Murphy Oil returns to profitability, posts third quarter earnings of $94 million

by Wesley Brown (wesbrocomm@gmail.com) 106 views 

Murphy Oil Corp. posted profits of nearly $94 million as the El Dorado oil explorer saw international crude prices jump to nearly $70 a barrel in the third quarter, the company reported after the close of market Wednesday (Nov. 7).

For the period ended June 30, the oil and gas firm reported net income of $93.9 million, or 54 cents per share, compared to a net loss of $65.9 million, or 38 cents per share in the same period a year ago. Adjusting for a series of one-time items, including unrealized market-to-market gains on crude oil derivative contracts and current exchange losses of 18 million, the Arkansas publicly-traded concern reported profits of $61 million, or 35 cents per share.

Revenues for the quarter also jumped 35.4% to $674.8 million, compared to $498.3 million in the same period a year ago. Wall Street had expected the independent oil and gas company to report third quarter earnings of 57 cents per share on revenue of $691.6 million, according to Thomson Reuters.

“Now with three-quarters of the year behind us, we continue to successfully implement our 2018 plan with third quarter production exceeding the high end of our guidance range. We continue to benefit from a diverse, oil-weighted portfolio that generates high cash flow per barrel metrics, driving over a 20% return on cash flow to capital employed,” said Murphy President and CEO Roger Jenkins. “Our high price realizations, competitive cash returns, long-standing dividend policy and successful exploration program along with our recently announced accretive Gulf of Mexico joint venture will continue to reward our shareholders over the long-term.”

According to company officials, the company produced an average of 169,000 barrels of oil equivalent per day (BOEPD) in the third quarter with oil prices at an average realized price of $69 per barrel. Company officials said production exceeded the high end of guidance primarily driven by outperformance in the Tupper Montney onshore Canada, outperformance in Sarawak natural gas in Malaysia, and higher than forecasted volumes due to a delay in the third quarter that extended into the fourth quarter for the scheduled turnaround in the non-operated Hibernia Field offshore Canada.

In the company’s North American onshore business — which includes the Eagle Ford Shale in West Texas, the Tupper Montney and Kaybob Duvernay operations in Canada — Murphy Oil said it produced 98 thousand barrels of oil equivalent per day (MBOEPD) in the third quarter, a 15% increase year-over-year.

Murphy’s global offshore drilling program, which includes oil and gas liquids drilling operations in Malaysia, the Gulf of Mexico and Canada, produced over 47 MBOEPD in the second quarter. In the company’s Malaysia and Brunei operations, the Kikeh gas lift project was completed, successfully commissioned and tested in the quarter. In North America, production in the quarter for the Gulf of Mexico and offshore Canada averaged 24 MBOEPD, with 90% liquids.

Murphy’s global exploration business included drilling operations in the Gulf of Mexico and Vietnam. During the quarter, Murphy continued drilling the Samurai-2 appraisal sidetrack and discovery wells in the Gulf of Mexico with total depth reached in mid-October. Murphy and its partner are now evaluating development plans for the Samurai discovery, as well as possible drilling plans for 2019.

In early October, Murphy formed a joint venture with Brazil’s multi-national oil conglomerate to develop a deepwater Gulf of Mexico project that is expected to bolster the company’s crude oil production to over 100,000 barrels per day in the region. Murphy Exploration & Production Company – USA, the Houston-based subsidiary of the El Dorado-based oil company, entered into the joint venture agreement with Petrobras America Inc. (PAI) on Oct. 11. Murphy will own an 80% stake in the jointly held company, and PAI will assume the remaining 20% interest with Murphy overseeing the project.

Under terms of the deal, Murphy will pay cash consideration of $900 million to PAI, subject to normal closing adjustments. PAI will earn an additional contingent consideration up to $150 million if certain price and production thresholds are exceeded beginning in 2019 through 2025. Also, Murphy will carry $50 million of PAI costs in the St. Malo Field if certain enhanced oil recovery projects are undertaken.

In conjunction with the joint venture, the company entered into an amendment of its existing credit line. At the close of the third quarter, Murphy had $2.8 billion of outstanding long-term, fixed-rate notes while maintaining $2 billion of liquidity. The next senior note maturity for the company is in 2022. There were no borrowings on the $1.1 billion unsecured senior credit facility at quarter end.

“As we anticipated, the announcement of our joint venture formation with Petrobras has been well received. This transaction ties directly to our long-term strategy,” said Jenkins. “The improvement in our bond rating is reflective of our increased high-value oil production growth, accretive cash flow and long-standing, strong balance sheet.”

The company is maintaining full year 2018 production guidance to be in the range of 168,500 to 170,500 BOEPD. In addition, full year capital expenditures are being maintained at $1.18 billion. Production for the fourth quarter 2018 is estimated to be in the range of 167,000 to 169,000 BOEPD. Full year and fourth quarter production, as well as capital expenditures guidance, excludes any impact from the previously announced Gulf of Mexico joint venture.

“Several recent events across many of our assets are affecting our fourth quarter production. The Gulf of Mexico was impacted by an active hurricane and tropical storm season early in the quarter,” said Jenkins. “Looking forward, we are eager to close our cash flow providing Gulf of Mexico transaction before year end, and then early in the new year provide our formal 2019 annual guidance.”

In Thursday’s early trade, Murphy’s shares (NYSE: MUR) were down $1 or 3.2% at $30.58. Over the past 52 weeks, the shares have trade in the range of $24.39 and $36.53.

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