Murphy Oil 2Q profits double amid international crude oil slump

Even as international crude oil prices slid to a seven-month low on Thursday (Aug. 8), Murphy Oil Corp. reported that second quarter profits beat Wall Street views and more than doubled year ago results as the Arkansas energy concern makes a strategic turn to North America and the U.S. Gulf of Mexico.

For the period ended June 30, Murphy reported net income of $92 million, or 54 cents per share, up 102% from $45.5 million, or 27 cents per share, in the same period of 2018. Adjusted net income, which excludes discontinued operations and other one-off items, was $36 million, or 21 cents per share. Total revenues in the quarter jumped 82.2% to $709 million, compared to only $389 million in the second quarter of 2018.

In early trading Thursday, Murphy Oil’s shares (NYSE: MUR) were off nearly 7.4%, or $1.60, at $20.04. Wall Street had expected the oil and gas independent to report first quarter earnings of 18 cents per share on revenue of nearly $613 million, according to Thomson Reuters.

Just off its 52-week low of $20, Murphy and other oil stocks fell broadly in trading Thursday as oil prices slumped to their lowest level since early 2019. West Texas Intermediate, the light, sweet U.S. premium crude was down 1.5% to $52.81 per barrel on the New York Mercantile Exchange. International Brent crude fell 1.2% to $58.24 per barrel in London.

Despite the crude-oil slump and trade tensions over the past week amid President Donald Trump’s decision to add another 10% tariff on $300 billion in Chinese products, Murphy Oil President and CEO Roger Jenkins applauded the El Dorado oil explorer and producer’s first half of this year.

“2019 is proving to be an excellent year for Murphy. We closed our Gulf of Mexico and Malaysia transactions, leading to a completely transformed portfolio. Our now simplified and concentrated Gulf Coast asset base, in the Eagle Ford Shale and Gulf of Mexico, has an extensive runway that is able to generate oil-weighted, high-margin production,” said Jenkins, who has reshuffled his executive team in the past year. “Additionally, our Eagle Ford Shale team executed beyond their well delivery plan, further supporting forecasted growth expectations.”

During the second quarter, Murphy Exploration & Production Co., USA announced on June 3 it had closed on the company’s previously announced $1.2 billion deal to acquire deep water premium Gulf of Mexico assets from LLOG Exploration Offshore LLC and LLOG Bluewater Holdings LLC. Those two privately held partnerships are part of Covington, La.-based LLOG Exploration Company LLC, one of the nation’s largest exploration and production companies with a long history in the Gulf of Mexico.

A month ago, Murphy announced that its Malaysian subsidiary completed the $2.13 billion sale of deep-water oil and gas assets in Southeast Asia. As part of that sale and purchase agreement, the El Dorado oil giant divested its two primary Malaysian subsidiaries, Murphy Sabah Oil Company Ltd. and Murphy Sarawak Oil Company Ltd., to a subsidiary of Bangkok, Thailand-based PTT Exploration and Production Public Company Limited.

Along with the Malaysian exit plan, Murphy has said it will continue the company’s oil-weighted strategy in the Eagle Ford Shale and the Gulf of Mexico, while maintaining its focused exploration plan. To achieve that goal, Murphy said $750 million of the remaining proceeds will remain on the balance sheet earmarked for U.S. oil-weighted opportunities through potential acquisitions and funding of both deep-water projects and U.S. onshore deals.

In the adjusted second quarter results, Murphy’s divested Malaysia assets were reported as “discontinued operations” and classified as “held for sale” for financial reporting purposes beginning with the first quarter 2019, company officials said. Those results also excluded a $40 million mark-to-market non-cash gain on crude oil derivatives, a $13 million gain from the impact of foreign tax law changes and a $12 million mark-to-market non-cash loss on contingent consideration.

Murphy said second quarter production from continuing operations averaged 159,000 barrels of oil equivalent per day (MBOEPD) with 67% liquids. Overall, production was above guidance due to reduced downtime and better performance from the company’s newly acquired Gulf of Mexico assets, increased drilling efficiencies, and asset outperformance in the onshore portfolio.

In the company drilling and exploration business, Murphy increased its working interest in the deepwater Block 5 development in the Gulf of Mexico to 40% in a $15 million deal with London-based Ophir Energy. Murphy also said it has spent $20 million to  successfully drill a well in the Mississippi Canyon area of the Gulf and encountered oil in multiple zones and is completing the evaluation of the development.

For the rest of 2019, Murphy expects full year production to be in the range of 174 to 178 MBOEPD, excluding noncontrolling interest. For the third quarter, Murphy estimates total production of 192 to 196 MBOEPD, comprised of 66% liquids.

“Murphy is positioned to achieve free cash flow growth over the long-term as we focus on investing in meaningful, high-returning, multi-year projects in the Gulf of Mexico. This coincides with our Eagle Ford Shale growth plans, as our team strategically and prudently allocates capital,” said Jenkins.

After closing Gulf of Mexico and Malaysia deals, Murphy’s planned 2019 capital program is now estimated to be in the range of $1.35-$1.45 billion. The range includes $140 million of additional capital expected to be allocated toward the recently acquired Gulf of Mexico assets.

“It is important to note that the mid-point of our modified capex range is within our original guidance for 2019, even after all the significant portfolio changes we have completed,” said Jenkins. “We plan to spend approximately $140 million on our newly acquired Gulf of Mexico assets, offsetting the previously allocated capital of $105 million in 2019 for our discontinued operations in Malaysia.”

Over the past 52 weeks, Murphy Oil shares have traded in the range of $20 as a low and $36.53 on the high end.