Murphy Oil Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 25, 2022. Murphy is an oil and natural gas exploration and production company operating principally in the United States and Canada. Quarterly figures below are for Q4 2021 where specified.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue from customer sales | $2.801 billion | $1.752 billion |
| Operating income (loss), continuing operations | $281.4 million | $(1.362) billion |
| Income (loss), continuing operations | $48.8 million | $(1.255) billion |
| Net income (loss) attributable to Murphy | $(73.7) million | $(1.149) billion |
| Net cash provided by continuing operations | $1.422 billion | $802.7 million |
| Capital expenditures, accrued basis | $711.2 million | $826.6 million |
| Production, including noncontrolling interest | 167,356 BOE/day | 174,636 BOE/day |
| Long-term debt at year-end | $2.465 billion | $2.988 billion |
| Cash at year-end | $521.2 million | $310.6 million |
- Sales revenue increased about 60% year over year, primarily reflecting stronger realized commodity prices. Average realized crude oil price rose 76% to $66.80/barrel; total-company natural gas price rose to $2.74/MCF from $1.85.
- Production declined about 4%; lower oil output in the Gulf of Mexico, Kaybob Duvernay and Eagle Ford was partly offset by higher Canadian gas production.
- Attributable net loss differs from positive consolidated net income of $47.5 million because $121.2 million of net income was attributed to noncontrolling interests. The company also reported a $525.9 million derivative loss, versus a $202.7 million gain in 2020.
- Q4 2021 customer revenue was $762.3 million; continuing-operations income was $204.7 million and net income attributable to Murphy was $168.4 million.
- Lease operating expense per BOE was $8.86, down from $9.34; DD&A was $795.1 million, down from $987.2 million. Pretax noncash impairment charges were $196.3 million, compared with $1.206 billion in 2020.
Liquidity, debt, and capital allocation
- Cash plus available revolving credit totaled approximately $2.1 billion at year-end. The $1.6 billion unsecured facility had no borrowings outstanding, $31.4 million of letters of credit, and expires in November 2023; the company reported compliance with its covenants.
- Balance-sheet current assets were $880.9 million against current liabilities of $1.164 billion; the reported current ratio was 0.76 and working capital was negative $283.4 million. MD&A separately reports a $298.9 million working-capital liability using its stated presentation.
- Murphy repaid approximately $530 million of debt net during 2021, including redemption of its 2022 notes and $300 million of 2024 notes, partly funded by issuing $550 million of 6.375% notes due 2028. Year-end debt was 37.2% of capital employed, down from 41.5%.
- Cash dividends were $0.50 per share for 2021, versus $0.625 in 2020. Management said surplus cash would be directed to debt repayment and shareholder returns.
- Year-end proved reserves were 716.9 MMBOE, up 2.1 MMBOE, with 103% reserve replacement. Proved undeveloped reserves were 297.7 MMBOE, or 42% of total proved reserves.
Outlook, risks, and unusual items
- 2022 production guidance is 172,600–180,600 BOE/day, including 8,600 BOE/day attributable to noncontrolling interests. Planned 2022 capital spending is $840–$890 million, excluding noncontrolling interests; budgets may be adjusted for cash flow and commodity prices.
- Year-end hedges included 20,000 barrels/day of 2022 WTI swaps at $44.88/barrel and 25,000 barrels/day of collars with a $63.24 floor and $75.20 ceiling. Canadian gas fixed-price contracts also extend into 2024. These contracts reduce downside exposure but limit participation in price increases.
- Management cited recovering demand and constrained supply as supportive of early-2022 prices, but emphasized uncertainty from COVID-19, OPEC+ supply, and broader market conditions. Rising service and supply-chain costs were emerging risks.
- The $171.3 million Terra Nova impairment followed an operator abandonment notice; a later commercial resolution extended estimated asset life to 2032, and the filing says the resolution would have meant the impairment was not required. A further $25.0 million impairment related to non-core assets.
- Key risks include commodity-price volatility, reserve estimation and development execution, hurricanes and offshore operating hazards, environmental and decommissioning obligations, regulatory and climate-transition changes, partner and counterparty risk, and access to capital. Asset retirement obligations totaled $971.9 million, including current and noncurrent portions; capital-expenditure commitments were approximately $520.1 million.
- Management said pending legal and environmental matters were not expected to have a material adverse effect based on information then available. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How 2022 realized prices and production compare with guidance, and how the company’s high oil-price sensitivity interacts with its 2022 hedges.
- Whether operating cash flow remains sufficient to fund the planned capital program, debt reduction, dividends, and noncontrolling-interest distributions, given negative working capital.
- Progress and costs for major development projects, conversion of proved undeveloped reserves, and the assumptions underlying reserve estimates.
- The accounting and future treatment of the Terra Nova impairment, contingent consideration, and the substantial deferred tax assets, including the $577.5 million U.S. net operating loss deferred tax asset.
- Potential changes in decommissioning, environmental, permitting, and climate-related obligations, as well as the costs and availability of transportation and processing capacity.