Murphy Oil Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Murphy is an oil and natural gas exploration and production company operating primarily in the United States and Canada. Amounts below are in millions of dollars unless noted.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue from customer sales | $758.8 | $285.7 | $1,351.4 | $886.3 |
| Total revenues and other income, including crude-contract gains/losses | $549.6 | $211.5 | $929.6 | $1,215.3 |
| Operating income (loss), continuing operations | $9.8 | $(374.1) | $(252.0) | $(928.7) |
| Net loss attributable to Murphy | $(63.1) | $(317.2) | $(350.5) | $(733.3) |
| Basic and diluted loss per share | $(0.41) | $(2.06) | $(2.27) | $(4.78) |
| Cash provided by continuing operating activities | — | $686.3 | $369.4 |
- Higher customer-sales revenue reflected recovering commodity prices. These increases were partly offset in reported total revenue by crude-contract losses of $226.2 million in Q2 and $440.6 million in the first half; the comparable 2020 periods included losses of $75.9 million and gains of $324.8 million, respectively.
- Q2 production averaged 182,050 barrels of oil equivalent per day, including noncontrolling interest (NCI), up 1% year over year. First-half production averaged 173,762 BOE/d, including NCI, down 8%.
- Management-reported adjusted EBITDA, a non-GAAP measure, was $391.2 million in Q2 versus $124.6 million, and $646.2 million for the first half versus $411.6 million. The filing cautions that this measure is not a substitute for GAAP earnings or operating cash flow.
- At June 30, cash was $418.1 million and long-term debt was $2,762.9 million, with $0.8 million of current finance-lease maturities. The $1.6 billion revolving facility had no borrowings, $31.0 million of letters of credit, and $1,569.0 million of available capacity; the company reported covenant compliance.
- Working capital, excluding assets and liabilities held for sale, was a deficit of $395.5 million. Total assets were $10,604.2 million and total equity was $4,041.8 million.
- Investing activities used $193.7 million in the first half, including $445.3 million of property additions and dry-hole costs, partly offset by $269.4 million of property-sale proceeds. Financing activities used $386.7 million; dividends paid were $38.6 million.
Material changes versus comparable periods
- Q2 continuing-operations loss narrowed substantially from 2020 as customer-sales revenue and E&P results improved. U.S. E&P reported Q2 earnings of $194.7 million versus a $143.1 million loss; Canadian E&P earned $12.7 million versus a $19.5 million loss.
- First-half results improved from 2020’s substantial losses, which included $987.1 million of impairment charges. The 2021 first half included a $171.3 million impairment of the Terra Nova asset in Canada.
- First-half operating cash flow increased by $316.9 million year over year. Higher sales revenue and lower operating costs contributed, partly offset by cash payments on forward-swap contracts: a realized loss of $156.3 million in 2021 versus a realized gain of $150.9 million in 2020.
- Production declined year over year in the first half, which management attributed principally to lower capital spending in 2020 and temporary first-quarter Gulf of Mexico operating issues, which it said had been resolved. Q2 production increased slightly year over year.
- In March, Murphy sold its 50% interest in the King’s Quay FPS and associated export lateral pipelines to ArcLight for $267.7 million, reimbursing previously incurred project costs.
Outlook, commentary and risks
- Management forecast Q3 2021 production of 162,000–170,000 BOE/d, excluding NCI, and full-year 2021 capital expenditure of $685–$715 million. It said capital spending could be adjusted to reflect cash-flow forecasts and that operating cash flow and available cash were expected to fund the program.
- Management intended to use surplus cash for debt repayment. Subsequent to quarter-end, Murphy announced redemption of $150 million principal amount of its 6.875% notes due 2024, scheduled for August 16, 2021.
- Management cited vaccine-driven demand recovery and OPEC+ supply constraints as supportive of prices, while warning that COVID-19 variants, OPEC+ decisions, demand changes and commodity-price volatility could reduce profits and cash flow. Lower cash flow could require capital-spending cuts or additional borrowing.
- At June 30, crude-oil swaps covered 45,000 barrels per day through 2021 at an average $42.77/bbl and 20,000 barrels per day in 2022 at $44.88/bbl. The filing reported a $425.6 million fair-value liability for commodity derivatives. A 10% benchmark-price increase was estimated to increase the net payable by approximately $106.9 million; a 10% decrease would reduce it by a similar amount.
- The company issued $550 million of 6.375% notes due 2028 and used proceeds and cash to redeem its remaining 2022 notes. The early debt extinguishment cost was $36.9 million in interest expense.
- Murphy disclosed environmental and legal proceedings it considers routine and not expected, based on information available, to materially adversely affect results, financial condition or liquidity. Tax audits and retained possible liabilities and rights relating to Malaysia were also noted; the filing does not quantify a material expected exposure.
Important facts for investors to verify
- How realized and unrealized commodity-derivative effects, including the large reported mark-to-market losses, affect future cash flow and realized sales prices.
- Whether the Q3 production range and $685–$715 million full-year capital budget are achieved, particularly given first-half production declines and the planned project cadence.
- Terra Nova operating and production plans, partner negotiations, and the implications of the $171.3 million impairment.
- Debt repayment progress, the completed 2024-note redemption, liquidity needs, and continued compliance with credit-facility covenants.
- Whether demand, COVID-19 developments and OPEC+ supply decisions materially change commodity prices and the company’s operating outlook.