Murphy Oil Corp (MUR) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you so much for standing by. Welcome to the Murphy Oil Corporation fourth quarter earnings conference call. (Operator Instructions) As a reminder, the conference is being recorded today on Thursday, the 29th of January, 2009.

I will now turn the conference over to Mr. David Wood, President and Chief Executive Officer.

Thank you. Hello, everyone. Thank you for listening in on our call today. Joining me are Kevin Fitzgerald, Senior Vice President and Chief Financial Officer, John Eckerd, Vice President and Controller, Mindy West, Vice President and Treasurer, and Dory Stiles, Manager of Investor Relations. Dory?

Thank you, David. Welcome everyone, and thanks for joining us. Today's call will follow our usual format. Kevin will begin by providing a review of fourth quarter 2008 results. David will then follow with an operational update after which questions will be taken. 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 their projections will be obtained. A variety of factors exist that may cause actual factors to differ. Many of these have been identified in Murphy's January 1997 Form 8-K with the SEC. With that being said, I will now turn the call over to Kevin for his comments.

Thanks, Dory. Net income in the fourth quarter of '08 was $158.5 million, $0.83 per diluted share. This compares to net income in last year's fourth quarter of $206.1 million or $1.07 per diluted share. For the full year 2008, net income was $1.77 billion or $9.22 a diluted share, compared to last year's net income of $766.5 million or $4.01 per diluted share. There were no unusual items of significance in the 2008 quarter, but there were a couple in the fourth quarter 2007 which included a $59.5 million non-cash after-tax inventory charge in the UK, and a $33.9 million income benefit in Canada related to a federal tax rate reduction.

Looking at income by segment, the A&P segment fourth quarter of '08 net income was $95.9 million, compared to $268.2 million last year. The lower earnings in the 2008 quarter were primarily attributable to lower oil and natural gas prices. Oil was down over $28 a barrel. Partially offset by higher crude oil sales volumes, mostly attributable to Kikeh which came on stream in August of 2007 and continued today ramp up during 2008. Crude oil and gas liquids production averaged over 129,000 barrels a day in the '08 quarter compared to 113,300-barrels per day in '07, primarily again as a result of Kikeh. Natural gas volumes were 53 million cubic feet a day in the '08 quarter, compared to 71 million cubic feet a day last year with the reduction primarily due to Gulf of Mexico field shut-ins or curtailments as a result of hurricane damage to infrastructure downstream of our facilities.

In the R&M segments, fourth quarter of '08 net income was $140.5 million compare today a net loss in the fourth quarter of '07 of $27.4 million. US marketing results in the 2008 quarter were significantly improved over 2007. Last year's quarter also burdened by the previously mentioned after-tax inventory charge in the UK. In the corporate segment, we had net charges of $77.9 million in the fourth quarter of '08, compared to $34.7 million in the fourth quarter of '07. In 2008, we experienced higher foreign exchange losses partially offset by lower net interest expense. The lower net interest costs related to both lower average outstanding debt and higher levels of capitalized interest through development projects.

Capital expenditures for 2008 totaled approximately $2.4 billion. A little over 82% or some $1.9 billion was spent in the E&P segment. $480 million of that in exploration, the remainder for the development projects with Tupper, Kikeh, Sarawak Gas, Thunder Hawk, and Azurite projects accounting for the bulk of the expenditures. For 2009, our budgeted capital expenditures, and this was the budget was approved by the Board in early December, totaled $2.1 billion with approximately 86% or $1.8 billion slated for the E&P segment. Of that, a bit over $1.5 billion is for development projects, the remainder to be spent on exploration activities. Our budget assumed WTI pricing of $60 per barrel and Henry Hub pricing of $6.50 per MCF. As we all know, prices have continued to slip since then. In order to meet our objective of living within our cash flow, we've identified approximately $100 million of E&P Cap Flux that have will you please been put in place -- CapEx cuts that have already been put in place. And another $80 million or so of E&P and downstream expenditures that can be eliminated should weaker prices continue.

At year-end 2008, Murphy's long-term debt amount today to just over $1 billion dollars, or 14% of total capital employed, net down from 23% at year-end 2007. With that, I'll turn it over to David.

Thanks, Kevin. I'm very honored and humbled to take my new position. As you know this is my inaugural earnings call. I'm also optimistic about the opportunities that lie before us even given the turmoil that the world economy is in. I remind myself at times like this that ours has always been a business of historical ups and downs. I also want to assure you at the outset that while oil fell at announcement time, there is no connection between that and me. Being somewhat enthusiastic in these troubled times may seem a bit odd, but let me tell you why I think Murphy Oil will do well this this environment and set itself for future promise.

First, in the current illiquid capital market, we are very well placed -- solid balance sheet, cash in hand, production growth profile locked in, solid and capable operating ability. Secondly, we are not a single focus business. Diversity helps us in many ways at this time as you have seen our retail performed well in the fourth quarter. Our oil production, largely outside the US, was less price impacted by full domestic storage, and our North American gas business is still embryonic but poised. I've seen several of these industry boom-bust cycles during my thirty-year career. It seems to me that the companies that did best coming out of these down cycles were patient and vigilant, but moved swiftly when they saw a fitting opportunity. We intend to be like that now.

In order to set ourselves up for this, as Kevin mentioned, we intend to maintain parity between capital spending and cash flow in 2009. We will seek to trim costs throughout the organization, throttle back our exploration programs, but still have some impact well exposure. Pace our development projects and add fewer retail stations than previous years. Fortunately, several of our major development projects are coming on stream this year, not only decreasing the overall required capital outlay, but adding additional sources of cash flow as well. I'll go into more detail in a moment, but want to say that we remain committed to exploration as one of several growth tools for us and are realistic in knowing how cyclical results can be.

Our recent results have been less than hoped for, and I take full responsibility for that. Offshore exploration, particularly deepwater where we have worked for many years, is now somewhat out of kilter. Low oil prices partnered with costs that reflect much more generous times don't make for good risk returns. It's a natural step to let those costs come back into balance along with the applicable fiscal regimes.

Growing our gas business in North America is an aim of ours, either through joint ventures or select acquisitions. We also want to take our important Southeast Asia business up to the next level. The key strength of our company is the capability of our people. We are very fortunate to have someone like Roger Jenkins to step up and lead all of our Exploration and Production activities. Roger has been with the Company since 2001 and has served in various leadership roles within the organization, both in Malaysia and North America. He leads a strong team brought in to help us grow and get better at what we need to accomplish.

Staying at E&P, I will go ahead and update you on the current activities within that business. Recent exploration in Malaysia proved unsuccessful in both Block P and Sarawak. Meanwhile, drilling continues in the Browse Basin of Australia on our initial exploration well there, Abalone Deep Number One. Five more potentially meaningful exploration wells are planned for 2009. Two of these will be in the Gulf of Mexico, the first will be a prospect named Samurai in Green Canyon Block 432. We own one third in this 150-day well that will be operated by another company and is scheduled to start in the first quarter. We'll be targeting oil and natural gas. The second Gulf of Mexico well will be over in our recently acquired eastern gulf acreage as a follow-up to the 2008 phase of that program that netted two discoveries in four tries. We will once again be targeting natural gas. The second Gulf of Mexico well will be over in our recently acquired eastern Gulf acreage, as a follow-up to the 2008 phase of that program that netted two discoveries in four tries. We will once again be targeting natural gas but have yet to choose the prospect, although it is likely to be in De Soto Canyon, near our Dalmatian discovery.

Moving down the list, we will drill one well in deepwater Malaysia. We need to incorporate the results from recent wells before target selection. Lastly but more importantly, two wells will be drilled offshore Republic of Congo in our [mare prefer] sub-block or MPS block which also holds our Azurite discovery and development. These oil prospects are scheduled to be drilled beginning mid-year, and success there could potentially benefit from infrastructure that will already be in place for Azurite.

During the fourth quarter, we began shooting our 3-D survey in Block 37 offshore Suriname. We will complete that survey during the first quarter and spend the remainder of the year interpreting results and mapping prospects. Initial wildcat drilling on this block could take place as soon as 2010. I like the geology of the region particularly as it relates to analogous plays in West Africa and Venezuela.

Also during the fourth quarter, we picked out a couple of additional blocks in Southeast Asia as we continue to expand our presence there. First, in eastern Indonesia, we were granted exploration rights to the Semai Two block. This offshore block consists of approximately 3,300 square kilometers and is located south of West Papua. Targets there include oil and natural gas and prospects will be ready to drill as early as 2010. We hold one third working interest and serve as operator.

Secondly, we picked up another block in the Browse space in offshore northwest Australia. Block WA423P covers an area of about 4,000 square kilometers. After farming down, we hold a 40% working interest and operate. Plans here include acquiring 3-D seismic before drilling. These two blocks are a result of an ongoing effort to expand our exploration footprint geographically and position us for future growth opportunities.

Now, moving to production. Just two weeks ago, production in the Gulf of Mexico returned to normal for us as the last of the hurricane-impacted third party infrastructure returned to service. Front Runner was the last of our fields to return to normalized production rates. Abroad, Kikeh reached its plateau rate of 120,000 barrels a day in December. The rate has since bounced around a bit due primarily to the start of a natural gas production that began in late December. This natural gas is contracted to supply third party methanol plant on shore. Delays at that plant have hampered an anticipated production levels somewhat, but current production is now about 75 million barrels a day.

At Tupper, natural gas production commenced during the third week of December and is currently flowing about 30 million barrels a day. Production here has been impacted by bitterly cold weather and a slower start-up in our new plant than we would like. Current production is sourced from nine wells located on two pads. We continue to drill wells in Tupper, our main producing region and in our Tupper West acreage as well. As anticipated, the Montney zone in Tupper West is coming in better, and well results from the nine vertical wells thus far have been very positive. While drilling here, we have also encountered pay in some wells in the shallower [Doig] section. While still early and further evaluation is necessary, this is potentially promising and could add an additional resource not previously factored into our estimates. We now own rights to 131 net sections in the marketplace.

I mentioned several offshore developments preparing to come on street, Sarawak Natural Gas in Malaysia and Thunder Hawk in the Gulf of Mexico, and Azurite in the Republic of Congo, all start up this year. In Sarawak, we are behind schedule going into monsoon season and did not catch up. And now, expect first gas in third quarter '09. Meanwhile, Thunder Hawk should commence production late in the second quarter. The top sides in the hull have been mated here in the Gulf and will be arriving on location in the field later this quarter. The ocean confidence rig remains on location drilling development wells. Lastly, Azurite should also begin producing late in the second quarter. The innovative, one-of-a-kind FDPSO is scheduled to drill -- to sail away very shortly, and the drilling of development wells will actually take place from the rig positioned on board the FDPSO.

During the third quarter, production should make an uptick as production ramps up from these locations. Production for the full year 2009 is now forecasted to be approximately 180,000 barrels of oil equivalent for the year. The delay in Sarawak gas start-up, and the slower ramp-up of Kikeh associated gas reflect the majority of the change from the last time we discussed this. Reserve numbers have not been finalized yet, but for 2008, we will once expect to replace 100% of our production before sales. Among key fields to be included in bookings for 2008 are Tupper and Kikeh. As we reminded you in the past, bookings from Kikeh will be staged over numerous years with 75% to 80% of such occurring within the first five years of production.

In refining and marketing, the strong performance by our retail stores propelled the segment's earnings during the fourth quarter. Wholesale gasoline prices fell sharply resulting in sustained periods of stronger margins. We exited 2008 with 1,025 retail outlets in our high volume network. Of these sites, 992 were Murphy USA sites located on Wal-Mart Super Center parking lots. And 33 are our newer, larger Murphy Express convenience stores. While overall gasoline demand in the United States fell during 2008, we were still able to secure additional market share. Compared with the previous year, 2008 fuel volumes were up 10% and averaged 324,000 gallons per month per site. Likewise, on our per site merchandise margin also increased during 2008. Thus far in 2009, we continue to see modest growth in volumes and merchandise sales relative to 2008 levels, but fuel margins during the month of January have weakened. So goes our retail business. Lots of volatility, but historically nice returns over the course of a given year.

Refining margins were weak during the fourth quarter, a couple of times run rates were scaled back during the quarter at both Meraux and Superior due to depressed margins. US refining margins were surprisingly strong in January but have recently retreated. Meanwhile, both plants are operating normally. UK refining margins reflect similar performance. In mid-January, we experienced an unplanned shut down of the FCC at Milford Haven due to a mechanical issue and have curtailed run somewhat. The unit is scheduled to be back in service early February. And the plant will return to its normal crude rate of 108,000 barrels a day.

To conclude, certainly 2009 is lining up to be a staunchly different year than 2008, primarily due to macro factors beyond our control. However, thankfully in large part to Claiborne's strong leadership and acumen, I inherited an organization that is strong, resilient, and capable of persevering in an unfavorable economic environment, and one that stands to come out stronger on the other side due to the financial flexibility in place. There is much work to be done, but then we've never been ones to shy away from a challenge. That's the end of my prepared remarks, and we're happy to take your questions.

(Operator Instructions) Our first question is from the line of Erik Mielke with Merrill Lynch. Please go ahead.

Good afternoon. Congratulations formally, David, on the first call in charge of the Company. My first question relates to Kikeh. Can you give us an update on cost recovery given the lower prices that we're seeing currently? Are you still expecting that to be in the first quarter of 2009?

Yes, thanks a lot for your comment. Kikeh is going very well. I'm very pleased with the project. We were thinking it was going to recover by the end of last year, but now we're kind of -- depending on oil prices first quarter, second quarter, time frame.

Okay. And more strategic top-down question on the outlook for natural gas in North America. You seem to be signaling an interest in expanding in that area either organically or potentially through acquisitions. Can you tell me a little bit about the outlook that underpins that view on the macro, and what sort of prices you're willing to factor in when you're making investment decisions?

Yes, I think long- term. And this is a long-term business, and I take it a long-term view. I think in this down cycle, for companies that are in a position as us, getting into the game out-of-cycle is ultimately going to be smart. I'm very pleased by what we see at Tupper. In there, you're talking about operating costs of about $1 and DD&A of about $3. So, if we can get into projects that look like that, I think we'll be well-positioned, and so that's the kind of thing that we're looking for.

So the final one for me is on the CapEx slow down where you've guided that you identified $100 million already, and I think you said another $90 million of things that you could cut. Can you talk a bit about the type of CapEx that you'd be cutting first, and what you might be bringing on if prices turn out to be higher?

The capital that we've already cut is basically evenly split. The $100 million on the E&P side -- pretty evenly split between exploration and development. The other $80 million I alluded to, about half of that would be in downstream. We'd just build fewer Wal-Marts, some of the smaller projects at the refineries, things like that. It's mostly some exploration expenses. That's where your real discretion would be. And, you just have to take it from there. Of course, if prices rebound, then some of these things could be put back into place.

Thank you.

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

Folks, good afternoon. David, congratulations. I've got a couple questions. You mentioned that the Kikeh rates had, quote unquote, bounced a little bit with the startup of gas. What's that about? What's caused that?

Mark, thanks. When we sanctioned Kikeh, there was a couple of options that we looked at for dealing with disposal of the associated gas. There really isn't any free gas in Kikeh at all, so it was an associated gas issue. And the decision that we arrived at with Petronas' support was to basically sell the gas to them, and they built a new or an expansion to a methanol plant. And so, we have the ability today of moving gas around three ways. We can flare it. We can inject it into a single well, or we can put it down a pipeline. When you're dealing with three options, you like on facilities like that to get to a steady state. So, the reason it's bounced around is because the demand for gas has varied going down the pipeline, and so as we switch between the various options here, that's the real reason why it's bounced around. We expect it to steady up here pretty shortly and have the full amount of gas going down the pipeline.

So, David, if I understand you correctly, what you're saying is because it's associated gas, if the offtake and the demand fluctuates, the oil production will do the same?

Well, not really. It does a little bit, Mark. I think the issue is when we're only delivering what we're delivering now, 75 million barrels a day, then we have to move the gas around on board the ship to be able to keep our oil rate up. And that just causes us switching things on, switching things off. And, that's just not very efficient. So, I think when we get up to the 120 million barrels a day of gas, I think we'll see all this trim out and that's our -- that's our intent.

Okay. Could you talk just a bit about some of the early results you're seeing on the Tupper wells? Did I catch it correctly as characterizing DD&A at $3 and operating costs at $1? Figures which seem a little higher than, frankly, I thought were expected to be the case up there?

Mark, I'm real pleased with what we're seeing there. We're active in two parts there, the Tupper Proper as we call it, the area where we're developing. And, we initially had some well rates that weren't as good as they are now. And that just directs it to the learning curve we've been on. And then we've also been drilling some wells up in Tupper West, mainly vertical wells. And, that's where we found this extra [Doig] pay, and we've seen much better Montney up there than we have in Tupper One. The number I quoted there is where we are today, and as you can appreciate when you start something new -- you're on a learning curve. But if I look at the sub-surface piece, I would say that Tupper West, which we've not sanctioned yet, is going to end up being better than Tupper Proper. So, the numbers I quoted you are for Tupper Proper, which I'm sure we're going to get better at, but that's where we are in the beginning.

Okay. David, just one more for me, if I could. It sounds from your review of the 2009 exploratory program that some key pieces, at least in terms of identifiable prospects and locations are still yet to be determined, both with respect to the Sabah Trough as well as the eastern gulf. What are you looking at to do a little bit differently in terms of these two plays that would potentially lead us in the direction of seeing higher success rates.

We are in one of these post-mortems. The exploration business, as I mentioned, is incredibly cyclical in success, and we have not had success in both of those areas to the level that we would like. And certainly, the level that I would like. And so we're going back to take a look. If I look at the eastern Gulf first, we found two discoveries, but they were smaller than we would have liked. And so, we've got to understand why. I think we know why. The real issues boil down to seal capacity and charge volumes are the main issues. In the Sabah Trough, we found things. We just drilled this well in Block P and actually found about 100 BCF-type number, but clearly in deepwater without an established infrastructure, that's going to be something that's going to be a long way off. And so we're understanding that the play is working, but it's not working to the volumes that we expect. And so, that's the extra look that we're taking.

Okay, David, thanks very much.

You bet, Mark, thanks.

Thank you. Paul Cheng with Barclays Capital. Please go ahead with your question.

Thank you. Dave, congratulations.

Thanks, Paul.

A quick question. I think that you talked about what is the first quarter production outlook maybe? Do you have a rough number that you can share on the 2009 that may be different than the past now where some spending has been cut from the budget? I think previously that you were looking about 200,000 barrels a day for 2009. Is that still the number, or is it going to be lower?

We were -- Paul, I think the last time we -- I guess it was in the third quarter conference call that we had talked about the production for 2009 being about 190,000 barrels a day or so. And we dropped it to 180,000 barrels a day basically, as a result of the Kikeh and Sarawak gas projects being delayed. The cuts that we talked about so far really won't affect production for '09. Of course, if prices stay low or get even lower, dip into the $30s or something for some extended period of time. If you want to stay within cash flow, you'd have to slow down some development projects say at Tupper or something like that. Naturally with Thunder Hawk and Azurite, properties like that, you're not going to stop spending, you're just about to start on production. That could then affect your production going out into 2010. But, we're not there yet.

Kevin, the 180,000 barrels per day. Is that a 70% probability, 80%, 50%? What kind of probability that you guys assign to?

That's a pretty good number for us, average for the year. We're about 163,000 barrels per day now for the first quarter, and we're looking to exit the year at 220,000 barrels per day. And so, the 180,000 barrels per day is the average for the year.

No, but I guess the question is then I mean I think not just you guys, but the industry have a tendency of maybe setting too optimistic of a target, so wondering indeed what conclusion that you're built in as a comparison --

Well, Paul, we try to be very realistic in putting the things together as best we can. For instance, we have days built in for hurricane down time in the gulf. Now, if we have no hurricanes, our production will be better than that. If we have -- you look back at 2008 and up through August, our Gulf of Mexico production was quite a bit higher than what we had been anticipating because we were going through the hurricane season with no effects. And all of a sudden, Gustav and Ike come along, and lo and behold, we get slammed. So, we have build in some down time into the numbers, but, maybe it's not enough down time. Maybe it's not too much. You've got to wait for the thing. So it's just the best shot. It's the most reasonable number with what we know today that we can come up with.

You guys talking about I think the whole industry looking at the cost reveal. Is headcount reduction is a part of the plan on the table? Or, that you think that that's no -- that's off the table?

Paul, I think costs should come down in our overall business, and we've seen already with some of our service providers that they're willing to recognize the reality of the world. And so I'm looking to see costs, oh, in the 20% to 30% range through the course of the year. And, of course, we're going to push that real hard. The one thing we do here, I think pretty well culturally is look at costs. And, so that's something that we're going to do and wring the best we can out of our business.

Right. But headcount reduction will not be part of the plan, I presume then?

You know, one of the things that the industry has got to really be aware of is that we are a cyclical business. And over the years I've seen companies cut back, and then only be very disappointed in a very short period of time. And so I think that's one of the things that has to be looked at by everybody.

Okay. On the O&M, Dave, wondering -- is your view on that business is the same as Claiborne, or that you have a different view? Whether that should be continued to be a part of your overall portfolio on the going forward basis.

Paul, it's a great question, and I think when you see the results for the fourth quarter where downstream bailed us out, it's nice to have. And so I kind of look at it that way. I think the retail piece going forward is a nice piece of business. I don't think it will necessarily have the same performance as last year because last year was very concentrated, but it has the opportunity to get to those same levels in the future perhaps. But, I don't feel any great pressure here to make those kind of decisions. I'm the new guy here. I'm going to take a look at everything and see how everything works. That doesn't matter whether it's upstream or downstream, Paul.

Okay. Kevin, you were talking about your capital spending cuts. Let's say on a very, very, very weird situation if you have to cut to the bone, what is the absolute minimum you have to spend in 2009?

Oh, probably $1.5 billion or so.

How much?

Probably 1.5 billion.

$1.5 billion, so that is the max -- ultimate minimum?

I would think so just by the time you get through the rest of the development projects and things of that nature.

Okay. And, final question, sorry to take up so much time. David, when you're looking at the exploration program, you indicate -- we saw it has not been as good as you hoped. So when you look at that, do you think that is a land position issue, or that is a technology issue that you just don't have the technology? Or it is a people issue?

Sometimes it can just be a luck issue, Paul, because such is the way that the business goes. I think we have exceptionally talented people. I think we have for the most part taken good -- picked good acreage or at least we think we picked good acreage. In some cases, you make a discovery with the first well, and some cases, you make it with the third well. I like our technical process. But the bottom line is how good of results do you get? And we're identifying and finding hydrocarbon, just not in the volumes that we expect. And, the whole idea of an exploration program on a risk basis is to return types of volumes that you need. And, we've just not been doing that. Now, we've been quite good at bringing in third party funds to help us do that, so we have been risk mitigating it, but the bottom line is we haven't been finding big enough reserves. And that's a thing we're going to take a look at. Kevin mentioned the difference between last year and this year. We're going down from $480 million of exploration last year to $300 million this year, and we're going to take a look at that program very closely. We're going to take a look at what we're going to do going forward.

Thank you.

Thank you. And our next question is from the line of Gene Gillespie with the Gillespie Consulting Group. Please go ahead.

A couple of things, David. One, a follow-up from a previous question and answer. What is your -- the specific dollar amount of cost recovery for Block K?

A specific dollar --

Cost recovery pool, how much is left? At the end of the fourth quarter, I think -- or last call, Mindy had indicated there was about $400 million.

It's a couple of hundred million dollars, Gene. You've got to remember that Block K is one PSC, and we're continuing to spend money on the Kakap development. So as those funds get expended there, they go into that pool, too.

Did I understand correctly that you expect by the end of the first quarter that that would be essentially liquidated? Obviously, it never fully goes away, you'll still have cost recovery, but it will be largely?

Yes, you know, Gene, if I had a crystal ball, I could tell you oil prices. I could better define it. But it it's going to be that cusp between the first and second quarter.

Second question, the fourth quarter Malaysia DD&A rate was about $12.40 a barrel, and, I think that initially under the original project assumptions it was going to be somewhat lower than that. So would you -- is that correct? Do you continue to expect it to trend down now that Kikeh is at capacity?

Well, our mix of sales in the fourth quarter were highly skewed toward Kikeh, which has a higher DD&A rate, Gene, than Sarawak does. But on average, it was -- I'm showing a little bit less than what you're saying, but in that order of magnitude on Kikeh.

Okay. But that's a good number going forward?

No, it -- no, overall, it's going to go down as we add reserves.

That's what I was getting to.

Yes. That's based on the reserves that we've had booked, and of course, David already mentioned that we'll be booking more reserves over time. And so that number will come down some. Can you kind of speculate or share what a number might be? A more appropriate number for modeling purposes?

We're getting you a number, Gene, right now.

Thank you.

Kikeh is doing well, Gene, by the way, and we expect to book some more barrels this, take us to about 100 million barrels booked.

It comes down a little bit, but it stays relatively close to that $12 rate this year as we spend more money and bring on the Sarawak gas.

David, now that you have substantial production experience with Kikeh, and it is producing well. And it's been producing for a few months or a couple of months at designed capacity. Recognizing the big oil fields have a tendency to get bigger over time, would it be -- is it too early to suggest that maybe this one will?

Gene, I'm real pleased with what I've seen below ground there. We've now drilled a fair number of wells, good well performance. We need to get this gas situation worked out so we can trim the field out. I'd like to see a little bit more production here. We've produced about 35 million barrels, I think, as of the end of last month and I'm real happy with what we've got.

One last thing. Do you have a partner, or are you continuing to market the northern block offshore Congo?

We're still talking to folks. We don't have a partner yet, Gene.

Thank you. And again, welcome.

Thank you. No, I appreciate it. Thanks.

Thank you. (Operator Instructions) We have a follow-up from Mark Gilman. Please go ahead.

Kevin, if I recall correctly at the end of the last conference call, you were talking about what I think you labeled a quasi-FIFO inventory effect that negatively impacted the UK downstream results. I would assume just given price behavior that that was a significant factor in the fourth quarter as well. Can you give me a rough idea what the negative impact was?

I don't think we had a big impact in the fourth quarter because we got the -- the guys did a real good job of getting all the inventories into place along with our LIFO targets. So, the overall impacts from LIFO were negligible.

I think what you had alluded to at the end of the third quarter was the fact that because of short haul crude usage -- that the way the inventory system behaved was more akin to a FIFO system than necessarily LIFO even though nominally it is a LIFO system. Is my recollection inaccurate because of senility or some other factor?

No, I think there was some issues with the products inventory because I think part of the UK -- which part of that -- that's on FIFO, the marketing side, has to do with the products, not so much on the crude with the short haul.

Okay. So basically, the UK R&M number, in the quarter of $10 million. That's what it is? That's clean?

Yes, I think it's relatively clean. We'll double-check that to make sure, but it's nothing of any big magnitude in there.

Okay. One other one if I could. My math suggests that you are way overlifted as of the end of 2008. First of all, is that accurate and if so, do you expect to make it up this year, going the other way?

Mark, at the end of -- you're correct, at the end of 2008 we were overlifted. If you look at just -- I'll kind of guide you as you know of our guidance on the first quarter, it was about a 6500 barrel underlift there, so you're starting to see that swing there. For the year, there were some -- for 2008, we did have significant overlift in most of our inventory -- most of our positions. Including in Canada at Kikeh, and I can get you that detail, Mark.

Okay. I'd appreciate it. But should we assume that it will be substantially made up over the course of 2009? I mean it would take more than the 6500 barrel a day underlift in the first quarter. You would have to be underlifting, at least based on my math, by roughly that amount each and every quarter?

That's correct, Mark. That's a fair assumption.

Okay, thanks a lot.

Management, there are no further questions at this time. Please continue with any closing comments.

I appreciate it, and look forward to the next quarterly call. Thanks a lot.

Thank you, ladies and gentlemen, and this does conclude the Murphy Oil Corporation fourth quarter earnings conference call. If you'd like to listen to a replay of today's conference, you can do so by dialing 1-800-405-2236. Input the access code 111224677. We would like to thank you very much for your participation. You may now disconnect. Have a very pleasant rest of your day.