Despite rising oil prices and a rebound in U.S. drilling activity, Arkansas energy giant Murphy Oil Corp. continued to bleed red ink with a huge fourth quarter loss that included a $274 million accounting charge associated with the recent corporate tax reform package enacted into law in December.
For the period ended Dec. 31, the El Dorado-based oil and gas concern reported a net loss of $286.7 million, or $1.66 per share, compared to a net loss of $63.9 million, or 37 cents per share, in the same period of 2016. Total revenues, however, jumped 12.5% to $541.5 million, compared to $481.5 million a year ago.
Adjusted earnings, which exclude discontinued operations and other one-time items, resulted in a net gain of $13 million, or eight cents per share. Those adjustments included $274 million from the recent Tax Cuts and Jobs Act, a foreign exchange gain of $22 million, a loss of $20 million from mark-to-market of open crude oil hedge contracts, an inventory write-down of $14 million, and a redetermination expense of $9 million.
Wall Street analysts expected the Arkansas independent oil company to report fourth quarter earnings of five cents per share on revenue of $573.9 million, according to Thomson Reuters. For the year, Murphy Oil posted a net loss of $311.8 million, or $1.81 per share, on revenue of $2.22 billion.
“Over the course of the year, we stabilized our production. We achieved higher fourth quarter 2017 production year-over-year, which was primarily driven by a 16% increase from our onshore business, when adjusted for asset sales,” said Murphy Oil President and CEO Roger Jenkins. “Our constant focus on cost reductions, consistent cash balance, premium price-advantaged portfolio, and the ongoing financial strategy of spending within cash flow places our company in an excellent position moving forward.”
Companywide, Murphy Oil’s fourth quarter production averaged 168,000 barrels of oil equivalent per day (Mboepd), nearly even with 167,000 Mboepd from a year ago. Murphy’s preliminary year-end 2017 proved reserves are 698 million barrels of oil equivalent (Mmboe) an increase from 685 Mmboe at year-end 2016. The change in year-over-year reserves is mainly attributed to additions from onshore assets, primarily oil-weighted Eagle Ford Shale and Tupper Montney natural gas.
The North American onshore business produced over 96 Mboepd in the fourth quarter, with 52% oil and gas liquids. Fourth quarter 2017 operating expenses were $5.68 per boe, a 21% decrease from fourth quarter 2016. Murphy’s onshore North American operations include the Eagle Ford Shale and Midland Basin in Texas, and the Tupper Montnay and Kaybob Duvernay oil and gas plays in Canada.
The offshore business produced nearly 72 Mboepd for the fourth quarter, with 72% oil and gas liquids. Fourth quarter 2017 operating expenses were $11.53 per boe. Murphy Oil’s offshore drilling operations are in Malaysia, the Gulf of Mexico and East Coast of Canada. The Arkansas oil and gas giant is also exploring for new oil and gas production in offshore Mexico, Vietnam and Australia.
2018 CAPITAL BUDGET JUMPS 18% TO $1.05 BILLION
For 2018, Murphy is planning a capital budget of $1.05 billion based on West Texas Intermediate crude oil prices at $50 to $55 per barrel and a Henry Hub natural gas price of $2.90 to $3.00 per thousand cubic feet (Mcf). That budget is 18% above the company’s 2017 capital expenditures of $890 million. More than 60% of that budget will be targeted for Murphy Oil’s U.S. and Canadian onshore business, 15% for deepwater Malaysia and the remaining for exploration activities, offshore production and other operations.
“Our 2018 capital program supports our strategy of investing in our growing onshore assets while supporting our long-lived, free cash flow providing offshore assets. Our increase in capital in 2018 is related to investments in subsea projects along with our Block H FLNG project in Malaysia,” Jenkins said.
The Murphy Oil CEO added: “Our investment program is based on our strong desire to spend within our means and provide free cash flow in addition to our current dividend level. Our program is also strongly supported by our diversified portfolio that provides high netback prices.”
As of Dec. 31, Murphy Oil had $2.8 billion of outstanding debt and nearly $1 billion in cash and cash equivalents. Concerning the unusual accounting treatment of the recent GOP tax cuts, Murphy recorded a provisional tax expense of $274 million. The charge includes the impact of deemed repatriation of foreign income and the re-measurement of deferred tax assets and liabilities, company officials said.
Under the new tax law, Murphy Oil will have the flexibility to repatriate most past and future foreign earnings tax-free, except for a five percent withholding tax required to be paid on Canadian earnings repatriated to the U.S. parent company. The company’s statutory U.S. tax rate is 21% beginning in 2018, a decrease from the previous rate of 35%.
At the close of business Wednesday on the New York Stock Exchange, Murphy Oil’s shares were down 50 cents at $32.10. The company’s shares have traded in the range of $22.21 for a low and a high of $35.16 over the past 52 weeks.