Murphy Oil Corporation — Q1 2015 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2015, compared with Q1 2014; balance-sheet figures are as of March 31, 2015, compared with December 31, 2014. Murphy is an international oil and gas company operating in the United States, Canada and Malaysia. U.K. refining and marketing results are reported as discontinued operations.
Financial and operating metrics
- Revenue: Sales and other operating revenue was $749.2 million, down from $1.281 billion. Total revenue was $921.7 million, including a $135.9 million gain on asset sales, versus $1.286 billion.
- Profit: Net loss was $14.4 million, or $0.08 per diluted share, compared with net income of $155.3 million, or $0.85 per diluted share. Continuing-operations income was $3.5 million versus $169.3 million. Discontinued operations generated a $18.0 million loss.
- Cash flow and investment: Cash from continuing operating activities was $533.8 million, down from $725.9 million. Cash used in investing was $371.1 million, including $823.8 million of property additions and dry-hole costs and $417.2 million of asset-sale proceeds. Accrual-basis continuing-operations capital expenditures were $612.9 million, versus $887.2 million.
- Liquidity: Cash and cash equivalents were $981.0 million; Canadian government securities with maturities over 90 days were $388.1 million. Working capital was $411.3 million. Cash and equivalents decreased $212.3 million during the quarter.
- Debt and equity: Current and long-term debt totaled approximately $2.614 billion, including a $209.2 million Kakap production-equipment capital lease. Long-term debt was $2.592 billion, up $74.0 million from year-end. Stockholders’ equity was $8.204 billion.
- Production and prices: Total production averaged 221,554 barrels of oil equivalent per day, up 8% from 204,436. Worldwide crude oil and condensate averaged $47.12 per barrel, down 51% year over year. North American natural gas averaged $2.46 per thousand cubic feet, down 41%.
Material changes versus Q1 2014
- Lower realized oil and gas prices drove a steep decline in revenue and earnings, partly offset by higher production and the Malaysian asset-sale gain.
- U.S. E&P moved from $103.1 million of income to a $93.9 million loss; Canadian E&P moved from $67.6 million of income to a $38.5 million loss. Malaysia E&P income increased to $223.1 million, primarily reflecting the asset-sale gain.
- Depreciation, depletion and amortization rose to $481.0 million from $396.2 million. The company cited higher production and capital amortization rates as contributors.
- The company completed the final phase of selling a 30% interest in most Malaysian oil and gas properties. Q1 proceeds were $417.2 million and the reported after-tax gain was $199.5 million; total proceeds received to date were $1.88 billion, subject to final adjustments.
Outlook, risks and unusual items
- Management expected Q2 2015 production to average 197,000 barrels of oil equivalent per day and forecast full-year 2015 capital expenditures of approximately $2.3 billion.
- Management warned that sustained low oil and gas prices could further reduce earnings and operating cash flow, increase borrowing needs, prompt capital-spending reductions, or cause impairments of oil and gas properties.
- A condensate pipeline leak or leaks at the Seal field in Alberta led to a $43.9 million remediation provision. The site estimate was incomplete; further costs, regulatory fines and insurance recoveries remained uncertain, and ultimate net costs could exceed the provision.
- The remaining U.K. downstream assets were under an agreement to be sold, with closing expected near mid-year 2015. Completion could result in additional accounting losses.
- The final settlement of the Malaysian sale was expected in Q2 2015 and could change recorded gain and net proceeds. Foreign exchange, political and regulatory conditions, exploration results and commodity prices are also identified risks.
- Murphy reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It identified no new risk factors beyond those in its 2014 Form 10-K.
Important facts for investors to verify
- Final Malaysian sale adjustments and proceeds, and any effect on the recorded gain.
- Updated Seal field remediation estimates, insurance recovery and any regulatory penalties.
- Actual production, cash flow and capital spending compared with management’s Q2 production and full-year capital expenditure outlook.
- Completion terms and any exit-related loss from the U.K. downstream sale.
- Liquidity and borrowing needs if commodity prices remain weak, including the availability and terms of credit facilities.