Murphy Oil Corp (MUR) 2008 Q3 法說會逐字稿

Ladies and Gentlemen, thank you for standing by. Welcome to the Murphy Oil Corporation third quarter earnings conference call. During today's presentation all parties will be in a listen only mode. Following the presentation the conference will be opened for questions. (OPERATOR INSTRUCTIONS). This conference is being recorded today, Thursday, October 30, 2008. I would now like to turn the conference over to Claiborne Deming, President and Chief Executive Officer. Please go ahead, sir.

Thank you. Good afternoon. I'm joined today by Kevin Fitzgerald, Senior VP and Chief Financial Officer, John Eckert, VP and Controller, Mindy West, VP and Treasurer, and Dory Stiles, Manager of Investor Relations. I'll turn it over to Dory at this time.

Thanks, Claiborne. Welcome everyone and thank you for joining us today. Our call will follow our usual format today with Kevin beginning, while providing a review of third quarter 2008 results. Claiborne will then follow with an operational update after which we'll take your questions. Please keep in mind that some of the comments made during this call will be considered forward-looking statements. As such no assurance can be given that events will occur or that the projections will be obtained. A variety of factors exist 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. I'll now turn the call over to Kevin for his remarks.

Thanks, Dory. Net income for the third quarter of '08 was $584.4 million or $3.04 per diluted share, and that compares to third quarter of '07 where we had net income of $199.5 million or $1.04 per diluted share. For nine months of '08 net income was just over $1.6 billion or $8.39 per share compares to net income for nine months of '07 to $560.4 million or $2.94 per diluted share.

2008 nine month period includes after-tax gains from the sales of Canadian assets, our interest in Berkana Energy and Lloydminster heavy oil properties that we both occurred earlier this year of about $108.3 million or $0.57 a share. The 2007 nine month period includes after-tax costs of $24 million or about $0.13 a share and this was related to the closure of 55 retail gasoline stations in the US and Canada.

Looking at income by segment first in the EMP, for the third quarter of '08 income was $529.9 million, and that compares to $150.8 million of net income third quarter of '07. Higher earnings for the '08 quarter were primarily attributable to higher crude oil price realizations and higher oil sales volumes. Crude oil and gas liquids production for the current quarter was a little over 118,000 barrels per day as compared to approximate 88,000 barrels per day in the corresponding 2007 quarter. Increase was attributable to production primarily attributable from Kikeh offshore Malaysia, which started up in the third quarter of '07, but this was partially offset by lower volume in the US as a result of field shut ins due to hurricanes Gustav and Ike. Also lower volumes of Canadian heavy oil due to the sale of the Lloydminster properties in the second quarter of this year and lower volumes from [Teranova ] field offshore East in Canada.

Natural gas sales volumes were 46 million cubic feet per day in the third quarter of '08 compared to 56 million feet per day in third quarter of last year. This decrease was primarily due to field shut ins in the Gulf for the hurricanes and sale of Berkana Energy in Canada earlier this year. The R&M segment third quarter '08 net income was $85.8 million, compared to $73.2 million in net income third quarter of last year. The earnings increase was all in the US and primarily due to better marketing margins while results in the UK was slightly below breakeven due to weaker refining margins.

The corporate segment, third quarter of '08 we had net charges of $31.3 million compared to net charges of $24.5 million for third quarter of last year. This cost increase is attributable to a combination of higher net interest expense due to lower amounts being capitalized through development projects and higher foreign exchange losses. As of September 30, 2008, Murphy's long term debt was a bit less than $1.1 billion or about 14.1% of total capital employed.

And with that I'll turn it over to Claiborne.

Thanks Kevin. Before going into the operational update I thought I would spend a minute addressing where Murphy stands in economic and capital market environments that have emerged since we spoke last quarter.

As Kevin touched on, our Company is financially quite strong with low leverage. A 14% debt to total cap ratio, over $1.4 billion of cash and short-term marketable securities on hand, continued access to capital from a nearly $2 billion revolver, comprised of 25 US and foreign banks. All of this under pinned by a stable cash flow stream from both ongoing operations and developments coming on stream shortly. We will continue to concentrate on the things that are within our control and go about managing our business as usual, while being keenly aware and ready to act on opportunities that arise. We are currently working on next years capital budget and while not ready to discuss in detail, I will say that we will optimize expenditures to insure we maintain our financial flexibility.

Now, I will update you on the current activities within our EMP business and then move to downstream. First, to exploration where the first four wells have now been drilled in our Eastern Gulf of Mexico program. Two of these were natural gas discoveries, Diamond and Lloyd Ridge 370 in [Dalmation] in [DeSota Canyon] 48. Both will be developed as subsidy tie-backs. The ocean confidence rig has moved to Thunderhawk for development work.

In the first quarter of 2009 we will spud a non-operated wild cat called Samurai in Green Canyon 432, 476, in which we told a one-third interest. This prospect is on acreage that we picked up earlier this year in central sale 206. Offshore Malaysia, the ocean rover rig will move over to Block P to drill an oil prospect called [Shengall] 60% working interest late this year following completion of the current phase of the development work at Kikeh. Exploration offshore Sarawak 60% working interests, continues following a recent dry hole at [Sakatan]. Two more wells will be drilled in the coming months.

In Australia this quarter we plan to spud our first well at Abalone deep, where we have a 40% working interest. The multi-TCF liquids rich natural gas prospect in Brows Basin Block ACP 36. Turning to production, US Gulf of Mexico continues to recover from hurricanes Gustav and Ike. The platforms sustained only minor damage but ongoing third party pipeline repairs have resulted in curtailed production during the months of September and October. The third quarter impact to production was approximately 6,000 barrel equivalents a day. The impact on the fourth quarter is estimated to be up to 7,000 barrel equivalents a day with all production on stream by the end of the quarter.

Elsewhere the ramp up at Kikeh and Block K offshore [Saval], Malaysia continues according to plan with current production at 95,000 barrels per day. We'll reach the plateau production rate of 120,000 barrels per day by the end of 2008 when three new producers are added. Natural gas production will commence from Kikeh during the fourth quarter with production volumes reaching the 120 million cubic feet per day once fully ramped up. Over the next eight months four additional projects currently under development will be coming on stream.

First production from Phase I of Tupper, our Monteney tight sands gas resource play in British Columbia is scheduled to begin producing within the next month at an initial rate of 40 million cubic feet per day. We anticipate exiting the year at 65 million per day. We now hold a total of 128 sections at Tupper. We have drilled five vertical wells in Tupper West to better delineate the Monteney in that large acreage block. So far, average thickness of the Monteney in this area is substantially improved over the current Tupper development area. In addition, three of these wells have encountered a nicely developed [doy section] with pay and is going to materially enhance production and returns in this area.

In Sarawak, Malaysia work continues on Phase I of our natural gas project as it readies for first gas now scheduled for the second quarter. In the Gulf of Mexico, the Thunderhawk development is moving ahead. The semi submersible hull has arrived in the United States. During the unloading process, the loading process in Singapore, the hull sustained damage and is currently drydocked while necessary repairs are made. First production remains on track for Q2 '09 as originally planned.

Meanwhile, at Azurite where we have a 50% working interest, offshore Republic of Congo, the first phase of subsea installation work is complete and the FDTSO is nearing completion. Initial production is scheduled for the end of the second quarter of 2009. These projects will propel us to new successive production records in 2009 and 2010 and serve as nice compliments to our existing base that is lead by Kikeh.

The downstream having a diversified US and international asset base once again have proven important during the third quarter. While the UK segment was the top performer during the first half of the year, US retail lead the way in the third quarter and has continued to do so in the fourth quarter. As crude oil prices have retreated, wholesale gasoline prices followed thus improving the margin environment for retail stations. Our high volume, low cost model is ideally suited to trap profit in declining markets. We currently have 1,004 stations in operation of which 984 are Murphy USA sites and 18 are the larger Murphy express convenience store. Demand remains strong at our stations as year-over-year fuel and non-fuel sales are up.

In the US, refining margins are depressed at Moreau due to extraordinarily weak gasoline crack spreads, while Superiors margins are quite good. In addition the planned 40 day hydrocracker complex turnaround at Moreau was completed earlier this week and fee is currently being introduced back into the unit. Moreau was shut down for about ten days from the third quarter for Hurricane Gustav.

UK refining margins have improved as of late following a weak third quarter. In UK retail we have taken several steps to expand our footprint. In the third quarter we gained initial access into Scotland by purchasing two stations and leasing five others. This will allow us to gauge the marketplace for our products there. Just yesterday we closed a deal covering 63 stations in England and Wales, 58 of which will be leased and five that will be purchased.

To wrap up, through the first three quarters of 2008, our results have been influenced by high commodity prices that have aided in setting net income records. Of course, with fourth quarter the oil markets have changed quite substantially as crude prices have dropped unusually fast. Except for the gut wrenching drop in the equity value of our Company, this is a market we both understand and perversely like. Lower oil and natural gas prices are wonderful for our customers and we were beginning to price ourselves out of the market and handy for companies with ample liquidity that are under leveraged. As you know, we fit into that category.

As you also know, this is my last earnings conference call. On balance I've enjoy mudslide relationship with the investment community during the 14 plus years I've been CEO of Murphy. You perform an extremely important roll in disseminating information to our owners and potential owners and as a result, our style has been to tell it like it is. That will continue under my successor David Wood.

Lastly, the energy markets that we are going through are actually more of the norm than the exception. In my 30 years in this business, I suspect around 25 of them have been involved with dealing with difficult markets. Ironically we typically invest our shareholders money better during these periods because competition is more realistic and pricing is better. Our Company is built to anticipate and prosper in these types of markets. And I expect this to continue as well.

We'll take your questions now.

Ladies and Gentlemen, (OPERATOR INSTRUCTIONS). Our first question comes from the line of Tom Gardner with Simmons & Company. Please go ahead.

Good afternoon gentlemen.

Hello.

Claiborne, first of all I think that the shareholders appreciate your tenure, but I wanted to focus on Murphy's balance sheet. Just given your financial flexibility, do you see this current environment as an attractive time for upstream acquisitions?

Tom, I think so. The only caveat that I would add is that when we've been successful in the past doing it, it's typically after this thing settles in a bit and it's not always at the beginning that pricing is appropriate. Now, having said that something could pop-up and we could act and we're certainly looking and we're looking both domestically and we're looking internationally.

Would your focus then be more conventional or unconventional in that regard, both I imagine both domestically and internationally but it was more of a domestic focused question?

Well, we're an oily Company and we're an oily international Company. And so to better balance our portfolio, natural gas in North America would be a great fit for us. And that because there's so much of it on the market and so much more coming on the market, I suspect there's going to be some attractive pricing because there's just a whole new price deck that people will have to deal with and are dealing with. And so I think the prices will reflect that.

Excellent. Thank you. And moving over to Australia and the Browns Basin, I just wanted to get your feel for the long term outlook for natural gas prices in that region.

Well, they're tied to oil typically because it's an LNG focused commodity over there. And oil prices at $70 translates into pretty attractive natural gas prices for that type of development. Oil prices go up, I suspect the fullness of time, just given the Resource and the world and the world's growth, I suspect oil prices go up a bit from here.

And to the extent LNG is tied to it, which I think that tie will likely last, I think you'll see pretty good pricing. This is clearly, the prospects big, I mean, there's two or three bumps but the first one we're looking for is certainly a couple of TCF. It's got a lot of liquids and this would be designed ultimately for a project like that.

And one last housekeeping question, jumping over to the Monteney. Are you still looking for play metrics in the 4.3 Bcf range for about $5.1 million or has that changed?

No. That's roughly right. That's roughly right. That's both reserves and price per well are certainly in the ballpark.

Thank you very much.

Thank you. And our next question comes from the line of Arjun Murti with Goldman Sachs. Please go ahead.

Thank you, and Claiborne, congratulations on retiring as CEO. I hope we'll still get to see you once a year at the Analyst meeting. You won't totally forget us.

Oh, no. I'm around. It's David's shop but I'm certainly living in [Alderate] Arkansas.

Absolutely. A question to follow-up on the strong financial position, can you just remind us in terms of your Malaysian cash flows if there's any issues in terms of repatriating that or using that outside of the country either in terms of magnitude of cash you can take out of the country or if there's an additional tax burden to doing that?

Arjun, this is Kevin. No, we've had no problems so far. It's still the way we structured internationally we're just bringing back money that we have in essence loaned over there to develop Kikeh. Matter of fact we were looking today, we brought about $750 million back this year. Now with prices dropping, I would suspect that that's going to slowdown some. But no, we haven't encountered any issues and the way we're structured internationally we should be able to move that money around.

That's terrific. I appreciate that and I might have missed it. Did you give an update on Congo drilling? I think you were at a couple wells around year-end next year ?

Yes, it's probably the middle of the year and we haven't selected the prospect yet. We're still looking at them, but we have a carry and we have a rig and so we'll -- first order, we'll identify the particular prospect.

That is terrific. Thank you.

Thank you. Our next question comes from the line of Ryan Todd with Deutsche Bank. Please go ahead.

Hi, Claiborne. A couple quick questions on the cash flow. I know you have even at low oil prices you have quite strong cash flow going forward and I know you haven't finalized the '09 CapEx budget. But as you're looking forward as you try to balance capital spending and potential acquisitions assuming some come available down the line, will you try to balance in terms of limiting yourself to stay in line with cash flow or how will you manage your cash going forward?

Okay, absent acquisition, just looking at what our capital budget, we will certainly try to stay within cash flow, likely will unless something unusual comes up. At $70 a barrel we'll likely cash flow somewhere $2.5 billion next year, something like that, and our capital budget will be a bit less than that and we'll manage it as we go through the year. We have a lot of development still left to do in all of the projects that I mentioned, so the lever is going to be exploration expense more likely than not. We can manage that.

Great, thank you. And now if you look at the Gulf of Mexico and maybe this is a question for David as well, but you're four wells into the program that you kicked off earlier this year. What can you tell us from what you've seen so far in terms of the I guess slightly mixed results but what have you learned and what do you see going forward?

No, I'm disappointed. I had pretty high expectations for it, good prospects, good amplitudes, new area, new 3D, had all of the attributes of success. And I think we had a pretty high expectation for it, and so two discoveries that are okay out of four is disappointing to me. I suspect we're going back-to-school a bit, probably seal issues is what got us more than anything else, but we're going to spend a little time on it.

The confidence is at Thunderhawk, we'll drill development wells there. If we develop a model that we feel comfortable with that will solve some issues we'll go back to drilling there because we got two or three other great looking prospects, if we don't we won't

Okay, great. And so that will be a little ways off before we see some exploration drilling there?

I would certainly think into next year. We'll be drilling at Thunderhawk for the next three or four months.

Great. Thanks and finally on Kikeh gas, you said it's supposed to start up this quarter. What sort of and I know you mentioned the peak rate. What type of ramp up should we expect to see on Kikeh? Is there an exit rate for this quarter?

It's a little bit up in the air for us but this is my best look at it. We're thinking we'll start it from the second week of November and I mean, we're ready to go. There's some issues on the other side of the line which are giving me a bit of pause. But our current thought is we'll produce around 34 million cubic feet a day in November, 75 in December, and then ramp up in the first quarter to the 120.

Great. All right, thanks, Claiborne. Again, congratulations. We'll see you at the annual meeting.

Of course, thank you.

Thank you. Our next question comes from the line of Paul Cheng with Barclays Capital. Please go ahead.

Hi, guys.

Paul, how are you doing?

Very good. Congratulations.

Thank you.

And best wishes. So you now have all of the free time, what are you going to do?

Oh, well I'm going to have my own time, first time in 30 years. And I won't have an office, and look around for opportunities and probably spend a bit more time traveling, not working, but I'm certainly not going to retire per se. I'm going to get out and do some stuff.

Right. Claiborne, can I ask several quick questions? One on Kikeh, when is your best guess now that you're going to reach the next pay out ratio?

Somewhere in the first quarter, Paul. We're currently at a 70% entitlement and we'll go down to a bit over 60% when that happens, some time first quarter, maybe early. I don't know. It naturally depends on oil prices, when this all occurs but I think that's roughly right.

How much have you already recovered the capital costs?

The current cost layer that's still left to be recovered is about $400 million.

Thank you, Mindy. And with the O&M market and this slowing down, it seems like everyone is announcing cutting into budget, Claiborne, have you seen any easing or sign of easing on the rate market and also with the other OE services?

Not materially, Paul. I think it's early. I mean of course the floaters are all tied up for a while. I think you'll start seeing some companies try to find a home for them next year. I think you're starting to see the leading edge for that but at least for now the day rates are the same.

Onshore because these companies that got so excited paid a fair amount for their leases, their short-term leases, there's a real drive to drill them. And so I still think that you need the equipment out there. So you'll see the impact, you won't see it tomorrow and you might see on the frayed edges you're seeing a bit of it but I don't think anything material yet.

I see.

And I'd be shocked if you didn't see it by the middle of next year, maybe the first quarter.

Right. And Claiborne, when we talk about the Australian exploration block, how big of a gas resource do you need to fund in order for that to be economically viable for development?

Paul, what we've modeled at least initially, we think there's a range anywhere from 2TCF up to potentially 10TCF on the block.

Right, but what is the minimum that you will need?

It will drive us somewhere in the range of three to four. We're calling back to some economics I've seen a while back, but that sounds like a reasonable shot. If there's a nearby development that is going to go on called [Icthese] and we're close enough there where we could tie into that, and if we do, if there's, if we pursue that path if we're not five or six or seven TCF, two TCF likely works if you tie into some facility like that. So that gives you a ballpark range.

Okay, that's great. Wondering in the past you gave some number about 2009-2010 production target. Is there any update to those two years?

No. I was just looking at our budget. '09 looks like somewhere between 190-195 barrel equivalent somewhere around there. And going into 2010, somewhere over 200,000 maybe 21, 210 or 215, something around there.

Okay, and for talking about the cash flow, you guys does have a very strong balance sheet and everything. But Claiborne from the cash flow management standpoint, next year, given the current market condition and the credit market, do you want to run a cash flow neutral model or that you don't mind if the opportunity is there that you're going to tap on the credit line or try to raise debt? How should we look at that?

Okay, I'm not really sure I'm following you.

Well, when we look at I guess the question is that for next year, when you plan your capital spending as well as the potential acquisition or anything. Do you want to live within the mean and just using your cash flow from operations or that if you think the opportunity is there that you don't mind to tap into your credit line as well as maybe trying to raise debt. How should we look at your pose of cash management?

No, for the right asset certainly we would, yes. I mean that's why it's there and that's why likely that's going to be the best opportunities for us over the next 18 months. I suspect as looking for properties that we could facilitate the development of.

Okay.

And so we have our credit lines for sure. That's why we're at 14% debt to total cap going into a weak period.

How about if we excluding the M&A activities, just looking at your organic capital spending program? Should we look at it as you're trying to live within your mean and running the cash flow to be neutral or that you think you may be willing to go maybe above the cash flow?

Paul, I think absent acquisition, I think you'll see us living within and below our cash flow. The big spend at Kikeh is behind us. The big spend at Sarawak gas is about to be behind us and the big spend Azuraite, Thunderhawk is close to being behind us. And so the big development is done. And so now we'll get the cash flow from those. And so I suspect over the next couple years, absent some extraordinary opportunity which I kind of expect to see, I think we should be, we should generate free cash flow.

Final question. Maybe this is for Mindy or Kevin. For UK O&M, I'm disappointed that it's the loss in the third quarter. Market conditions not as good as in the US but clearly, does not -- seems to indicate by the benchmark indicators seeing that it's below breakeven. Is there anything special happening in the quarter?

Paul, I can handle it. It's the way we run our business there, because it's short haul crude, we don't hedge any of our crude positions. And so as a result you buy crude, the market is just hurdling down, by the time you get the crude in your shop, you run it and run the products you typically lose money and are really, really abruptly falling market. Likewise on the way up when prices went up in the first and second quarter, call it the reverse of that.

So you have an inventory loss essentially?

Yee, exactly. If you stripped all that away we probably would have made between 15 to $20 million in the quarter.

Perfect.

I was not particularly happy but it's worked for us in the past because you buy it run it but hell within ten days the market changes abruptly.

I actually don't think that you want to hedge it. I mean it is what it is but trying to just understand it on our part.

That's what happened.

Thank you.

Thank you. Our next question comes from the line of Eric Mielke with Merrill Lynch. Please go ahead.

Good afternoon, gentlemen. My question is similar to the very first question in the call on acquisition opportunities but perhaps more focused on the downstream. Back in May you mentioned during the Analyst Day that you would consider downstream acquisitions as part of building out the R&M business, to potentially be big enough to be a standalone business but also that you thought evaluations were still too high at that time. Can you comment on current downstream valuations and whether you think that's an area that you'll be putting money to use as well you mentioned you bought some retail assets in the UK?

Yes, likely we would concentrate on retail assets, even though our organic program in the US is so strong, there's no need there, unless there's something to fill in. On the refining side of course values have plummeted and I'm not even sure there's a market there now. If something was unusual that filled in for us, I think we would look at it. I think that's unlikely, but I would never say never there, but unlikely. Our current suite of assets given 100% of [milker payment] and retail, it's pretty good shape right now and much better shape than we would have been a year or so ago. So I'm willing to stand up but be opportunistic if something falls into our plate.

And your attitude to keeping the business combined, is that --

Well as you've noted other companies have thought about spinning out their downstream assets and then put them on the shelf because credit markets are what they are and Capital Markets are what they are. And so we're certainly not immune to those forces.

Very good. Thanks for your answers.

Thank you. Our next question comes from the line of Gene Gillespie with Gillespie Consulting Group. Please go ahead.

Claiborne, I'm going to miss you.

You know, Gene, I might start my own Deming Consulting Group. I'll call in.

That's a creative name.

No, no, I would never do that. I could assure you of that. Yes, I miss you too Gene.

Listen, just wanted to follow-up more on this cash flow thing and living within your means. Can you share with us how low you can go with your 2009 upstream CapEx without impacting current projects or delaying production from things that are already in the works assuming the current service cost, labor steel, construction materials etc, continue where they are today?

Gene, we're going to find out. Dave is bringing the group together tomorrow and look at it. Just a first quick glance at our development project is about a $1.4 billion four that we would spend, maybe $1.5 billion and most of those are site [for sanked]. Just looking at the list, I don't see anything there that we aren't going to want to do. And then exploration for us except for commitments is you can shut the whole darn thing down. So I might $1.5 billion five is too low but somewhere between $1.5 billion and $1.7 billion I would suspect on the upstream side.

On the downstream side we have an expansion at Milford Haven we'll look at because it's extraordinarily efficient to do it around $100 million to take the plan up to 135,000 barrels a day. That probably needs to stay in there and also likely continuing to build these retail outlets here in the US has been a good business for us that will likely stay. Maintenance capital other than that, so that's not a lot. So all in all, somewhere between $1.75 and $2 billion I would think is where we could end up. But I'm doing a little finger painting but it's an educated guess.

That's a good benchmark. You're spending this year will come in around three?

No, no, no no no. It's going to be less than that. I suspect, I don't know yet but 2.4 is a good stab at it.

Excluding exploration?

Up to 2.8 but things have slowed. We are just having a hard time.

And that's CapEx. That excluding exploration expense?

No, that's everything.

That's everything, okay.

Yes, probably 2 --

All in.

Yes, probably 2.4 it maybe less than that, I don't think it will be more.

All right, good. Thank you.

Okay.

Thank you. Our next question comes from the line of Mark Gilman with The Benchmark Company. Please go ahead.

Claiborne, I'm going to miss you too, but believe me I don't expect the same.

What?

I said I'm going to miss you also but I don't expect you to reciprocate.

Now, Mark, that's actually not true. I am going to definitely miss your questions.

On a more serious note a couple of clarifying things. The 70% Kikeh entitlement, is that on your working interest or on 100% basis?

Wait I'm sorry. What did you say again?

You quoted a 70% entitlement on Kikeh. Is that on your working interest or on a gross basis?

That's our net for our 80% working interest, extend the client to a little under 60 once we flow through our cost recovery.

It's a gross number.

Okay, I'm still not sure.

70% of 100%--

It's 70% for our 80% working interest.

I'm corrected.

Okay, and with respect to Mindy, the 400 million to be recovered, is that your working interest?

That was a gross number.

Okay. Who is the off taker on the Kikeh Gas if you could remind me ?

It's a methanol plant that's being built on [Laboune Isle], I think.

And back to the UK refining for just a second. You aren't on a FIFO accounting basis are you?

For products we are. Accrued we're LIFO but for products we're FIFO.

That's kind of an interesting mix, Kevin.

It just goes way back. Way way back.

Okay, and it's that that creates the distortion that you were speaking of previously?

A combination of the two, yes.

Yes? And Claiborne, just one final one. Just remind us of some of the features of Shangai in terms of type of prospect, closure, depositional environment, things like that.

It's outboard and P, Mark. It's a four way dip, probably 150 million barrel equivalence is the size. It's got flat spots but we had a run that had flat spots that was a dry hole, so I don't take it but it's nice to see good amplitude. It's near Uba which has been, it looks like it's going to be a discovery that another Company is drilling. It's not bad. I mean, we haven't had success there so I think you have to put some risk on it, but it's a good four way dip amplitude supported flat spot prospect in oil country.

The 150 is unrisked, Claiborne?

Yes.

Okay. Well thanks again and hope not to lose touch.

Don't worry, good luck to yourself.

Mark it's Kevin. I was just corrected on the products. We're FIFO for retail.

Okay, but LIFO for wholesale?

Right in the UK.

Okay, thanks Kevin.

Mark, just to get back to your question regarding Murphy 's net at Kikeh, we have an 80% working interest. We net 70% of the production. So, I think we're all talking about the sale thing but we net 70 % of the production.

Of 100%.

That's right. Of gross production.

Yes, did you get that Mark?

I thought I did until Mindy said something. Now I'm confused again.

No, it's 70 of the hundred and then we're going to 60 of the hundred.

Okay, got it.

That's what I thought it was.

For our networking interest right now.

Okay, thanks. Sorry about that. I'm a little slow.

Okay.

Thank you. Ladies and Gentlemen, (OPERATOR INSTRUCTIONS). Our next question comes from the line of [Lewis Rap with Barrow Hanley]. Please go ahead.

Hi, Claiborne.

Hi, Lewis.

We're going to miss you too man.

Thank you. I'll see you.

But I had to get this in before you left. I just noticed that the yield on the S&P 500 is higher than your yield and you are going to reserve a little bit of that cash flow next year to increase the dividend too I hope.

Well, as I've always said, back when oil was $20 a barrel , dividends are pretty [sacra sanked] around here. So we certainly like what we have and given the opportunity we'll certainly increase it in the

I just wanted to give you one last hard time about that.

Absolutely.

Really, I have another question and there's been some rumblings and now that the valuations seem to be coming down to more reasonable levels in the Haynesville, are you guys taking a look a little closer to home now?

It's close. I think the play from what I know of it is quite a strong play. And if there was something available at the appropriate price, then I think we certainly take a look at it. It's got all of the attributes I suspect that you're looking for.

It's deeper so the up front cost is a bit more to drill wells and the cost that we're paying for the well for the acreage was so high it really took quite a high gas price by our calculations to make it fly. But if you did it right, I think you've got something that's pretty powerful for you. So yes, we wouldn't turn our back on it.

Thanks for that color and best of luck to you.

All right thanks. Same to you.

Thank you. Our next question comes from the line of William Ferrer with W. H. Reeves. Please go ahead.

Good afternoon, ladies and gentlemen. But I would like to suggest to Claiborne that I have already acquired the Claiborne consulting Company domain name.

Oh, Bill. That is hurtful.

Perhaps we can trade. I tried the Gillespie Consulting but it was taken and best of luck from me as well.

Thank you.

Staying on the kind of the acquisition or free cash flow interest, you have been willing to step into Canada, for example. Could you just elaborate a bit more on what criteria you might be looking for and perhaps include what your kind of budgeted or minimum price expectations might be for projects going forward without addressing whether today's price is the perfect price. Thanks very much and by the way all the best.

Thank you. We got lucky with the Monteney because there was a lull in drilling last year where prices plummeted and so we bought the initial position and then we added acreage before it ran up and then ir really ran up. And then another Company bought another nearby Company and it really ran up in the Monteney. So we are just fortunate had because our cost structure is going to be super super competitive, even in this price environment we'll do quite nicely.

It's going to be hard for us to replicate that. It just fell into place and we could add to it and make it material to our Company. In the stored piece that I've mentioned in passing we don't know what it is yet but it's going to be helpful. It could be material additional production from that particular area especially the first two or three years. We'll look for something like that. I think it's hard hard to find something like that at reasonable prices, still butwe've got people turning over rocks looking. I think you'd be wise to use prices around here without giving away too much.

Both on the oil the gas side? 65 and around 650 roughly?

No, I would be more bearish on the gas side. There's just so much of it out there. These plays are enormous, they're prolific and the technology has improved and livability is pretty pronounced. I've got to stay here in the states. There's a lot of money been invested so you won't let it go fallow. I'd be surprised if you didn't see a lot of pressure on gas prices for a while & companies say they are going to lay down rigs and they will some but a lot of them they won't.

If you meet marginal cost, it's because you pay a ton of money for a three year lease that's your principal asset as a Company, you won't let it lapse. You'll drill it and produce it even if you don't make much money. So I see pressure on supply and I don't see a fair amount of supply out there. I think it's just the way to look at it. It's realistic. Oil prices have got more room to go on the upside, but it depends on OPEC.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS). We have a follow-up question from the line of Mark Gilman with The Benchmark Company. Please go ahead.

Claiborne, spend a minute your thinking regarding the merit of enhancing your retail footprint in the UK.

Well, the main reason, Mark is that we run a real good shop over there and consistently over time we've made good returns on the capital that we've deployed. We haven't spent a lot of money doing it but we made an acquisition two years ago that added about 30 stations, I think 30 or 40. It's turned out really good for us. And not even factoring in appreciation in property values which most people do in these types of things. We didn't and just the cash in, cash out margins have been quite nice.

So the thought being why don't we just slowly build on that position. We're not on motorways, we're typically more neighborhood oriented. It's a little bit of a quirky business but it's been consistently been good for us. And then since we bought the other 70% of Milford Haven, the more you can cram barrels, gasoline, petrol in the inland market the more money you make because it's just a profitable place and selling it at the [jetty]. So that's another strategic reason. We're not going to break a pick on it but we'll just continue to kind of peck away at it.

Do you use the same pricing model over there as you've used in your own states?

No, we don't. We don't. It's a whole different business. It's a lower volume, more neighborhood oriented offer, and we do pretty well inside the store there as well.

Okay, thanks a lot.

Thank you. Our next question comes from the line of Mark Caruso with Millenium Partners. Please go ahead.

Good afternoon. I just had two quick follow-up questions and I apologize. I got on late, I'm not sure if you guys went over this. But I wanted to see -- Claiborne you're talking about sort of the CapEx for next year and I was curious just from a high level given where commodity prices are and sort of what you guys drilled in the Gulf of Mexico this year is do we already go after more high risk wells in the program? And now the commodity prices have come down, it's lower risk as far as drilling opportunities or you're still going after the project that you think offer the best value in the long term?

The latter. I mean, always just because the time frame of these things is so long that to be driven too much by next years price I think would be not particularly wise. So we'll find the best prospects. Now, having says that there's only one that right now I firmly say that we're going to drill in the Gulf next year which is a non-operated prospect called [Samurai], which is one of the middle Miocene, lower Miocene subsalt deals and it's expensive.

It's sub salt, it's going to be a hundred odd plus day well, but it's a good looking prospect. 150 million barrels plus or minus and we'll drill that. And we may drill something else in Green Canyon that we operate but we're going to get all of the rest of our 3D seismic in January to interpret it before we make a final decision. So that kind of gives you my philosophy. If there's something great, you drill it.

Got you and then just one last question. As far as we seen the correction of oil prices. Is there an oil price or gas price, I know you said gas and you expect more pressure given the different plays that out there. But is there an oil price where you guys sort of start thinking about whether or not it's worth kind of pushing things a little bit? I know different people have different price hurdles but I didn't know if you guys, like is it 60 or mid 50s where you start thinking about it? Or I'm just trying to get a sense in general as you guys look at the world where oil price would have to be before you start rethinking things.

Well, I mean, I think what Dave will do is look at a budget based on $70 a barrel. I think that's a pretty good place to start. And then I think we'll probably have some sensitivity if oil goes to 60 or 50 , what type of capital do we need to start pulling out to stay balanced? If they decide they want to stay balanced which I think is a pretty reasonable thing to think about in this market, to take advantage of opportunities. So I wouldn't say there's a price that we can stop stuff.

I just say look, $60 a barrel what's your cash flow going to be next year? And then you just start prioritizing and taking stuff out that you can. If you say what is 50? Take it down. I mean that's kind of how we run the shop, so rather than there be some price where you magically, you just put the price in and start looking at your projects and prioritize

Great. Thank you so much.

Thank you. We have a follow-up question from the line of Gene Gillespie with Gillespie Consulting Group.

Claiborne, you indicated that [Samarai] was one-third interest and wasn't originally that unit, you and Anadarko 50/50 in the lease?

No, it never was. We always went in with Sampson and Anadarko.

Okay, all right perhaps you brought in --

A promoted partner? Yes, I wish we had but no.

All right, thank you.

Thank you and at this time I'm showing no further questions in the queue. You may continue.

Well, ladies and gentlemen, thanks very much. I appreciate your attention and I will undoubtedly see some of you all at Murphy's Annual Meeting since I am and will remain a shareholder. Thank you very much and I will see you later.

Ladies and gentlemen this concludes the Murphy Oil Corporation third quarter earnings Conference Call. If you'd like to listen to a replay of today's conference please dial 800-405-2236 with an access code of 11120763 pound. Thank you for your participation. You may now disconnect.