Murphy Oil says it is on target to bring its Khaleesi-Mormont and Samurai fields in the Gulf of Mexico on stream in the first half of 2021 through the King's Quay floating production unit, a move that will significantly boost the company's output from the deep-water region.
The Houston-based operator took over the project with its $1.37 billion acquisition of LLOG's Gulf of Mexico assets two years ago.
Bringing the three fields online could prove to be a major step for the company that will deliver a significant increase in its US Gulf production.
“This is a significant project for Murphy,” Enverus senior associate Jared Kugler tells Upstream.
“We expect the company’s Gulf of Mexico production to increase by 20% to 30% upon start-up and successful ramp-up, compared to today’s Gulf production levels, and likely won’t reach a decline from today’s levels until late in the decade.”
The production from Khaleesi-Mormont and Samurai, if it reaches initial levels as anticipated, would also add a considerable boost to the company’s overall production totals.
“They’re expecting initial net production of 20,000 (barrels of oil equivalent per day),” KeyBanc analyst Leo Mariani says.
"They averaged 182,000 boepd in the second quarter (of 2021), so that’s a 10% increase in production.
“That’s fairly significant. It’s one of the bigger things (Murphy) has going on," he adds.
"They’ve still got some work to do, but it’s definitely a needle-mover for the company.”
While Murphy is serving as operator for the project, it no longer holds an interest in the King’s Quay FPS itself.
The company sold its stake in the platform, along with associated lateral export pipelines, to ArcLight Capital Partners, which owns the platform and pipelines in a 50:50 joint venture with entities controlled by Ridgewood Energy.
When the sale of the stake in the FPS was completed 17 March, Murphy did not give an exact price tag but said the transaction “reimburses Murphy’s past capital expenditures of approximately $270 million related to King’s Quay FPS and the associated laterals.”
Analysts tend to believe Murphy’s sale of its position in the King’s Quay FPS was a bit of a coup, especially considering the timing of the transaction.
“They were going through this exercise when the price of oil crashed in 2020. They had cash constraints just like everyone else in the industry did, and it’s a great job by them to keep it moving forward,” Wood Mackenzie analyst Justin Rostant says.
“The way Murphy structured this project, with the help of third party partnerships in private equity, is a good move.”
The start of production at the Green Canyon area Khaleesi-Mormont and Samurai fields will be another significant step in Murphy’s resurgence in the US Gulf.
The company had placed a good portion of its capital budget onshore in areas such as the Eagle Ford shale over the past decade, but has refocused on the US Gulf in recent years.
“Over the last few years we have seen Murphy’s Gulf of Mexico capex be the most resilient in its portfolio, suggesting to us that the basin will be a priority for the company long term,” Kugler says.
“Additionally, Kings Quay will serve as a hub for future exploration and tie-back activity for Murphy, who holds a number of exploration blocks nearby in an area of the Gulf that we expect to contain a good amount of inventory left.”
Deep-water projects always come with a significant price tag, but the sale of a 50% stake in the King’s Quay FPS has offset some of those costs for Murphy.
The benefit could be coming soon, especially with oil prices flirting with $80 per barrel.
“This is one of (Murphy)’s more substantial projects in the last several years,” Mariani says.
“Their capex is going to drop later in 2022 and cash flow will go up. You’ll see free cash flow improve. They’re in the higher part of the spending cycle now, but this project will help over the next several years.”
Murphy declared a quarterly cash dividend of $0.125 per share early this month and is scheduled to announce its third-quarter 2021 earnings on 4 November.