Murphy Oil Corp. 2026 Q2 Earnings Call

Thank you, Fern. Good morning, and welcome to our 2Q 2026 earnings conference call. Joining me today are Eric Hambly, President and CEO, Tom Mireles, Executive Vice President and CFO, and Chris Lorino, Senior Vice President of Operations. Yesterday after market close, we issued our 2Q earnings release, a slide presentation, and a stockholder update. These documents can be found on Murphy's website. We will reference them today throughout our call. As a reminder, today's call contains forward-looking statements as defined under U.S. securities laws. No assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, please refer to our most recent annual report filed with the SEC.

Murphy takes no duty to publicly update or revise any forward-looking statements except as required by law. Throughout today's call, production numbers, reserves, and financial amounts are adjusted to exclude non-controlling interest in the Gulf of Mexico. I will now turn the call over to Eric for opening remarks.

Thank you, Atif, and thanks to everyone for joining us. I released detailed earnings materials yesterday. I will keep my comments focused this morning. I want to spend most of my time on the key developments in the quarter, including what we learned through our exploration and appraisal program, how those learnings are shaping our capital allocation, and why we believe these investments strengthen Murphy's long-term outlook. The most important development this quarter was the Bubale discovery in Côte d'Ivoire. Just as important as the result itself is the disciplined exploration process that led us here. We entered Côte d'Ivoire with a clear thesis and a 3-well exploration strategy, and although the first two wells were non-commercial, we have remained confident in Bubale's prospectivity and continuing to execute the plan. That patience and technical conviction paid off as the well encountered oil in both the Turonian and Cenomanian reservoirs.

Now, we want to be very clear about where we are in the process. While Bubale has the potential to become a significant growth driver for Murphy, there is still important appraisal work ahead. The next step is to understand the scale, quality, continuity, and economics of the resource. That work is now underway with the Bubale West 1X, which we spud in July to begin appraisal of the Turonian reservoir. It is the first of up to five potential appraisal wells. I emphasize potential because this will be a staged data-driven process over the next 18 to 24 months, with each well determining the scope and direction of the remaining appraisal program. An 18 to 24-month appraisal program may sound lengthy, this is how we protect value.

In our business, value can be destroyed long before a development well is ever drilled by misunderstanding the resource, overbuilding the project, or committing capital too early. Appraisal helps us avoid those mistakes by giving us the technical confidence to right-size the development and make disciplined capital decisions. Hai Su Vang in Vietnam exemplifies the importance of that discipline. Hai Su Vang 4X was a dry hole, based on the new data, we have reduced our resource estimate. There is no sugarcoating it. This is not the outcome we were hoping for. However, the appraisal program gave us critical insights, allowing us to now calibrate the field development plan before we commit significant capital in the coming years. Following the Hai Su Vang resource estimate revision, I want to emphasize two important points.

First, even at the revised estimate, Hai Su Vang remains a material 200 to 300 million barrel oil equivalent opportunity, approximately two to three times the size of Lac Da Vang. Second, our Vietnam peak production outlook of 30,000 to 50,000 barrels of oil equivalent per day remains unchanged. We may come closer to the lower end based just on what we know today, the final outcome will depend on what additional tieback opportunities we identify as we move forward. The key takeaway is that we now have greater clarity around our opportunity set with many compelling projects competing for capital. That brings me to our revised capital program and how we're thinking about investments going forward. We're increasing the midpoint of our 2026 capital expenditure estimate from $1.25 billion to $1.55 billion. This is not about chasing activity or reacting to price.

It's a deliberate decision to fund specific high-value opportunities now in front of us with almost all of the increase supporting Murphy's organic growth. Roughly $190 million relates to Bubale, including $100 million of incremental spend on the discovery well and $90 million for the first appraisal well. Another $70 million is going into the Eagle Ford, which is expected to add approximately 5,000 to 6,000 barrels oil equivalent per day in 2027. I want to take a minute to talk about the Eagle Ford decision because it highlights the key role this asset plays in our portfolio. As our offshore opportunity set expands, we can fund part of that growth through near-term, high-return production and cash flow. Eagle Ford is one of our best assets to do that.

It is flexible, well-weighted, and capable of efficiently translating capital into production. Going forward, we expect the Eagle Ford to become an increasingly important source of cash flow and financial flexibility across the business. This is the strength of our multi-basin portfolio in action, not a change in capital discipline. Our ability to fund growth through our base business while maintaining financial strength was evident this quarter. We generated $110 million of free cash flow, returned $50 million to shareholders through the dividend, maintained leverage below 1x, and ended the quarter with approximately $2.5 billion of liquidity. Even with the revised capital program, at current commodity prices, we expect to generate positive free cash flow for the full year. Operationally, second quarter production averaged 169,000 barrels of oil equivalent per day above the midpoint of our guidance, led by stronger performance at Tupper Montney and continued outperformance in the Eagle Ford.

In the Gulf of Mexico, Chinook number 8 is now through drilling after reaching a total depth of 26,000 feet and remains on track to come online in the fourth quarter. Lac Da Vang is also on schedule for first oil in the fourth quarter, with the pipeline, topsides, and FSO milestones now complete. We look ahead, years of capital discipline and technical rigor are beginning to translate into a portfolio with multiple exciting pathways to growth. This is the Murphy model in action: identify the opportunity, test it with discipline, develop it safely and efficiently, and fund it through resilient cash flow and financial strength. This full-cycle capability and track record across geographies, asset types, and development stages sets Murphy apart and positions us to convert the opportunity ahead into lasting shareholder value. With that, we are ready to take your questions.

Arun, thanks for that. Great question. Obviously, we're disappointed that the 4X well was a dry hole, but I will say that we're still very excited about what is a very significant development for us. 200 million-300 million barrel field in shallow water will have very attractive economics. I would have loved for it to be larger. We now have a lot of confidence in the size of the resource and gaining increasing knowledge about how we're going to develop the field in terms of the well count, well spacing, and the type of facility concept is something we'll be evolving over the coming year or so. We're looking at a number of options for the development. One option would be an FPSO. The other option would be a processing platform with a series of wellhead platforms tied to an FSO, similar to our Lac Da Vang project.