Murphy Oil Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 7, 2020. Murphy is an oil and gas exploration and production company operating principally in the U.S. and Canada. Comparisons below are against Q1 2019 unless noted.
Financial and operating performance
- Revenue: Customer sales were $600.6 million, down 4.6% from $629.4 million. Total revenue and other income was $1.004 billion, including a $400.7 million gain on crude contracts.
- Profit and loss: Continuing-operations net loss was $503.8 million; net loss attributable to Murphy was $416.1 million, or $2.71 per diluted share, versus net income of $40.2 million, or $0.23 per diluted share. The quarter included $967.5 million of noncash impairment charges.
- Cash flow: Cash from continuing operating activities was $392.7 million versus $217.2 million. Investing activities used $376.1 million; financing activities provided $87.8 million. Cash increased to $407.8 million from $306.8 million at year-end.
- Margins and adjusted earnings: Adjusted EBITDA, a non-GAAP measure, was $287.1 million versus $310.5 million; adjusted EBITDA per BOE sold declined to $16.82 from $23.01. The filing does not provide a clear consolidated operating-margin figure.
- Debt and liquidity: Long-term debt was $2.970 billion, up from $2.803 billion at December 31, 2019, mainly reflecting $170 million borrowed under the revolving credit facility. The $1.6 billion facility had $1.426 billion available after borrowings and letters of credit; Murphy reported covenant compliance. Working capital, excluding held-for-sale balances, was $271.8 million.
- Capital returns: Cash dividends were $0.25 per share, unchanged from Q1 2019; cash dividends paid totaled $38.4 million.
- Production: Continuing-operations production including noncontrolling interest averaged 199,194 BOE per day, up 23% from 161,600, primarily reflecting the 2019 LLOG acquisition. Worldwide crude and condensate prices averaged $46.66 per barrel versus $58.86.
Material changes and unusual items
- The sharp deterioration in reported earnings chiefly reflected the $967.5 million impairment, including $927.8 million in U.S. properties and $39.7 million in other foreign properties, following lower commodity-price forecasts amid COVID-19-related demand weakness and supply increases.
- The $400.7 million crude-contract gain was a mark-to-market gain, not customer sales revenue. The company said lower prices later in the quarter and after quarter-end were expected to reduce future profits and operating cash flow.
- Production increased with LLOG Gulf of Mexico assets, while oil and gas prices were lower. Q1 2020 also included $93.7 million of LLOG revenue and a $406.3 million pretax loss attributable to those assets, including $413.2 million of impairment expense.
- Malaysia operations and former U.K. and U.S. refining and marketing operations are reported as discontinued operations. Brunei E&P and U.K. refining and marketing assets remained classified as held for sale at quarter-end.
Outlook, risks, and contingencies
- Management withdrew its previous full-year 2020 guidance. It reduced planned 2020 capital spending from $1.4–$1.5 billion to a midpoint of $740 million and initiated operating-cost and G&A reductions.
- Production averaged about 179,000 BOE per day in April, with approximately 7,000 BOE per day curtailed or shut in. Management anticipated about 40,000 BOE per day of May curtailments and said it could not accurately guide full Q2 production; future shut-ins would depend on market conditions.
- Management expected lower remaining-year oil prices to significantly reduce profits and operating cash flow. It planned to fund the remaining capital program primarily from operating cash flow, supplementing as needed with revolver borrowings.
- At March 31, crude swaps covered 45,000 barrels per day through April at $56.42, 65,000 barrels per day for May–June at $47.20, and 45,000 barrels per day for July–December at $56.42. Canadian gas fixed-price sales also covered specified volumes. These instruments may cushion lower prices but create mark-to-market volatility.
- Risks include commodity-price volatility, COVID-19 effects on demand, operations and counterparties, access to capital, and environmental, regulatory, foreign-exchange and political exposures. Management said routine legal and environmental matters were not expected to have a material adverse effect based on information then available. Tax audits and retained Malaysian tax matters remain subject to resolution.
Important facts for investors to verify
- Whether commodity prices, production curtailments and operating costs evolve consistently with the reduced capital plan and liquidity assumptions.
- The valuation assumptions behind the $967.5 million impairment and whether further price declines could trigger additional impairments.
- How much of the derivative gain is realized in cash, and the remaining hedge volumes, prices, and counterparty exposure.
- Revolver availability, covenant headroom, and debt needs if operating cash flow weakens.
- Timing and terms of held-for-sale asset transactions and any contingent payments, including the potential $100 million Malaysian exploration bonus and LLOG-related contingent consideration.