Murphy Oil Corporation — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Murphy Oil is an independent exploration and production company, with operations principally in the United States and Canada. Results are for continuing operations unless otherwise noted; Malaysia is presented as discontinued operations. The filing was signed February 26, 2021.
Business context and key financial metrics
- Revenue: $1.752 billion, down 38% from $2.817 billion in 2019. Crude oil and NGL revenue fell amid weaker prices and lower volumes.
- Profitability: Net loss attributable to Murphy was $1.149 billion, compared with net income of $1.150 billion in 2019. Continuing-operations loss attributable to Murphy was $1.142 billion. The 2020 results included $1.206 billion of pretax noncash impairment charges; 2019 net income included a $985 million gain on the Malaysia divestiture.
- Cash flow: Cash provided by continuing operating activities was $803 million, down from $1.489 billion. Adjusted EBITDA, a non-GAAP measure, was $907 million versus $1.514 billion; adjusted EBITDA per BOE sold declined to $15.07 from $23.99.
- Production and prices: Production averaged 174,636 BOE per day including noncontrolling interest, down 5.9% from 2019. Average realized crude oil price fell 37% to $38.02 per barrel. Natural gas sales volume was broadly flat at 355 MMCF per day.
- Capital spending: Accrued capital expenditures were $826.6 million, including $92.8 million for the King’s Quay FPS. Management cited approximately $712 million excluding noncontrolling interest and King’s Quay spending.
- Liquidity and debt: Year-end cash was $310.6 million; $200 million was drawn on the $1.6 billion revolving credit facility, leaving approximately $1.4 billion available. Long-term debt was $2.988 billion, and debt was 41.5% of capital employed, versus 33.9% in 2019. Murphy reported compliance with credit-facility covenants.
- Dividends and equity: 2020 dividends were $0.625 per share, down from $1.00 in 2019. Murphy shareholders’ equity declined to $4.214 billion from $5.467 billion, principally due to the loss and impairments.
Material changes versus 2019
- Continuing-operations results shifted from a profit to a substantial loss, primarily because of lower commodity prices and the $1.206 billion impairment charge. Revenue fell, and continuing operating cash flow declined by $686 million.
- Production declined from 185,649 to 174,636 BOE per day. Gulf of Mexico output was affected by record hurricane activity and approximately 6.4 MBOE per day of shut-in production; Eagle Ford volumes also fell with reduced capital spending.
- Proved reserves fell to 714.9 MMBOE from 825.0 MMBOE. The filing attributes the decline mainly to lower planned shale investment, lower prices, and production, partly offset by additions and improved base performance.
- Capital spending was sharply reduced from 2019, which included the LLOG acquisition. Selling and general expenses declined 40%, while restructuring charges totaled $50.0 million following the El Dorado and Calgary office closures and consolidation in Houston.
- The standardized measure of discounted future net cash flows for proved reserves decreased to $2.619 billion from $5.828 billion. This measure is not presented as market value.
Outlook, risks, and unusual items
- 2021 outlook: Management projected average production of 164,800–174,800 BOE per day, including 9,800 BOE per day attributable to noncontrolling interest, and capital expenditures of $675–$725 million. Spending may be adjusted to reflect cash flow and commodity prices.
- Hedges: At year-end, oil swaps covered 45,000 barrels per day for 2021 at $42.77 per barrel and 15,000 barrels per day for 2022 at $44.27. The filing’s Outlook table separately lists 20,000 barrels per day for 2022 at $44.88; investors should verify the differing volume and price disclosures.
- Key risks: Commodity-price volatility, COVID-19-related demand uncertainty, hurricane and other operating disruptions, regulatory and climate-policy changes, reserve-estimation and development risks, joint-venture and third-party infrastructure reliance, and potential changes to offshore leasing or permitting. The company also identifies environmental, cybersecurity, financing, and foreign-exchange risks.
- Commitments and contingencies: Contractual obligations totaled $8.499 billion, including debt, leases, capital commitments, and other long-term liabilities. Capital expenditure commitments were approximately $747 million at year-end; outstanding letters of credit were $210.6 million. Management said pending legal and environmental matters were not expected to have a material adverse effect based on information then available.
- Other notable items: King’s Quay FPS, Brunei operations, and the El Dorado office building were classified as held for sale. The company reported 304.1 MMBOE of proved undeveloped reserves, or 43% of total proved reserves, with some locations extending beyond five years to development.
Important facts for investors to verify
- Reconcile reported working capital: selected financial data lists positive working capital of $284.0 million, while MD&A reports a $29.4 million working-capital liability excluding held-for-sale balances.
- Review the $1.206 billion impairment assumptions and the reserve revisions, including the effect of lower prices and reduced planned shale investment.
- Confirm hedge volumes and prices for 2022, which differ between the filing’s Outlook and derivative-note disclosures.
- Track execution of 2021 production and capital-spending guidance, liquidity, debt levels, and credit-facility covenants as commodity prices and operating conditions change.
- Assess the development schedule and funding needs for proved undeveloped reserves, offshore projects, and the company’s long-term lease, processing, transportation, and asset-retirement obligations.