Murphy Oil Corporation Announces Second Quarter 2020 Operating and Financial Results

Source Press Release
Company Murphy Oil Corporation 
Tags Montney, Eagle Ford, Duvernay, Hedging, Production/Development, Exploration, Upstream Activities, Capital Spending, Guidance, Financial & Operating Data
Date August 06, 2020

Murphy Oil Corporation (NYSE: MUR) today announced its financial and operating results for the second quarter ended June 30, 2020, including a net loss attributable to Murphy of $317 million, or $2.06 net loss per diluted share. Adjusted net loss, which excludes discontinued operations and other one-off items, was $110 million, or $0.71 net loss per diluted share.

Unless otherwise noted, the financial and operating highlights and metrics discussed in this commentary exclude noncontrolling interest. 1

Significant items include:

  • Produced 168 thousand barrels of oil equivalent per day, including 58 percent or 98 thousand barrels of oil per day
  • Improved average lease operating expenses by 22 percent from the first quarter 2020 to less than $9 per barrel of oil equivalent in the second quarter, or approximately $7 per barrel of oil equivalent excluding workover expenses
  • Received $109 million of cash crude oil hedge settlements for the quarter
  • Lowered expected full year G&A by approximately 40 percent to a range of $130 million to $140 million compared to full year 2019 including the impact of the previously announced office closures, restructuring and a 30 percent office headcount reduction
  • Reduced the full year 2020 capital expenditure budget an additional $40 million, to a range of $680 million to $720 million, or a more than 50 percent reduction from the original 2020 guidance
  • Initiated crude oil hedge positions for 2021, resulting in a total of 15 thousand barrels of oil per day hedged at an average price of $42.93 per barrel

SECOND QUARTER 2020 FINANCIAL RESULTS

The company recorded a net loss, attributable to Murphy, of $317 million, or $2.06 net loss per diluted share, for the second quarter 2020. Adjusted net loss, which excludes both the results of discontinued operations and certain other items that affect comparability of results between periods, was $110 million, or $0.71 net loss per diluted share for the same period. The adjusted loss from continuing operations excludes the following after-tax items: a $146 million non-cash mark-to-market loss on crude oil derivative contracts, a $32 million charge for restructuring expenses, a $16 million non-cash asset impairment charge, and a $12 million non-cash mark-to-market loss on liabilities associated with future contingent consideration. Details for second quarter results can be found in the attached schedules.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations attributable to Murphy was $125 million, or $8 per barrel of oil equivalent (BOE) sold. Adjusted earnings before interest, tax, depreciation, amortization and exploration expenses (EBITDAX) from continuing operations attributable to Murphy was $154 million, or $10 per BOE sold. Details for second quarter adjusted EBITDA and EBITDAX reconciliations can be found in the attached schedules.

Second quarter production averaged 168 thousand barrels of oil equivalent per day (MBOEPD) with 58 percent oil and 65 percent liquids. Volumes were negatively impacted by a total of 17.5 MBOEPD for the second quarter, of which approximately 16 MBOEPD were the result of shut-ins due to market prices as previously disclosed, in addition to nearly 1.6 MBOEPD as the result of Tropical Storm Cristobal in the Gulf of Mexico. Production volumes from the shut-in wells came back online in June. Details for second quarter production can be found in the attached schedules.

“The second quarter was difficult not only for our industry, but also our company. As we endured the economic fallout from the global pandemic and the unprecedented oil price collapse, we made the decision to shut in wells, primarily at a single offshore facility. Absent these shut-ins, our assets performed very well and production volumes would have been essentially flat with first quarter 2020. I am proud of our team’s ability to manage uptime and performance despite the unique challenges presented by recent events. Our field employees continue to follow strict safety protocols, and have kept COVID-19 absent from our operations,” stated Roger W. Jenkins, President and Chief Executive Officer of Murphy Oil Corporation.

PROTECTING THE COMPANY’S FINANCIAL POSITION

As of June 30, 2020, Murphy had approximately $1.6 billion of liquidity, comprised of $1.4 billion undrawn under the $1.6 billion senior unsecured credit facility and approximately $146 million of cash and cash equivalents.

At the end of second quarter 2020, Murphy had outstanding debt of $2.8 billion in long-term, fixed-rate notes and $170 million drawn under its senior unsecured credit facility. The fixed-rate notes had a weighted average maturity of 7.3 years and a weighted average coupon of 5.9 percent. Overall, approximately 80 percent of total fixed-rate notes are due in 2024 or later.

COMMODITY HEDGE POSITIONS MITIGATE CASH FLOW VOLATILITY

The company employs commodity derivative instruments to manage certain risks associated with commodity price volatility and underpin capital spending associated with certain assets. Subsequent to quarter-end, Murphy opportunistically layered on hedges to protect cash flow with the execution of WTI fixed prices swaps, resulting in a total 15 MBOPD hedged for full year 2021 at an average price of $42.93 per barrel.

Details for the current hedge positions can be found in the attached schedules.

FURTHER REDUCING CAPTIAL EXPENDITURES

Murphy has continued to rework its remaining 2020 capital plans given ongoing macroeconomic conditions and low commodity prices. As a result, the company’s full year budget has been reduced a further $40 million at the midpoint, to a range of $680 million to $720 million, or more than a 50 percent reduction from original guidance. Note that CAPEX guidance excludes Gulf of Mexico noncontrolling interest (NCI) and King’s Quay floating production system (FPS) construction spending. For second quarter 2020, Murphy accrued a total $174 million of CAPEX, including approximately $33 million for the King’s Quay FPS which, along with previous King’s Quay expenditures, will be reimbursed at close of the transaction, which is anticipated to occur in the third quarter.

“This quarter, we made meaningful reductions to right-size our cost structure, capital spending and quarterly dividend. With our capital program significantly weighted towards the first half of 2020, this sets the company up to generate free cash flow, after the dividend, for the remainder of the year based on current strip prices. As I look ahead, we are in the early stages of benefiting from our new low-cost structure with the reduction in force and office closures finalized just last month, and we look forward to executing our business plans in a streamlined setting going forward,” Jenkins added.

THIRD QUARTER 2020 PRODUCTION GUIDANCE

With the revised capital budget, Murphy anticipates production volumes of approximately 153 MBOEPD to 163 MBOEPD for the third quarter. This guidance range is primarily impacted by two major factors – assumed storm downtime of nearly 5 MBOEPD, and repairs at Delta House facility totaling 8 MBOEPD – as well as planned maintenance at a non-operated Gulf of Mexico field, resulting in 1,200 BOEPD of third quarter downtime.

OPERATIONS SUMMARY

North American Onshore

The North American onshore business produced approximately 90 MBOEPD in the second quarter.

Eagle Ford Shale – Production averaged 38 MBOEPD with 74 percent oil volumes in the second quarter. As planned, early in the quarter Murphy brought online 11 operated wells in Karnes, comprised of nine new wells and two refracs. The five non-operated Karnes wells scheduled to come online were delayed to the third quarter. An additional three non-operated wells are scheduled to come online, for a total of eight non-operated wells to come online in the third quarter. Drilling and completions costs have improved considerably since 2019, with the average cost reduced to approximately $5 million per well for the first half of 2020. No further operated activity is planned for 2020.

Tupper Montney – Natural gas production averaged 237 MMCFD for the quarter. No activity occurred in the second quarter, and none is planned for the remainder of 2020.

Kaybob Duvernay – Second quarter production averaged nearly 11 MBOEPD. One well was brought online during the quarter as planned, with production from the remaining four new wells deferred to the third quarter due to market pricing. No drilling and completions activity is planned for the remainder of 2020.

Placid Montney – Produced 2 MBOEPD in the second quarter through Murphy’s non-operated position. As planned, six non-operated wells were brought online in April, and shut in for May and June due to low commodity prices. Production from these new wells resumed in July.

Global Offshore

The offshore business produced 78 MBOEPD for the second quarter, comprised of 80 percent oil. This excludes production from discontinued operations and noncontrolling interest. Gulf of Mexico production in the quarter averaged 72 MBOEPD, consisting of 78 percent oil. Canada offshore production averaged 6 MBOEPD, comprised of 100 percent oil.

Gulf of Mexico – The second well in the Front Runner rig program, A7 (Green Canyon 338), was completed and brought online during the second quarter. As previously disclosed, the planned third well in the program has been postponed as part of Murphy’s revised capital budget due to ongoing low commodity prices.

Also in the quarter, the Dalmatian DC 134 #2 (De Soto Canyon 134) and Cascade 4 (Walker Ridge 250) well workovers were completed and the wells returned to production for total net workover costs of approximately $20 million, representing nearly 15 percent of total operating expenses for the quarter.

Murphy’s operating partner in Kodiak #3 (Mississippi Canyon 727) drilled the well to total depth in the second quarter, with completion delayed until prices recover. Additionally, the non-operated St. Malo waterflood project continues to progress, and the producer well PN005 (Walker Ridge 678) was spud during the quarter.

The King’s Quay FPS transaction documentation is progressing, with the logistical effects of COVID-19 delaying closing, which is now targeted for the third quarter. During the second quarter, construction on the FPS with Hyundai Heavy Industries achieved the significant milestone of 1 million man-hours with zero Lost Time Incidents.

Canada Offshore – As previously announced, non-operated Terra Nova is expected to remain offline for the year.

EXPLORATION

Gulf of Mexico – The non-operated Mt. Ouray well (Green Canyon 767) was drilled in the second quarter for $7.8 million cost net to Murphy as 20 percent working interest owner. The well has been classified as a dry hole.

CONFERENCE CALL AND WEBCAST SCHEDULED FOR AUGUST 6, 2020

Murphy will host a conference call to discuss second quarter 2020 financial and operating results on Thursday, August 6, 2020, at 9:00 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 toll free 1-888-886-7786, reservation number 90315402.

FINANCIAL DATA

Summary financial data and operating statistics for second quarter 2020, 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, a reconciliation of EBITDA and EBITDAX between periods, as well as guidance for the third quarter 2020, are also included.

MURPHY OIL CORPORATION SUMMARIZED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) 
 
  Three Months Ended
June 30, 
  Six Months Ended
June 30, 
(Thousands of dollars, except per share amounts)  2020    2019    2020    2019 
Revenues and other income               
Revenue from sales to customers  285,745      680,436      886,303      1,309,790   
(Loss) gain on crude contracts  (75,880    57,916      324,792      57,916   
Gain on sale of assets and other income  1,677      5,598      4,175      6,790   
Total revenues and other income  211,542      743,950      1,215,270      1,374,496   
Costs and expenses               
Lease operating expenses  144,644      137,132      353,792      268,828   
Severance and ad valorem taxes  6,442      13,072      15,864      23,169   
Transportation, gathering and processing  41,090      34,901      85,457      74,443   
Exploration expenses, including undeveloped lease amortization  29,468      30,674      49,594      63,212   
Selling and general expenses  39,100      57,532      75,872      120,892   
Restructuring expenses  41,397      —      41,397      —   
Depreciation, depletion and amortization  231,446      264,302      537,548      493,708   
Accretion of asset retirement obligations  10,469      9,897      20,435      19,237   
Impairment of assets  19,616      —      987,146      —   
Other (benefit) expense  22,007      25,437      (23,181    55,442   
Total costs and expenses  585,679      572,947      2,143,924      1,118,931   
Operating (loss) income from continuing operations  (374,137    171,003      (928,654    255,565   
Other income (loss)               
Interest and other income (loss)  (5,171    (8,968    (4,930    (13,716 
Interest expense, net  (38,598    (54,096    (79,695    (100,165 
Total other loss  (43,769    (63,064    (84,625    (113,881 
(Loss) income from continuing operations before income taxes  (417,906    107,939      (1,013,279    141,684   
Income tax (benefit) expense  (94,773    9,115      (186,306    19,937   
(Loss) income from continuing operations  (323,133    98,824      (826,973    121,747   
(Loss) income from discontinued operations, net of income taxes  (1,267    24,418      (6,129    74,264   
Net (loss) income including noncontrolling interest  (324,400    123,242      (833,102    196,011   
Less: Net (loss) income attributable to noncontrolling interest  (7,216    30,970      (99,814    63,557   
NET (LOSS) INCOME ATTRIBUTABLE TO MURPHY  (317,184    92,272      (733,288    132,454   
               
(LOSS) INCOME PER COMMON SHARE – BASIC               
Continuing operations  (2.05    0.40      (4.74    0.34   
Discontinued operations  (0.01    0.15      (0.04    0.44   
Net (loss) income  (2.06    0.55      (4.78    0.78   
               
(LOSS) INCOME PER COMMON SHARE – DILUTED               
Continuing operations  (2.05    0.40      (4.74    0.34   
Discontinued operations  (0.01    0.14      (0.04    0.43   
Net (loss) income  (2.06    0.54      (4.78    0.77   
Cash dividends per Common share  0.125      0.25      0.375      0.50   
Average Common shares outstanding (thousands)               
Basic  153,581      168,538      153,429      170,556   
Diluted  153,581      169,272      153,429      171,433   

MURPHY OIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) 
 
  Three Months Ended
June 30, 
  Six Months Ended
June 30, 
(Thousands of dollars)  2020    2019    2020    2019 
Operating Activities               
Net (loss) income including noncontrolling interest  (324,400    123,242      (833,102    196,011   
Adjustments to reconcile net (loss) income to net cash (required) provided by continuing operations activities:               
Loss (income) from discontinued operations  1,267      (24,418    6,129      (74,264 
Depreciation, depletion and amortization  231,446      264,302      537,548      493,708   
Previously suspended exploration costs  7,580      (350    7,677      12,901   
Amortization of undeveloped leases  7,292      7,105      14,770      15,150   
Accretion of asset retirement obligations  10,469      9,897      20,435      19,237   
Impairment of assets  19,616      —      987,146      —   
Deferred income tax (benefit) expense  (86,529    2,412      (167,902    18,001   
Mark to market (gain) loss on contingent consideration  15,622      15,360      (43,529    28,890   
Mark to market (gain) loss of crude contracts  184,454      (50,831    (173,848    (50,831 
Noncash restructuring expense  17,565      —      17,565      —   
Long-term non-cash compensation  12,955      22,367      22,760      44,755   
Net decrease (increase) in noncash operating working capital  (106,492    93,139      1,335      (5,366 
Other operating activities, net  (14,123    (23,979    (27,605    (42,761 
Net cash (required) provided by continuing operations activities  (23,278    438,234      369,379      655,431   
Investing Activities               
Property additions and dry hole costs  (182,767    (374,831    (537,601    (645,169 
Property additions for King's Quay FPS  (30,339    —      (51,635    —   
Acquisition of oil and gas properties  —      (1,226,261    —      (1,226,261 
Proceeds from sales of property, plant and equipment  —      16,816      —      16,816   
Net cash required by investing activities  (213,106    (1,584,276    (589,236    (1,854,614 
Financing Activities               
Borrowings on revolving credit facility  200,000      1,075,000      370,000      1,075,000   
Repayment of revolving credit facility  (200,000    —      (200,000    —   
Cash dividends paid  (19,198    (42,105    (57,590    (85,503 
Distributions to noncontrolling interest  (1    (50,339    (32,400    (68,776 
Early retirement of debt  (8,655    —      (12,225    —   
Withholding tax on stock-based incentive awards  (153    —      (7,247    (6,991 
Debt issuance, net of cost  —      —      (613    —   
Proceeds from term loan and other loans  371      500,000      371      500,000   
Capital lease obligation payments  (168    (175    (336    (335 
Repurchase of common stock  —      (299,924    —      (299,924 
Net cash (required) provided by financing activities  (27,804    1,182,457      59,960      1,113,471   
Cash Flows from Discontinued Operations 1               
Operating activities  —      (1,197    (1,202    122,272   
Investing activities  —      (23,360    4,494      (49,798 
Financing activities  —      (2,367    —      (4,914 
Net cash provided by discontinued operations  —      (26,924    3,292      67,560   
Cash transferred from discontinued operations to continuing operations  —      2,485      —      48,565   
Effect of exchange rate changes on cash and cash equivalents  1,940      863      (1,358    3,268   
Net increase (decrease) in cash and cash equivalents  (262,248    39,763      (161,255    (33,879 
Cash and cash equivalents at beginning of period  407,753      286,281      306,760      359,923   
Cash and cash equivalents at end of period  145,505      326,044      145,505      326,044   
                         
1 Net cash provided by discontinued operations is not part of the cash flow reconciliation. 

MURPHY OIL CORPORATION SCHEDULE OF ADJUSTED INCOME (LOSS) (unaudited) 
 
  Three Months Ended
June 30, 
  Six Months Ended
June 30, 
(Millions of dollars, except per share amounts)  2020    2019    2020    2019 
Net (loss) income attributable to Murphy (GAAP)  (317.1    92.3      (733.2    132.5   
Discontinued operations loss (income)  1.2      (24.5    6.1      (74.3 
(Loss) income from continuing operations  (315.9    67.8      (727.1    58.2   
Adjustments (after tax):               
Impairment of assets  15.6      —      708.3      —   
Mark-to-market (gain) loss on crude oil derivative contracts  145.8      (40.2    (137.3    (40.2 
Mark-to-market (gain) loss on contingent consideration  12.3      12.1      (34.4    22.8   
Restructuring expenses  31.6      —      31.6      —   
Unutilized rig charges  3.5      —      6.3      —   
(Gain) loss on extinguishment of debt  (4.2    —      (4.2    —   
Inventory loss  —      —      3.8      —   
Foreign exchange (gains) losses  1.5      2.7      (2.5    5.1   
Business development transaction costs  —      6.2      —      16.0   
Write-off of previously suspended exploration wells  —      —      —      13.2   
Impact of tax reform  —      (13.0    —      (13.0 
Total adjustments after taxes  206.1      (32.2    571.6      3.9   
Adjusted (loss) income from continuing operations attributable to Murphy  (109.8    35.6      (155.5    62.1   
               
Adjusted (loss) income from continuing operations per average diluted share  (0.71    0.21      (1.01    0.36   

Non-GAAP Financial Measures

Presented above is a reconciliation of Net (loss) income to Adjusted (loss) income from continuing operations attributable to Murphy. Adjusted (loss) income excludes certain items that management believes affect the comparability of results between periods. Management believes this is important information to provide because it is used by management to evaluate the Company’s operational performance and trends between periods and relative to its industry competitors. Management also believes this information may be useful to investors and analysts to gain a better understanding of the Company’s financial results. Adjusted (loss) income is a non-GAAP financial measure and should not be considered a substitute for Net (loss) income as determined in accordance with accounting principles generally accepted in the United States of America.

Amounts shown above as reconciling items between Net (loss) income and Adjusted (loss) income are presented net of applicable income taxes based on the estimated statutory rate in the applicable tax jurisdiction. The pretax and income tax impacts for adjustments shown above are as follows by area of operations and exclude the share attributable to non-controlling interests.

  Three Months Ended
June 30, 2020 
  Six Months Ended
June 30, 2020 
(Millions of dollars)  Pretax    Tax    Net    Pretax    Tax    Net 
Exploration & Production:                       
United States  39.8    (8.3    31.5    815.6      (171.3    644.3   
Other International  —    —      —    39.7      —      39.7   
Total E&P  39.8    (8.3    31.5    855.3      (171.3    684.0   
Corporate:  221.9    (47.3    174.6    (141.0    28.6      (112.4 
Total adjustments  261.7    (55.6    206.1    714.3      (142.7    571.6   

MURPHY OIL CORPORATION SCHEDULE OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA) (unaudited) 
 
  Three Months Ended
June 30, 
  Six Months Ended
June 30, 
(Millions of dollars, except per barrel of oil equivalents sold)  2020    2019    2020    2019 
Net (loss) income attributable to Murphy (GAAP)  (317.1    92.3      (733.2    132.5   
Income tax (benefit) expense  (94.8    9.1      (186.3    19.9   
Interest expense, net  38.6      54.1      79.7      100.2   
Depreciation, depletion and amortization expense ⊃;  219.1      246.0      505.3      458.1   
EBITDA attributable to Murphy (Non-GAAP)  (154.2    401.5      (334.5    710.7   
Impairment of assets ⊃;  19.6      —      886.0      —   
Mark-to-market (gain) loss on crude oil derivative contracts  184.5      (50.8    (173.8    (50.8 
Mark-to-market (gain) loss on contingent consideration  15.7      15.4      (43.5    28.9   
Restructuring expenses  41.4      —      41.4      —   
Accretion of asset retirement obligations  10.5      9.9      20.4      19.2   
Unutilized rig charges  4.5      —      8.0      —   
Discontinued operations loss (income)  1.2      (24.4    6.1      (74.3 
Inventory loss  —      —      4.8      —   
Foreign exchange (gains) losses  1.4      3.0      (3.3    5.6   
Business development transaction costs  —      7.8      —      20.3   
Write-off of previously suspended exploration wells  —      —      —      13.2   
Adjusted EBITDA attributable to Murphy (Non-GAAP)  124.6      362.4      411.6      672.8   
               
Total barrels of oil equivalents sold from continuing operations attributable to Murphy (thousands of barrels)  15,242      14,269      32,312      27,766   
               
Adjusted EBITDA per barrel of oil equivalents sold  8.17      25.40      12.74      24.23   

MURPHY OIL CORPORATION

SCHEDULE OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION

AND AMORTIZATION AND EXPLORATION (EBITDAX)

(unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

(Millions of dollars, except per barrel of oil equivalents sold)

2020

2019

2020

2019

Net (loss) income attributable to Murphy (GAAP)

$

(317.1

)

92.3

(733.2

)

132.5

Income tax (benefit) expense

(94.8

)

9.1

(186.3

)

19.9

Interest expense, net

38.6

54.1

79.7

100.2

Depreciation, depletion and amortization expense ⊃;

219.1

246.0

505.3

458.1

EBITDA attributable to Murphy (Non-GAAP)

(154.2

)

401.5

(334.5

)

710.7

Exploration expenses

29.5

30.7

49.6

63.2

EBITDAX attributable to Murphy (Non-GAAP)

(124.7

)

432.2

(284.9

)

773.9

Impairment of assets ⊃;

19.6

886.0

Mark-to-market (gain) loss on crude oil derivative contracts

184.5

(50.8

)

(173.8

)

(50.8

)

Mark-to-market (gain) loss on contingent consideration

15.7

15.4

(43.5

)

28.9

Restructuring expenses

41.4

41.4

Accretion of asset retirement obligations

10.5

9.9

20.4

19.2

Unutilized rig charges

4.5

8.0

Discontinued operations loss (income)

1.2

(24.4

)

6.1

(74.3

)

Inventory loss

4.8

Foreign exchange (gains) losses

1.4

3.0

(3.3

)

5.6

Business development transaction costs

7.8

20.3

Adjusted EBITDAX attributable to Murphy (Non-GAAP)

$

154.1

393.1

461.2

722.8

Total barrels of oil equivalents sold from continuing operations attributable to Murphy (thousands of barrels)

15,242

14,269

32,312

27,766

Adjusted EBITDAX per barrel of oil equivalents sold

$

10.11

27.55

14.27

26.03

Source: EvaluateEnergy® ©2020 EvaluateEnergy Ltd