Murphy Oil Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; fourth-quarter figures are noted separately. Murphy is an oil and natural gas exploration and production company, with operations primarily in the United States and Canada and exploration interests internationally. Production averaged 175,156 BOE per day, including noncontrolling interests (NCI), up approximately 5% year over year.
Financial performance and position
| Metric | 2022 | Prior comparable period |
|---|---|---|
| Revenue from customer sales | $4.220 billion | $2.801 billion in 2021 |
| Net income attributable to Murphy | $965.0 million; diluted EPS $6.13 | Net loss of $73.7 million; diluted loss per share $0.48 in 2021 |
| Operating income from continuing operations | $1.587 billion | $281.4 million in 2021 |
| Net cash from continuing operating activities | $2.180 billion | $1.422 billion in 2021 |
| Capital expenditures | $1.183 billion on a value-of-work-done basis | $711.2 million in 2021 |
| Adjusted cash flow | $1.071 billion, a non-GAAP measure | Not stated here |
| Adjusted EBITDA | $2.096 billion; $34.45 per BOE sold | $1.253 billion; $21.79 per BOE sold in 2021 |
| Cash and cash equivalents | $492.0 million | $521.2 million at year-end 2021 |
| Long-term debt | $1.822 billion | $2.465 billion at year-end 2021 |
| Working capital | Negative $285.5 million | Negative $298.9 million at year-end 2021 |
Revenue from customer sales rose about 51%, while operating income improved substantially. Higher realized commodity prices were the primary driver: average crude oil realization was $94.89 per barrel versus $66.80 in 2021; U.S. natural gas realization was $6.68 per MCF versus $3.71. Production also increased, supported by new Gulf of Mexico production and Canadian wells. Higher costs, including inflation-related operating costs, partly offset these gains. The filing does not present a standalone operating-margin measure; operating income was approximately 37.6% of customer sales, calculated from reported figures.
Debt fell approximately $650 million, or 26%, during 2022. The $800 million revolving credit facility had no borrowings at year-end; $57.6 million of letters of credit left approximately $742 million available. Fixed-rate notes had a weighted-average coupon of 6.2% and weighted-average maturity of 7.7 years. Dividends paid were $0.825 per share for 2022; the annualized dividend was increased to $1.00 per share by year-end.
Fourth quarter: Revenue from customer contracts was $986.1 million; net income attributable to Murphy was $199.4 million, or diluted EPS of $1.26. The first quarter recorded a net loss attributable to Murphy of $113.3 million, followed by profits in each of the remaining quarters.
Material changes and operating developments
- Worldwide production increased from 167,356 BOE per day in 2021 to 175,156 in 2022. Crude oil and condensate production increased to 97,365 barrels per day; natural gas sales volumes rose to 403 MMCF per day.
- The Khaleesi, Mormont and Samurai Gulf of Mexico project began production in 2022, completing its initial seven-well program. Murphy also acquired additional interests in Lucius and Kodiak for a combined $128.5 million.
- Total proved reserves were 715.4 MMBOE, down 1.5 MMBOE from year-end 2021. Extensions and discoveries added 80.1 MMBOE, but production was 63.9 MMBOE and revisions were negative 23.6 MMBOE. Higher commodity prices increased Tupper Montney royalty rates and accelerated royalty incentives, contributing to negative revisions.
- Proved undeveloped reserves declined to 279.4 MMBOE, or 39% of total proved reserves. The company spent approximately $770 million converting undeveloped reserves to developed reserves.
- No asset impairment was recorded in 2022, compared with $196.3 million of impairment charges in 2021. Exploration expenses increased to $133.2 million; the Cutthroat well in Brazil and Tulum-1EXP in Mexico did not find commercial hydrocarbons.
Outlook, risks and unusual items
- For 2023, management forecast average daily production of 182,700–190,700 BOE, including 7,200 BOE per day attributable to NCI, and capital expenditures of $875–$1,025 million, excluding NCI. The company said it may adjust spending if cash flow differs from plan; it did not provide earnings guidance.
- Murphy budgeted $100 million for its 2023 exploration program, including completion of the Oso-1 Gulf of Mexico well and two additional operated Gulf exploration wells. It expected to spend approximately $350–$650 million annually over the next three years to develop current proved undeveloped reserves.
- Commodity prices, production performance, reserve estimates, inflation and supply-chain costs are key uncertainties. Other significant exposures include hurricanes and other operational hazards, environmental and emissions regulation, permitting and decommissioning obligations, cybersecurity, foreign exchange, and dependence on joint-venture partners and third-party infrastructure.
- Derivative instruments produced a reported $320.4 million loss in 2022, compared with a $525.9 million loss in 2021; derivative effects can make reported earnings and cash flows volatile. No crude oil derivative contracts were outstanding at year-end. The company had Canadian natural gas fixed-price forward sales for 2023 and 2024.
- Contingent consideration related to prior Gulf of Mexico acquisitions generated a $78.3 million pre-tax mark-to-market loss in 2022. The year-end liability was $192.7 million, and management anticipated final payments in the first half of 2023.
- Undiscounted contractual obligations totaled $6.841 billion, including debt, leases, capital expenditure and other long-term obligations. Asset retirement obligations totaled $911.7 million, including current and long-term portions. Management stated that pending environmental and legal proceedings were not expected to have a material adverse effect; outcomes remain uncertain.
- Murphy targets a 15%–20% reduction in GHG emissions intensity by 2030 from its 2019 level and routine flaring elimination by 2030. It also disclosed potential future cost impacts from climate rules, including methane-emissions requirements and fees.
Important facts for investors to verify
- How 2023 production and capital spending compare with the stated ranges, particularly as commodity prices and service costs change.
- Whether reserve additions, conversions and future revisions support replacement of production; note the 39% undeveloped share and the Tupper Montney royalty-related revisions.
- The timing and amount of remaining Gulf of Mexico contingent-consideration payments and the effect on cash available for debt reduction and shareholder returns.
- Liquidity, debt maturities and covenant compliance, including the $742 million of stated year-end revolver availability and the negative working-capital position.
- Potential financial effects of decommissioning, environmental obligations, climate regulation, partner performance and third-party processing or transportation commitments.
- The distinction between GAAP results and management’s non-GAAP adjusted cash flow and adjusted EBITDA; the filing cautions that these measures are not substitutes for GAAP results or residual discretionary cash.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The auditor identified estimated oil and gas reserves used in depletion calculations as a critical audit matter.