Exploration has been repeatedly coming up in all of our conversations so far during the conference, and Murphy is really in the middle of a lot of exploration activity. Eric Hambly, President and CEO of Murphy Oil, thank you so much for coming to the conference and doing the fireside. Eric, I want to start the conversation sort of rolling back and maybe a bit of historical perspective of where Murphy is and how you think about the future from here.
I looked this up. You started Murphy in 2006, when the company was still pretty right on the cusp of the Kikeh development in Malaysia. I think the company today is in a pretty similar transitional phase, where you have Vietnam and also pursuing different exploration opportunities. How do you think about the opportunity set that you see today compared to what you have seen in the last two decades?
Yeah. Thanks, Betty, and thanks for having us here. Happy to be here. I think in some ways what the company is facing today is very similar to what we had in 2006, but I also think there's some significant differences. Maybe I'll kind of talk through that. I joined the company in September of 2006, so almost exactly 20 years ago. My anniversary is coming up. It's been a great ride. It's been a fun company to work for. We've done a lot of things around the world and I think created a lot of value for our shareholders. When I joined the company, it was right at a time when there was significant deepwater Golf of America success. A lot of success exploring in an early phase of Miocene and Plio-Pleistocene activity in the early kind of deepwater exploration in the Gulf.
Murphy had a number of fields that they had discovered and had just brought online or bringing online, Front Runner, Medusa, Thunder Hawk, there are others. An early, very successful push into deepwater for Murphy, primarily as an operator in the Gulf, and then a big emerging business in Malaysia. Sarawak business was producing its first field in 2006. Kikeh had been discovered, was under development. Kikeh started producing in 2007, and kind of ramped up when oil price really rose quite high. The Sarawak business in Malaysia was being explored, and we had a lot of success. I would characterize the company when I joined it as a tremendous offshore explorer with a great track record in deepwater Gulf and a Malaysia business that was probably a generational success, like really, really tremendous, great success.
Then if you look at what the rest of the company, there wasn't too much happening. We had a little bit of an onshore Canada business, which was primarily a heavy oil business, Syncrude ownership, and also a heavy oil assets. And those were okay. They were just kind of okay. If you then look at what we did in the decade following 2006, so for my first 10 years with the company, we executed and developed basically everything we found in Malaysia. Tremendous success, built a big business, and ended up selling that ultimately, later on. But in that decade, what we also did was build a significant onshore business, primarily organically and primarily the Montney and the Eagle Ford. We got into the Montney in 2006, and we got into the Eagle Ford 2009, 2010, mostly through leasing.
A few small acquisitions, but really built it through leasing. We went from a tremendous success exploring offshore. In the next decade, we had what I would characterize as less than ideal success offshore. We had tremendous ongoing success in Malaysia, but basically everywhere outside of Malaysia, we weren't that successful. We were disappointing ourselves in our pace and our success exploring. In the Gulf of America, we made almost no discoveries. I think two discoveries in the decade that followed. In West Africa, we drilled a lot of dry holes. We had what I would characterize as a less than perfectly focused exploration program, which was driven more by access to opportunities where we had large well commitments.
When you get into blocks that you haven't yet shot or reprocessed seismic, and you have well commitments, you end up drilling a lot of dry holes, and that's what we had going on. But while we had no success exploring outside of Malaysia, we had a lot of success building an onshore business. That's what makes us a little bit different now, is that we have significantly more optionality in our portfolio. We've had recent success exploring and then developing in Vietnam with our first field to come online in the fourth quarter this year, Lac Da Vang, Golden Camel. Recent success exploring in Côte d'Ivoire.
And those are things that are happening in a company with a significantly more flexible portfolio, which I think helps us. We have a strong balance sheet. We had a very strong balance sheet when Malaysia was ramping up. We're back to that after a period of time where it wasn't as strong, and very well-positioned to capitalize on success with an emerging Vietnam business. And what we think from Côte d'Ivoire early on looks very promising.
Great. That leads to you'll have a high-class problem to solve when there are so many opportunities in the portfolio, whether that's onshore or developing Vietnam and exploration across multiple basins. How do you think about pursuing these opportunities, and this is a capital allocation question, while balancing the priorities that company have been talking about, which is cash return or preserving the balance sheet?
Yeah, it's a great question. I think when we look at our business, the onshore business has an ability to basically be relatively stable, relatively flat, spending similar capital program that we have over the last, say, five to seven years. The Vietnam business, we've been investing in it to get our first field online and exploring and appraising. Pretty soon, when our production starts to ramp in Lac Da Vang, we think our Vietnam business will effectively self-fund. Future development of Hai Su Vang likely happens within or similar to the cash flows that we generate within Vietnam. It won't be an additional heavy call on capital. The big obvious thing we have happening in the near term is understanding how large the Bubale discovery is.
We're at a point where we believe we've made a commercial discovery, but we need to appraise it to confirm that, and also to find out just how big is it and how do we optimally develop it. That's going to be the biggest call on our near-term capital. Priorities for us are maintaining the scale of our cash flow-generating assets by reinvesting in them. That would be our producing assets. Next priority for us would be likely our dividend.
After that, we'd be looking at share repurchase, and all of those things we'd be doing in the context of trying to protect our balance sheet. So we want to be very disciplined about where we're spending money, how much money are we spending. We got our balance sheet in a great spot, which positions us well to invest in finding out what Bubale looks like, finding out what the other prospects on the block look like, before we commit to what would likely be even larger development, which would be development CapEx.
We have a portfolio that allows us to think about how we monetize a development if we get to that point. We have a possibility of bringing in a partner, farming down some of our ownership. We have ability of using our strong balance sheet and liquidity. We have a possibility of selling pieces of our onshore assets or other. We will be thinking about those things as we learn more, as our understanding of Côte d'Ivoire position evolves over the next 18 - 24 months. We will be thinking about how do we create the most value for our shareholders. Right now, we do not really know how that will happen. We want to find out what we have first, what the requirement of capital will be, and then we will come up with an optimized plan to create value for shareholders.
We do have a long history of investing at high ownership, like our Malaysia business, where we had really great success. We developed those fields at 80% and 85% working interest. We are at 90% and 85% in Côte d'Ivoire now. In Vietnam, we are at 40%, so we already have built-in partners. I think we have a pretty exciting opportunity set in front of us with a lot of optionality. It is not like we have the one thing to do, and it either happens or does not happen. Our core business has been generating strong cash flows, delivering great returns. We have paid a dividend since 1961. We have a really great position to be pursuing the optionality in front of us, and I think it is an exciting time to be an owner of Murphy.
Yeah. I want to get into some of the assets before we get there. Sort of talk about how, given exploration is really in focus now, and how you think about the appraisal process, sort of communication of the resource potential, and what you see internally and how that gets communicated to the street. Along, sort of coming on the back of the HSV appraisal update, does that process change how you think about evaluating the future appraisal opportunities that is ongoing in the company?
Yeah, thanks. That is a fair question. I think we will go over Vietnam first and then maybe come around to Côte d'Ivoire. In Vietnam, we announced a discovery about a year and a half ago, and it was pretty exciting. We found pay, and we did not find the limits of the field. Then we followed it up with an appraisal well, which encountered more pay and also demonstrated a deeper oil level in the field. At the time, we knew we had only tested sort of this middle kind of core of the field, and it was a large structure. We have talked about how we had two roughly 8 in holes in a structure the size of Manhattan. We knew we needed to learn more at how did the reservoir properties vary across the larger structure.
We hadn't identified the limits of the field, and so we communicated that we needed to do two more appraisal wells, almost certainly, 3X and 4X, which tested the northeast and southwest extensions of the field. We expected that we would learn things when we did that. That's why we did them. We were trying to get to a point where we understand the limits of the reservoir, the variability of the reservoir properties across the structure, and then importantly, how do we optimally develop that. So we designed that program to do that. The 3X tested what we thought would be a thinner primary reservoir, which is what we encountered. The 4X was testing what we thought would be an expanded primary reservoir, which had a potentially deeper oil level than we had previously demonstrated.
What we found in the 3X was largely in line with what we expected. In the 4X, we were somewhat surprised in that we found non-reservoir quality sands. We found the same sand package we had predicted, but we found it at such low quality that it wasn't storing oil effectively or oil that would flow. That was somewhat of a surprise to us in that we thought the limits of the field were driven more by how much of the structure would be filled. Now our view is a combination of how much of the structure is filled in terms of depth and also the variability of the reservoir properties across the structure, which is why we appraised it.
I think what we communicated at the time we had the results from the 2X well was encouraging because we were quite encouraged, and we felt it was material enough that we should communicate it. It felt like the right thing to do to say, "We still don't know how big it is, but it has potential to be toward the higher end of our prior range or even beyond." I think some people interpreted that as maybe we were being ultra-conservative and that they were not our communicated views, but other people we were hearing communicate extremely large numbers for Hai Su Vang, and commonly when we met with people, we said, "We don't think it's that big.
It could be, but we don't think it is." I think what we've said was consistent with what was appropriate and fair as we learned, and I think you'll see us do that going forward. If you think about where we are in the Bubale, which is sort of following, just a couple of years later, following in the same path, we discovered oil pay in two reservoirs, the Turonian and the Cenomanian. We drilled the discovery well where the Turonian and Cenomanian cross.
We were fortunate to find oil in both. We still have a lot of uncertainty about how much of those features are filled. We do not know for sure what is down dip or up dip. The Bubale West-1X well that we are drilling now, the first appraisal well, is testing down dip Turonian, and we chose that location because we think it is the location that allows us the best chance of quickly understanding if we have a very high confidence of a developable scale field. We think we do from the first well, but there is uncertainty, and so we are drilling that. It is 8 miles west of the discovery well, which is a significant step out and down structure.
We are interested to see what we find, obviously. If we find oil at the base, then we will probably drill another appraisal well further down dip. If we find a wet well, then it would likely infer that the column height is somewhere between the two wells. If we find oil water contact, then we will know where it is. That is helpful. That well, and then analysis that will follow, will help us determine what is the in-place volume, how connected are the reservoirs. That has implications for how much we recover, and we will be a little while from knowing what to communicate in terms of a resource range. We will still have a broad range of resources.
After the next well result, depending on what we find, of course, but we are likely not to have a definitive view of the field because we still have not tested up dip Turonian or up dip or down dip Cenomanian. I think what you will see from us is, communicate what we found factually in the well, the implications that has for the future, with probably not a quantitative reset, but probably an indication of is it good or bad.
Next year, as we conduct our appraisal program, we will learn more information about the field, and when we have more confidence that we have a commercial development, we will probably communicate that. Maybe be able to guide a size of resource range. It depends on what we find. We are not going to be overly cautious or overly optimistic. We are going to just methodically step through, let the wells tell us what we know about the field, and when we gain a high confidence, then we will try to communicate that.
No, that makes sense. That is really helpful context, because Bubale could be a really meaningful discovery, but also has multiple steps and appraisals, which could be a pretty meaningful capital commitment as well. I think you have laid out previously, a three to five well appraisal program. Depending on what you see, you can decide how much to advance that. What do you need to see? You talked about every single well will help you understand the reservoir a bit better. I guess if you can range bound, what do you need to see to feel confident enough to advance and what will be an upper, lower end range of how you think about that appraisal program?
Yeah. When you develop a deep water oil field, you do not know everything about the field when you sanction the project. You typically have a handful of well penetrations, and you make a model of what happens. Everywhere you do not have well data, you make a model of what is happening in the reservoir. You use seismic data, you use other information. The appraisal program is doing several things. Like I said, it is testing to see how much of the structures are filled with oil, how connected are they. That has implications on production rates and recovery. Those are really critical things to understand. As we step through our appraisal program, we will gain more confidence.
At some point, we will probably determine that we have enough confidence to commit large scale capital to do a development while also continuing to have some uncertainty about aspects of the field. We may have an untested segment of the field, a reservoir, or we may not test up dip in one of the reservoirs, but we have a high confidence that there is a core development area that justifies a development. Also importantly, that we do not plan a development scenario, the facilities, the well count, whatever, that will not work economically. We do not want to over-capitalize, and we do not want to dramatically under-capitalize. We want to have some confidence that what FPSO or FPS and FSO we build will be suitable for the field development.
We will likely, as we have in almost all of our historical deep water developments, we will likely have kind of a core development and then additional phases and additional understanding as we learn more. When you drill more wells, you learn more, and you have additional phases of development. That is very common for us. So we are not going to appraise to the point where there is no uncertainty. We are going to appraise to the point where we have a high confidence that a large investment will make a lot of money.
These deep water developments, they are $10-$20 a barrel CapEx to develop, and the resource size could be significant here, as we have talked about historically. That's a very large range for a company of our scale when we've been deploying $1.2 billion, $1.3 billion of capital in recent years, this year, a little more, obviously, with the success we've had. How we pace that investment, how we understand that it will be important for us. I think just to point out, we're fortunate to be the operator in Vietnam and Côte d'Ivoire, so we control the pace of our appraisal investment and our development investment if we get to that point. It's a nice position to be in because, we're not going to be partnered with someone that's much more capitalized than we are and we lose control, which I think is important from a creating value for shareholders.
That makes sense. No, it's interesting, the decisions that you have to make without perfect information. Maybe with the very high interest you currently have in Bubale, at what point would you consider farming out some of the interest? Where within where you feel there is enough to go forward with a full development?
Yeah. I think when we have a full understanding or a reasonable understanding of Bubale's potential, we will then have more confidence that we know sort of the value that that would be to us and to someone else if they were to come in. We also have significant undrilled prospectivity on our blocks, and we may consider understanding the value of that prospectivity before thinking about bringing in a partner. Typically, when you have someone farm into your block, it's the whole block and not one field. It's the entire block that they come into. We have not tested many significant prospects on the blocks where we're likely to have a Bubale development, the two blocks.
At some point, we'll get comfortable that we either really need the external funding to make that happen, and it's the right thing to do for shareholders or that we don't want to do that, and we're going to keep our existing interest and develop it. I wouldn't be surprised if we do not ever bring a partner in. We have a partner that's built-in that already has an option of increasing their ownership. That's something that's not public, what their ownership could be, but it is a significant ability to, with our existing partner, which is National Oil Company, to increase their ownership. We're likely to already have a kind of a built-in funding partner if we have a successful development. I'll be cautious about giving away ownership in something that hasn't been fully evaluated. There's a lot of prospectivity still to think about on the blocks.
It's a key thing. As I was trying to indicate before, it's going to take us a little while to figure it out. We're probably looking at an 18-24 month process before we have kind of that sort of confidence of knowing that we know enough to make a decision about the right steps to create the most value for our shareholders relative to ownership in Bubale or any of our other assets that we could call upon to help fund the development.
Oh, that's helpful. In the meanwhile, or have to think about funding this development, and Eagle Ford as a strategic asset has been brought up, and that's an area that you're growing or accelerating activity this year with the potential to add more. How do you think about Eagle Ford as an asset to drive free cash flow to fund the exploration for the rest of the portfolio?
Yeah, thanks. I think the way we thought about our Eagle Ford asset in maybe the past five or six years was we were using the asset, we were producing it in a range of 30,000-35,000 barrels a day net to us. We were using the free cash flow to fund offshore activity. We had a Vietnam business that was growing. We had a bunch of activity in the Deepwater Gulf, and we were also using that cash flow to reduce debt and buy back stock. We've gotten to a point now where we feel good about our debt level. We would obviously ultimately love to have lower debt, but we're faced with a very rich opportunity set to invest into. We've looked at our Eagle Ford business. We've had better and better Eagle Ford wells coming online the last few years.
In an industry that Eagle Ford well productivity and capital efficiency is getting worse, our very best wells have been the last few years. Our operating expenses at Eagle Ford have gotten to be really quite a bit better than they were. The cash flow generating potential at Eagle Ford is better now than it has been maybe in the history of the asset, and we have a lot of life left into it. So we've been putting online about 30 new wells, 25-30 wells operated to keep the asset relatively flat. The last couple of years, we were attempting to deliver 35,000 barrels a day, and we delivered 37,000 barrels a day last year and probably 38,000 barrels a day or more this year. So the asset is outperforming, generating strong cash flows.
When we look at it and we say we have significant need to invest in Bubale appraisal while hoping to maintain investment in our producing assets to maintain or maybe modestly grow the scale of the other parts of the business. The Eagle Ford is an area where we can, with very fine control, ramp up our activity level, spend a little more capital, generate more free cash flow by growing more production, and allow us to further improve our balance sheet or protect our balance sheet.
We have more call on capital. We can generate more free cash flow from Eagle Ford, and we can do it without significantly shortening the runway of Eagle Ford in our portfolio. If we don't ramp up our Eagle Ford, we have a healthy inventory to be investing into the middle of the 2040s. Ramping it up, that'll pull that a little bit closer, but I think compared to pure shale peer companies, they'd be pretty envious of having an inventory that runs into the 2040s, the mid-2040s. If we shorten it into the late 2030s or say 2040, I think we still have a pretty healthy business. The other thing that it does for us as we ramp it up, we will likely. We haven't set a policy around this yet. We're still thinking about it. We're going to likely ramp it up through next year.
We probably won't stop. If we have supportive commodity prices, we'll probably keep ramping Eagle Ford up to some future plateau rate. I don't know if that's 50,000 barrels a day or 60,000 barrels a day, but somewhere kind of around there likely makes sense. If we get to that point, then we'll probably even do more free cash flow harvesting at that point. We'll grow it over a gradual period of time, likely over the next few years, and get to a new plateau rate.
It also provides us some optionality. If we decide by the time we figure out what we want to do with Côte d'Ivoire, if there's more potential to develop in Côte d'Ivoire, and the call on capital is really high, then we have an Eagle Ford asset with a lot of remaining life into it and quite a bit more production, which is quite valuable. It could potentially provide us with an optionality to sell part of that Eagle Ford business, which would probably attract a higher valuation with higher production rate, with still a lot of remaining life left. So I see it as a nice near-term option to provide cash flow while providing more long-term optionality that could create more value.
No, that makes sense. In that same vein, where does the Canadian business fit in? Canadian onshore or offshore? It's relatively smaller in the portfolio. What's their strategic role in the portfolio?
Yeah. We have two key assets in onshore Canada. The Tupper Montney is the largest one from a resource size and also production rate. The Montney is producing to two gas plants, and the gas plants are full. Significant further growth there would require a plant expansion, which is something that would probably from committing to do it to happening would be about a three-year process. Right now, the way I look at the market with AECO, it is not super supportive of spending additional CapEx in the Montney. We are likely to continue to invest in that to periodically refill the plants and keep them full for part of the year. Last year, we brought online 10 wells and kept the plant full for, I think it was five months.
This year, we brought online eight wells and have the plant full and expect it to be full for quite a while. Optionality to invest there and grow it materially is limited, especially with the current commodity price. Having said that Montney asset has over 700 remaining locations. If you look at us putting on 10 or 80 a year to maintain the scale, we have over five decades, maybe, depending on how you do the math, seven decades of drilling inventory. The asset is strange in that it is just as valuable now as it would be 20 years from now. If we keep the plant full for 20 years and we do a discounted cash flow analysis 20 years from now, assuming commodity price is the same, it is worth just as much. It is practically, for all purposes for us, it is an infinite resource.
That makes it a little more long-term strategic. While you might say, "Well, you are not really investing heavily into it. You are not generating massive free cash flow from it today," if you are a believer in long-term North American natural gas, we have one of the most capital-efficient dry gas assets in North America with huge optionality for the future. It is not something that we are likely to do something with strategically, but we could. We are aware of the value of it. We are very conscious of that, but I like that we have been running this business for over 100 years, and we are planning to run it so that we can be around for more than 100 years. That Tupper Montney asset, while it is valuable, it could be even more valuable in the future.
Our holding cost of it is making a little bit of money every year. We think about that as probably more strategic than our Kaybob Duvernay asset, which is basically an appraised and not developed shale oil play that is not generating huge cash flows because we have not been investing into it. We got into the Kaybob Duvernay because we thought as we worked through our best Eagle Ford inventory, we would want to have the next go-to shale play, and that is what the Kaybob really is for us. We have chosen in recent years not to prefer to invest into it.
Because we have a wealth of offshore investment opportunities, we have been preferentially investing there. That is an asset where you would look and say, "If we were to transact something nearer term, that is probably the one that would be most likely to go," because it is valuable in the market, and it is not supporting a lot of our free cash flow now, which of course, we need to fund all of this activity.
No, that makes sense. Which then lastly, but not for the least, for sure, is the GoA assets. That is your foundational asset today. But again, we are in a shift where GoA is not necessarily not the growth asset. It is also longer-term, more resource-constrained compared to the growth exploration areas. How do you think about GoA evolving from here? Where is the opportunities, and is it running for maintenance, or is there room where you are seeing growth elsewhere?
Yeah. We are investing in our existing assets. We have an opportunity set of additional wells, workovers, zone changes like that, and those investments in existing fields will likely allow us to keep our production level in the GoA relatively flat, maybe modest growth, basically through the end of this decade, assuming no other discoveries. This year, we were fortunate to make some discoveries near our Delta House field, Cello and Banjo. Those will come online in the fourth quarter of 2027 and add some significant production growth for us. We are also maintaining an active exploration program there. That program will focus on near infrastructure prospects that are likely to be a high chance of success, and admittedly, probably not very large, but they are very valuable. They are high rate of return, sub-tieback type projects.
Occasionally, in our portfolio, we will pursue one of our larger, riskier prospects in the Gulf that have the potential to be their own hub scale or maybe near hub scale class. We will not have too many of those. There are not that many in our portfolio. We have a handful. We will occasionally have one of those. If we are successful in one of those, that would be a big breakthrough kind of significant additional resource. Of course, it would come with significant capital demands as well. The GoA remains core to us. It is a lot of production. It is also going to continue to be a focus area for exploration for us.
Great. To wrap, I think we touched on a lot of topics, a lot of assets existing and future. If we were to say, what is one thing that you think is most misunderstood about the Murphy story?
I think they're sort of the same theme, but sort of two different areas. I do not think that the cash flows that we generate and the durability of those cash flows that we generate out of our offshore GoA business and our Eagle Ford business are properly captured by the market. I think there's a bit of mispricing there. I think every CEO you would ask would say they're undervalued, but I think we do disclose quite a bit of information that allows people to model free cash flows, and I think there's some significant discounting of the durability of the GoA and Eagle Ford cash flows, and I think if people take a harder look at that they would probably see that we're probably worth a little more than we're trading for.
Okay, great. Well, thank you very much, Eric.
Thanks so much.
That's a wrap. Thank you for the conversation.
I appreciate it. Thank you.