Murphy Oil Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Murphy Oil is an exploration and production company with operations primarily in the U.S. and Canada, producing crude oil, natural gas and natural gas liquids.
Financial and operating results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue from production | $794.6 million | $796.2 million |
| Total revenues and other income | $796.4 million | $841.7 million |
| Operating income | $154.1 million | $296.8 million |
| Net income attributable to Murphy | $90.0 million | $191.6 million |
| Diluted EPS | $0.59 | $1.22 |
| Cash from continuing operating activities | $398.8 million | $279.8 million |
| Cash property additions and dry-hole costs | $249.1 million | $345.3 million |
| Production, including noncontrolling interest | 176,671 boe/d | 179,745 boe/d |
Operating margin, calculated as operating income divided by total revenues and other income, was approximately 19.3%, down from 35.3%. Adjusted net income attributable to Murphy, a non-GAAP measure, was $130.8 million, or $0.85 per diluted share, versus $194.7 million, or $1.24, in Q1 2023. Adjusted EBITDA attributable to Murphy was $405.2 million versus $477.5 million.
At March 31, cash was $323.4 million and total debt, including finance leases, was $1.329 billion. The company reported approximately $1.1 billion of liquidity, including $796.3 million available under its $800 million revolving facility; there were no revolver borrowings and $3.7 million of letters of credit. Net working capital was negative $57.3 million. The fixed-rate notes had a weighted-average maturity of 7.9 years and weighted-average coupon of 6.2%.
Changes and notable items
- Net income attributable to Murphy fell by $101.6 million. Management cited higher lease operating expenses, exploration costs and asset impairment, partly offset by lower income tax expense.
- Lease operating expenses rose $34.3 million, mainly due to Gulf of Mexico workovers and the ramp-up at Canada’s Terra Nova field. Exploration expenses increased to $44.4 million from $10.3 million, including write-offs associated with the Hoffe Park #1 and Oso #1 wells.
- A $34.5 million impairment was recorded for the Calliope field in the Gulf of Mexico after operational issues reduced reserves; no impairment was recorded in Q1 2023.
- Production declined about 2%. Lower Gulf of Mexico volumes from workover downtime were largely offset by increased production at Tupper Montney and the Terra Nova restart.
- Operating cash flow increased by $119.0 million, mainly because Q1 2024 had no contingent-consideration payments for prior Gulf of Mexico acquisitions; Q1 2023 included $171.7 million of such payments across operating and financing activities.
- The company repurchased 1.3 million shares for $50.0 million, including excise taxes, commissions and fees, and paid $45.8 million in dividends. The quarterly dividend was $0.30 per share.
Outlook, risks and contingencies
- Q2 2024 production guidance is 176,000–184,000 boe/d, excluding noncontrolling interest. 2024 capital expenditure guidance is $920 million–$1.020 billion, also excluding noncontrolling interest.
- Management expects to fund the capital program primarily from operating cash flow and available cash. Weaker oil or gas prices could reduce cash flow and lead to capital-spending cuts or revolver borrowings. The company notes commodity-price volatility, inflation and higher costs for operating goods and services.
- As of April 30, 2024, the company disclosed certain fixed-price Canadian natural-gas sales for the remainder of 2024. It had no commodity or foreign-exchange derivative contracts outstanding at March 31.
- Asset retirement obligations totaled $934.6 million, including a $916.8 million noncurrent balance. Future estimates may change with service costs, technology, regulation and other factors.
- Murphy cited environmental, climate-related, regulatory, tax, foreign-exchange, political and commodity-market risks. It reported routine legal proceedings, including climate-related litigation, and said currently known environmental and legal matters were not expected to materially adversely affect future results, financial condition or liquidity.
- The $600 million share-repurchase authorization had $400 million remaining at March 31. The revolving facility expires in November 2027; the company reported covenant compliance.
Important facts for investors to verify
- Whether production and operating costs improve as Gulf of Mexico workovers conclude and Terra Nova ramps up.
- Whether the $920 million–$1.020 billion capital program and Q2 production guidance remain achievable.
- The impact of commodity-price changes, Canadian gas pricing and fixed-price sales on realized revenue and cash flow.
- Progress on exploration wells, including the disclosed dry-hole costs, and any further reserve-related impairments.
- Capital allocation decisions, including share repurchases, dividends and the use of available liquidity.
- Potential changes to asset retirement obligations, environmental exposures and regulatory requirements.