Murphy Oil delays block 5 drilling, readies Cholula campaign

Although Murphy Oil will delay drilling of its Cholula delimiter well because of recently announced capex cuts, the US-based E&P operator remains upbeat about Mexico. 

“In block 5, Mexico, we’ll be drilling there next year,” CEO Roger Jenkins told investors in a webinar hosted by JP Morgan on Wednesday, adding that the decision resulted from “capital constraints of the COVID-OPEC price cuts that we’ve seen.”

Murphy also announced capex cuts of US$750mn for 2020, representing its latest cost-savings measure. The company first sought to counter the oil price crash with shut-ins, first in April and then up to 40,000b of oil a day in May. Murphy is now back to full production of 180,000b/d. 

According to a plan modification approved by hydrocarbons commission CNH on Tuesday, Murphy would save more than US$67.5mn this year by conducting studies of the area while deferring drilling Cholula-2EXP to 1Q21. 

Murphy is homing in on a 51km2 area in the southeast of the 2,573km2 block, part of assignment CNH-R01-L04-A5.C6/2016. 

The base modification plan would see Murphy focus on studying the area through the remainder of 2020 at a cost of US$6.3mn. An incremental plan would see the operator drill three delimiter wells and conduct three production tests. 

Despite the delay, the first such approved by CNH stemming from the oil price crash, Jenkins was optimistic, saying he was “very happy with all the pay and success that we’re seeing around our area.”

Source: Murphy Oil

Murphy’s assignment is bordered to the north by a deepwater block explored by Shell, while to the southwest a Repsol consortium in May announced discoveries at both the Chinwol and Polok wells. 

Murphy is operator of the consortium (40%), partnered with Petronas’ Mexican subsidiary PC Carigali (30%) and Wintershall DEA’s subsidiary Sierra Offshore (30%). 

“Mexico is getting a lot better, because of a lot of success on seismic [studies] that we can see,” Jenkins said, explaining that Murphy’s block 5 assets shared seismic features with Eni’s Saasken-1 oil discovery announced in February. 

The Saasken area as well as the Cholula area share Miocene characteristics. In total, 14 of Murphy’s 34 prospects in the block are Miocene plays. Beyond Cholula, a sub-salt Miocene play called Batopilas also appears promising.  

Source: Murphy Oil

Under Jenkin’s leadership since 2013, Murphy has shrunk its footprint in southeast Asia to focus largely on the Gulf of Mexico. This has boosted both Ebitda per barrel of oil and lowered its tax expenses. “That has helped us a lot during the recent period of time where prices have collapsed,” Jenkins said. “We are continuing to support our projects in the Gulf of Mexico because they have low break evens.”  

Yet uncertainty remains about the volumes of hydrocarbons that Murphy may find as a result of its production trials. 

On Tuesday, CNH technical director Rodrigo Hernández Ordóñez said the operator is considering two options, one where it would send the oil to a platform before being sent off for processing, and the other where it would be sent to an FPSO. 

Cholula-3DEL would be drilled in 4Q21 and Cholula-4DEL in 3Q22. Prior to drilling, each well would undergo analysis.  Should it drill all three under the modified plan, total cost would be nearly US$276mn through 2023.