Earnings Call Transcript - MUR Q2 2022

Operator, Operator

Good morning everyone, and welcome to the Murphy Oil Corporation Second Quarter 2022 Earnings Conference Call. I would now like to hand the call over to Kelly Whitley, Vice President of Investor Relations and Communications. Please proceed.

Kelly Whitley, Vice President, Investor Relations and Communications

Good morning, everyone and thank you for joining us on our second quarter earnings call today. Joining us is Roger Jenkins, President and Chief Executive Officer; along with Tom Mireles, Executive Vice President and Chief Financial Officer; and Eric Hambly, Executive Vice President of Operations. Please refer to the information on slides that we have placed on the investor relations section of our website as you follow along with our webcast today. Throughout today's call production numbers, reserves and financial amounts are adjusted to exclude non-controlling interest in the Gulf of Mexico. Please keep in mind that some of the comments made during this call will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such, 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, see Murphy's 2021 annual report on form 10-K on file with the SEC. Murphy takes no duty to publicly update or revise any forward-looking statements. I will now turn the call over to Roger Jenkins. Roger.

Roger Jenkins, President and Chief Executive Officer

Thank you, Kelly. Good morning, everyone and thank you for listening to our call today. On Slide 2, Murphy continues to deliver a strong value proposition. Our ongoing execution excellence from our three producing areas proves that we are a long-term sustainable company. As we disclosed in our 2022 sustainability report released yesterday, significant improvements were made in emissions intensity and water recycling. Excuse me. Our offshore competitive advantages have continually been reinforced, most recently with the achievement of first oil ahead of schedule from the Khaleesi, Mormont, Samurai and King's Quay projects in April. We continue to generate strong cash flow with higher oil prices and well performance exceeding expectations, as we've been able to increase our shareholder returns through quarterly dividend raises, as well as accelerate our debt reduction goals. On to Slide 3. Murphy remains focused on our three strategic priorities of delever, execute and explore. In June, we continued to advance our deleveraging plans with the redemption of $200 million of our 2024 senior notes. Subsequent to quarter end, we announced an additional $242 million in long-term debt reduction, which will eliminate the last of our '24 notes along with reducing our maturities. These transactions put us well on our way toward accomplishing our $600 million to $650 million debt reduction goal for 2022. The Murphy team continues to have outstanding execution across all projects. We have now brought online four wells in our seven-well Khaleesi, Mormont, Samurai field development, with the King's Quay floating production system achieving 97% uptime. The fifth well, the stem oil project is expected to come online imminently. Additionally, we are also acquiring high-return bolt-on working interests in two non-operated Gulf of Mexico fields, providing considerable upside to production with several planned development wells. Looking at our onshore assets, recent online wells in the Eagle Ford Shale and Tupper Montney are exceeding production expectations due to enhanced completion designs and longer laterals with average forecast investment recovery or payback of less than six months. Our exploration program continues to advance with the drilling of the Tulum exploration well in Mexico, and we're finalizing plans to spud in the fourth quarter of 2022. Murphy also recently received offshore operator approval from regulators in Brazil, completing a necessary step in obtaining a partner's working interest in the portable basin. In the Gulf of Mexico, we are progressing plans for our '23 operated exploration program. Overall, our strong execution across our operations has supported ongoing debt reduction, allowing us to fully restore our dividend to pre-2020 levels of $1 per share on an annualized basis announced yesterday, representing a 100% increase from the fourth quarter of 2021. Further, the three components of our strategy together support our new capital allocation framework that we're disclosing here today. As we target returns to shareholders through repurchases and potential dividend increases tied to debt levels with an ultimate long-term debt goal of $1 billion. On Slide 4, in the quarter, we produced 164,000 barrels of oil equivalent per day, comprised of 62% liquids. I'm very pleased to see our production volumes at the high end of guidance as a result of the outperformance in the Gulf of Mexico and Eagle Ford shale. Realized prices remained strong this quarter, with oil at $109 per barrel, once again above WTI prices, with the NGLs at $41 per barrel and natural gas net back to us nearly $4 per thousand cubic feet. On Slide 5, we are excited to have published our 2022 sustainability report yesterday. The team has done an incredible job once again, as they worked within their teams and roles to improve Murphy's environmental footprint year after year. Importantly, we have seen considerable improvement in our various emissions intensities from 2019 to 2021, with a 20% reduction in greenhouse gas emissions, a 28% reduction in methane, and an incredible 49% reduction in flaring intensity. Our efforts are supported by receiving third-party assurance for our second consecutive year on our greenhouse gas scope one and two data. The support also focuses on how we positively impact the lives of the people and communities where we work. I will now turn the call over to our CFO, Tom Mireles, to give a financial update. Tom.

Tom Mireles, Executive Vice President and Chief Financial Officer

Thank you, Roger and good morning everyone. Turning to Slide 6, in the second quarter, we reported net income of $351 million or $2.23 net income per diluted share, which is our highest quarterly earnings from continuing operations in nearly a decade. After tax adjustments included a $70 million non-cash mark-to-market gain on derivatives and a $25 million non-cash mark-to-market loss on contingent consideration. As a result, we reported adjusted net income of $305 million or $1.93 adjusted net income per diluted share. Cash from operations, including non-controlling interest totaled $621 million for the quarter. After accounting for net property additions as well as $47 million for the acquisition of high-returning non-operated Kodiak working interest, we achieved positive adjusted cash flow of $267 million. Murphy reported accrued Capex of $266 million in the second quarter, which excluded non-controlling interest in the Kodiak acquisition. Additionally, $25 million of contingent consideration payments were associated with achieving first oil at the King's Quay floating production system. Slide 7. Our deleveraging efforts over the past 18 months continue to strengthen the balance sheet. During the second quarter, we redeemed another $200 million of our 2024 senior notes, resulting in $2.3 billion of long-term debt outstanding at the end of the quarter. As of June 30, we had approximately $430 million of cash and equivalents on hand. Following quarter end, we announced an additional $242 million of debt reduction, achieved by the redemption of the remaining $42 million of the 2024 senior notes as well as the tender offer of up to $200 million of senior notes due 2025, 2027, and 2028. These transactions disclosed up to today total nearly $450 million in debt reduction this year, putting us substantially closer to achieving our debt reduction goal for the year of $600 million to $650 million. With that, I'll turn it over to Eric.

Eric Hambly, Executive Vice President of Operations

Thank you, Tom, and good morning everyone. On Slide 9, we saw outstanding well performance from the Eagle Ford Shale this quarter as we produced 36,000 barrels of oil equivalent per day with 86% liquids. As planned, we brought online 17 wells in Karnes and six wells in Catarina for a total of 23 operated wells in the quarter. Last quarter we disclosed Capex revisions in our 2022 program related to revised completion designs and I'm pleased at the great results we have seen in modifying to higher intensity fracks. These wells have exceeded forecasts with Karnes gross IP30 rates averaging 1,900 barrels of oil equivalent per day and Catarina gross IP30s averaging 1,100 barrels of oil equivalent per day, with all wells averaging 93% liquids volumes. Overall, our 2022 drilling and completion program is forecast to average $5.5 million per well. Taking this into account, as well as the strong production rates, we predict achieving full investment recovery or payout of three to five months for Karnes and six to 11 months in Catarina, assuming an $85 per barrel WTI price. Our 2022 operated program concludes in the third quarter with four Catarina wells, two of which will be in the Austin Chalk formation, and we look forward to reviewing those results. Slide 10. In the Tupper Montney, Murphy produced 275 million cubic feet per day in the second quarter. Fifteen wells were brought online, five of which were slightly ahead of schedule. The remaining five wells were brought online in July, wrapping up the 2022 program. We recently achieved a record high gross production peak of 415 million cubic feet per day across the entire asset. Our team has done an incredible job this year of managing costs and regulatory challenges. We were able to bring on these wells for an average of $4.8 million per well. Overall, we are realizing average investment recovery in less than six months, assuming an AECO price of $5.50 per million BTU. Slide 12. Our Gulf of Mexico assets continue to be a home run for us, particularly the fields and assets we purchased in 2018 and 2019. Murphy produced 70,000 barrels of oil equivalent per day in the second quarter, with 79% oil volumes. Approximately 80% of our Gulf of Mexico Capex budget for the year is dedicated to our major projects at Khaleesi, Mormont, Samurai, and the non-operated St. Malo waterflood, and we are pleased that they remain on schedule. The remainder of our capital plan for this asset is dedicated to the development and tieback wells, with the operated Dalmatian number one well and two non-operated Lucius wells all being drilled this quarter, while the non-operated Kodiak well is being completed. Slide 13. As announced today, we have executed a series of accretive, highly economic bolt-on transactions in our Gulf of Mexico business at the non-operated Kodiak and Lucius fields. Together, the additional working interest and the three new wells online later this year, will provide an estimated incremental production of approximately 1,500 barrels of oil equivalent per day for the annualized full year 2022 and 4,100 barrels of oil equivalent per day estimated for the full year 2023. Specifically, in the second quarter, we closed the acquisition of 11% additional working interest in the Kodiak field for $47 million after closing adjustments, with expected investment recovery within one year. We have also signed a purchase and sale agreement to acquire an additional 3.4% working interest in Lucius field for $477 million after estimated closing adjustments, with closing expected in the third quarter and forecast full investment recovery within two years. Following these transactions, we have a total working interest of 59.3% in Kodiak and 16.1% in Lucius. While we like most about these purchases is that they offer active opportunities to further increase their value. Murphy and partners have recently drilled a successful well at Kodiak which is now being completed, and we are part of a two-well program at Lucius. As we high-grade our portfolio, we also disclosed today the divestiture of our 50% working interest in the operated Thunder Hawk field scheduled to occur in the third quarter. Slide 14. After achieving first oil at the Murphy-operated King's Quay floating production system in early April, we have now brought online a total of four wells in the Khaleesi, Mormont, Samurai field development project. Results from these wells continue to be above expectations with current combined gross volumes of 70,000 barrels of oil equivalent per day, or 18,000 barrels of oil equivalent per day net to Murphy and approximately 87% oil. The floating production system continues to achieve significant uptime at 97%. The fifth well, the last in the Khaleesi Mormont field is anticipated to flow imminently. The rig will then move to the Samurai field to complete the remaining two wells in the seven well program. I will now hand it back to Roger.

Roger Jenkins, President and Chief Executive Officer

Thank you, Eric. I'll review exploration today on Slide 16. Exploration remains the third pillar of our strategy. Our most near-term opportunities are located offshore Mexico, where we received a drilling permit and are finalizing plans to spud the operated Tulum well in the fourth quarter of 2022 at a net cost to us of approximately $23 million. We're looking forward to the results of this well, which is located on the western side of our block five acreage. On Slide 17 in the Gulf of Mexico, we're advancing our exploration portfolio there and are targeting a two-well program in 2023. The first planned well is the Oso 1 well, which we operate with a 50% working interest. This time, we're finalizing the second well with partners; we have several great choices among our 20 key prospects in the Gulf. As looking at production on Slide 19, as announced last quarter, we made several adjustments to enhance our onshore well completion designs, which have been reviewed today. I'm pleased to say we've been seeing immediate positive results from that decision and our top-tier execution this reduction has exceeded expectations, which continues to elevate our forecast for the year. For the third quarter of 2022, we anticipate a production range of 180,000 to 188,000 barrels equivalent per day with 49% oil and 55% liquids. This accounts for nearly 10,000 barrels of oil equivalent per day of onshore and offshore downtime, as well as 6,000 barrels equivalent per day set aside for resumed Gulf of Mexico storm downtime. Importantly, due to outstanding Eagle Ford Shale and Gulf of Mexico execution, as well as bolt-on acquisitions, we're increasing our full-year 2022 production guidance today to a new range of 168,000 to 176,000 barrels equivalent per day at 52% oil and 58% liquids. This represents a new midpoint of 172,000 barrels equivalent per day compared to 168,000 barrels equivalent per day previously. On our capital plan on Slide 20, Murphy is maintaining our 2022 Capex guidance range of $900 million to $950 million, excluding acquisitions. Approximately 6% of our spending occurred in the first half of the year, in part to support our onshore program, as more than 90% of our operated wells are online year-to-date. Furthermore, approximately 80% of the offshore Capex is dedicated to major projects in the Gulf. By maintaining the spending level, our increased production volumes and stronger oil prices provide significant free cash flow to allocate toward our increasing dividend of $1 per share annualized, as well as nearly $450 million in announced debt reduction transactions at this time, with further debt reduction planned for the remainder of the year. It's really important to us today is Slide 21, which is our new capital allocation framework. To expand on our previously announced 2022 debt reduction goal of $600 million to $650 million, the board of directors has approved a multi-tier capital allocation framework allowing for additional shareholder returns beyond the quarterly base dividend of $0.25 per share, advancing towards a long-term debt target of $1 billion. Additionally, the Board has authorized an initial $300 million share repurchase program, allowing Murphy to repurchase shares through a variety of methods with no limit in time. Our framework disclosed today is three straightforward levels and it's based on an adjusted free cash flow metric calculated as cash flow from activities before changes in working capital, less capital spending, accretive acquisitions, dividends, NCI distributions and other projected payments. Murphy 1.0 is where we stand today with long-term debt exceeding $1.8 billion. We will allocate adjusted free cash flow to reducing debt while maintaining our $0.25 quarterly dividend. Once debt is between $1 billion and $1.8 billion, we will breach Murphy 2.0. This time we will allocate approximately 75% of adjusted free cash flow to debt reduction with the remaining 25% distributed to shareholders, weighted toward repurchases with potential dividend increases. Lastly, we will achieve Murphy 3.0 when our long-term debt is approximately $1 billion or less. Our framework shifts at this point as to seek to allocate up to 50% of adjusted free cash flow to our balance sheet. Meanwhile, a minimum of 50% of adjusted free cash flow will be allocated to shareholders through share repurchases and potential dividend increases. While our plan is primarily to repurchase shares at various stages of Murphy 2.0 and 3.0, at any time, we reserve the right to advance share repurchases should our equity value significantly dislocate from crude oil prices or if our company continues to exhibit outstanding execution. On Slide 22, in summary today, our assets continue to perform well with enhanced completions of accretive acquisitions, resulting in fast paybacks and higher volumes across all our operations. This leads to additional free cash flow, allowing us to advance our deleveraging goals and dividend. We're looking forward to the exploration opportunity in offshore Mexico as we drill there later this year, as well as progressing our 2023 plans in the Gulf. Most importantly, we were able to disclose an exciting capital allocation framework today as we target returns to shareholders through share repurchases and potential dividend increases that are tied to long-term debt levels while we seek an investment-grade credit rating. In closing, today I'd like to thank our employees for their outstanding efforts this past quarter, as this success in operational and financial execution would not have been possible without their contributions. With that now, I will turn it over to people on the phone here for the call, and I look forward to your questions this morning.

Operator, Operator

First question comes from Paul Cheng at Scotia Bank. Please go ahead.

Paul Cheng, Analyst

Wanted to just - the first quick one just a mechanic that you don't have a lot of debt maturing. So once you get to $1.8 billion in the gross debt should we assume the debt repayment will follow the maturity schedule or that you're just going to continue to use the tender offer or open market purchase to quickly get to that $1 billion or below, if you have the excess free cash flow.

Roger Jenkins, President and Chief Executive Officer

I'm going to have CFO, Tom answer that for you, Paul.

Tom Mireles, Executive Vice President and Chief Financial Officer

Hi Paul, yes, thanks for that question. A lot of this, the timing will depend on the type of price environment that we have and at current prices, it's likely that we would have to tender to get to those longer-dated maturities. If things change, then we'll just have to see what the market offers at the time, but the tender offer is what we're thinking.

Paul Cheng, Analyst

Okay. And that I think you mentioned that you guys will be seeking for an investment grade and what need to be done in order for you to get there and what our benefit you'll see once you have the investment grade?

Tom Mireles, Executive Vice President and Chief Financial Officer

Okay good question, Paul, thanks for that. So the way we think about it is, we need to execute on our operations as we have been and continue our debt reduction, and what we think the benefits are over there is overall lower cost of capital. This minimizes our requirements to post collateral with counterparties. There's a lot of advantages that we see with getting to it.

Paul Cheng, Analyst

A final question from me, with the current commodity price outlook does it in any shape or form change the investment spend in Tupper as well as to keep up that offering? Thank you.

Roger Jenkins, President and Chief Executive Officer

Thank you for that question Paul right now as we look ahead and capital allocation. We have a plan of maintaining near the levels we are in the Eagle Ford. Next year, we have a capital plan to fill our Tupper Montney plant to 500 million a day gross, so from last year to this year to next year, there are no changes in our onshore plan. That's how we're thinking about it now, as we continue on with this framework. And not focusing on large production increases, but we will have higher production next year as we add on a full year of these Gulf projects and exit the year with this guidance we're providing today, Paul. We're exiting the year at a very high rate and continue that on to the next year, and we're very excited about getting close to 200,000 barrels a day in our business.

Operator, Operator

Thank you. The next question comes from Leo Mariani at MKM Partners. Please go ahead.

Leo Mariani, Analyst

Good morning Roger, want to hear a little bit more about the acquisition environment in the Gulf of Mexico. Obviously, a couple of small deals that you guys were able to get together here, it looks nice. I guess there are certainly a handful of bigger deals floating around out there as well. Can you maybe just talk about kind of what you're seeing in the market and then kind of what Murphy's additional appetite is for Gulf M&A and how competitive it is out there?

Roger Jenkins, President and Chief Executive Officer

Thank you so much for that question, Leo. Good question. Something we do focus on because we really feel we have a competitive advantage in M&A in the Gulf. We've been in the business so long, and we are partners in so many fields that we have a good bit of data. It gives us a real advantage in analyzing data. On occasion, one of the deals today was through a prep right that we had, which is very valuable, and another is through a purchase of a company strategically wanting to exit the Gulf, an international company. We were able to work with our partnership group and execute that, so we look and know about almost all deals very intimately in that business. What we like the most, Leo, is high return, accretive below 2.0 EBITDA payout deals that pay out very quickly, where we understand the assets. Furthermore, we like M&A on opportunities that have a growth component to it, like when we bought more at Kodiak there is a rig program there today drilling a very successful well there. We're completing that well today with our partner, and we are part of a two-well program at Lucius. We are looking for things where we have a competitive advantage of information, a lot of knowledge about it with a good operator and work to be done. As to the other deals that come up, when large PDP blow down or large abandonment obligation deals are not our favorite, and we are treating that accordingly. That's kind of how we feel about it, Leo, if that answers your question.

Leo Mariani, Analyst

Yes, that's helpful for sure. And I guess just wanted to kind of talk a little about spending for next year. When you guys originally put out the multi-year plan, there was a big step down in capital in 2023. I guess earlier in the call, you indicated there was no real change to your onshore plan. Just wanted to get a sense if these high commodity prices. If you still intend to step the capital down a fair bit in 2023, or are there other maybe projects offshore that are of interest to you that might get more capital on a relative basis?

Roger Jenkins, President and Chief Executive Officer

Thanks for that Leo question, anticipated question today. Thanks for asking it. In the first quarter on our call, we disclosed and we had this capital range of $650 million for 2023 and 2024, which you're greatly familiar with. We did increase that debt on that call to near $700 with inflation at that time. We still need to recalibrate these figures for some inflation information for 2023, as I stated earlier this morning. It's our plan to maintain our Eagle Ford and Tupper plans at this time, so there are no changes to our onshore plan; production will be higher due to Gulf wells being online. So I need to work on inflation, and our teams are in the middle of that with our final plans in the Gulf. As usual, we just don't have plans to disclose our spending until our customary time in January, but I'm real pleased with our execution. I'm real pleased with our production level. I'm real pleased with the CapEx we've been spending onshore and how we're able to do that. I feel well positioned, but trying to keep CapEx where it was is best we can without inflation is the main focus today, Leo.

Leo Mariani, Analyst

Okay, and then just on the returns of capital. I just wanted to make sure I sort of understood. I know you have these debt targets to hit here and you are clearly paying off more debt this year and next. But just to be clear on the debt, is that an absolute debt target you want to hit before you get to the kind of 25% return of capital to shareholders? Is that more of a net debt target?

Roger Jenkins, President and Chief Executive Officer

Thanks for that clarification, Leo. That's a very good question. No, it's straightforward long-term debt. We really don't use the term net debt here. Our net debt would be very low in no scenarios, but we're talking about long-term bonds and trying to return capital to shareholders. That's what's significant about today, Leo. We aim to return capital to shareholders as we pay down debt. I think prior to the start, there would be additional returns to shareholders until we reach certain debt levels, but we have a way of returning more along that path today, and we're really excited about debt, which can be very positive for our long-term investors.

Operator, Operator

Thank you. Next question comes from Neal Dingmann at Truist Securities. Please go ahead.

Neal Dingmann, Analyst

Roger, maybe you have a good morning. Absolutely, yes thanks for the details so far. My first question is on shareholder return; maybe looking a little bit different. I'm just wondering, could you discuss your view on how you view the value creation as it pertains to reward investors with shareholder returns as you suggested going forward versus continued production and reserve growth that you all are so great at?

Roger Jenkins, President and Chief Executive Officer

Thanks for that question, Neal. It's a good question. We believe that we have a company that can be sustainable for a very long time in a 200,000-barrel-a-day world slightly growing if we want to, and we believe during that time we can build. We can have an incredible balance sheet which gives us flexibility and derisks our company greatly while returning a lot of money to shareholders. Additionally, we will be building cash, which can advance shareholder returns further or be used for other needs at that time. So we're really into a dividend, which is now we're a 60-year dividend-paying company. We've paid $1.6 billion in dividends over the last ten years. So we see a strong dividend return to shareholders through the buyback plan as our basic plan to create shareholder value.

Neal Dingmann, Analyst

Makes a lot of sense. Then my second question is, let me ask a little bit of a different way in offshore. I'm just wondering; you talk about, I know you've got a lot of things going on at King's Quay. Can you talk about potential out of these wells coming on further incremental capacity? Additionally, if you also could talk offshore, maybe about more potential Gulf of Mexico pref right deals you might be seeing.

Roger Jenkins, President and Chief Executive Officer

I'll handle the M&A piece, then Eric will talk about specifics of the operation. These are incredible deals we're able to be a part of here. It speaks a lot about our company. It's always an advantage to have a press - to have a preference right; this is quite an old deal that came about months and months ago. We were able to step in, and then another deal with a strategic exit by an international player. In these strategic exits, these companies seek an experienced company with long-term ability in the Gulf, a great reputation in the Gulf, great safety, great regulatory standing, and a great balance sheet. We've been there since the '50s, and this gives us a big advantage in buying things from people. There will always be deals that come and go. We obviously have a very senior and experienced BD team here; we hear about things ahead of time. We know what's going on in the business, from 30 to 40 years of experience really, and that puts us well-positioned to know what's going on. We have a lot of information, and we're able to have a unique ability to look at deals. We pass on lots of them, and we take some of them and have a high criteria because we want to ensure we have accretive, outstanding deals, and we've been able to do it, and I think we'll be able to continue to do it. Then Eric can talk about King's Quay.

Eric Hambly, Executive Vice President of Operations

Yes, okay. Thanks, Neal. First of all, I just wanted to highlight that we are extremely proud of our team's execution on the King's Quay, Khaleesi, Mormont, Samurai production. It's really setting us apart in terms of our execution offshore. As we highlighted in our release in our earlier discussion, we are currently producing about 70,000 BOE per day from the facility; that's on a gross basis. We will soon start flowing the last well in the Khaleesi Mormont project, and that will add significant production as we head toward the end of the year. We expect to be approaching the nameplate capacity of the King's Quay facility, which is 85,000 barrels of oil per day. We've been doing some preliminary work on that to figure out what rate we can achieve, possibly be on nameplate capacity, and we think if we continue to see outperformance of our wells as we deliver the remaining wells in the seven-well program, we think we could very easily achieve 100,000 barrels per day from the facility capacity with minor adjustments to how we operate the facility. So we're pretty excited about our trajectory as we head into the end of the year with the remaining wells to come online.

Operator, Operator

Next question comes from Roger Read at Wells Fargo. Please go ahead.

Roger Read, Analyst

Good morning, congrats on the quarter. Glad to see the dividend getting back. I guess two things I'd like to ask you about. One just because it's topical with the, I'm going to call aptly named but let's got ironically named Inflation Reduction Act. But the potential for a royalty increase and how we should think about that potentially impacting your Gulf of Mexico. I'll hold up and then ask my second one.

Roger Jenkins, President and Chief Executive Officer

Thanks, Roger for that. I'll take that question. We see no impact on that. We have all of our leases with an existing contract with the U.S. government. It's held the test of time. There is no ability in those contracts to raise our royalty rates. The royalty rates described in this ironically named bill worry me, as they pertain to new leases. So it would only pertain to the Gulf new leases from the new plan that's supposed to take place. As you know, at Murphy, we have no federal onshore leases. As far as other things in the bills such as methane taxes and things to that effect in our offshore environment, this will have a very de minimis impact, and we see really no impacts of this very de minimis bill on Murphy Oil Corporation.

Roger Read, Analyst

Good to hear. Second question for you, given the Murphy 3.0 goals on long-term debt, yet today, you announced obviously some acquisitions in the Gulf. A lot of the questions are focused on more, how would you or how should we think about any future opportunities to do acquisitions within that framework? In other words, if you had to delay the achievement of Murphy 3.0 by six or nine months because of a very attractive accretive transaction, just how should we think about that fitting into the overall system?

Roger Jenkins, President and Chief Executive Officer

Thanks, Roger for that question, a good one. Naturally, any company with a framework has a targeted framework, and outstanding M&A that comes your way would have to be judged by you and your board, to you want to forego a framework of a few months like you say to do so. We also see many other name-brand peers with frameworks occasionally buying assets as well, and we would be no different. Also, during that period, we would be building cash during that time, a significant amount at any kind of oil price, which will give us loads of flexibility around further shareholder returns or M&A or exploration success. But we have a high bar on M&A; we're not looking at M&A to grow or do anything like that; it must meet unique investment criteria that we focus on. But sure, any company that has an incredible deal, and we've had some incredible deals, and these two today are very good, you would have to delay that a few months as you state, but during that time, there's a good bit of cash on the balance sheet as well, Roger.

Operator, Operator

Thank you. One last question comes from Arun Jayaram at JPMorgan. Please go ahead.

Arun Jayaram, Analyst

I was wondering if you could provide us with some thoughts on how you expect, but maybe on a gross basis, the production profile to play out at the Khaleesi Mormont Samurai fields excluding any obviously you have some hurricane risks in 3Q and what type of kind of - when do you expect to reach that kind of plateau peak rate? And I assume that you would expect that to stay relatively flat next year outside of any hurricane related impacts.

Roger Jenkins, President and Chief Executive Officer

Thanks, Arun. I'll have Eric take that operational question.

Eric Hambly, Executive Vice President of Operations

Yes, thanks, Arun. So I tried to highlight this in the discussion earlier with Neal. We will soon bring online Mormont 2 well, which is expected to add quite a bit of production. As we head into the third quarter, we're probably not too far away from facility capacity. We will have very minor decline from the new wells and then bring on the remaining two wells in the overall development in the fourth quarter. Our exit rate for the fourth quarter, if we achieve the well results that we're predicting, should be excellent.

Roger Jenkins, President and Chief Executive Officer

Well, you know, Arun, as you know more than anyone, and thanks for that question. It depends on a lot of factors, on inflation going into 2023, and you cover major service on that matter, it depends on pricing, pricing has been quite volatile lately. So as we launch our plan as to 1.0, we should be near the $1.8 billion at the end of the year because we've already well on that way and we haven't finalized their plans for 2023 that I've said. I anticipate we won't. But at $75 to $85 oil, we expect to be close to achieving our long-term debt target of $1 billion in 2023, of course, and we should be getting there next year without great difficulty as we keep executing and Eric's teams are doing a great job of executing there.

Operator, Operator

Thank you. Next question comes from Paul Cheng at Scotiabank. Please go ahead.

Paul Cheng, Analyst

Yes. Just two quick follow-up. One, you talked about the opportunity in the Gulf of Mexico; how about in the Eagle Ford and the bolt-on acquisition opportunities? Or do you keep an interest? Secondly, given the current market condition, what is your going forward hedging strategy? Do you feel you need to hedge at all going forward? Thank you.

Roger Jenkins, President and Chief Executive Officer

Thank you, Paul, for that question on that. You know, Paul, we do look at our business development team, again I'm blessed with a senior BD team that has been very successful. We do monitor bolt-ons in the Eagle Ford, but to be honest with you, Paul. With the plan that we have to keep Eagle Ford flattish, we have ample locations to pursue for a long time in all of our areas of Eagle Ford, and we are in the oil window, we're heavily oil weighted with great differentials and net backs in the Eagle Ford. When we look at M&A there, it's quite often heavily drilled or not really as good as the locations we have left in our portfolio. The slowing of the Eagle Ford has made our Eagle Ford very advantageous to us, incredible work on base production and production engineering. When we go to look at something else, we have to stop what we're doing to do wells that are inferior, quite frankly, and it hasn't passed our metrics. But offshore, we are part of the field, and we understand the field. It has upside; we like to operate, or we like to work that's ongoing. It's just a totally different advantage with very low EBITDA multiples and incredibly high rates of return. You have to be in that game and understand that game to make hay when the sun shines, and we just don't see that in the onshore today. That's why we're well positioned with a diverse portfolio that allows us to move in and out of things in the Gulf that we make a lot of money on, Paul. Tom can help explain the hedging strategy for you, Paul.

Tom Mireles, Executive Vice President and Chief Financial Officer

Okay. Yes, Paul, the way we think about it is the best hedge is to have a strong balance sheet coupled with the strategy that can pretty much work in a multitude of prices and operational environments. This allows us to execute through these different commodity cycles. At current prices, our balance sheet is improving rapidly. I think that positions us well to achieve our long-term debt target. Historically, we've considered hedges to ensure that we get a certain return on an acquisition, so potentially, under a future scenario, we might consider it to strategically hedge in that kind of scenario.

Operator, Operator

Thank you. There are no further questions from our phone lines. I would now like to turn the call back over to Roger Jenkins for any closing remarks.

Roger Jenkins, President and Chief Executive Officer

Thanks everyone for calling in today. I'm really proud of our quarter and our team, and I appreciate everyone for dialing in and answering questions. Contact Kelly and Megan if you have any follow-ups. I appreciate it and we'll talk to you soon. Goodbye.

Operator, Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.