Murphy Oil Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. Murphy Oil is an international oil and natural gas exploration and production company, primarily producing in the U.S. and Canada, with exploration activity worldwide. Amounts below are in U.S. dollars unless noted.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue from customer sales | $812.9 million | $1,196.2 million | $1,652.8 million | $2,067.6 million |
| Operating income | $164.9 million | $551.6 million | $461.7 million | $509.5 million |
| Net income attributable to Murphy | $98.3 million | $350.6 million | $289.9 million | $237.2 million |
| Diluted earnings per share | $0.62 | $2.23 | $1.84 | $1.50 |
| Adjusted EBITDA attributable to Murphy (non-GAAP) | $412.1 million | $632.0 million | $889.4 million | $993.2 million |
| Cash provided by continuing operating activities | Not stated for quarter | Not stated for quarter | $749.7 million | $959.2 million |
- Q2 production averaged 190,695 barrels of oil equivalent per day (including noncontrolling interest), up 10% year over year. Six-month production averaged 185,250 barrels per day, up 15%.
- Six-month capital expenditures on an accrual basis were $698.3 million, versus $621.9 million in 2022. Cash required by investing activities was $694.8 million.
- At June 30, cash was $369.4 million and long-term debt, including finance leases, was $1.824 billion. The resulting net debt was approximately $1.455 billion, calculated as debt less cash. Working capital was a net liability of $165.4 million.
- The $800 million revolving credit facility had no borrowings and $30.4 million in letters of credit; $769.6 million was available. The company reported compliance with its covenants. Fixed-rate notes had a weighted-average maturity of 7.2 years and coupon of 6.1%.
- Cash dividends were $0.275 per share for Q2 and $0.55 per share for the first half, compared with $0.175 and $0.325, respectively, in 2022.
Material changes versus prior periods
- Q2 continuing-operations income, including noncontrolling interest, fell to $92.5 million from $410.4 million. Management attributed the decline mainly to lower revenue and other income, higher exploration expense, and higher lease operating costs. Q2 production revenue fell 30%, chiefly due to lower realized prices despite higher volumes.
- Average Q2 realized crude oil and condensate price declined 33% to $73.50 per barrel. Total-company natural gas price averaged $1.92 per thousand cubic feet, compared with $3.90 a year earlier. Production growth was led by the Khaleesi, Mormont and Samurai Gulf of Mexico development and new Canadian gas wells.
- For the first half, continuing-operations income including noncontrolling interest decreased to $306.5 million from $345.5 million. Higher lease operating and exploration expenses offset the benefit of much lower other operating expense and the absence of prior-year derivative losses. Customer sales revenue declined, but total revenues and other income were broadly flat because the 2022 comparison included substantial derivative losses.
- Q2 exploration expense rose to $115.8 million from $15.2 million, including costs for the non-commercial Chinook #7 well, seismic data in Côte d’Ivoire, and previously suspended Cholula-1 costs. Six-month exploration expense was $126.0 million versus $62.7 million.
- Operating cash flow for the first half decreased by $209.6 million year over year. Factors included lower production revenue, contingent-consideration payments and higher lease operating expense, partly offset by lower derivative-related cash losses and working-capital timing.
Outlook, risks and unusual items
- Management expects Q3 2023 production of 188,000–196,000 barrels of oil equivalent per day, excluding noncontrolling interest, and full-year 2023 capital expenditures of $950 million–$1.025 billion, also excluding noncontrolling interest.
- Management said capital spending could be reduced or credit facilities used if commodity prices weaken and operating cash flow falls. It intends to apply surplus cash, including expected divestiture proceeds, under its capital-allocation framework for shareholder returns and debt reduction.
- On July 31, 2023, after the quarter ended, Murphy agreed to sell certain non-core Kaybob Duvernay and Placid Montney assets in Alberta for net cash consideration of C$150 million. Closing was expected in Q3, subject to conditions and adjustments; no gain or loss was anticipated.
- There were no commodity or foreign-exchange derivative contracts outstanding at June 30. As of August 1, the company reported fixed-price Canadian natural-gas sales contracts covering specified volumes through 2024.
- During the first half, Murphy paid $199.8 million of contingent consideration related to prior Gulf of Mexico acquisitions; no such acquisition-related liability remained at June 30. The Chinook #7 well encountered non-commercial hydrocarbons. Drilling at Oso #1 was suspended before reaching its objective, with a return planned for Q3.
- Key risks include volatile commodity prices, exploration and production performance, operating costs, foreign exchange, political and regulatory changes, and environmental and climate-related rules, including methane fees. The filing says routine legal matters, including climate-related litigation, are not expected to have a material adverse effect based on information available to the company. Asset retirement obligations were $876.1 million before current/noncurrent classification.
Investor verification priorities
- Check realized oil and gas prices, production volumes, and Gulf of Mexico operating and maintenance costs against subsequent results.
- Track Chinook #7 and Oso #1 developments, exploration spending, and the status of capitalized exploratory well costs.
- Verify Q3 production and full-year capital-spending delivery, and whether weaker commodity prices affect spending plans, liquidity, dividends, or borrowing.
- Confirm closing proceeds and use of funds from the Alberta asset sale; it was pending at the filing date.
- Monitor debt maturities, covenant compliance, available revolving-credit capacity, asset-retirement obligations, and environmental or legal developments.