Murphy Oil Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Murphy is an oil and natural gas exploration and production company, with continuing operations primarily in the United States and Canada. Malaysia is reported as discontinued operations following its 2019 sale.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Continuing-operations revenue | $2.817 billion | $1.806 billion |
| Operating income from continuing operations | $445.3 million | $215.6 million |
| Income from continuing operations attributable to Murphy | $85.2 million; diluted EPS $0.52 | $160.7 million; diluted EPS $0.92 |
| Net income attributable to Murphy | $1.150 billion; diluted EPS $6.98 | $411.1 million; diluted EPS $2.36 |
| Cash from continuing operating activities | $1.489 billion | $749.4 million |
| Capital expenditures | $2.698 billion | $1.842 billion |
| Cash and cash equivalents at year-end | $306.8 million | $359.9 million |
| Long-term debt at year-end | $2.803 billion | $3.109 billion |
| Current ratio | 1.03 | 1.04 |
Operating income improved, but attributable continuing-operations income and diluted EPS declined, reflecting higher interest expense and other factors; 2018 also benefited from a $135.7 million favorable tax adjustment. Reported 2019 net income was dominated by discontinued operations, including a $985.4 million gain on the Malaysia sale. Excluding that gain, Malaysia generated $168.2 million less income than in 2018.
Continuing-operations production averaged 185,649 BOE per day, up 49% from 124,337, mainly due to the 2018 MP GOM transaction and 2019 LLOG acquisition. Crude oil realizations fell 9% to $60.27 per barrel; U.S. natural gas realizations fell 23% to $2.45 per MCF. Lease operating expense rose to $8.95 per BOE from $7.87. Adjusted EBITDA, a non-GAAP measure, increased to $1.514 billion from $919.8 million.
Operating cash flow rose substantially, while investing outflows increased with development spending and acquisitions. Capital expenditures included $1.261 billion for proved-property acquisitions, principally LLOG. Working capital excluding assets and liabilities held for sale was a $79.0 million deficit at year-end, versus a $146.3 million surplus in 2018; the selected-data table reports a different working-capital figure, so the filing’s presentation basis should be checked.
Material changes and unusual items
- Sold Malaysian subsidiaries in July 2019 for $2.0 billion cash and recorded a $985.4 million gain; Malaysia’s results are presented as discontinued operations.
- Acquired deepwater Gulf of Mexico assets from LLOG for $1.238 billion cash, adding approximately 67 MMBOE of proved reserves. The company also acquired a 20% noncontrolling interest in MP GOM through the 2018 Petrobras transaction; reported MP GOM operating figures include that interest unless specified otherwise.
- Repurchased 20.7 million shares for $499.9 million, completing the $500 million program.
- Issued $550 million of 5.875% notes due 2027 and used proceeds toward repurchasing about $521 million of notes due 2022; the debt refinancing incurred a $32.1 million extinguishment cost in earnings.
- Proved reserves totaled 825.0 MMBOE, down 19.0 MMBOE year over year. Malaysia divestiture and production were partly offset by LLOG-related purchases, extensions and discoveries. Proved undeveloped reserves were 352.7 MMBOE, or 43% of total reserves.
- Adopted lease accounting standards in 2019, recognizing operating lease assets and liabilities; year-end operating lease assets were $598.3 million.
Outlook, risks and contingencies
For 2020, management forecast capital expenditures of $1.4–$1.5 billion, excluding $62 million attributable to noncontrolling interests, and average production of 204,200–216,200 BOE per day, including 14,200 BOE per day attributable to noncontrolling interests. Spending could be reduced if commodity prices weaken. At the filing’s February 25, 2020 reference point, the WTI forward curve for April–December 2020 was about $50 per barrel. Murphy had WTI swaps covering 45,000 barrels per day at $56.42 for 2020, plus Canadian natural-gas forward sales.
Key risks include volatile oil and gas prices, reserve and production uncertainty, execution and valuation risk in major acquisitions, dependence on third-party operators and transport or processing capacity, environmental and climate-related regulation, offshore hazards and decommissioning obligations, and access to financing. The company disclosed $865.3 million in future lease payments and $2.436 billion in capital-expenditure, rig and other commitments in its contractual-obligations table; additional long-term transportation and gas-processing commitments extend through 2044 and 2035, respectively. Letters of credit outstanding were $172.5 million. Management said pending legal and environmental matters were not expected to have a material adverse effect, based on information then available.
The $1.6 billion revolving credit facility expires in November 2023; no borrowings were outstanding at year-end, and Murphy reported covenant compliance. Asset retirement obligations were $825.8 million noncurrent, with $865.1 million total obligations including the current portion. The company also disclosed up to $200 million of LLOG contingent consideration, a $50 million payment obligation following first oil on certain projects, and a possible $100 million Malaysia-related bonus contingent on future drilling results.
Important facts for investors to verify
- Separate recurring continuing-operations earnings and cash generation from the Malaysia disposal gain; assess the fourth-quarter continuing-operations loss of $91.3 million and attributable net loss of $71.7 million.
- Review the assumptions behind LLOG fair-value allocation, reserve estimates, depletion expense and the company’s significant proved undeveloped reserve base.
- Compare the 2020 production and capital-spending outlook with realized commodity prices, hedge coverage, and actual operating and development costs.
- Assess liquidity and capital commitments alongside the working-capital deficit, debt maturities, lease obligations, asset retirement obligations and acquisition-related contingent payments.
- Monitor customer concentration: Chevron represented about 25% of 2019 sales revenue and Phillips 66 and affiliates about 17%.