeks have dropped significantly. Now, gasoline was up again today, I don't know, crude was, too, and I don't know how that impacts it. But on balance the trend for the last two weeks has been pretty substantially down, and if you look at the average for the second quarter, it's where we are now, even significantly further down from that. And so, you know, barring some reversal in the trend I think you'll see third quarter refining margins in particular not nearly as good as the second quarter.

How about with heating oil? Prices are so high right now.

Oh, distillate cracks have been weak here. They're relatively strong in Europe but they've been weak in the U.S. They're strengthening a bit here so that may offset some of the gasoline - diminution in gasoline cracks, not by any stretch not all of it, though.

Thanks.

Our next question comes from Gene Gillespie with Howard Weil Please go with your question.

Claiborne, I guess, Mindy, whoever wants to answer this, I'm somewhat confused, in my advanced age I'm kind of slow at thought. I'm somewhat confused about the outlook for production in third quarter in view of the comments on Habanero and Medusa.

Well, if you're asking for overall third quarter view it should be somewhere 115,000 BOE a day.

Okay.

But, now, the estimate is based on sales about 3 or 4,000 barrels a day above that.

So you'll reverse a lot of the overlift in the third quarter?

Correct.

Okay, sounds good. Thank you.

Ladies and gentlemen, if there are any additional questions, please press the star followed by the 1 at this time. As a reminder if you are using speaker equipment you will need to lift the handset before pressing the numbers. Our next question is a followup question from Mark Gilman with The Benchmark Company. Please go ahead, sir.

Claiborne, you had mentioned, I think, in your comments potential for some thicker sands on the Thunderhawk appraisal which you plan on drilling. Could you try to allay an aged individual like myself, give me a better idea to this particular feat because frankly I didn't understand from some of the discussion at the analyst meeting how ,given that you went up dip with this well and you had a down dip oil water contact, where that potential for thicker sands might be.

Mark, we're going to the west, and there's a ridge to the west that really is the axis for the Thunder Horse field that we -- that is where you find the unusually thick sands that were encountered at Thunder Horse and that ridge, we think, continues up to the north onto our acreage. And so we think based upon that, that there's a reasonable shot at coming up with thicker sands.

Okay. Thanks a lot.

Okay.

Our next question comes from William Farer with WH Reeves & Co. Please go with your question.

Hi, good afternoon, ladies and gentlemen, and I certainly would support Mr. Gillespie's comment about being old. He certainly is. Could you give us any thoughts, it might not be appropriate, given your step-up in drilling activity, but prospects for either smaller acquisitions or, in fact, additional property sales? Thank you very much.

Yeah, we're not actively looking for acquisitions. The drilling program is in the third quarter, particularly, but the second half is hefty, and you know it and I know it. It's got a fair amount of risk, but it's got a large amount of potential, and so that's really going to occupy our time, and I think that's the best way we're going to create value for folks. And so dispositions, the bulk of what we had hoped to do has been done. There may be some that we do in the second half of the year, but there will be more in the margin than anything. Speaking of age, by the way, I just turned 50 and so I'm going to use the excuse of old age as well.

Thanks very much. But Gillespie has suits older than you are. [ LAUGHTER ]

Well, I won't comment on that. He doesn't wear suits anymore, does he?

Yes, but my comment is not a forecast, it's a fact. Thanks.

Our next question is a followup question from Raymond Deacon. Please go with your question, sir.

Yeah, hey, Claiborne, the plateau from Front Runner, how long do you think that will last?

I haven't seen a forecast recently but I'd say nine months, something like that.

Nine months, okay.

I mean, it's typical deep water high rate field.

Okay.

So you get up, you maintain for awhile then the wells start going down. We've got some --if Front Runner Northwest works, by the way, then you plug that in. Maybe longer than that.

One of your partners is suggesting it's longer than five years. Would that assume that you have to, you know, make -- make significant further discoveries, I guess? I mean, would that --.

Yeah, and I wouldn't -- I haven't seen that, so I wouldn't be able to comment on it.

Okay. And you said Medusa would achieve payout in January?

Yeah, but recall that we sold our interest in the spar and we took $100 million out of the field last year so that coupled with these high prices and flush production allows us to get to payout which is something we wanted to do given the fact we've got all this capital that we're faced, and in Malaysia in particular, we want to start taking some money out of these other field earlier.

Right. Can you make a guess as to how much of the reserves will be left net to you at that point when you achieve payout?

Oh, gosh, Ray, I think we've booked around 30 million barrels, with our share 50 at Medusa and I think we've produced six or seven million so far, probably say nine or ten by the end of the year. So --.

Right.

60% of 40 is 24 million. 20, 25 million barrels left.

Okay.That's great. Thanks very much.

Management, at this time we have no further questions. Please continue with any further remarks that you would like to make.

Thanks very much. Appreciate you tuning in.

Ladies and gentlemen, this concludes the Murphy Oil Corporation second quarter earnings conference call. If you would like to listen to a replay of today's conference please dial in to 1-800-405-2236 and enter the access code of 11003189. Once again if you would like to listen to a replay of today's conference please dial in to 1-800-405-2236 and enter the access code of 11003189. We thank you for your participation in today's teleconference. You may now disconnect and thank you for using ACT Teleconferencing.