Murphy Oil Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Murphy is an oil and natural gas exploration and production company operating primarily in the U.S. and Canada, with both onshore and offshore production. Amounts below are U.S. dollars.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue from production | $945.9 million | $1,120.9 million | $2,542.0 million | $3,101.7 million |
| Total revenues and other income | $959.6 million | $1,303.4 million | $2,615.9 million | $2,957.4 million |
| Operating income | $377.5 million | $753.1 million | $839.2 million | $1,262.6 million |
| Net income attributable to Murphy | $255.3 million | $528.4 million | $545.3 million | $765.6 million |
| Diluted EPS | $1.63 | $3.36 | $3.47 | $4.86 |
| Cash dividends per share | $0.275 | $0.250 | $0.827 | $0.575 |
Margins: Operating income was about 39.3% of total revenues and other income in Q3, versus 57.8% a year earlier; for the first nine months, about 32.1% versus 42.7%.
Cash flow: Nine-month cash provided by continuing operations was $1.206 billion, down from $1.679 billion. Investing activities used $822.2 million, including $902.3 million of property additions and dry-hole costs; financing activities used $547.4 million. Cash declined $164.2 million to $327.8 million.
Debt and liquidity: Long-term debt was $1.576 billion at quarter-end; total debt including current maturities was approximately $1.577 billion. Murphy redeemed the remaining $248.7 million of 5.75% notes due 2025. It had no revolver borrowings, $4.1 million of letters of credit, and approximately $795.9 million available on its $800 million revolver. Reported liquidity was approximately $1.1 billion. Net working capital was a $5.4 million liability, improved from a $285.5 million liability at year-end 2022.
Changes and operating drivers
- Q3 net income attributable to Murphy fell approximately 52% year over year; nine-month net income fell approximately 29%. Lower commodity prices and production revenue were major factors. Revenue from production declined about 16% in Q3 and 18% for the nine months.
- Q3 results also compared against $115.2 million of derivative gains in Q3 2022. Murphy had no commodity derivative contracts in place at September 30, 2023; the nine-month 2022 period included $308.7 million of derivative losses.
- Production, including noncontrolling interest, averaged 208,200 barrels of oil equivalent per day in Q3, up 6%; nine-month production averaged 192,984 boe/d, up 11%. Growth was driven largely by Gulf of Mexico developments and new Tupper Montney wells.
- Nine-month lease operating expense rose to $587.7 million from $482.9 million, and exploration expense increased to $152.5 million from $72.2 million. Exploration charges included the non-commercial Chinook #7 well and previously suspended Cholula-1EXP costs.
- In September, Murphy completed the sale of certain Kaybob Duvernay and Placid Montney assets for C$139 million (about $103 million) net proceeds. It repurchased 1.68 million shares for $75.8 million including taxes and fees. After quarter-end, the board increased the repurchase authorization to $600 million; $525 million remained available.
Outlook, risks and notable items
- Q4 2023 production guidance is 181,500–189,500 boe/d, excluding noncontrolling interest. Full-year 2023 capital spending guidance is $950 million–$1.025 billion, also excluding noncontrolling interest.
- Management says capital plans may be adjusted to reflect cash flow, asset transactions, or commodity prices. Lower oil or gas prices could reduce profits and operating cash flow, potentially requiring spending cuts or revolver borrowing. Management also notes higher costs for industry goods and services.
- Management cited October 31 forward price curves of $81.02/bbl WTI and $3.58/MMBtu NYMEX for the remainder of 2023, and $77.93/bbl WTI and $3.61/MMBtu NYMEX for 2024. The filing lists fixed-price Canadian gas delivery contracts through 2024.
- Murphy paid $199.8 million of contingent consideration related to prior Gulf of Mexico acquisitions during the first nine months; it reported no remaining obligations for that consideration after Q2 2023.
- Asset retirement obligations totaled $871.8 million, including current amounts. The company cites commodity-price volatility, exploration and reserve uncertainty, operating costs, foreign exchange, regulatory and environmental requirements, and political risks. It states current legal and environmental matters are not expected to have a material adverse effect; no new risk factors were identified.
Key facts for investors to verify
- Whether realized oil and gas prices and production volumes support the Q4 production and full-year capital guidance.
- Progress and commercial outcomes for Oso #1, and plans for exploration projects following the Chinook #7 and Cholula-1EXP charges.
- Future capital allocation among debt reduction, dividends, and the expanded share repurchase program.
- Liquidity and cash-flow sensitivity to commodity prices, operating costs, working capital, and asset retirement spending.
- Potential tax, environmental, regulatory, and legal exposures, including the assumptions behind recorded asset retirement obligations.