Murphy Oil Corp (MUR) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Murphy Oil Corporation's first quarter earnings release 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 should require operator assistance during the conference, please press the star key followed by the zero. As a reminder, this conference is being recorded today, Wednesday, April the 26th of 2006.

I would now like to turn the conference to Mr. Claiborne Deming, President and Chief Executive Officer. Please go ahead, sir.

Thank you.

I'm joined by John Eckart, Controller, Kevin Fitzgerald, Treasurer, Mindy West, Director of Investor Relations and Dorie Styles, Senior Investor Relations analyst. I will turn it over to Mindy at this time.

Thank you, Claiborne, and I would also to welcome everyone to the call.

Today, we will follow our typical format. John will begin by giving a brief overview of first quarter results, Claiborne will then 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 obtained.

There are a variety of factors that may cause actual results to differ and many of these have been identified in Murphy's January 1997 Form 8-K filed with the SEC.

And with that said, I'll turn it over to John.

Thank you very much, Mindy, and good day to everyone.

Our earnings in the first quarter of '06 of $0.60 per diluted share were essentially level with the same period in 2005. Our E&P earnings were nicely up in '06, but downstream reported losses, mostly due to the Meraux refinery ongoing costs and repair costs and the downtime for repairs that are ongoing there.

Our E&P earnings were up by about $36 million due to a combination of higher oil and gas prices, lower expiration costs and a $15.7 million collection from our insurance companies for lost oil production at Medusa, that related to downtime there from the fourth quarter of 2005 following Hurricane Katrina. These variances were partially offset by lower oil and gas production.

Our oil prices realized on a worldwide basis were up by about $9.20 a barrel in the first quarter '06 when compared to '05. And natural gas prices realized in North America were higher by about $2.67.

Production on a barrel of equivalent basis was down about 15,000 barrels a day in the first quarter '06. It's really in three different areas, which are listed in the press release.

In the U.S., it relates to properties that we sold in the second quarter '05 on the continental shelf with the Gulf of Mexico and lower production at Medusa and Habanero.

On the East Coast, Canada, we have Terra Nova production was down mostly due to equipment issues, mechanical problems and in Malaysia, production was down, our entitlement percentage is down because of higher oil prices. Our expiration expense was $63 million in the quarter, that's down about $7 million compared to the first quarter '05.

We had lower dry holes, overall, but that was partially offset by higher G&G and that G&G was in the deep water Gulf of Mexico and in Malaysia.

Turning to downstream operations, we reported a loss of $37 million. Again, that's mostly due to repair costs and ongoing expenses at Meraux, coupled with the fact that there were no operating margins while the plant was down for repairs, and it was down for the entire first quarter.

While most repair costs are covered by insurance, certain policy limits exist for damage caused by flooding and therefore we will not fully recover 100% of all of our repair costs that are related to flooding. These estimates of, total estimates, I should say, of unrecurable costs are in the range of about $50 million and 13 of which we recorded in the first quarter '06.

In downstream also in the U.K., our profits were lower than in 2005 by about $3 million and that's generally we had weaker margins due to higher crude oil prices in the U.K. market.

Our corporate costs were about $4 million higher in 2006. The 2005 period had a couple of favorable items that didn't repeat this quarter in '06, and that included foreign exchange gains and interest on an income tax settlement in the U.S.

We did have, in the current quarter, higher expense related to stock options. As you know, we had to begin recognizing cost for that in our P&L. It added net cost on an after-tax basis of about a penny a share.

We did have lower interest expense due to capitalizing more costs on development projects, oil development projects.

In closing, at March 31, 2006 our long-term debt stood at $610 million and that's 14.6% of total employed capital.

And with that, I'd like to turn it over to Claiborne for his comments at this time.

Thanks, John.

I'll cover production, upstream developments, upcoming exploration wells and then downstream activities. In production in the Gulf, 17 Hands came onstream the week of March 1st and currently produces at a rate of around 55 million cubic feet a day.

At Syncrude, bitchman should start going into the new coker, which has a capacity of about 95,000 barrels a day, the first week of May and Terra Nova starts an estimated 100 day turnaround on June 15th.

In developments, there's no change in Kikeh's second half 2007 startup status and there are no new updates at Kakap [Gemansu], Kenarong and Pertang, Thunderhawk, or Azuritet.

In drilling in the U.S., we are currently drilling at the Thunderbird No. 1, Mississippi Canyon Block 819. If successful, we will likely side track to better establish size.

Once done, we move to the Eastern side of the Boarshead Basin to test the Thunder Ridge prospect in Mississippi Canyon Block 736. After Thunder Ridge and depending upon success, we will either drill appraisal and/or development wells in the Boarshead Basin or move to Green Canyon to drill additional wildcats.

If the latter, it will likely be exactobox, subsalt and Green Canyon Block 425-26, but two other expanded Miocene prospects are being actively mapped. One is Nautilus in Green Canyon Block 635-635 and Hemingway Cat South in Green Canyon Block 717.

In Malaysia and Sarawak, we're finishing up a successful appraisal well at Sorenda in Block 309. The next wildcat is an oil prospect also in Block 309 called Permanus, followed by a gas prospect named Gassing within Maharani in Block 311. A rig will be active all year on these two blocks.

In Sabah, we will free up the ocean rower from Kikeh development drilling towards the end of the year for two slots but have not yet selected where the rig will go.

In downstream at Meraux, commissioning starts the first week of May with oil in at mid-month. It's been a monumental task, but thankfully is close to completion.

Superior margins will expand nicely when the asphalt selling season starts in May and Milford Haven has been earning between 3 and $5 a barrel all month. U.S. retail margins have been under intense pressure with wholesale gasoline prices increasing over $0.50 a gallon over the last four weeks and $0.80 a gallon over the past two months.

We have 911 Wal-Mart sites in operation and will open 17 in May.

I will now take questions.

Thank you. [ OPERATOR INSTRUCTIONS ] Our first question comes from Arjun Murti with Goldman Sachs. Please go ahead.

Thank you.

Claiborne, two questions, first on deep water in Malaysia, any comments on follow-up exploration plans there after Rohu?

Yeah, Arjun, first, the rig is at Kikeh and will be until the end of the third quarter, maybe again in the fourth. Rohu had good sand development, but we think late movement trap was breached so we had good shows but certainly nothing commercial.

Likely, and again, I'll say likely, because that's all I can say at this point, when we get the rig back for exploration purposes, there's a good chance we'll move to Block H to the North and to the East. We shot a 3D there last year, processed it, looked at it and there are some good-looking prospects.

They're big, they have good bright spots. They're further away from other wells and so you have to put risk on them. But they're first-class sizeable wildcat prospects.

So, more likely than not, I know we're going to want to test some of those. And there's a multiple group of them. We're going to want to test one of those.

I'm sorry, that was second half of this year, you said?

Probably fourth quarter, is when we get to it. And then another option is Jangus, where we've got a sizeable oil in place asset and we need to understand if -- how we can access those reserves. So, that's another option.

More likely, though, I think we would go to H and drill one of the wildcats.

Okay.

And that -- again, probably be fourth quarter. It depends on when the rover is freed up from Kikeh.

Claiborne, has your thinking on the likelihood of E&P acquisitions changed at all in the last 12 months? You do have a history, back in time you added offshore East Coast in Canada and some other [LADY FIRM] type projects, any change given some of the exploration results? Or is the focus really still on high impact exploration?

Well, the timing is terrible, Arjun. I mean our success on acquisitions, which has really been noteworthy, has been during times of distressed prices and we really picked up extraordinary assets.

There were two exceptions to that. One, when we picked up the Ladyfern assets from Beau Canada, we knew what we were getting, pretty much, because we understood the field because of some exploration we were doing in the area. So, we really had pretty good knowledge of what we were buying, even though it appeared to be a pretty hefty price at the time.

And then secondly, Seal, two years ago now, we picked up, we have, we were drilling in the field and we saw the potential size of it and we saw that it was movable, heavy oil, but movable, without additional energy needed to make it work. And we knew it and that has drilled out extremely well and more profitable field for us.

And so the criteria would have to be that, at least if we followed during the past, which has worked for us. Do you know the asset, do you know it well? Do you have some knowledge that takes a lot of the risk out? Because buying on a downcycle doesn't appear likely anytime in the near-term.

And so I would look for those type of criteria and if we found them, I think we'd look at it. I think there's going to be a lot of dumb money spent at this point in the cycle. So, you have to be real careful.

You know, it's just one of those times when people get lazy with money because there's a lot of it sloshing around and so you could spend it inappropriately. I think our history is that we don't do that. I think you'll see us adhere to that.

That's helpful. I'm sorry, one last one.

You [inaudible] the Jakarta office, can you talk about what you're doing in Indonesia?

Yes, I can, we've been working it out of KL for a fairly long time and it's matured nicely and I can see some opportunities for us. It was time for us to go ahead an open an office.

I wouldn't read more to it than that, it's just one of the steps you take and it was the next step. It's got a lot of scope. A lot of areas to explore and fiscal regime is roughly comparable to Malaysia PFCs.

We understand them. We have a lot of people who've worked the area. We see some opportunity. So, it's -- I think we can likely make some money if we, again, if we're prudent.

Thank you very much.

Okay.

Thank you. Next question comes from Ray Deacon with Harris Nesbitt. Please go ahead.

Yes, hey, Claiborne.

I was wondering if there was any update on the monetization of any of your gas reserves in Malaysia? I know you're close to a pipeline in a couple of your discoveries, but sounds like you're drilling more gas prospects and what would you expect there, I guess?

Ray, we've got opportunity offshore Sarawak, where we've amassed a rather large gas resource but it requires contract and I can't update you on any progress there, but if we were to capture one then I think we could capture a fair amount of value and a fair amount of resource and production.

Okay, gotcha.

And I know it's difficult to guess, but what would you expect your refinery throughput to be once it does come back online? I mean does it come back online all at once or in parts, I guess?

Everything except the alki will be ready -- or be commissioned at the beginning of May. The alki won't slow us down on throughput and the alki will come back up in June.

Will it come up all at once? No. We'll get to 125 relatively quickly.

And I'll caution you that we had to replace and look at 800 pumps and the realm of 500 motors had to be either newly purchased or rewound. I mean there's miles and miles of additional electrical electronic work, cable and the startup, I hope, will be flawless, but it could be a week before we get things lined up.

In fact, I would expect it and so it may not be towards the end of May that we get everything lined out. We're in pretty good shape, I have to say, and commissioning starts next week and you'll get a lot of the kinks out then.

Right, got it.

We've never done anything like it before, I'll tell you that.

Right.

So, it's going to be a matter of first impression.

Right. Got it, got it. And just a couple of quick ones.

Is there, what's the best way to think about reserve bookings at Kikeh? I know you're under a PSE there so as the crude price moves up, I mean at a $70 crude strip, what's the best way to think about what your reserves could be there?

What we've used before, Ray, is 240 to 250 million barrels but it was at $40. I don't have a rule of thumb for you, but I can get it for you. Okay, that's great.

In the low 200s.

Okay. Mindy is saying it'd be in the low 200s.

Okay, got it. Got it.

It's 70.

That's great.

And lastly, a number of smaller companies are pretty active in this Floyd shale and a lot of them are envious that you guys have been putting together a pretty consolidated acreage position there, I guess. Is it too early to talk about what that might turn out to be and how many wells do you think you might drill this year?

Yeah, you know, it really is. We've thrown a shroud over the whole investment and we're drilling wells and what we tell people, you can go to the Oil and Gas Commission Alabama and see what we've done and where we've permitted and let me leave it at that. It's early days.

Got it. All right. All right, thanks.

Thank you. Next question comes from Nikki Decker with Bear Stearns. Please go ahead.

Hi, Claiborne, how are you?

Good, how are you?

I'm doing well.

Just on the Kikeh development, can you -- are you at a point where you can be anymore specific on when that would start up and maybe you could talk a little bit how costs are shaping up on that project relative to your expectations?

Yeah, you know, really choose not to be more specific about timing now. We said the second half of '07 and I feel real comfortable with that. We'd certainly like to -- I think we'll be right in the middle of it, but it's still too early to get real specific on dates.

On cost, what we've told people is that we're running up to 20% over at this point. We're trending a little less than that over, but just to build in a little cushion, I'd say 20%. And it's a mishmash of things.

What I tell folks, if we can bring this thing to 20% over, from what we budgeted, given today's environment, within five years after discovery, I won't call it a heroic act, but it's a hell of a feat. Probably first quartile.

So, I like what I see so far. And I was just at the shipyard, gosh, four months ago and saw the spar and saw the SPSO, and it's coming along pretty nicely.

Thanks for that.

And just switching quickly to the downstream. Your marketing operations, given that, you know, the runup in gasoline prices and, you know, you're basically a low-cost provider, have you noted any change in sort of buying patterns at your retail system?

Well, our volumes are up and our volumes are up same store year-over-year in the realm of close to 10%, somewhere around there.

So, that would be in which timeframe? In the second quarter to date?

Yeah, toward the end of the first quarter are the numbers that I'm citing, or I'm remembering. I mean it's less, I think, that prices are high and people are going to us than I think that people's buying patterns over time change and they get accustomed to this type of offer and this type of presentation. And so because we've seen our volumes go up every year since we started doing it.

Thanks, Claiborne.

Next question comes from Mark Gilman with the Benchmark Company. Please go ahead.

Claiborne, good afternoon.

Hey, Mark, how you doing?

Pretty good, thank you.

Can you talk at all about what type of prospects in Indonesia or plays you might be looking at? Number of different types, the different types of opportunities there?

Early days, Mark, and so the answer is no. We're looking at two in particular, but it's too early.

Okay. Say anything about unitization on Kakap [Gemansu]?

No, I can't. It's -- I suspect we're close and what I've told folks is we ought to get sanctioned within a year and obviously we'll have to agree to ownership splits before that, and just given all of these things in negotiations, it doesn't make much sense to be more specific.

Is there any reason to characterize it qualitatively, Claiborne, any differently than you have in the past?

No, I don't think so. I don't exactly recall what I've said in the past, but we're -- there's no material changes.

Okay.

Is Tahoe up?

Tahoe's up, but Tahoe's up at a diminished rate from what it was before the hurricane because of sanding problems in two of the wells and that requires a rig on location and requires probably a horizontal well.

A lot of reserves there that need to be accessed. We certainly have visited with our operator and recommended it, and I think they'll start seriously looking at it, probably at the end of the year.

Okay.

On the Rohu well, I think what you said, and you were going about 250 miles per hour, was that there was pretty good sand development but you felt the trap was breached. Is -- my memory's [inaudible] but have you seen good sand development on prior H wells?

I'll tell you, [Swambu], Mark, had, there were two wells at [Swambu], there's a real big top seal there and way below the top seal, the first objective at [Swambu] had poor sand development. The deeper objectives had very good sand development.

At Rohu, both of those objectives had very good sand development but regrettably, once, at least we think, once were charged but now are not. Pinaga, if you recall, had poor sand development.

And I think that's the group of wells in that particular area. And so, as you go further outboard, the sand development deteriorates.

Okay, thanks a lot, Claiborne.

Okay.

Thank you. Your next question comes from Steve Enger with Petrie Parkman. Please go ahead.

Hi, guys.

Hi, Steve, how you doing?

Good.

A couple of things, one on Kikeh[Kachiel], can you tell us after further evaluation, you know, what you found there and what your plans may be?

Yes, Steve, it's going to be part of the Kikeh development and we'll bring those wells in, I don't know, within a -- haven't seen exactly the sequence of wells, but two years, perhaps after Kikeh's up.

It's part of the whole overall Kikeh development plan.

Yep.

Anything you can say specifically about the deep sand there?

We drilled the well about four months ago perhaps and I think there's a reserve add of, I don't know, I've seen the brackets, maybe 20 to 40 million barrels in the field, something of that magnitude.

All right, great. Thanks.

And then secondly on some of the shallow water Malaysia oil prospects, Permos. I think, is one that you've recently drilled in the [Indau Rompin] area and if it wasn't in the dry hole category for this quarter, can you talk about where you think you are in development of that set of oil pods and how quickly that may occur and what it may mean?

We've got a group looking at it. It's [Indau Rompin] and now Permos. There is a lot of oil in place. We're going to have to be careful how we develop it, however.

We tested a well a year ago, maybe nine months ago, at about 1,000 barrels a day. What we'd like to do is find a thicker sand and get that well productivity up. The sands are a bit thicker at Permos and we think we can do it.

So we've got a group thrown together, oil in place numbers is between the three is quite big. And so I suspect that there's something to do towards the end of the year. I'm finger painting a little bit but it's on my radar screen, I'll tell you that.

Something to do it terms of forming up the development plan?

Yes, uh-huh.

It looked like that is logical to go to a west pat or standalone?

Perhaps go to west pat, that's an option. That's one of the two options. The other, obviously, is to standalone.

But I've got to see the final development plans once put together, once I see a recommendation. But I think it's logical to assume that something will happen there.

But the key risk you see now is well rates and some thinner sands and maybe lower ultimate recoveries than you'd really like to see?

Yeah, I think you'll see something that's given shallow water and given oil in place numbers. I think you'll see a very robust development. And you're not going to, I don't think it's going to be as good as good as West Patricia, which ended up surprising us all. But the initial take on West Patricia was 20 million barrels, you're less than that here, but you're not, hopefully not materially less. All right, thanks.

Thank you. Next question comes from Gene Gillespie with Howard Weil. Please go ahead.

Two questions, Claiborne, one I guess for John. I was wondering what the cash position was at 3/31?

Cash position at 3/31 was, oh, 480 I think is what we're digging around here for.

I got it right here.

That's pretty healthy. 481.

And secondly, Claiborne, you'd mentioned there's nothing new to say about Azurite. How about the rest of MPS and perhaps MPN in terms of later this year or some sort of timeframe for drilling some more wells?

Gene, fourth quarter or first quarter is what I would -- where I'd steer you. We've got a lot of work to do around Azurite but also we're going to look at the northern block, different play types, and different set of risks, as I said before. But we're going to look at both.

Rig availability's going to be an issue. But it's -- we've got a good number of people working it and trying to better understand where the risks are and how to mitigate it.

And meanwhile we're working on Azurite. We've got a team together there, as well and we've come up with what we think oil in place is and now we're going to work on the dynamics of recoverable versus how much money it costs.

Again, I've said when it was discovered, I thought it was going to fall off the Rockies development, but there's been a lot of inflation in our business and I think it's more problematic now.

Wasn't, correct me if I'm wrong, wasn't Rohu on Block P?

Correct.

Weren't there some, you know, additional prospects in and around that and I believe that there were. And I guess my question is, does this condemn anything else? Any other play types?

Gene, it's too, I certainly wouldn't condemn any other play types, but I can't tell you yet the impact on nearby prospects. It certainly doesn't help them.

Thank you.

Thank you. Next question comes from Jennifer Rowland with JPMorgan. Please go ahead.

Thanks.

Can you give us an update on where things stand with Thunder Hawk?

Yeah, Jennifer, we're looking at different development options and there's two or three that standalone and then working with some nearby platforms and there's more than one to work with and we talked with all of them. And we've got some pretty good options there.

What we'd like to do is get Thunderbird down, see what it's got and then do Thunder Ridge and that gives us a better sense of mass and then options. You could develop the three separately if we were so lucky as to have three discoveries.

Does it make sense [inaudible] to do something together? I don't know, let's see what we've got first. I think that's our current plan.

Okay.

And lastly, I may have missed this in your prepared comments, but I think you had a prospect in peninsular Malaysia, [Genera]. Is that something that's still drilling?

No, we dry-holed that in the first quarter, I think. In if the first quarter, yeah. This quarter.

And lastly, any update on the lawsuits from the oil spill?

No, there's really not. The settlement process is ongoing. We've settled about 2400 residences and in the area that's heavily impacted or impacted by the oil, that's about two-thirds. The class area itself is about 6,000 homes, many of those don't have any impact but they were put into the class.

So we're making pretty good progress on it and we settle every day, some of the claims. We spent so far about $125 million, something along that realm. And it's been about -- a little bit more than half reimbursed by insurance companies and the rest is forthcoming.

Okay, great. And just one other quick one.

17 Hands, you mentioned, is at 55 million cubic feet a day. What do you expect that to ramp up to and over what timeframe?

No, that's where -- it's ramped up to where it's going to be.

Oh, okay. The range was 40 to 60 that we've been telling people so we're at 55 and it's leveled out pretty nicely. Okay. Thank you.

Next question comes from John Herrlin with Merrill Lynch. Please go ahead.

Hi. Some quick ones, Claiborne.

With the 17 Hands well have you seen any pressure draw downs?

Not materially. It's only been on since the first. So, you got to give some time. And no, I don't think there's any particular issues there.

Okay. With Thunderbird, when do you expect it to reach 2D?

Oh, gosh, I'd say in the next 30 days.

Okay.

With the Meraux refinery, you have plumbing and wiring issues, should we expect a kind of semi-fitful restart just given all of what you replaced?

Well, that's what I was discussing earlier. I would hope that we wouldn't, but I think realistically, if it was a flawless start-up then we'd all be wonderfully, pleasantly surprised.

We're going to commission it starting next week and so we'll try to work all the kinks out that we can. But I think realistically, once you start putting oil in, you may see some things that you hadn't seen before. Hopefully they're not prolonged things and we don't think they will be.

Okay.

Last one for me is on Indonesia. You opened an office and you said not to make a big deal about it, but Indonesia's oil output continues to decline. Do you have any sense that maybe they'll get a little bit more liberal in their PSC terms as time goes on?

It wouldn't be for me to speculate. It's certainly -- what we see now, it's roughly comparable to Malaysia, which we're very comfortable with. So, with their existing terms are enough to lure us there, certainly if they were improved, then we would probably spend more money.

Great, thank you.

Next question comes from William Herr with W.H. Reese and Company. Please go ahead.

Good afternoon. All my fantastically neat insightful questions have pretty much been asked.

Come on, Bill!

Well actually, when Gene called in, it triggered a thought about what you were saying earlier about dumb, big money and I'm wondering if your experience of not buying when prices are accelerated, would suggest that perhaps you might look at selling some of the downstream assets.

I know this is not a particularly perfect time to talk about maybe Louisiana assets, but there is so many people on these conference calls who've been baiting others with [lionedel], et cetera, because it seems to be the only big game in town. You have other downstream assets that certainly are performing well.

Have you considered in this market, not necessarily your appetite for refining and marketing one way or another, but the values that seem to be suggested? Is that a realistic possibility in this environment? Thanks very much.

Bill, our focus has been on getting Meraux up. I have to say. And that's really taken first course and then once we get it up, this is what I've told people consistently, let's see how we perform.

It's very well blessed downstream, valuations, clearly, are out there and so far, Murphy, holding those assets, has worked in our favor because we've created lots of value. And then it's up to us to figure out how to best take advantage of it. But at least in the short-term, the near-term my focus has been let's see if we can get the Meraux plant up, get it running, see how we do and take a look.

Thank you.

Thank you. Next question comes from Sinel Yowani with Citadel. Please go ahead.

Hi, good afternoon, everyone.

Earlier you gave an update on the reserves at Kikeh with the change in crude prices. Can you also, perhaps give us an update on what you expect the peak volumes and the start-up volumes to be under the new, I guess under the stripped prices?

Yeah, the peak is going to be 120 and it just ramps up over the course of the year as we complete wells. Kind of similar to a deep water Gulf development that we've done. So you'll have to a well, then you'll add a well and you'll add a well.

This is a net to Murphy, right?

No, no, no. Net to Murphy-

That's what I was wondering because the take would probably change as well with the crude prices, right?

Well, not initially because most of it is cost oil and so the number that we've used is around 80,000 barrels a day. I think that's a good marker.

Okay.

But that won't be immediate.

Okay, thank you.

Thank you. Next question comes from Louis Rope with [Barrel Hanley]. Please go ahead.

Hi, Claiborne, Mindy, how are you all doing?

Hi, Louis.

A couple of questions around Meraux, specifically. Have you guys been able to opportunistically acquire any land around there with what's going on that might give you a bigger footprint and some opportunity to expand down the road?

No.

Is that something you'd be interested in or -

Well, we're certainly involved in a complicated situation there, legally. And so far we have not done anything on the acquisition side.

Okay.

It is a little confusing that there's not more capital being spent on the R&M side, given what's going on at Meraux. Should we expect in the next quarter that some of those bills will start to hit or is this not being capitalized?

It's not being capitalized. It's almost all expense and there may be some that goes against a turnaround and likely will be, but most of it's just repairs. Very, very little capital add-on through the plant.

Okay.

And then is there an authorization in place now that gives you some flexibility in buying back stock on days like today?

Yeah, I don't even recall -- I don't think so, but those things -- the answer is I don't think so, no. I'm going to say no.

Okay. All right, thanks a lot.

Thank you. [ OPERATOR INSTRUCTIONS ] Our next question is a follow-up from Mark Gilman. Please go ahead.

Claiborne, I can't help but asking, what the reference in the release, referring to "Special Studies" means, in the context of higher G&G costs in Malaysia and the Gulf of Mexico?

That's analysis work that we're doing there. We're doing -- in Malaysia, we're doing -- we've acquired some seismic and we're doing core work and other analyses work. It's just a combination of things not all 3D [size]. That's all it is.

Okay --

That's our term, Mark, for it.

Same kind of thing in the Gulf of Mexico?

Gulf of Mexico is more closely aligned to just 3D than it was other work.

Okay, John, thanks.

Thank you. Next question is a follow-up from Ray Deacon. Please go ahead.

Yeah, hey, Claiborne, I was going to ask a question Steve Enger asked last quarter. What do you guys think you'll be doing in the lower tertiary going forward? You said you were kind of keeping an eye on developments and all the drilling this year is lower Miocene right, so, what do you think next year's program might look like? And, you know, can you talk about that, I guess?

Ray, we don't have any current plans. All of our focus has been on the middle -- really the middle [mass] and the expanded section that's worked pretty nicely in Green Canyon and we spotted it about three or four years ago and have a heck of a position and we've got a number of nice four-way dip structures that need to be drilled, I think there's a lot of value potentially trapped there. And that's where our focus will be.

They take a fairly long time to drill, they're fairly expensive and I can see, given the number of prospects that we have, but we'll do that this year or next.

Okay. Got it.

And can you remind me what your rig contract situation is in the deep water?

We have the Ocean Victory in the Gulf.

Right.

And we have the Ocean Rover in Malaysia.

Okay.

And we've got -- I think the Victory for three years and the Rover for four, maybe?

Okay. Great.

Three more.

Okay. Thanks, Claiborne.

Thank you. Next question comes from Wilmont Kader with Central Securities. Please go ahead.

Let's see, Claiborne, I've got two totally disrelated questions.

The first one is can you update us on Syncrude and heavy oil and what, if any kinds of plans or operations you have going on in Canada?

Yeah, first we'll -- Syncrude, the third expansion, is complete and the coker is now ready to receive bitchman and it should start the first week of May. That's been delayed three or four times in the first quarter. It should have been before now but just the start-up's been a bit attenuated and complicated, but we should be able to add close to 100,000 barrels a day gross of additional production from Syncrude over the next couple of months, I would say.

That's Syncrude as a whole?

Yeah. And Murphy's got 5% of that.

Right.

And then there's a fourth expansion that's been discussed but it's not currently being actively, actively worked.

Out of that, we have our Seal asset in the heavy oil area and that's got a couple more years worth of drilling there. Otherwise, that's about it.

And what is a couple more years worth of drilling mean?

We're going to get that asset up to around 12, 15,000 barrels a day. And I think we'll keep it at that level over the next couple of years. I don't think you'll see it expand beyond that, but I think you'll see it get up there.

So, philosophically, heavy oil continues to be a nice asset?

Yeah.

But that's really the extent of it?

Yeah, I mean of course our asset in Ecuador is heavy oil, as well. But Syncrude has been, you know, an unusually prolific and lucrative investment for us. And I think we'll continue to feed that, we're look for opportunities, but these prices have gotten awfully rich.

Right.

Second question is just what if anything are the Chinese doing that you see around that might impact you guys or the industry in general? What do you see out there?

Wil, you run into Chinese companies pretty pervasively around the globe. You would not have five years ago, but you do now and you run into well-managed Chinese companies with money, really in most of the areas that we work. Some you don't, but certainly West Africa you do, you see them in Canada, substantially.

Not a large deep water Gulf presence. Not a lot of Malaysian presence. So, just specifically, you know, tactically, what do you see day-to-day? That's where we see them. And they're smart operators and they have a real long-term perspective and are good competitors.

So, net-net, is that negative for Murphy because we've got another competitor in the business?

You know, yeah, but of course others have dropped out. So, I don't see it as any new big negative to be quite frank. You know, they're not aggressive explorers yet despite our past year of lousy exploration results, I suspect we'll make discoveries and we'll make a fair amount of money continuing to do that and I don't see that being really competitive with the Chinese.

And that's because they just don't have the talent?

Wil, I wouldn't speculate on that. I would say that they just haven't gotten to that point where we've seen them engage in that behavior.

Thank you very much.

Thank you. Next question comes from Edward Crump with Arkansas Democrat-Gazette. Please go ahead.

I had just a couple of follow-up questions on the numbers you put out regarding Meraux and the settlements. Is all of the $125 million, is that all going just to the 2400 residences or is some of that also going to clean up public or private areas around there?

That's the total of them all so far.

The $125 million is going to the 2400 residences.

No, no, no, I'm sorry. That's the total -- all the monies that we've spent there.

Okay.

That includes settlements, it includes cleanup, it includes testing, which is a real expensive proposition and just administering the whole process.

Do you know how much the 2400 residences have received?

You know, what we've told people so far is that the average that we have paid people per residence is around 27 to $28,000 per residence.

Per residence. Okay.

Correct.

And how much of the $125 million, you said about half is covered by insurance?

No, what I've said is that all of it's covered by insurance. But we've only received -- we've received so far from our underwriters a little bit more than half of that. We were always ahead of them as you would expect because we're spending money and then we seek to be reimbursed and we are.

On the rest of it. And I guess my last question then is, do you know how much -- are you all trying to settle with all 6,000 residents as you mentioned a two-third area? Are you not trying to settle with all of those in a certified area?

We're not. What we've identified is in areas that are impacted by our oil spill and in those areas, we're offering to reimburse people or to compensate people in certain delineated areas, whether you have oil in your residence or not, because of the proximity to the refinery and the fact that the proximity to people who have oil.

The area outside of the designated areas, we have said if you would like for Murphy to come test your residence, we will, and if you have the presence of our oil in your residence, we will compensate you. But we will not compensate you unless you do have the presence of oil.

And so in that area we have fewer settlements in the area where we've said we'll pay you, we'll compensate you regardless of whether you have oil or not is when we have a very high percentage.

That's about two-thirds of this?

That's correct.

Thanks for your time.

Okay.

Next question comes from Robert Lind with Simmons and Company. Please go ahead.

Good afternoon.

Hello.

The additional drilling you have at Seal, are most of those locations unbooked? And can you quantify that potential?

You know, they are unbooked and the answer is no, I can't off the top of my head. Cannot.

Okay. And what were retail margins in the first quarter?

Breakeven.

Thank you very much.

Thank you. Management, there are no further questions. I'll turn the conference back to you for any closing comments you may have.

Okay. Thanks very much and I look forward to our second quarter conference call. Thank you.

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