Murphy Oil Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Murphy is an oil and gas exploration and production company operating principally in the United States and Canada. Malaysia was classified as held for sale and reported as discontinued operations following the announced divestiture.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue from customer sales | $590.6 million | $396.3 million |
| Total revenues | $591.0 million | $374.8 million |
| Operating income from continuing operations | $84.6 million | $18.9 million |
| Income from continuing operations | $22.9 million | $90.6 million |
| Net income attributable to Murphy | $40.2 million | $168.3 million |
| Continuing-operations operating cash flow | $217.2 million | $110.9 million |
| Cash and cash equivalents at quarter-end | $286.3 million | $359.9 million at Dec. 31, 2018 |
| Long-term debt | $3.11 billion | $3.11 billion at Dec. 31, 2018 |
- Q1 production from continuing operations averaged 161,601 barrels of oil equivalent per day including noncontrolling interest, up 39% from 116,605. Excluding noncontrolling interest, production averaged 148,212 boe/d.
- Higher Gulf of Mexico volumes from the 2018 MP GOM acquisition drove much of the increase in production and revenue. Worldwide crude oil and condensate prices averaged $55.93 per barrel, down 12% year over year.
- Cash used for property additions and dry-hole costs was $270.3 million; accrual-basis capital expenditures were $346.6 million. Dividends paid were $43.4 million, or $0.25 per share.
- The $1.6 billion revolving facility had $325 million drawn and $25 million of letters of credit outstanding; the company reported covenant compliance. Cash less these amounts implies approximately $1.25 billion of undrawn capacity.
- Adoption of lease accounting added $618.1 million of operating lease assets and approximately $624 million of operating lease liabilities, and increased retained earnings by $116.8 million through a transition adjustment.
Changes versus the prior comparable period
- Total revenues rose to $591.0 million from $374.8 million, principally reflecting acquired Gulf of Mexico production. Q1 2018 total revenue included a $29.5 million loss on crude contracts, versus none in Q1 2019.
- Net income attributable to Murphy fell to $40.2 million from $168.3 million. Q1 2018 included a $120 million net tax benefit tied to IRS guidance under the 2017 Tax Act; Q1 2019 also included $32.6 million of net income attributable to noncontrolling interest.
- Continuing operating cash flow increased, although working-capital changes used $98.5 million of cash in Q1 2019, primarily due to the timing of receipts from MP GOM.
- Continuing-operations results exclude Malaysia in both periods under the current presentation. Malaysia contributed $49.8 million of after-tax income in Q1 2019 versus $77.7 million in Q1 2018.
Outlook, transactions, risks, and unusual items
- Management expected Q2 2019 production of 155,000–159,000 boe/d, including approximately 12,000 boe/d attributable to noncontrolling interest. Full-year 2019 capital expenditures were projected at $1.15–$1.35 billion, excluding $48 million attributable to noncontrolling interest.
- Murphy agreed to sell its Malaysian subsidiaries to PTTEP for $2.127 billion in cash, subject to customary closing adjustments, plus a possible $100 million exploration-related bonus. Closing was expected by the end of Q2 2019, subject to approvals and other conditions; the sale would exit Malaysia.
- After quarter-end, Murphy agreed to acquire deepwater Gulf of Mexico assets from LLOG for $1.375 billion, funded with cash and revolver availability. Additional contingent payments could total up to $250 million under specified conditions.
- As of April 30, the company reported fixed-price/derivative arrangements covering 20,000 barrels per day of U.S. oil for May–December 2019 at $63.64 per barrel and 20,000 barrels per day for 2020 at $60.10 per barrel, plus 59 mmcf/d of Canadian gas at C$2.81 per mcf through 2020.
- Management warned that weaker oil or gas prices could reduce operating cash flow and require capital-spending cuts or additional borrowing. Other disclosed risks include transaction closing conditions, exploration and production performance, commodity-price volatility, foreign exchange, political and regulatory conditions, capital markets, and natural hazards.
- Previously suspended Vietnam exploration costs of $13.2 million were expensed in Q1. The company reported routine legal and environmental matters and did not expect their resolution to materially affect results, financial condition, or liquidity. Disclosure controls were reported effective.
Investor facts to verify
- Whether the Malaysia sale closed on the expected timetable, its final proceeds and adjustments, and whether the contingent bonus is earned.
- Whether the LLOG acquisition closed as expected and how its funding affects debt, liquidity, and contingent-payment exposure.
- Actual production, commodity prices, and capital spending against management’s Q2 and full-year expectations.
- The cash-flow and working-capital effects of the MP GOM assets, lease obligations, and planned investment program.
- Whether exploration appraisal plans resolve the $227.1 million of capitalized exploratory well costs pending proved-reserve determination.