Murphy Oil Corporation — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Murphy is an international oil and gas exploration and production company operating in the United States, Canada, and Malaysia. Financial amounts below are in U.S. dollars; millions unless otherwise noted.
Financial results and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenues | $498.3 | $485.5 | $1,683.2 | $1,329.7 |
| Operating income (loss), continuing operations | $32.8 | $7.5 | $301.4 | ($347.8) |
| Net income (loss) | ($65.9) | ($16.2) | ($25.0) | ($212.0) |
| Diluted loss per share | ($0.38) | ($0.09) | ($0.14) | ($1.24) |
- Q3 sales and other operating revenues were $498.2 million. The $96.4 million Q3 total other loss, including $47.7 million of interest and other loss and $48.7 million of net interest expense, more than offset operating income.
- For the first nine months, cash provided by continuing operating activities was $819.6 million, compared with $280.4 million a year earlier. Cash used for property additions and dry-hole costs was $706.4 million.
- Cash and cash equivalents were $997.2 million at September 30, 2017, versus $872.8 million at year-end 2016. Working capital was $615.6 million.
- Long-term debt, including capital leases, was $2,908.3 million; current maturities were $9.8 million. The company had no borrowings on its $1.1 billion credit facility, with $84.8 million of letters of credit outstanding. It reported compliance with facility covenants.
- Total production averaged 153,842 barrels of oil equivalent per day in Q3 and 161,917 for the nine-month period.
Changes versus prior periods
- Q3 net loss widened from $16.2 million to $65.9 million. E&P earnings rose to $33.6 million from $25.0 million, but corporate costs increased to $99.9 million from $39.6 million, chiefly due to foreign-exchange losses, higher interest costs, and deferred tax charges.
- Nine-month net loss narrowed to $25.0 million from $212.0 million. E&P moved to $276.6 million of earnings from a $99.5 million loss; results benefited from higher realized commodity prices, lower operating costs, and the Seal asset sale, among other factors.
- Production declined 9% year over year in both the quarter and nine-month period. Excluding the Seal and Syncrude divestitures, nine-month production was down 4%.
- Nine-month total revenues rose partly because of a $130.8 million gain on asset sales, primarily the Seal field disposition. Seal generated about $49.0 million cash proceeds and the buyer assumed approximately $85.9 million of asset retirement obligations.
- In August, Murphy issued $550 million of 5.75% notes due 2025 and used the proceeds to redeem $550 million of 2.50% notes due December 2017. The 2017 quarterly dividend was $0.25 per share, unchanged year over year; nine-month dividends were $0.75 per share versus $0.95.
Outlook, commentary, and risks
- Management expected Q4 2017 production of 170,000–172,000 barrels of oil equivalent per day and full-year capital expenditures of approximately $940 million. Remaining 2017 capital spending was expected to be funded primarily from operating cash flow, with credit-facility borrowing available if needed.
- Management noted oil prices in October were slightly above the Q3 average, while North American natural gas prices were slightly lower. Weaker commodity prices could reduce cash flow, require spending cuts, or lead to additional borrowing.
- The nine-month results included a $65.2 million noncash deferred tax charge related to a change in the company’s assertion on prospective Malaysian and Canadian earnings; management expected additional tax charges in Q4 as 2017 foreign earnings arose.
- Q3 net loss included a $43.9 million after-tax foreign-exchange loss, principally on intercompany loans, and an $11.8 million after-tax loss related to crude oil derivatives. The nine-month foreign-exchange after-tax loss was $86.6 million.
- Environmental and legal matters include remediation of a 2015 condensate pipeline leak at the former Seal field. The recorded liability was $5.8 million at September 30, 2017; actual costs could exceed the accrual. Management did not expect the disclosed legal and environmental matters to have a material adverse effect, based on information available.
- Key risks cited include oil and gas price volatility, exploration and production performance, foreign-exchange movements, political and regulatory conditions, capital-market conditions, and natural hazards. No additional risk factors were identified beyond those in the 2016 Form 10-K.
Important facts for investors to verify
- Whether production growth and the Q4 guidance range were achieved, and how much of the production decline reflects divestitures versus underlying asset performance.
- Cash generation relative to capital spending, and whether the planned 2017 capital program required additional borrowing or reductions.
- The effect of foreign-exchange movements, intercompany loans, and crude-oil derivative positions on reported earnings; the filing states derivatives are not held for speculation.
- Future tax expense from foreign earnings and repatriation, including the additional Q4 charge anticipated by management.
- Debt and liquidity after the 2025-note issuance and early redemption, plus any changes in credit-facility availability or covenant compliance.
- Final remediation costs and potential insurance recoveries for the Seal pipeline leak, and progress on the exploratory wells with $178.4 million of capitalized costs pending proved-reserve determinations.