Murphy Oil Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Murphy Oil is an international oil and natural gas exploration and production company, primarily operating in the United States and Canada. Results are unaudited.
Financial and operating highlights
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue from customer sales | $687.5 million | $425.3 million | $2,038.9 million | $1,311.6 million |
| Total revenues and other income, including derivatives | $630.7 million | $421.9 million | $1,560.3 million | $1,637.1 million |
| Operating income (loss), continuing operations | $223.4 million | $(278.1) million | $(28.6) million | $(1,206.7) million |
| Net income (loss) attributable to Murphy | $108.5 million | $(243.6) million | $(242.1) million | $(976.8) million |
| Adjusted EBITDA attributable to Murphy (non-GAAP) | $287.6 million | $249.4 million | $933.7 million | $661.1 million |
| Adjusted EBITDA per BOE sold (non-GAAP) | $20.23 | $17.61 | $21.45 | $14.22 |
Customer sales increased as commodity prices recovered. Derivative results materially reduced reported revenue: the company recorded derivative losses of $59.2 million in Q3 and $499.8 million for the nine months, versus losses of $5.3 million and gains of $319.5 million in the comparable 2020 periods. Nine-month results also included a $171.3 million Terra Nova impairment. Q3 included a $71.8 million credit related to deferral of Terra Nova asset retirement obligations.
Continuing-operations production averaged 163,224 BOE per day including noncontrolling interest in Q3, broadly flat year over year; nine-month production averaged 170,209 BOE per day, down 6%. Worldwide crude oil and condensate prices averaged $68.88 per barrel in Q3, up from $39.79; the nine-month average was $64.19, up from $36.88. Hurricane Ida affected Gulf of Mexico production during Q3.
Net cash provided by continuing operating activities was $1,091.3 million for the first nine months, compared with $578.0 million. Accrual-basis capital expenditures were $568.7 million, versus $680.3 million. Cash and cash equivalents were $505.1 million at September 30, 2021, compared with $310.6 million at year-end 2020. Long-term debt was $2,613.7 million, down from $2,988.1 million. Working capital, excluding assets and liabilities held for sale, was a $344.9 million deficit. The $1.6 billion revolving credit facility had no borrowings and $1,568.6 million available, after letters of credit; the company reported covenant compliance.
Material changes and financing
- Debt reduction and refinancing lowered long-term debt. Murphy issued $550 million of 6.375% notes due 2028, redeemed its remaining 2022 notes, and redeemed $150 million of 6.875% notes due 2024 in August. After quarter-end it announced another $150 million partial redemption of 2024 notes, scheduled for December 2, 2021.
- The company sold its 50% interest in the King’s Quay FPS in March for $267.7 million, reimbursing prior project expenditures.
- Q3 dividends were $0.125 per common share; nine-month dividends totaled $0.375 per share.
- Terra Nova results reflected both the first-quarter impairment and a later asset-life-extension agreement. Murphy acquired an additional 7.525% working interest in the project in Q3.
Outlook, risks and contingencies
Management expected Q4 2021 production of 145,500–153,500 BOE per day, excluding noncontrolling interest, and full-year capital expenditures of $675–685 million. Planned capital spending may be adjusted to cash flow; management expected to fund the remaining 2021 program primarily from operating cash flow and available cash, and to use surplus cash to repay debt. The filing cited uncertainty from COVID-19, OPEC+ supply decisions, commodity prices, operating disruptions and regulation.
At November 2, 2021, WTI futures were $83.91 per barrel for the remainder of 2021 and $76.27 for 2022; management cautioned that prices could change. Commodity swaps and collars limit exposure on some future sales. At September 30, a 10% change in benchmark prices would have changed the net payable on derivative contracts by approximately $113.6 million in the opposite direction. Environmental and other legal matters were described as routine or not expected to have a material adverse effect based on information then available; future regulatory, remediation and litigation costs remain risks.
Investor verification points
- Reconcile customer-sales growth with the substantial derivative losses and their cash versus mark-to-market components.
- Assess whether production guidance, Gulf of Mexico recovery, and planned capital spending were achieved, and how commodity prices affected cash flow.
- Review the timing, costs and impact of debt redemptions, the 2028 notes, and subsequent 2024-note redemption.
- Track Terra Nova’s impairment, life-extension assumptions and asset-retirement obligations, along with contingent consideration and environmental exposures.