Earnings Call Transcript - MUR Q1 2021

Operator, Operator

Good morning, everyone, and welcome to the Murphy Oil Corporation First Quarter 2021 Earnings Conference Call. I would like to turn 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, operator, and thank you, everyone, for joining us on our first quarter earnings call today. Joining us is Roger Jenkins, President and Chief Executive Officer; along with David Looney, Executive Vice President and Chief Financial Officer; Eric Hambly, Executive Vice President, Operations; and Tom Mireles, Senior Vice President, Technical Services. Please refer to the informational slides we've 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 noncontrolling interest in the Gulf of Mexico. Slide 1. Please keep in mind that some of our 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 2020 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 Jenkins, President and Chief Executive Officer

Thank you, Kelly. Good morning, everyone. Turning to Slide 2. I'd like to start with why Murphy Oil illustrates our unique assets and abilities. Murphy produces from primarily three sources: the Eagle Ford Shale, Gulf of Mexico, and onshore Canada. Unconventional Eagle Ford Shale and onshore Canada assets have complementary characteristics, which enables our onshore team to leverage shared capabilities and expertise. Further, we have deep roots and successful deepwater operations in the Gulf of Mexico business, which provides a large portion of our revenue. Murphy has a unique ability to execute offshore projects faster than our peers with leading drilling and completion abilities and an average three-year project timeline from sanction to first oil. Our leading offshore execution capability augments our high potential exploration portfolio. Our assets achieve low carbon emissions intensity, which we believe will be in the top quartile as compared to our oil-weighted peers at the end of 2021. They continue to generate high levels of cash flow, which are directed toward deleveraging our business and returning cash to our shareholders through our long-term dividend. Throughout all of this, our company has been supported by the multiple decade ownership of the founding Murphy family. Also, our Board of Directors and management team maintain one of the industry's highest levels of ownership compared to our peers, and we all have a personal interest in our company's long-term success. On Slide 3. Our three priorities this year are to delever, execute, and explore. Murphy has made significant progress on delevering and derisking our company in the first quarter, with the monetization of our share of King's Quay floating production system and issuing new senior notes, utilizing proceeds to fully repay our revolver and take out senior notes that were due in 2022. Overall, we achieved a total of $233 million of debt reduction, or 8% of our total debt since year-end 2020, from these transactions. Our current strip prices are maintaining the goal of reducing debt by an additional $200 million in 2021 for a total of 15% debt reduction this year. Our execution ability remains top-notch with high levels of performance as our onshore business brought wells online ahead of schedule and under budget, while our operated and non-operated offshore projects remained on schedule. Our oil production beat guidance by 7% this quarter while our Eagle Ford Shale assets, in particular, were 4% above guidance despite experiencing impacts from the winter storm in Texas. Lastly, as we continue advancing our unique high potential exploration program, we're excited about drilling the two upcoming non-operated wells. The Silverback well was recently spud by Chevron in the Gulf of Mexico, and later this year, we will turn our attention to the Cutthroat well in Brazil, Sergipe-Alagoas Basin with ExxonMobil. I'm excited to discuss these three simple priorities with investors and analysts today. On Slide 4, getting to the details of the quarter, Murphy produced an average of 155,000 barrels equivalent per day with approximately 63% liquids production. Significantly, our oil production was 88,000 barrels per day, which beat our guidance of 82,000 barrels per day. As shown in our 2021 quarterly well cadence, accrued CapEx with first quarter weighted totaled $230 million net to Murphy. This amount excludes King’s Quay spending but includes our $20 million acquisition of an additional 3.5 working interest in the non-operated Lucius field. Overall, we spent one-third of our total capital plan for the year. Commodity prices rebounded significantly in the first quarter with oil realizations averaging $58 per barrel, slightly above the WTI benchmark, which we haven't seen since before the pandemic. Our natural gas realization prices averaged $2.55 per thousand cubic feet. And now I will turn the call over to our Chief Financial Officer, Mr. David Looney, to give a financial update.

David Looney, Chief Financial Officer

Thank you, Roger, and good morning, everyone. On Slide 5. For the quarter, we recorded a net loss of $287 million or $1.87 net loss per diluted share. After adjusting for several one-off after-tax items, such as a $128 million non-cash impairment charge on Terra Nova and a $121 million non-cash mark-to-market loss on crude oil derivatives, we reported adjusted net income of $10 million or $0.06 adjusted net income per diluted share. Regarding Terra Nova, operations there have been offline since December of 2019. We recorded the impairment charge during this quarter due to the current status of operating plans. However, Murphy, other partners, and stakeholders continue to evaluate options that could support a long-term production plan. Cash from operations for the quarter totaled $238 million, including the non-controlling interest. After accounting for property additions of $258 million and proceeds from asset sales of $268 million, we achieved a positive adjusted cash flow of $248 million for the quarter. On the hedging front, Murphy continues to protect its future cash flow in the Tupper Montney with additional fixed-price forward sales contracts for a portion of production all the way through 2024. Slide 6. As Roger mentioned, our 2021 CapEx plan is heavily weighted towards the first quarter with $230 million in total accrued CapEx or 33% of the annual total. Approximately 44% of total Eagle Ford Shale CapEx for the year was spent in the first quarter, while nearly 40% and 35% of the annual planned CapEx were spent in the Gulf of Mexico and offshore Canada, respectively. This cadence will continue to stair-step down for the remainder of the year. Overall, we're maintaining our CapEx plan of $675 million to $725 million for 2021. However, we are tightening our production guidance range to 157,000 to 165,000 barrels of oil equivalent per day for the full year. For the second quarter of 2021, we're forecasting a production range of 160,000 to 168,000 barrels of oil equivalent per day. Importantly, our oil production is forecasted at 95,000 barrels of oil per day for the second quarter. Slide 7. As Roger mentioned, Murphy had several significant cash flow events occurring during the first quarter. So we've tried to simplify the ins and outs on Slide 7. In addition to cash from operations nearly covering our regular CapEx, we received funds of $268 million from monetizing the King’s Quay floating production system. We used these funds to pay off the $200 million outstanding on our revolving credit facility as well as $18 million in King’s Quay CapEx incurred during the quarter. We also issued $550 million of new senior notes, raising proceeds of $542 million. This was used to pay off $576 million of 2022 notes. Once you take into account the $34 million of early redemption costs related to the payoff of those notes and account for dividends and other amounts, we ended up with an $80 million cash deficit, which was covered from cash on hand. At the end of the first quarter, we had $231 million of cash and equivalents available and had repaid a net $233 million or 8% of total debt, as Roger mentioned. At current commodity prices, we have a goal to repurchase an additional $200 million of senior notes later this year for a total debt reduction of approximately 15% for the full year 2021. With that, I'll turn it back over to Roger.

Roger Jenkins, President and Chief Executive Officer

Thank you, David. I'll be moving now to Slide 9, talking about our North American onshore business. Murphy continues to enhance our onshore well execution with operated wells coming online ahead of schedule in the first quarter due to enhancements in drilling and completion efficiencies. Additionally, 16 non-operated Eagle Ford Shale wells came online at the end of the quarter, ahead of schedule. Overall, we remain on track to bring online three remaining operated wells and 29 gross non-operated wells in the Eagle Ford Shale and 10 operated Tupper Montney wells in the next two quarters. Our drilling and completion teams have worked hard to reduce the company's environmental impact by using clean-burning natural gas instead of diesel in drilling and completion activities, not only have emissions been reduced, but Murphy saved $1.3 million in costs for the quarter, while bringing online 20 wells across North America onshore. We utilized approximately 800,000 barrels of recycled water across our completions programs, with Tupper Montney completions consuming nearly 75% recycled water, saving $3 million in disposal costs. Further, we have reduced emissions with actions such as electrification of the third-party processing plant, which secures power primarily from hydro in our Tupper Montney gas plant from the previous natural gas power supply. On Slide 10, our Eagle Ford Shale production of 30,000 barrels equivalent per day exceeded the midpoint of our guidance for the quarter despite more than 2,000 barrel equivalent per day of impact from February winter storm. Our first quarter online wells' IP30 rate averaged 1,400 barrels of oil equivalent per day, with the IP of the two best wells reaching 2,000 barrels equivalent per day. Along with stronger well results, Murphy significantly reduced our costs from previous years. In 2018, our average well cost has dropped from approximately $6.3 million per well to now $4.5 million per well in the first quarter of 2021, with stand-alone completion costs down 40% during that period. I'm proud of the work our team has done and the meaningful impact it is having on our company's bottom line. As we work to derisk our Austin Chalk acreage in Karnes County, we're pleased to see the strong well results achieved in the first quarter and the potential they create for our Austin Chalk location count in the future. Our Tier 2 wells have outperformed our Tier 1 type curve and achieved an average IP rate of 1,400 barrels equivalent per day, and our recent Tier 1 Austin Chalk wells continue to perform in line with the type curve. Slide 11, on the Tupper Montney. Murphy produced 234 million cubic feet per day in the first quarter in Tupper and brought online four wells as planned. Our production was impacted in the quarter by a mechanical issue on one well as well as higher royalties. Drilling and completion costs continue to improve for this asset as well with an approximate 28% reduction since 2017. Average total well costs are now approximately $4.1 million in the first quarter of 2021 as compared to $5.5 million in 2019. Looking at our Gulf of Mexico projects on Slide 13, Murphy's major projects in the Gulf continue to advance as planned. The top hole sections have been drilled at all three wells as part of the Khaleesi/Mormont, Samurai, and the Samurai-3 well, which is currently drilling as the first well in the drilling campaign. The project remains on track to achieve first oil in the first half of 2022. The non-operated St. Malo waterflood project is progressing as scheduled. The first producer well is now in line, and the final well of the four-well total campaign is currently being drilled by the operator. On King’s Quay, on Slide 14. As previously announced, we closed the monetization of the King’s Quay floating production system in the first quarter. Construction is now complete with the sail away to the Gulf of Mexico planned for the third quarter of 2021. Moorings are currently being installed in the field in advancing this arrival, and the FPS remains on track for receiving first oil from Khaleesi/Mormont, Samurai in the first half of 2022. We're pleased that this construction is kept to schedule despite the global pandemic. It is an integral piece of our Gulf of Mexico projects. Murphy's industry-leading team is doing an exceptional job in executing this significant project. Exploration, Slide 16. We're excited to be partnered with Chevron as the operator for the Silverback prospect in the Gulf of Mexico, which commenced drilling in the second quarter of 2021. Our 10% non-operated working interest provides access to 12 blocks with potential for an attractive play-opening trend and is adjacent to a large position currently held by Murphy and our partners. On Slide 17, our non-operated exploration position in Sergipe-Alagoas Basin in Brazil continues to progress and provides us further optionality. Today, we're highlighting our view of the resource potential at 500 million to 1 billion barrels. Again, illustrating what a significant opportunity Brazil is for our company. Murphy, along with the operator, ExxonMobil and partners plan to spud the Cutthroat well in the second half of 2021, which is approximately a net cost to Murphy of $15 million. Slide 19. We previously presented our long-range plan as far as our fourth quarter earnings and highlight that the plan remains unchanged. By maintaining average CapEx spend of $600 million annually, we forecast a production CAGR of approximately 6% through 2024, with oil weighting averaging 50% and offshore production averaging 75,000 barrels equivalent per day. This consistency leads to significant cash flow generation. An average WTI price of $60 per barrel enables Murphy to reduce its total debt level to $1.4 billion by 2024 while maintaining a quarterly dividend to shareholders. Further, we remain focused on executing our exploration program with a portfolio of more than 1 billion barrels of oil equivalent on a net risk resource basis. Once we have our debt levels, we have the option to reduce debt further towards $1 billion. When debt reduction is behind us, we will do what is best for the company and shareholders based on market conditions while balancing increased asset development, funding exploration success, potential A&D opportunities, and, of course, returning cash to shareholders. On to Slide 20 on our focused priorities. As we look ahead to the remainder of the year and beyond, we remain focused on our priorities of delevering, executing, and exploring. With current strip prices above $60 per barrel and strong production volumes, we're on target for an additional $200 million of debt repurchases later this year, resulting in a 15% reduction for all of 2021. By maintaining conservative capital spending, we project the total debt to be $1.4 billion by 2024, with potential for further reductions beyond that level. Murphy is committed to operating safely, in particular, as we continue moving forward on our major offshore projects ahead of first oil in the first half of 2022. Our onshore drilling and completions team have done a tremendous job improving our cost efficiencies and bringing wells online ahead of schedule, all while finding ways to cut emissions intensity and operate with minimal environmental impacts. Lastly, looking forward with our partners to drill exploration wells in the Gulf and Brazil this year, and we look forward to this year's campaign. Wrapping up, I want to thank the employees of Murphy for doing an outstanding job this quarter and executing the business safely and according to plan within budget and, in some cases, ahead of schedule. We've set a strong foundation for the remainder of the year for our future drilling campaigns with the work done to reduce costs and environmental impacts. I'm pleased with all the hard work and your accomplishments. That's all I have this morning, and I'll turn it over to the operator for our questions. Thank you.

Operator, Operator

And your first question will be from Paul Cheng at Scotiabank.

Paul Cheng, Analyst

I have a few quick questions. First, regarding Austin Chalk, can you provide a general sense of the opportunities you see there? If everything goes as planned, how large is the inventory we might be discussing?

Roger Jenkins, President and Chief Executive Officer

Okay, Paul. I think it's best to have Eric Hambly, our Head of Operations, provide that color for you this morning.

Eric Hambly, Head of Operations

Thanks, Paul. It's a great question. We are really excited about the potential of our Austin Chalk program. We saw very solid results from the six Austin Chalk wells we brought online this year. With the performance of those wells, we'll be reassessing our tiering and expectations from future wells over the next few quarters and we'll determine a plan for Austin Chalk. So we're very excited about it. And the cash flow generation from these is really strong, and it allows us to follow our focus areas of delevering, as Roger mentioned.

Paul Cheng, Analyst

Eric, do you have a, say, a number of prospect inventory? Any kind of, say, maybe what idea that you can share?

Eric Hambly, Head of Operations

We have broken our Eagle Ford position out into numerous tiers of expected performance from our Austin Chalk wells. And we have likely about 100 wells that we're going to pursue over the next decade or so between our Tier 1 and Tier 2. So we're going to be reevaluating that tiering and incorporating future Austin Chalk locations into our co-development strategy for our Eagle Ford position. It's a bit premature to update our overall assessment of Austin Chalk in terms of the distribution of those wells between Tier 1 and Tier 2.

Paul Cheng, Analyst

I was wondering if you're indicating that the current plan for capital expenditures from 2021 to 2024 remains the same, averaging around $600 million. Commodity prices are quite strong and seem to be looking better than anticipated for at least the next couple of years. Will this change your program in any way, or do you plan to stick to it, using any excess cash to pay down debt?

Roger Jenkins, President and Chief Executive Officer

Thank you, Paul, for that question on our long-range plans and higher oil prices. Actually, Paul, we're sticking with this plan. We have a very nice program. We're well positioned where we are on our oil production levels. Happy with our outstanding execution. And just going to stay with our delevering as the main focus, Paul, and feel that after that, we'll have those list of opportunities after we have our debt, or further as I outlined in my call statement this morning. So no plans to change with that. And if the oil prices continue to go up, we will delever faster and be glad to do so.

Paul Cheng, Analyst

And on that basis that you mentioned the long-term debt target of $1 billion. Is that the target you need to reach before you will consider the alternative use of cash? Or that before you get there, you may start looking at?

Roger Jenkins, President and Chief Executive Officer

That's a good question, Paul. Thank you for that question on our debt targets. Just so happens that in a $55 world, you do get to toward that magical 1.5 kind of level of debt EBITDAX. When you get down to that $1.4 billion to $1 billion range, which I think is a very comfortable place to be. And at that time, having that level of debt to cash flow would be advantageous to start our other alternatives. From an A&D perspective, though, Paul, we've been very active in that space through the years. There are opportunities that are accretive to cash flow that we could execute on and review that would still allow us to make that debt level in that timeframe. That is something we continually review with our team. And that's the way we're thinking about that. And it just so happens that the $1 billion to $1.4 billion is a good place from a debt EBITDAX multiple perspective, Paul, that would be similar to any company with an outstanding balance sheet.

Operator, Operator

Next question will be from Jordan Levy at Truist Securities.

Jordan Levy, Analyst

Roger, I want to start out by getting your thoughts as it kind of relates to the competitive environment, mainly in the Gulf of Mexico, but in all your offshore assets. Specifically, I wanted to get your thoughts on if you've seen that change at all with either new entrants or some old names getting more interested given the rise in prices and what opportunities you see that possibly creating if you have seen a change there.

Roger Jenkins, President and Chief Executive Officer

Thank you so much for that question on our Gulf of Mexico business. We are uniquely positioned there. I'd like to point out that we have done deals in the Gulf, two significant ones as we swap from international to Gulf a few years ago. That's paid off very nicely for us. We see more deal flow, more deal rumor, and more deal discussion here in town than we've seen of late, with people changing or wanting to change. We're, of course, aware of all those and happy to hear about other opportunities. The uniqueness I just went through with Paul a few minutes ago, we have to keep in mind that our goal is to delever. Our goal is to buy something if we were in that environment to be accretive to cash flow, so we could still maintain our delevering goals, which is where we are today. And we believe those opportunities exist. We like the rumors on the street. We like to talk. We're enthused by that and happy about that and happy to be the fourth largest operator in the Gulf of Mexico.

Jordan Levy, Analyst

That's really helpful. And then just quickly, my second question is just in regards to the $600 million CapEx level, specifically, how you're thinking about that in the context of an exploration success, whether it be in Brazil or in another region. And how you think about flexing around that capital allocation if the exploration plays out and ends up being something that's accelerated?

Roger Jenkins, President and Chief Executive Officer

Thank you for your question about our exploration business. I appreciate it. It's important to emphasize that deleveraging and exploration are our top priorities. With exploration, we hope to achieve success, as we are involved in some significant wells this year. We remain confident in our capital planning and flexibility, particularly given our strong performance in both onshore and offshore operations. We believe we can fund exploration without compromising our deleveraging goals. If we achieve a major project success, it will likely coincide with significant deleveraging, allowing us to have the necessary cash flow as our capital expenditures decline following the execution of our offshore assets. With this reduction, we anticipate being able to fund our share of a major discovery based on the successes we've observed in this region. We feel well positioned moving forward, which is one of the opportunities for capital allocation mentioned on Slide 19. I am confident in our strategy at this time.

Operator, Operator

Next question will be from Stephen Richardson at Evercore ISI.

Stephen Richardson, Analyst

I was curious, Roger, about companies exploring brine resources for lithium in Arkansas. Given the corporation's history in Arkansas, could you share whether the corporation still holds land or mineral rights in those areas and if you have considered a role for Murphy in this emerging business, which seems poised for significant growth in the coming years?

Roger Jenkins, President and Chief Executive Officer

Thank you, Steve, for your question about our uniqueness. This places us in a distinct position. I want to highlight that we have approximately 10,000 acres of royalty lands in Union County, Arkansas, which is where the Murphy family originated. We do receive royalty income from brine and are closely monitoring the extraction of brine for lithium. As you may know from covering that company, there is a large-scale extraction project that we are observing. Currently, we are not looking to expand in that region, but we have long-term knowledge regarding that situation, Steve.

Stephen Richardson, Analyst

Great. And do you think, Roger, not to put the cart before the horse, but do you think that there is a role for Murphy in this business potentially longer-term beyond? Obviously, minerals and participating from a royalty perspective is really attractive, but taking a more direct participation?

Roger Jenkins, President and Chief Executive Officer

We, as usual, like most companies would review different opportunities around our role in energy transition, naturally being part of that would allow us to have more focus and information around that particular item. And I'd rather just leave it at that today, Steve, if you don't mind.

Operator, Operator

Next question will be from Gail Nicholson at Stephens.

Gail Nicholson, Analyst

Operating expenses were mildly elevated during the quarter. Was that all weather-related? And how should we think about LOEs for the remainder of the year?

Roger Jenkins, President and Chief Executive Officer

Our LOE, I'll answer the overall question and turn the Montney particular question over to Eric. Thank you for asking that today. What I'd like to emphasize today is our LOE is going to be pretty standard throughout the year. We do have occasional workover in the offshore Gulf, which, of course, are very economic, it worked out very well. I would say that our total Murphy OpEx would be below where we were this quarter, which was $9.75 for total Murphy in quarter 1. I'd see us in the $8.50 range for the rest of the year as an overall company. And I'll have Eric Hambly here, Head of our operations, discuss the Tupper operating expenses for you, Gail.

Eric Hambly, Head of Operations

Thanks, Roger. The first quarter results were affected by a workover at the St. Malo Field, which slightly increased our offshore operating expenses. Looking at the full year, as Roger mentioned, our operating expenses will be a bit lower overall. For some specific assets, like the Tupper Montney, we expect operating expenses to be just over $5 per barrel equivalent. For our Eagle Ford business, it will be less than $10, likely around $9.50. Thus, it should stabilize to what you've seen from us over several quarters.

Gail Nicholson, Analyst

Great. I appreciate that color. And then turning to the Eagle Ford. The Tier 2 wells in Karnes that are outperforming that Tier 1 type curve, what's the driver that's causing that outperformance? And when you look at the strength of the Eagle Ford results and the efficiency gains that you continue to see in the region, can you talk about how you're thinking about current CapEx to keep Eagle Ford volumes flat now?

Eric Hambly, Head of Operations

Yes, that's a great question. Briefly about the Austin Chalk results, we brought six wells online in the first quarter. We anticipated three of them to perform at Tier 1 levels, and they have. The remaining three were expected to achieve Tier 2 levels due to their location and proximity to historically successful wells. We were pleased to see those three wells outperform our expectations and significantly exceed Tier 1 performance. The main reason for this was the lack of offset well control, which limited our ability to forecast higher production. This opens up new possibilities for how we might categorize our future locations, and while it's still early in the data collection, we are excited and encouraged by these results. Can you please repeat the last part of your question? I'm sorry.

Gail Nicholson, Analyst

Of course. And just looking at the strength of the Eagle Ford results and the efficiency gains that you've continued to achieve. Can you just talk about how you're thinking about what CapEx is needed to keep Eagle Ford volumes flat now?

Eric Hambly, Head of Operations

Yes. We've talked about this question before, and we will, of course, every year, update our forecast. We are targeting to maintain Eagle Ford production flat over many years at about 30,000 net BOE per day. And the way I would frame that is we expect somewhere around $200 million of total CapEx per year in the Eagle Ford to accomplish that.

Gail Nicholson, Analyst

Great. And then can we get any update on potential on Vietnam?

Roger Jenkins, President and Chief Executive Officer

Thank you, Gail, for that question about our exploration there. We're very, very excited about Vietnam. It is a place that we have not allocated capital to of late for our own reasons and our delevering focus, but it allows a very large portfolio of inexpensive lower risk opportunities that we're evaluating now. And I prefer it to be part of that post-delevering process of additional capital allocated assets that I mentioned that are highlighted on Slide 19. And in closing there just represents the unique nature of our exploration assets and the way we have to create value in places and with optionality on capital spending and timing, and very pleased to have our Vietnam acreage.

Operator, Operator

Next question will be from Leo Mariani at KeyBanc.

Leo Mariani, Analyst

Just a question on kind of the return profile of the onshore drilling program. Just wanted to get a sense, I mean, it certainly looks like your Eagle Ford wells are performing nicely and so are some of the Chalk wells to start the year. When you look at the returns on those wells on an IRR basis or however you guys want to look at it, how do those compare, let's say, $60 to $65 oil versus the Tupper Montney wells with AECO prices have been kind of ranging from USD 2.25, USD 2.50 here?

Roger Jenkins, President and Chief Executive Officer

Thank you for that question on our assets there, Leo. I'm going to have Eric that we have all that detail broken out by area and price. Go ahead, Eric.

Eric Hambly, Head of Operations

Okay. Yes, that's a great question. The Eagle Ford wells that we are investing in, in our plan here this year and expectation for going forward, at sort of current oil prices, have rates of return sort of in the 35% to 100%, and our Tupper Montney wells have rates of return that are in the 60% to 90% range. So we see a tighter range of expected rates of return within Tupper. The very best of our Eagle Ford locations are a bit better than our Tupper investments, but the range of the Eagle Ford returns is a little bit broader. So that's kind of how I would frame that. We're really excited about both of them and think we have a great position to invest in with tons of optionality going forward, and we're excited to keep executing our plan.

Leo Mariani, Analyst

Okay. And just on the Eagle Ford, you obviously saw some higher non-op activity, I think, than expected here in the first quarter. Do you think that's an acceleration from later in the year? Or do you think there's potential for more non-op come with higher oil prices this year?

Roger Jenkins, President and Chief Executive Officer

Thank you, Leo, for that question. Our focus today is on reducing debt and managing capital expenditures carefully. This approach aligns with what we observe among our peers and partners in the Eagle Ford Shale and North American onshore sectors, where many prominent companies are involved. We have not seen any signs of increased capital spending from these firms, and Murphy shares that perspective. Our aim is to enhance our execution, and we are making improvements in our operations, which supports our debt reduction objectives. We believe our partners are also aligned with this strategy.

Leo Mariani, Analyst

Okay. And just looking at the Gulf of Mexico here. Obviously, you guys made this working interest acquisition in Lucius. I think you guys said it was about 1,100 incremental barrels a day in the first quarter. I'm not sure that was actually online for the whole quarter. So I wanted to kind of get a sense of what the total impact would be if that was just a partial quarter on the 1,100 barrels a day. And then also just on Silverback in the Gulf of Mexico, is there kind of an expectation as to when we might see a result? Is that like a 1.5-month type of well? And any estimate of the potential dry hole cost there if it's unsuccessful?

Eric Hambly, Head of Operations

The production from Lucius, we started recognizing beginning in February, so for the first quarter of 2021, it contributed two months of production. Our estimate for the year is a little over 1,300 barrels per day, net to Murphy.

Roger Jenkins, President and Chief Executive Officer

On to Silverback, thank you for that question. We're really excited about the well. I'd like to emphasize again that our 10% working interest helps to reduce the risk associated with significant opportunities we have in the acreage purchased from LLOG. The well is currently being drilled by Chevron and should likely have results near or just after our call in August, assuming it proceeds as scheduled. The estimated cost for our share of the well is in the range of $10 million to $15 million.

Operator, Operator

And your next question will be from Josh Silverstein at Wolfe Research.

Joshua Silverstein, Analyst

I have a question about the Eagle Ford volumes. You started the year strong with volumes exceeding expectations, and we're looking forward to the second quarter. However, you mentioned only three operated wells coming online in that quarter, and referenced the 30,000 barrel a day level, which you're expected to surpass in the first half of the year. Can you elaborate on how the volume is trending? Also, how will the non-operated volume discovery activities continue to support this, given that you're already above the 30,000 barrel a day level in the first half?

Roger Jenkins, President and Chief Executive Officer

Yes, Josh. I'll set the stage for Eric to delve into the specifics. Thank you for your question. Our focus remains on optimizing our onshore oil fields to establish a more consistent production profile, aiming to maximize free cash flow as oil prices rise. This is the central goal guiding our efforts. We are very positive about our trajectory and execution. However, as you mentioned, we anticipate fewer wells in the future. Overall, our objectives and execution in this area are on track. I'll have Eric provide further details about the remainder of the year.

Eric Hambly, Head of Operations

Okay. Thanks, Roger. We are forecasting second quarter production from Eagle Ford nearly 38,000 BOE per day and a full year of 32,000 BOE per day. The non-operated wells that are in our program that have not already come online in the first quarter, we expect to come online in the second and third quarters. Our operated program, as you highlighted, will end in the second quarter. So we will have a decline due to new well performance, of course, and we're happy to see that our base decline from our wells brought online prior to this year continues to be in line with our forecasted 24%. That's significantly supporting our Eagle Ford program this year and our strong cash flow generation.

Roger Jenkins, President and Chief Executive Officer

I would further add color on that, Josh, to say that the 32,000 is above our original plans and ahead of our 30,000 goal, and we're doing very, very well there.

Joshua Silverstein, Analyst

I just wanted to understand if the expectation is that your volumes in the second half will decline.

Roger Jenkins, President and Chief Executive Officer

Yes, that's true. Josh, you're right.

Joshua Silverstein, Analyst

Hence the goal is towards 30,000 or less based on the full year average for your...

Roger Jenkins, President and Chief Executive Officer

Sure. Yes. Just wanted to clarify that. And also, our team, other kudos to our operational team on the base production has been outstanding. So several, several positives this year so far in execution, not just drilling and completion, but on production, engineering as well, Josh. Thank you for that question today.

Joshua Silverstein, Analyst

I have one more quick question about volume and then a follow-up. Last year, there was a significant storm in the Gulf of Mexico, and I wanted to know how you are accounting for that in your guidance for the second and third quarters this year.

Roger Jenkins, President and Chief Executive Officer

Yes. Let me turn to that part here. As you know, hurricanes are part of our business, and we have a process for dealing with that. And the way I like to think about this is like this. We estimate storm downtime from decades of storm data here, and we assume an average storm year based on a lot of detail, Josh, on that matter. And our production guidance now includes a downtime in the third quarter of over 5,000 barrels per day equivalent and almost 1,500 or slightly more than 1,500 barrels equivalent per day in the fourth quarter. And that's the way we estimate our storm downtime and feel good about that situation, Josh. Again, it's part of our execution and something we're working on and estimate, and we're ahead of the game now, and I'm very happy where we are.

Joshua Silverstein, Analyst

Great. And then as far as the balance sheet goes, you guys had $230 million of cash undrawn revolver at the end of the first quarter. Do you guys see yourself just building cash throughout the course of the year? Are you building cash to take out the 2024 maturity early or just waiting to see what happens with the exploration program later on this year to make some decisions?

David Looney, Chief Financial Officer

Yes, thanks for the question. As we've mentioned before, our plan is to pay down additional debt for the rest of the year. If cash increases over the next several quarters, we are likely to take action towards the end of the year regarding extra debt repayments. We have several bonds on our books with appealing call features that we could utilize later this year. Whenever we make such moves, we aim to maximize the debt repayment in relation to bond pricing and other factors. A lot goes into that decision and analysis, but that's our focus for the end of the year.

Operator, Operator

And your next question will be from Umang Choudhary at Goldman Sachs.

Umang Choudhary, Analyst

Exploration is a key differentiator for Murphy. Any update you can provide on Brazil, which looks like could be a significant opportunity for the company?

Roger Jenkins, President and Chief Executive Officer

Yes. Thank you for that question on our exploration business. We're very excited about Brazil. Brazil has been a place in which we've worked for a long time as part of our overall strategy. I'd like to point out that we have this key well this year. And for the first time today, as I mentioned in my script, we have outlined our view of the size of that, and we're very happy to drill this well, which has outboard a lot of success in that area. We also have the Potiguar Basin, which is moving along nicely as well in the same type of exploration overall strategy. So Brazil should get going in the second half of the year with the first opportunity there in our large acreage position, and really proud to be there on a long-term basis with our partner, ExxonMobil and participate with them going forward in a large prospect that we're very happy about it. We've gauged at 500 million to 1 billion barrels. So a large opportunity for us, and we're excited about it this morning.

Umang Choudhary, Analyst

Great. And as a follow-up, I just wanted to get your thoughts around service pricing. Are you seeing any signs of inflation, given what we're seeing in the commodity markets?

Thomas Mireles, Senior Vice President, Technical Services

Thank you for the question. We are focused on monitoring any potential cost pressures on our program. Our main goal right now is to deliver the volumes of value that we promised to our Board and investors when they approved our budget last year. Fortunately, our strategic sourcing has placed us in a strong position. Our 2021 program is not significantly affected by the current cost increases we are observing. Looking ahead to 2022, we believe we can continue to provide attractive returns. While we anticipate some potential cost increases in key services, we are also making progress in cost efficiency, as Eric mentioned earlier. We strive to work with our providers to create mutual benefits. We are actively managing this situation. However, our 2021 activities are well situated to shield us from the current market conditions.

Operator, Operator

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

Roger Jenkins, President and Chief Executive Officer

Thanks, everyone, for dialing in today. We had a good quarter and proud of all our work that we've done here, and we'll be seeing you at the next call. And thank you so much. Appreciate it.

Operator, Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.