Murphy Oil loses $587 million in the quarter, sells Canadian pipeline operations

Declining crude oil and natural gas prices pushed Murphy Oil Corp. deeper into the well on Wednesday (Jan. 27) after the El Dorado oil giant reported that fourth quarter earnings and revenue targets came in well below year ago results.

For the period ended Dec. 31, 2015, Murphy reported a huge fourth-quarter loss of $587.1 million, or $3.41 per share, compared to net income of $375 million, or $2.11 cents per share, in the same period of 2014. On an adjusted basis, the El Dorado oil company reported a loss of $130.5 million, or 76 cents per share loss, compared to earnings of $69 million, or 39 cents, a year ago. The adjusted losses exclude the results of discontinued operations and certain other items that affect comparability of results between periods. Revenues fell 55% to $658 million in the fourth quarter, compared to year-ago sales of $1.4 billion.

Those adjusted earnings beat Wall Street expectations for a fourth quarter loss of $1.16 cents per share on sales of $627 million, according to a survey of analysts by Thomson Reuters.

For the full year, Murphy reported a net loss of $2.27 billion, or $13.03 per share, compared to net income of $905 million, or $5.03, per share a year ago. Revenues slumped to only $3.03 billion in 2015, down 44.6% from $5.47 billion, in fiscal 2014.

OIL PRICES DOWN 42%
Among other things, Murphy officials attributed the fourth quarter and yearly losses to impairment of oil and natural gas assets, exit costs related to a Gulf of Mexico deepwater rig contract, and deferred tax charges associated with the foreign operations.

Like most oil and gas sector, Murphy officials also said earnings before and after taxes were significantly impacted by a greater than 42% reduction in Brent and West Texas Intermediate (WTI) oil prices, which closed in Tuesday’s session on the New York Mercantile Exchange at $33.14 and $32.30 per barrel, respectively.

Murphy’s fourth quarter 2015 production averaged nearly 200,800 barrels of oil equivalent per day (boepd), slightly ahead of the 199,000 boepd guidance, primarily because of higher natural gas production from the Montney area in Western Canada and higher production in Malaysia for Sarawak natural gas.

“Despite a major decline in oil prices, 2015 was a good year operationally for Murphy. We increased our proved reserves even with the inclusion of the 10 percent sell-down of our Malaysian assets,” Murphy President and CEO Roger Jenkins said in a statement.

In dealing with the low commodity price environment, Murphy officials announced what they called a proactive approach toward improving efficiency and structure. In the third quarter, Murphy said the company initiated cost-cutting measures that included eliminating more than 100 positions from its global workforce of more than 1,500 employees – a nearly 7% reduction.

For the year, Murphy said it implemented key organizational changes that included lowering staffing levels more than 20% and decreasing general and administrative expense by nearly 16% from 2014 levels, or $57.3 million. Full year benefits from these actions will be realized in 2016, the company said.

The ongoing cost-cutting program is expected to trim general and administrative expenses by 18% compared to 2014 levels, resulting in savings of $64 million by 2016, officials said. As a result, year-end 2015 staffing levels are now expected to be reduced by 23% from a year ago.

Murphy’s production forecast for the first quarter 2016 is in the range of 190,000 – 194,000 boepd with full-year 2016 production to be in the range of 180,000 to 185,000 boepd. The El Dorado oil company, however, plans 2016 capital expenditures for operations of only $825 million, 62% lower than the $2.19 billion spent in 2015.

The company said 45% of the capital spend will be allocated toward offshore drilling and exploration, 41% toward the Eagle Ford Shale and 14% for capital investments in the company’s Canada operations. Company officials said the $825 million capital program for 2016 “remains under review for additional downward revisions should lower commodity prices persist.”

Exclusive of capital lease obligations, Murphy said it had $2.83 billion of outstanding debt and has drawn down $600 million on the company’s $2 billion revolving credit facility at year end 2015. In addition, the company had cash and liquid invested securities totaling $456 million.

MURPHY SELLS CANADIAN PIPELINE
Separately, Murphy announced after the close of market that its Canadian subsidiary, Murphy Oil Company Ltd., signed a definitive agreement with Enbridge G&P Limited Partnership to divest natural gas processing and sales pipeline assets that support Murphy`s Montney natural gas fields in the Tupper and Tupper West areas of northeastern British Columbia.

The transaction includes the sale of existing infrastructure capable of processing up to 320 million cubic feet per day. Total cash consideration to Murphy upon closing of the transaction will be $538 million in Canadian dollars, which is about $382 million in U.S. currency.

“The monetization of our Montney midstream assets enable Murphy to allocate a portion of the proceeds within Canada to enter into a third focus area in the North American unconventional shale business,” Jenkins said.

At the close of business Wednesday, Murphy’s stock (NYSE: MUR) closed up 2.3% or 43 cents at $18.14, as nearly 10 million shares traded hands. The Arkansas oil giant’s shares have traded in the range of $14.20 and $52 over the past year.