MURPHY OIL CORP annual report, FY2014

Abrir documento

Murphy Oil Corporation — 2014 Form 10-K

Reporting period: Fiscal year ended December 31, 2014. The filing also provides fourth-quarter results. Murphy had transitioned from an integrated oil company to an exploration and production-focused business; U.S. retail operations had been spun off in 2013, and U.K. downstream operations were being sold or shut down.

Financial performance and position

  • Revenue: Sales and other operating revenues were $5.289 billion, down 0.4% from $5.313 billion in 2013. Higher sales volumes were more than offset by lower realized oil prices. Total revenues, including asset-sale gains and other income, were $5.476 billion.
  • Profit: Continuing-operations income was $1.025 billion, up 15%; diluted continuing-operations EPS was $5.69. Net income was $905.6 million, down 19%, and diluted EPS was $5.03. The difference reflects discontinued-operations losses of $119.4 million in 2014 versus income of $235.4 million in 2013.
  • Fourth quarter: Revenue was $1.219 billion; continuing-operations income was $442.0 million and net income was $375.2 million. Fourth-quarter diluted EPS was $2.48 from continuing operations and $2.10 overall.
  • Cash flow and investment: Cash provided by continuing operating activities was $3.049 billion, versus $3.211 billion in 2013. Cash property additions and dry-hole costs were $3.679 billion, implying a simple operating-cash-flow less property-spending shortfall of about $631 million before asset-sale proceeds and other cash flows. Reported continuing-operations capital expenditures were $3.757 billion.
  • Margins and costs: The filing does not provide a single consolidated operating-margin measure. Average realized crude oil price fell 8% to $87.23 per barrel; total lease operating expense per equivalent barrel fell to $13.31 from $16.66, while DD&A per equivalent barrel rose to $23.16 from $20.53. Production-related expenses totaled $3.095 billion.
  • Debt and liquidity: Year-end cash was $1.193 billion and Canadian government securities were $461.3 million. Working capital was $131.3 million, down from $284.6 million; current ratio was 1.04. Total debt, including current maturities and capital lease obligations, was $3.002 billion; long-term debt was $2.536 billion. A $450 million credit-facility borrowing was repaid on January 15, 2015. The $2.0 billion committed facility was then fully available and matures in June 2017.
  • Reserves and production: Record 2014 production averaged approximately 226,000 boe per day. Year-end proved reserves were 756.5 million boe, with reserve replacement of 183% of production. Proved undeveloped reserves were 279.5 million boe, or 37% of total proved reserves.

Changes versus 2013

  • Continuing-operations income increased mainly because of a $321.4 million after-tax gain on the sale of a 20% interest in Malaysian assets and higher production; excluding that gain, continuing-operations profit was $184.5 million below 2013, principally due to lower realized oil prices.
  • Net income fell as 2013 included income from the spun-off U.S. retail business and a $216.1 million after-tax gain on U.K. oil and gas asset sales. U.K. downstream losses were similar in both years.
  • Oil and gas production volumes increased 8.5% on a boe basis, led by Eagle Ford growth and new field start-ups. Depreciation, depletion and amortization rose $352.9 million, reflecting higher production and unit costs in newer developments.
  • Continuing operating cash flow declined $162.1 million. Year-end long-term debt fell by $400.3 million after Malaysian-sale proceeds were used largely to repay debt, although the company had drawn $450 million under its facility at year-end.
  • Murphy completed the sale of 20% of its Malaysian interests in December 2014 and sold a further 10% in January 2015 for $417.2 million. The reported 2014 reserves reflect the 20% sale, not the subsequent 10% reduction.

Outlook, risks and unusual items

  • 2015 outlook: Management expected production of 195,000–207,000 boe per day, affected by the Malaysian asset sales and field declines. Planned capital expenditures were approximately $2.3 billion, about 38% below 2014; management anticipated borrowing during 2015 to help fund the program.
  • Management cited sharply weaker oil prices in late 2014 and early 2015 and expected reduced drilling in the Eagle Ford and Montney areas. It planned to seek lower supplier costs but said the level of achievable savings was uncertain. Canadian gas forward contracts covered 65 mmcf per day for 2015 at C$4.13 per mcf.
  • Asset sales and restructuring: The 20% Malaysian sale generated $1.460 billion in net proceeds and the after-tax gain above. The Milford Haven refinery ceased processing in May 2014; Murphy recorded a $269.2 million impairment and was decommissioning the facility. U.K. retail-asset sale proceeds were $212.0 million.
  • Other charges and exploration risk: E&P impairment expense included $37.0 million to write off Canadian goodwill and $14.3 million for a Gulf of Mexico gas field. Exploration expense was $513.6 million, including $270.0 million of dry-hole costs; the company also wrote off $47.4 million of prior well costs after Malaysia rejected an extension request for Block PM 311.
  • Commodity exposure: Management warned that sustained low oil and gas prices could reduce earnings, cash flow, drilling, and production. At 2014 volumes, a $1-per-barrel oil-price change was estimated to affect E&P continuing-operations earnings by $33.6 million; a $0.10-per-mcf gas-price change by $10.9 million.
  • Other risks and contingencies: Material risks include reserve-estimation uncertainty, exploration failures, offshore operating hazards, weather, political and regulatory changes, environmental and hydraulic-fracturing requirements, foreign exchange, and reliance on third-party operators and customers. Management did not expect routine legal or environmental matters to materially affect results or liquidity. The Ecuador arbitration claim was approximately $118 million and remained unresolved.
  • The filing reports effective internal control over financial reporting and unqualified audit opinions. Retirement-plan liabilities increased amid lower discount rates and revised mortality assumptions; management expected higher plan costs and contributions in 2015.

Investor verification priorities

  1. Reconcile continuing-operations earnings with the Malaysia sale gain, tax benefits, and recurring operating performance.
  2. Verify completion, proceeds, tax effects, and reserve impacts of both Malaysian interest sales, including the January 2015 transaction.
  3. Assess whether 2015 production and capital-spending targets remained achievable under lower prices, reduced drilling, and expected field declines.
  4. Review liquidity and debt maturities, planned 2015 borrowings, capital commitments, and the post-year-end repayment of the $450 million facility draw.
  5. Evaluate the Milford Haven decommissioning estimate and remaining U.K. terminal-sale assets, liabilities, and cash classified as held for sale.
  6. Test reserve additions and undeveloped-reserve development plans against price assumptions, especially for Block H, Eagle Ford, and Western Canada.