Murphy Oil Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Murphy Oil is an exploration and production company operating primarily in the United States and Canada. Amounts below are U.S. dollars unless noted.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue from customer sales | $592.5 million | $600.6 million |
| Total revenues and other income, including crude-contract gains/losses | $380.0 million | $1,003.7 million |
| Loss from continuing operations | $267.0 million | $503.8 million |
| Net loss attributable to Murphy | $287.4 million | $416.1 million |
| Adjusted EBITDA, non-GAAP | $254.9 million | $287.1 million |
| Adjusted EBITDA per BOE sold, non-GAAP | $18.65 | $16.82 |
| Cash provided by continuing operations | $237.8 million | $392.7 million |
| Capital expenditures, accrual basis | $251.1 million | $378.0 million |
| Production, including noncontrolling interest | 165,382 BOE per day | 199,194 BOE per day |
Customer-sales revenue declined about 1%; total revenue and other income fell sharply because crude-contract results shifted from a $400.7 million gain to a $214.4 million loss. The net loss includes a $171.3 million Terra Nova impairment. No conventional operating-margin figure is provided in the filing summary.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $230.9 million, versus $310.6 million at year-end 2020. Long-term debt was $2.756 billion, down from $2.988 billion.
- Murphy issued $550 million of 6.375% notes due 2028 and used the proceeds, together with cash, to redeem its remaining 2022 notes. The redemption generated a $36.9 million debt-extinguishment expense, including a $34.2 million cash premium.
- The $1.6 billion revolving credit facility had no outstanding borrowings and $3.8 million of letters of credit; reported available capacity was $1.596 billion. The company reported compliance with its covenants.
- Working capital, excluding assets and liabilities held for sale, was a $237.4 million deficit. Current liabilities exceeded current assets overall.
- Quarterly cash dividends were $0.125 per share, compared with $0.25 in Q1 2020.
Material changes and unusual items
- Production fell 17% year over year, chiefly reflecting reduced prior-period and current-quarter capital spending, natural declines, Gulf of Mexico operational interruptions, and winter-storm impacts in the Eagle Ford. Management said the cited Gulf of Mexico issues were resolved.
- Average crude oil and condensate sales price rose to $58.08 per barrel from $46.66; total-company natural gas price increased to $2.56 per MCF from $1.73. Higher prices did not prevent lower customer-sales revenue, in part because sales volumes declined.
- The company recorded a $171.3 million impairment for Terra Nova based on the asset’s status and operating and production plans. Partners continued evaluating long-term production options.
- Murphy sold its 50% interest in the King’s Quay FPS and associated export lateral pipelines to ArcLight for $267.7 million, reimbursing previously incurred project costs.
- Crude-contract losses reflected rising market prices against fixed-price swaps. Murphy reported $60.9 million of realized pre-tax losses on these contracts during the quarter; the accounting loss also includes mark-to-market effects.
- Asset retirement obligations were $904.1 million. Brunei operations and an Arkansas office building were classified as held for sale; held-for-sale assets totaled $77.4 million.
Outlook, commentary and risks
- Management expected Q2 2021 production of 160,000–168,000 BOE per day, excluding noncontrolling interest, and full-year 2021 capital expenditures of $675–$725 million.
- Management said capital plans could be adjusted to reflect forecast cash flow. Weaker oil or gas prices could reduce operating cash flow, require spending cuts, or lead to credit-facility borrowings.
- At May 4, 2021, management cited WTI forward prices of $64.70 per barrel for the remainder of 2021 and $60.46 for 2022, while cautioning that commodity prices and demand remain uncertain, including due to COVID-19.
- At March 31, oil swaps covered 45,000 barrels per day through 2021 at an average $42.77 and 20,000 barrels per day in 2022 at $44.88. A 10% benchmark-price change would change the net payable on these derivatives by approximately $111.3 million in the opposite direction.
- Key risks include commodity-price and demand volatility, pandemic effects, production and exploration performance, political and regulatory changes, environmental obligations, foreign exchange, and ability to refinance or service debt. The company reported no newly identified risk factors beyond those in its 2020 Form 10-K. It described legal matters as routine and did not expect their resolution to materially affect financial condition or liquidity.
Important facts for investors to verify
- Whether production recovers from the Q1 decline and meets the Q2 guidance, particularly after Gulf of Mexico disruptions and Eagle Ford weather impacts.
- How the 2021–2022 crude swaps affect realized cash flow and reported results as market prices move.
- Developments in Terra Nova operating plans and any resulting further impairment or cash requirements.
- Whether operating cash flow can fund the planned capital program and distributions while working capital is in deficit.
- Execution and proceeds from the Brunei and other held-for-sale dispositions, and the evolution of debt, asset-retirement obligations, and liquidity.