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Health and safety initiatives take center stage for Murphy amidst downturn

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By Stephen Whitfield, Associate Editor

The oil price downturn has created a difficult environment for E&P companies, requiring them to make some tough decisions on where to place their focus heading into 2021. Murphy is no different. With the WTI staying around the company’s breakeven price, major spending initiatives are off the table for now. However, the company believes that it can weather the downturn by sticking to its core values.

“We’ve tried very hard to make it clear what our values mean to our personnel,” said Dale Bradford, VP of Global HSE at Murphy. “We don’t want to be a company that settles for ‘good enough.’ We don’t want to be a company that only does 80% of what we need to do.”

In a keynote address at the virtually held 2020 IADC Annual General Meeting on 5 November, Mr Bradford outlined Murphy’s priorities as it navigates the financial difficulties brought on by the downturn. For example, the company’s 2020 capital budget was reduced to $700 million, a 50% cut compared with its original, pre-COVID budget. In fact, the company had no new rigs running in the second half of this year. In 2021, Murphy’s CAPEX should stay around the same level, Mr Murphy said, although there is some optimism with regards to drilling activity. The deepwater King’s Quay drilling campaign in the US Gulf of Mexico is set to begin in Q2 2021.

There is also potential for Murphy to pursue further exploration activity offshore Mexico, as well as some US onshore activity, but whether that potential is realized depends on where WTI goes in the coming months.

Currently, Murphy’s free cash flow breakeven is approximately $40 WTI. It can still maintain positive free cash flow and build modest growth – primarily through mergers and acquisitions – if WTI stays below $50 for a significant period of time, but Mr Bradford said the oil price needs to reach $50 before the company will start investing in production-growth activity.

“There’s an inertia effect happening right now. How long will it take for us to get to a decent price where we get the confidence we need to start investing again? When we get that confidence, how long will it take for us to spool up and get guys on the hook, get the frac guys on the hook and get moving again? $50 allows us to move, but in the time it takes to get there, that inertia will still exist,” he said.

Navigating through the downturn has forced Murphy to adjust its investment focus in the near term, such as with rig technology.

“Given the survival condition we’re in, the most important things for us, as we start picking up activity, are the rigs and making sure the competencies of folks on the rigs are as close to where we left off as we possibly can be. Technology takes a backseat to having reliable drilling rigs and quality people on those rigs. One we get over the hump, unfortunately, it’s still going to be about cost, and any technology that’s available to reduce costs and make our operations more efficient, that will be our focus,” Mr Bradford said.

Some pre-downturn areas of focus remain unchanged for Murphy, such as its HSE protocols. Workforce health is an even greater priority for Murphy now in the midst of the COVID-19 pandemic: Last week, the company rolled out a quick PCR machine to analyze nasal swab tests for all offshore personnel before they board a facility, which Mr Bradford called a “big improvement” over the antibody tests previously used.

Murphy will also adopt the International Association of Oil and Gas Producers’ (IOGP) Life-Saving Rules, a set of guidance covering activities that carry a high risk of fatal injuries, on its operations effective 1 January.

“We’ve found that these rules are a great common ground that we can take with all of our contractors, many of whom have also adopted them. The resources that IOGP has prepared to help support those rules are very helpful for us and we’re proud to jump on that bandwagon this year,” Mr Bradford said.

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