Next week Murphy Oil (NYSE:MUR) will update investors on its fourth quarter results. Don't pay too much attention to how metrics like EPS and revenue compare to Wall Street estimates, however, and instead look at how Murphy Oil plans on generating shareholder value over the long term. .
Shareholders got a brief update on how operations were going a few weeks ago. Fourth quarter production was revised upwards from 199,000 boe/d to 205,000 boe/d due to planned maintenance being pushed back into the first quarter of 2014. As a result, the company reduced its 2014 production guidance by 5,000 boe/d to 235,000 boe/d.
On the flip side, this still represents strong 15%-20% growth if guidance is met. So what should investors pay attention to this quarter?
The Eagle Ford is another play investors should pay attention to, as output is expected to increase from under 40,000 boe/d in 2013 to over 70,000 boe/d in 2016. Future growth will come from 40-acre downspacing and deeper laterals.
Beneath the Eagle Ford bench lays the Buda Lime and Pearsall benches, which could yield additional output. By drilling down deeper and allowing for more wells to be completed per unit, Murphy Oil can access each part of the prolific Eagle Ford. Shareholders should look toward what management has to say about how downspacing is affecting production and what output could look like past 2016.
Two wells in Brunei were completed at the end of the year, with results expected to be announced this quarter. Management guided for the potential to find 180 million gross barrels of recoverable oil equivalent through these two wells.
This year several exploratory wells are going to be completed around the globe -- in Indonesia, the Gulf of Mexico, Vietnam, and Cameroon. Results here could dictate where future investments go and if Murphy Oil can increase its reserve lifetime without acquisitions.
You don't want to get burned
Malaysia is home to the maintenance issue weighing on 2014 output, as a rig caught fire that was going to service the Siakap North-Petai field. Four oilfields were brought online in 2013 by assets owned by Murphy Oil, and investors need to see how the maintenance issue weighs on further development.
Block K development in 2014 and the construction of the first phase of Block H, due to be completed in 2017, will provide major cash flow growth over the next decade. Shareholders should look to see this quarter if that is how management wants to proceed, and how the maintenance issue will affect Malaysian operations. If the construction of wells is delayed then cost overruns and lost revenue could depress financial performance.
Murphy Oil has built up quite the extensive portfolio of assets for a company with a market cap of just $12 billion. Offshore wells take much longer to bring online than wells in the Eagle Ford, but once they start producing stable cash flow they don't stop for decades. Malaysia and Cameroon are two key areas to watch for this quarter in terms of exploration, while technological improvements in the Eagle Ford also offer significant upside.