Murphy Oil Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Murphy is an oil and natural gas exploration and production company operating primarily in the United States and Canada.
Financial and operating highlights
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue from customer sales | $871.4 million | $592.5 million |
| Total revenues and other income, after crude-contract losses | $553.0 million | $380.0 million |
| Operating loss | $42.1 million | $261.8 million loss |
| Net loss attributable to Murphy | $113.3 million; $0.73 per share | $287.4 million; $1.87 per share |
| Net cash from continuing operating activities | $338.3 million | $237.8 million |
| Capital expenditures, accrual basis | $304.7 million | $251.1 million |
| Production, including noncontrolling interest | 149,854 boe/d | 165,382 boe/d |
| Cash and cash equivalents at period end | $480.6 million | $521.2 million at Dec. 31, 2021 |
| Long-term debt | $2,466.1 million | $2,465.4 million at Dec. 31, 2021 |
Q1 2022 results included $320.8 million of crude-contract losses and a $98.1 million expense from revaluing contingent consideration. Adjusted EBITDA attributable to Murphy, a non-GAAP measure, was $361.3 million versus $254.9 million; adjusted EBITDA per barrel sold was $28.75 versus $18.65. The filing does not provide a clear consolidated profit-margin figure.
Liquidity, debt and cash flow
Cash from operations exceeded cash investment: continuing operating cash flow was $338.3 million and investing cash outflow was $244.9 million. Financing cash outflow was $133.9 million, principally reflecting $55.2 million in contingent-consideration payments, $39.9 million of distributions to noncontrolling-interest owners and $23.3 million of dividends. Cash declined $40.6 million during the quarter.
Working capital was a deficit of $654.5 million, down $355.7 million from year-end, mainly due to increased accounts payable and accrued liabilities, including derivative and contingent-consideration obligations. The $1.6 billion revolving credit facility had no borrowings and $31.4 million of letters of credit outstanding; reported availability was $1,568.6 million. The company was in covenant compliance. Fixed-rate notes had a weighted-average maturity of 7.2 years and weighted-average coupon of 6.2%.
Changes and management commentary
- Customer-sale revenue rose with higher realized commodity prices, while production fell 9% year over year. Management attributed lower volumes mainly to reduced investment in prior periods, field decline and planned or unplanned operational downtime.
- WTI averaged $94.29 per barrel, compared with $57.84 a year earlier. Higher prices also increased derivative losses and the fair value of contingent consideration, partly offsetting production revenue gains.
- U.S. E&P earnings increased to $252.9 million from $119.0 million. Canada reported earnings of $22.7 million versus a $124.3 million loss, which included a $171.3 million Terra Nova impairment in Q1 2021. Other international E&P recorded a $44.2 million loss, including the cost of the unsuccessful Cutthroat-1 well in Brazil.
- On April 12, 2022, Murphy announced first oil from the Khaleesi, Mormont and Samurai development through the King’s Quay FPS.
Outlook, risks and unusual items
- Q2 2022 production guidance is 156,000–164,000 boe/d, excluding noncontrolling interest. Full-year 2022 capital spending guidance is $900–$950 million, raised from $840–$890 million due principally to inflation, scope changes and Cutthroat-1 rig standby costs.
- Management plans to fund the remaining capital program with operating cash flow and available cash, and to use surplus cash to repay debt. Weaker commodity prices could reduce cash flow and prompt capital-spending cuts or facility borrowings.
- At March 31, crude-oil derivatives covered 20,000 barrels per day of swaps at $44.88 and 25,000 barrels per day of collars with a $63.24 floor and $75.20 ceiling through year-end. These contracts limit upside as well as provide price protection; a 10% benchmark-price increase was estimated to increase the related net payable by about $109.5 million.
- Management cited inflation and supply-chain cost pressure, commodity-price volatility, geopolitical uncertainty including Russia’s invasion of Ukraine, and potential regulatory, environmental and climate-related changes. Environmental and routine legal matters were not expected to materially adversely affect financial condition or liquidity, based on information available.
- Subsequent to quarter-end, Murphy declared a $0.175 quarterly dividend per share and gave notice to redeem $200 million of 6.875% notes due 2024 on June 2, 2022.
Important facts for investors to verify
- Whether production ramps as expected following King’s Quay first oil and how Q2 output compares with guidance.
- How realized commodity prices, derivative settlements and revaluations affect cash generation and reported earnings.
- Whether the higher capital-spending plan is delivered within guidance and funded without drawing the revolver.
- The timing and cash cost of contingent consideration, the announced note redemption and any changes in working-capital obligations.