Murphy Oil Corporation Announces Third Quarter 2017 Financial and Operating Results

Source Press Release
Company Murphy Oil Corporation 
Tags Hedging, Financial & Operating Data
Date November 01, 2017

Murphy Oil Corporation (NYSE: MUR) today announced its financial and operating results for the third quarter ended September 30, 2017, including a net loss from continuing operations of $66 million, or $0.38 per diluted share.

Operating and financial highlights for the third quarter 2017 include:

  • Achieved decade-low lease operating expense of $7.58 per boe, surpassing second quarter 2017 record
  • Disclosed low-cost onshore entry into Midland Basin, currently testing Lower Spraberry and Wolfcamp B zones
  • Entered four exploration blocks in the Sergipe-Alagoas Basin Offshore Brazil
  • Acquired Gulf of Mexico Clipper Field, producing into the company’s operated Front Runner facility
  • Maintained $1.0 billion of cash on balance sheet while investing approximately $287 million of capital
  • Issued $550 million of 5.75 percent senior notes due 2025 and repaid $550 million of notes that were to mature in December 2017

THIRD QUARTER 2017 FINANCIAL RESULTS

Murphy recorded a net loss from continuing operations of $66 million, or $0.38 per diluted share, for the third quarter 2017. The company reported an adjusted loss, which excludes both the results of discontinued operations and certain other items that affect comparability of results between periods, of $6 million, or $0.03 per diluted share. The net loss includes the following items: an after-tax foreign exchange loss of $44 million, which is primarily related to inter-company loans, and a loss of $12 million from mark-to-market of open crude oil hedge contracts. Details for third quarter results can be found in the attached schedules.

Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations totaled $229 million, or $15.38 per barrel of oil equivalent (boe) sold. Earnings before interest, taxes, depreciation, amortization and exploration expenses (EBITDAX) totaled $257 million, or $17.29 per boe sold. Both EBITDA and EBITDAX for the third quarter included certain non-cash items that reduced those balances by $79.0 million. Details for third quarter EBITDA and EBITDAX reconciliation can be found in the attached schedules.

Production in the third quarter 2017 averaged 154 thousand barrels of oil equivalent per day (Mboepd). Production was negatively affected by approximately 5,100 barrels of oil equivalent per day (boepd) by the following temporary factors:

  • Eagle Ford Shale partial field shut-in and delayed completions in conjunction with mid-stream and refining issues associated with Hurricane Harvey – 2,700 boepd
  • Canada Offshore (non-operated) extended turnaround time and unplanned downtime – 1,800 boepd
  • Tupper Montney natural gas downstream curtailments from TransCanada Pipeline – 600 boepd

“In the third quarter, we continued to successfully execute on our annual plan. We have quickly recovered from the impacts of Hurricane Harvey on our Eagle Ford Shale business, as well as issues in third-party midstream and offshore non-operated Canada assets. I am pleased with our continued cost focus that has helped to maintain our high cash balance through the year. I am excited by our two strategic low-cost entries, which add new assets to each of our onshore and offshore businesses. These opportunities provide us with future capital allocation flexibility, which should enhance the profitability of our business,” stated Roger W. Jenkins, President and Chief Executive Officer.

FINANCIAL POSITION

As of September 30, 2017, the company had $2.8 billion of outstanding fixed-rate notes and $1.0 billion in cash and cash equivalents. The fixed-rate notes have a weighted average maturity of 9.0 years and a weighted average coupon of 5.6 percent. During the quarter, Murphy issued $550 million of 5.75 percent senior notes due August 2025, the proceeds of which were used to redeem the company’s $550 million notes due December 2017. The next senior note maturity for the company is in 2022. There were no borrowings on the $1.1 billion senior credit facility at quarter end.

REGIONAL OPERATIONS SUMMARY

North American Onshore

The North American onshore business produced 86 Mboepd in the third quarter, with 51 percent liquids. Third quarter 2017 operating expenses were $6.25 per boe, a 28 percent decrease from third quarter 2016.

Eagle Ford Shale – Production in the quarter averaged 45 Mboepd, with 89 percent liquids. During the quarter, the company brought online 27 operated wells, of which 13 were in the Catarina area, which had an average IP30 rate of 1,050 boepd, and 14 were in the Karnes area, which had an average IP30 rate of 1,245 boepd. There was also one non-operated well brought online in the Catarina area. The company continued proving the play’s multi-stacked potential with 22 Lower Eagle Ford Shale wells, four Upper Eagle Ford Shale wells, and one Austin Chalk well. As a result of increased drilling and completion efficiencies, the company brought online three more wells than originally planned. However, due to the effects of Hurricane Harvey, several wells were brought online later in the third quarter than scheduled.

For the fourth quarter of 2017, the company expects to bring 15 wells online, of which 12 are in Catarina and three are in Karnes. This will bring the number of operated online wells to 74 in 2017. As a result of the new wells, Eagle Ford Shale production will increase to over 52 Mboepd in the fourth quarter, with full year production averaging over 47 Mboepd.

Midland Basin – During the third quarter, Murphy was the high bidder in two tracts in the University Lands Lease Sale 128, at a 75 percent working interest with a private partner. These tracts are located in Andrews and Gaines Counties, Texas, in the Northern Midland Basin. Over the past several quarters, Murphy organically leased approximately 22,000 acres at 100 percent working interest in the adjacent Dawson County. Currently, the company has leased a total of approximately 30,800 net acres at an average cost of $1,700 per acre. The acreage position is prospective in the Spraberry and Wolfcamp benches, as demonstrated by recent offset peer company welltests.

In the third quarter, Murphy drilled, cored, and cased two wells in Dawson County and is in the process of completing these wells, which are expected to be online by year end 2017. One of the wells targets the Lower Spraberry and the other targets the Wolfcamp B.

“I am pleased to add another oil-weighted asset to our North American onshore unconventional portfolio. We are encouraged by the results from our preliminary core analysis, the execution of the initial wells, and the production from offset operators,” stated Jenkins.

Tupper Montney – Natural gas production in the quarter averaged 208 million cubic feet per day (MMcfd), despite a longer than expected TransCanada Pipeline (TCPL) turnaround and associated restrictions. Murphy recently drilled a five well pad with lateral lengths averaging over 10,000 feet with the longest exceeding 11,000 feet, and expects to bring these wells online in the fourth quarter2017. Full cycle break-even costs continue to be less than C$2.00 AECO per million cubic feet (Mcf). As a result of long-term forward sales contracts and other marketing agreements, Murphy achieved third quarter netbacks in the Montney of C$2.33 per Mcf. The company has significantly reduced its exposure to AECO prices through a combination of physical access to the Malin, Chicago, Emerson, and Dawn markets, as well as long-term forward sales contracts.

Kaybob Duvernay – Production in the quarter averaged over 3,700 boepd, an increase of 32 percent from first quarter 2017, with 65 percent liquids. During the third quarter, three wells were brought online at the 11-18 pad in the oil window with peak rates over 1,000 boepd and 75 percent liquids. The company will continue to optimize completion designs and test well placement, lateral length, frac design, and flow-back strategy.

Currently, Murphy has three drilling rigs and one frac crew executing the company’s appraisal plans in the Duvernay. For the remainder of 2017, the company expects to drill six wells and bring three wells online, consistent with the previously disclosed 2017 plan. The three online wells will test the oil window as part of the ongoing appraisal and de-risking of the play. This will bring the full year wells drilled to 16 with 11 wells online.

Global Offshore

The offshore business produced over 68 Mboepd for the third quarter, with 73 percent liquids. Third quarter 2017 operating expenses were $9.07 per boe.

Malaysia – Production in the quarter averaged over 49 Mboepd, with 66 percent liquids. Block K and Sarawak averaged over 32 thousand barrels of liquids per day, while Sarawak natural gas production averaged over 90 MMcfd. The planned 10-day turnaround impacting all the company’s Sarawak oil and natural gas facilities was completed safely and according to schedule.

North America – Production in the quarter for the Gulf of Mexico and East Coast Canada averaged over 19 Mboepd, with 90 percent liquids. This includes the addition of two wells acquired during the third quarter at the Clipper Field (Block GC 300), which are flowing into Murphy’s Front Runner facility at a current rate of approximately 4,600 net boepd.

Gulf of Mexico Exploration – During the third quarter, Murphy was the high bidder in the recent Gulf of Mexico Lease Sale for BlockMC 556, which contains the Leibniz prospect. Murphy will operate the block with a 50 percent working interest. The company continues to evaluate high-return tieback offshore opportunities that will enhance the current inventory.

Murphy is progressing through the permitting process for the first exploration well in Mexico Deepwater Block 5, while continuing to review the latest reprocessed wide azimuth seismic data across the acreage.

Vietnam Exploration – During the third quarter in the Nam Con Son Basin, Murphy drilled the CM-1X well in Block 11-2/11 and encountered 50 feet of net oil pay. The company will continue to perform a commercial assessment of this block, which includes the successful CT-1X well announced in the second quarter 2017.

In the Cuu Long Basin, Murphy is working with its partners on the Block 15-1/05 LDV discovery for a Declaration of Commerciality in 2018, in addition to planning a nearby exploration well. Murphy continues to progress the process for entering the adjacent 15-2/17 block.

Brazil Exploration – During the third quarter, Murphy entered into a farm-in agreement with Queiroz Galvão Exploração e Produção S.A. (QGEP) to acquire a 20 percent working interest in Blocks SEAL-M-351 and SEAL-M-428, located in the deepwater Sergipe-Alagoas Basin, offshore Brazil. QGEP will retain a 30 percent working interest in the blocks and, in a separate but related transaction,  ExxonMobil Exploração Brasil Ltda. (an affiliate of  ExxonMobil Corporation) has farmed into the remaining 50 percent working interest as the operator.

In addition, Murphy and its co-venturers were the high bidder in Brazil’s Round 14 lease sale for Blocks SEAL-M-501 and SEAL-M-503, which are adjacent to SEAL-M-351 and SEAL-M-428. ExxonMobil will operate and each company will maintain the same working interest in each of these blocks.

Murphy’s total acreage position in Brazil is 750,000 gross (150,000 net) acres over the four highly prospective blocks, offsetting several major Petrobras discoveries, with no well commitments. The company’s total commitment is approximately $18 million, including signature bonuses and seismic costs, which will be paid over 2017 and 2018.

PRODUCTION AND CAPITAL EXPENDITURE GUIDANCE

Production for the fourth quarter 2017 is estimated in the range of 170 to 172 Mboepd. The ramp in fourth quarter production guidance is due to minimal scheduled downtime in offshore operations and additional online wells in North American Onshore. It also accounts for a seven day Gulf of Mexico shut-in due to Hurricane Nate. The company is tightening estimated full year 2017 production guidance to be in the range of 164 to 165 Mboepd. As a result of the Midland Basin and Brazil entries, along with the acquisition of the Clipper Field, full year capital expenditure guidance is being increased by approximately $50 million to $940 million. Details for production and guidance can be found in the attached schedules.

“I remain pleased with our execution across all our operations, especially in the wake of an active hurricane season, as we look to finish the year with strong fourth quarter production. Our high crude differentials are a benefit of having a diversified portfolio that earns exceptional margins. Since entering the play mid 2016, our Kaybob Duvernay team has been successful in appraising and delineating the oil to gas condensate window of the asset. In addition, our new Midland Basin entry will add more oil-weighted locations to our unconventional onshore portfolio,” stated Jenkins. “I am enthusiastic about the long-term opportunities presented with our entry into the Sergipe-Alagoas Basin following our earlier entry into offshore Mexico. I expect the plays will add full cycle, low break-even resources to our offshore portfolio,” continued Jenkins.

CONFERENCE CALL AND WEBCAST SCHEDULED FOR NOVEMBER 2, 2017

Murphy will host a conference call to discuss third quarter 2017 financial and operating results on Thursday, November 2, 2017, at 11:00 a.m. EDT. The call can be accessed either via the Internet through the Investor Relations section of Murphy Oil’s website at  or via the telephone by dialing 1-833-832-5124. The telephone reservation number for the call is 93900185. Replays of the call will be available through the same address on the company’s website and a recording of the call will be available through November 16, 2017 by calling 1-855-859-2056 and referencing reservation number 93900185. A replay of the conference call will also be available on the Murphy website at  .

FINANCIAL DATA

Summary financial data, operating statistics and a summary balance sheet for the third quarter 2017, with comparisons to the same period from the previous year, are contained in the following schedules. Additionally, a schedule indicating the impacts of items affecting comparability of results between periods and schedules comparing EBITDA and EBITDAX between periods are included with these schedules as well as guidance for the fourth quarter.

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