Murphy Oil Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Murphy is an international oil and natural gas exploration and production company, with operations primarily in the U.S. and Canada.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue from sales to customers | $840.0 million | $871.4 million |
| Total revenues and other income | $841.7 million | $553.0 million |
| Operating income (loss) | $296.8 million | $(42.1) million |
| Net income (loss) attributable to Murphy | $191.6 million | $(113.3) million |
| Diluted earnings (loss) per share | $1.22 | $(0.73) |
| Cash provided by continuing operating activities | $279.8 million | $338.3 million |
| Property additions and dry hole costs | $345.3 million | $244.9 million |
The year-over-year rise in total revenues and return to profit chiefly reflect the absence of the $320.8 million derivative loss recorded in Q1 2022. Customer sales revenue declined 3.6%. Q1 2023 net income included $22.7 million attributable to noncontrolling interests and $3.1 million of after-tax contingent-consideration losses. Adjusted EBITDA attributable to Murphy, a non-GAAP measure, was $477.5 million versus $361.3 million; adjusted EBITDA per barrel sold was $30.72 versus $28.75.
Margins: Operating income was 35.3% of total revenues and other income in Q1 2023, versus an operating loss in Q1 2022. The filing does not report a standardized net margin.
Liquidity, debt and capital
- Cash and cash equivalents were $312.4 million at March 31, down $179.6 million from year-end 2022. Working capital was a net liability of $226.2 million.
- Long-term debt was $1.823 billion; cash-adjusted debt was approximately $1.511 billion. The $800 million unsecured revolving facility had no borrowings, $30.3 million of letters of credit, and $769.7 million available. Murphy reported compliance with its covenants.
- Operating cash flow less net investing cash outflow was approximately negative $65.5 million. Cash declined to $312.4 million from $492.0 million at year-end.
- Capital expenditures on a value-of-work-done basis were $336.0 million, up from $304.7 million. Dividends paid were $42.9 million, or $0.275 per share.
Operating trends and changes from prior year
- Production averaged 179,745 BOE per day including noncontrolling interest, up 20% from 149,854. Growth was principally from Gulf of Mexico Khaleesi, Mormont and Samurai developments and new Tupper Montney wells.
- Crude oil and condensate production averaged 100,987 barrels per day, while the average realized crude price fell 22% to $73.80 per barrel. Total natural gas production rose to 404.6 MMcf per day; the average realized natural gas price fell to $2.68 per Mcf.
- U.S. E&P earnings declined to $226.0 million from $252.9 million, mainly from lower realized prices and higher lease operating and DD&A costs, partly offset by lower other operating expense. Canada E&P earnings were $21.9 million versus $22.7 million. Other international E&P loss narrowed to $5.2 million from $44.2 million, chiefly due to lower exploration costs.
- Operating cash flow declined by $58.5 million, reflecting contingent-consideration payments, lower production revenue and higher lease operating costs, partly offset by lower derivative losses and other items.
Outlook, risks and unusual items
- Management expected Q2 2023 production of 173,000–181,000 BOE per day, excluding noncontrolling interest, and 2023 capital expenditures of $875–$1,025 million, also excluding noncontrolling interest. Spending may be adjusted if cash flow changes.
- Management cited economic uncertainty, possible recession, inflation, the Russia/Ukraine conflict, commodity-price volatility and industry cost inflation. Lower oil or gas prices could reduce profit and operating cash flow, require capital-spending reductions, or lead to revolver borrowings.
- WTI averaged $76.13 per barrel in Q1 2023 versus $94.29 a year earlier. At May 1, the forward curve was $74.52 for the remainder of 2023 and $70.76 for 2024; these are market indications, not company guidance.
- Murphy had no commodity or foreign-exchange derivative contracts outstanding at March 31. It reported $171.7 million of contingent-consideration payments during Q1; the remaining $25.0 million liability was paid in April.
- Drilling of the Oso-1 Gulf of Mexico exploratory well was temporarily suspended before reaching its objective; Murphy planned to return in Q3 2023. Capitalized exploratory well costs pending proved-reserve determinations totaled $196.5 million, including $143.1 million aged three years or more.
- Environmental regulation, including methane-emissions requirements, and routine legal and tax matters are disclosed as potential exposures. Management said known environmental and legal matters were not expected to materially adversely affect results, financial condition or liquidity; outcomes remain uncertain.
Key facts for investors to verify
- Whether production growth from Gulf of Mexico projects and Tupper Montney continues, and how operating costs and realized prices evolve.
- Oso-1 drilling progress and the assessment of longer-aged capitalized exploration costs.
- Execution of the stated production and capital-spending outlook, including any changes prompted by commodity prices or cash flow.
- Cash generation after capital spending, liquidity needs, and the effect of completed contingent-consideration payments.