Murphy Oil Corporation — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. Murphy had completed its transition to an independent exploration and production company; remaining U.K. downstream assets were sold in 2015. Figures below are in U.S. dollars unless noted.
Business context and key financial metrics
Murphy produces oil, natural gas liquids (NGLs) and natural gas, principally in the United States, Canada and Malaysia. Its 2015 average production was 207,903 barrels of oil equivalent per day (boepd), down 8% from 2014; adjusted for the 30% Malaysia interest sale, production rose 4%. Year-end proved reserves were 774.0 million boe.
| Metric | 2015 | 2014 |
|---|---|---|
| Sales and other operating revenues | $2.787 billion | $5.289 billion |
| Total revenues | $3.033 billion | $5.476 billion |
| Net income (loss) | $(2.271) billion | $905.6 million |
| Continuing operations income (loss) | $(2.256) billion | $1.025 billion |
| Diluted EPS | $(13.03) | $5.03 |
| Cash from continuing operating activities | $1.183 billion | $3.049 billion |
| Continuing-operations capital expenditures | $2.187 billion | $3.757 billion |
| Total debt, including current maturities and capital leases | $3.059 billion | $2.983 billion |
| Cash and cash equivalents | $283.2 million | $1.193 billion |
| Working capital | $(226.2) million | $131.3 million |
The filing does not provide a single comparable consolidated operating-margin measure in the supplied text. Production-related costs per boe were $10.87 for lease operating expense, $0.86 for severance and ad valorem taxes, and $21.00 for depreciation, depletion and amortization in 2015.
Material changes versus prior period
- Sales and other operating revenues fell 47.3%; management attributed the decline to lower realized prices and lower sales volumes, including the Malaysia divestiture. Average realized crude oil price fell 45% to $47.99 per barrel; North American natural gas prices also weakened.
- The 2015 loss primarily reflected $2.493 billion of noncash impairments in the Gulf of Mexico, Western Canada and Malaysia, plus $282.0 million of deepwater rig contract exit costs. Impairments were $51.3 million in 2014.
- Cash from continuing operations declined by $1.865 billion. Capital expenditures from continuing operations decreased to $2.187 billion from $3.757 billion.
- Murphy sold an additional 10% interest in Malaysian assets for $417.2 million net proceeds and recorded a $218.8 million after-tax gain. Proceeds from the combined 30% Malaysia sale in 2014–2015 totaled approximately $1.87 billion.
- Lease operating expense declined $257.6 million and selling and general expense declined about 16%, reflecting divestitures, lower service costs, cost reductions and reduced staffing. The workforce fell over 20% from year-end 2014.
- Long-term debt rose to $3.041 billion from $2.518 billion; long-term debt was 36.4% of capital employed versus 22.8%. The standardized measure of discounted future net cash flows from proved reserves fell to $3.859 billion from $9.905 billion, chiefly due to lower prices.
Fourth-quarter results
For Q4 2015, sales and other operating revenues were $653.7 million; continuing-operations loss was $583.2 million and net loss was $587.1 million. Diluted loss per share was $3.41. The filing’s supplied quarterly table reports the quarter’s results but does not provide a separate clear Q4 margin figure.
Outlook, risks and contingencies
- Management forecast 2016 production of 180,000–185,000 boepd and capital expenditures of approximately $580 million, excluding spending related to the announced Canadian acquisitions. Lower spending, weak prices and field declines were expected to reduce production.
- 2016 hedges included WTI swaps for 20,000 barrels per day at an average $52.01 per barrel and Canadian natural gas forwards for 59 million cubic feet per day at C$3.19 per thousand cubic feet.
- The $2.0 billion committed credit facility had $600 million outstanding and matured in May 2017; the company said it expected to borrow during 2016. The filing identifies the $550 million note due December 2017 as a refinancing risk. February 2016 rating actions placed Fitch and Moody’s ratings below investment grade; Moody’s downgrade was to B1 and was expected to raise coupon rates by 1% on $1.5 billion of notes beginning June 1, 2016.
- In January 2016, Murphy agreed to sell Montney processing and pipeline assets for C$538 million and separately agreed to acquire Canadian assets for C$475 million, including approximately C$250 million cash at closing and a C$225 million carry. Both transactions were expected to close near the end of Q1 2016.
- A condensate pipeline leak at the Seal field in Alberta led to a $43.9 million 2015 remediation expense and $30.6 million of spending. The final cost was not established; further costs, regulatory fines and insurance recoveries remained uncertain, and total net costs could exceed the amount recorded.
- Murphy continued to await a tribunal decision on its Ecuador arbitration claim, which exceeds $118 million. Management said routine legal matters were not expected to have a material adverse effect.
- Key risks include sustained low commodity prices, further impairments or reserve reductions, reduced capital access, production declines, unsuccessful exploration, operational and environmental incidents, regulatory changes and political or currency risks. Approximately 38% of proved reserves were undeveloped.
Important facts for investors to verify
- Whether 2016 production and spending guidance, and the expected closing and net proceeds of the Canadian transactions, were achieved.
- Liquidity, facility extension or refinancing plans, debt maturities, and the effect of credit-rating downgrades on borrowing costs.
- Commodity-price assumptions and sensitivity underlying the $2.493 billion impairment, proved-reserve estimates and standardized reserve value.
- Final remediation exposure and insurance recovery for the Seal field leak, and status and potential value of the Ecuador arbitration.
- Execution, timing and funding requirements for undeveloped reserves and major projects, including Malaysia’s Block H FLNG development.