Murphy Oil Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Murphy is an international oil and natural gas exploration and production company, operating primarily in the United States and Canada. Financial statements are unaudited.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue from customer sales | $1,166.4 million | $687.5 million | $3,234.0 million | $2,038.9 million |
| Total revenues and other income, including derivatives | $1,303.4 million | $630.7 million | $2,957.4 million | $1,560.3 million |
| Operating income (loss), continuing operations | $753.1 million | $223.4 million | $1,262.6 million | $(28.6) million |
| Net income (loss) attributable to Murphy | $528.4 million | $108.5 million | $765.6 million | $(242.1) million |
| Diluted EPS | $3.36 | $0.70 | $4.86 | $(1.57) |
| Net cash from continuing operating activities | Not provided for quarter | Not provided for quarter | $1,678.7 million | $1,091.3 million |
Q3 adjusted EBITDA attributable to Murphy, a non-GAAP measure, was $637.1 million versus $287.6 million; adjusted EBITDA per barrel sold was $36.35 versus $20.23. For the nine-month period, adjusted EBITDA was $1,630.3 million versus $933.7 million. The filing cautions that these measures are not substitutes for GAAP net income or operating cash flow.
- Production and prices: Q3 production averaged 196,243 barrels of oil equivalent per day (including noncontrolling interest), up from 163,224. Nine-month production averaged 173,260 barrels per day versus 170,209. Q3 realized crude oil and condensate prices averaged $93.56 per barrel versus $68.88; natural gas averaged $3.84 per thousand cubic feet versus $2.78.
- Cash and liquidity: Cash was $466.0 million at September 30, down from $521.2 million at December 31, 2021. The company reported a $268.5 million working-capital deficit. Its $1.6 billion revolving credit facility had no borrowings and $53.9 million of letters of credit outstanding; $1,546.1 million was available.
- Debt and equity: Long-term debt was $2,023.0 million, down $442.4 million from year-end 2021; current debt maturities were $0.7 million. Fixed-rate notes had a 7.5-year weighted average maturity and 6.1% weighted average coupon. Total equity was $4,879.6 million.
- Capital and shareholder returns: Nine-month capital expenditures were $918.0 million on an accrual basis. Cash dividends paid were $89.4 million, or $0.575 per share for the period.
Material changes versus the prior comparable period
- Q3 customer sales rose substantially, supported by higher commodity prices and increased production, including first production from the Khaleesi, Mormont and Samurai development in the Gulf of Mexico, as well as higher Canadian gas volumes.
- Q3 derivative instruments produced a $115.2 million gain, versus a $59.2 million loss in Q3 2021. For the first nine months, derivative losses narrowed to $308.7 million from $499.8 million. These mark-to-market and realized effects materially influence reported results.
- Nine-month operating cash flow increased by $587.4 million, primarily reflecting higher production revenue, partly offset by working-capital timing and higher realized derivative losses. Investing cash outflow increased to $928.6 million from $311.9 million, including higher development spending and $125.6 million for acquisitions; 2021 included $267.7 million of proceeds from the King’s Quay FPS sale.
- The company repaid or repurchased debt during 2022, reducing long-term debt. It also acquired additional interests in Lucius and Kodiak for $77.1 million and $48.5 million, respectively.
- No asset impairments were recorded in the first nine months of 2022; the comparable 2021 period included a $171.3 million Terra Nova impairment.
Outlook, commentary and risks
- Management forecast Q4 2022 production of 173.5–181.5 thousand barrels of oil equivalent per day, excluding noncontrolling interest. Full-year 2022 capital expenditures were expected to be $975–$1,025 million, excluding acquisitions and noncontrolling interest.
- Management cited inflationary cost pressure on goods and services and noted that weaker oil or gas prices could reduce profits and operating cash flow, prompting lower capital spending and/or use of credit facilities. The company planned to fund the remaining 2022 capital program from operating cash flow and available cash.
- As of November 1, 2022, management cited NYMEX WTI forward prices of $88.37 per barrel for the remainder of 2022 and $81.53 for 2023, while emphasizing uncertainty from economic conditions, demand, inflation, COVID-19 and the Russia-Ukraine conflict.
- Commodity-price exposure remains significant. At September 30, crude oil swaps covered 20,000 barrels per day at $44.88 per barrel and collars covered 25,000 barrels per day, with a $63.24 floor and $75.20 ceiling. The filing states a 10% benchmark-price increase would raise the net payable on these contracts by about $28.5 million.
- Environmental, health and safety regulation, including greenhouse-gas and methane rules, may increase costs or impose operating constraints. The company also faces political, regulatory, commodity-price, operational, foreign-exchange and legal risks. Management said routine legal and environmental matters were not expected to have a material adverse effect based on information then available.
- After quarter-end, Murphy announced a November 30, 2022 redemption of $200 million principal amount of its 5.750% notes due 2025. It also declared a subsequent quarterly dividend of $0.25 per share.
Important facts for investors to verify
- How much reported earnings and adjusted EBITDA reflect commodity prices and non-cash derivative and contingent-consideration revaluations, rather than recurring operating performance.
- Whether production and capital-spending guidance was achieved, and how project ramp-up, natural declines and inflation affected costs and volumes.
- Cash-flow conversion, the working-capital deficit, and availability under the revolving facility as debt redemptions and investment continue.
- Future contingent-consideration payments, asset-retirement obligations, and environmental or regulatory exposures, including methane-related requirements.
- The timing and impact of the announced 2025-note redemption and any subsequent changes to debt, dividends or capital allocation.