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| MUR > SEC Filings for MUR > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
Results of Operations
Murphy's net income in the third quarter of 2008 was $584.4 million, $3.04 per diluted share, compared to net income of $199.5 million, $1.04 per diluted share, in the third quarter of 2007. The higher income in 2008 primarily related to improved earnings in both the Company's exploration and production and refining and marketing businesses, partially offset by higher net costs for corporate activities.
For the first nine months of 2008, net income totaled $1.613 billion, $8.39 per diluted share, compared to net income of $560.4 million, $2.94 per diluted share, for the same period in 2007. The higher nine-month income in 2008 compared to 2007 was primarily attributable to higher earnings in the exploration and production business, partially offset by weaker earnings for refining and marketing operations and higher net corporate costs.
Murphy's net income by operating segment is presented below.
Income (Loss)
Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars) 2008 2007 2008 2007
Exploration and production $ 529.9 150.8 1,535.1 388.9
Refining and marketing 85.8 73.2 173.3 233.1
Corporate (31.3 ) (24.5 ) (95.8 ) (61.6 )
Net income $ 584.4 199.5 1,612.6 560.4
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In the 2008 third quarter, the Company's exploration and production operations earned $529.9 million compared to $150.8 million in the 2007 quarter. Income in the 2008 quarter was favorably affected by higher crude oil and natural gas sales prices and higher crude oil sales volumes. Exploration expenses were $83.4 million in the third quarter of 2008 compared to $42.5 million in the same period of 2007. The Company's refining and marketing operations generated income of $85.8 million in the 2008 third quarter compared to income of $73.2 million in the same quarter of 2007. The third quarter 2008 benefited from much stronger U.S. retail marketing margins compared to 2007, but refining margins in the U.S. and U.K. were significantly weaker in the 2008 period. The after-tax costs of the corporate function were $31.3 million in the 2008 third quarter compared to $24.5 million in the 2007 period with the cost increase due to higher net interest costs and larger foreign exchange losses in 2008.
For the nine months of 2008, the Company's exploration and production operations earned $1.535 billion compared to $388.9 million in the 2007 period. Earnings in 2008 benefited from significantly higher realized oil sales prices, higher oil sales volumes, and gains on sale of assets. The Company's refining and marketing operations had earnings of $173.3 million in the first nine months of 2008, compared to earnings of $233.1 million in the same 2007 period. The 2008 period included lower earnings in the North American downstream business compared to a year ago, primarily caused by significantly weaker refining margins in 2008, but partially offset by stronger margins in U.S. retail marketing operations. Earnings from downstream operations in the U.K. improved in 2008 compared to 2007 due to better margins in refining operations and higher sales volumes due to the acquisition of the remaining 70% interest in the Milford Haven refinery in December 2007. Corporate after-tax costs were $95.8 million in the 2008 period compared to costs of $61.6 million in the 2007 period. Higher net interest expense, unfavorable foreign currency exchange results and higher administrative expenses accounted for the higher net costs in 2008.
Results of Operations (Contd.)
Exploration and Production
Results of exploration and production operations are presented by geographic
segment below.
Income (Loss)
Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars) 2008 2007 2008 2007
Exploration and production
United States $ 41.0 24.8 159.5 59.3
Canada 166.8 107.1 554.5 263.6
United Kingdom 20.5 11.0 67.0 37.9
Malaysia 308.3 4.3 776.4 29.2
Ecuador (.6 ) 10.3 .9 24.3
Other International (6.1 ) (6.7 ) (23.2 ) (25.4 )
Total $ 529.9 150.8 1,535.1 388.9
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Third quarter 2008 vs. 2007
United States exploration and production operations reported quarterly earnings of $41.0 million in the third quarter of 2008 compared to earnings of $24.8 million in the 2007 quarter. U.S. earnings were higher in the 2008 period due mostly to higher oil and natural gas sales prices. Lower U.S. oil production volumes and lower natural gas sales volumes were mostly attributable to production shut-in in the Gulf of Mexico associated with Hurricanes Gustav and Ike. Depreciation expense in the U.S. was higher in 2008 primarily due to higher per-unit depletion rates. U.S. exploration expenses in the 2008 period increased $11.3 million from the prior year primarily due to higher dry hole costs and higher leasehold amortization, somewhat offset by lower geological and geophysical expenses. Selling and general expenses in the U.S. were lower in the 2008 period than in 2007 due to a real estate donation in the prior year.
Operations in Canada earned $166.8 million in the third quarter 2008 compared to $107.1 million in the 2007 quarter. Canadian earnings improved in the 2008 quarter mostly due to higher oil sales prices. Oil production and sales volumes declined in the 2008 period compared to 2007 primarily due to less oil produced offshore Eastern Canada and in the heavy oil area of Western Canada. Natural gas sales volumes declined in 2008 mostly due to sale of Berkana Energy in January 2008. Depreciation expense was lower in 2008 due to less oil and natural gas production and sales of properties. Exploration expense was $10.0 million higher in the 2008 period due to more lease amortization expense attributable to the Tupper natural gas area in British Columbia, but partially offset by lower dry hole and geophysical expenses. The 2007 quarter included $8.3 million in income tax benefits related to adjustments of estimated prior-period taxes.
United Kingdom operations earned $20.5 million in the 2008 quarter, up from $11.0 million in the 2007 quarter. The 2008 improvement was primarily due to higher crude oil and natural gas sales prices in the current quarter. In addition, the 2008 quarter included higher U.K. crude oil and natural gas sales volumes. Production and depreciation expenses were higher in the 2008 period in the U.K. primarily due to the increase in crude oil and natural gas sales volumes.
Operations in Malaysia reported earnings of $308.3 million in the 2008 quarter compared to earnings of $4.3 million during the same period in 2007. The earnings improvement in 2008 in Malaysia was primarily due to higher crude oil sales volumes caused by the continued ramp-up of production during 2008 at the Kikeh field. Kikeh came on production in the third quarter of 2007, but the first sale from this field occurred in the fourth quarter of 2007. Production and depreciation expenses were higher in Malaysia in the current period also due to higher sales volumes. Malaysian exploration expense was higher in 2008 due to an unsuccessful exploration well in Block K. Selling and general expense in Malaysia was lower in the 2008 period due to higher charges to production and development operations under the joint operating agreement at Kikeh.
Operations in Ecuador resulted in a net loss of $0.6 million in the third quarter of 2008 compared to a profit of $10.3 million in the 2007 period. The 2008 results were unfavorable primarily due to a combination of lower realized oil sales prices caused by higher revenue sharing taken by the Ecuadorian government in the 2008 quarter, lower crude oil sales volumes, and an unfavorable income tax adjustment in 2008 related to the prior year. Beginning in mid- October 2007, the government of Ecuador claimed 99% of crude oil sales prices that exceeded a benchmark price,
Results of Operations (Contd.)
Exploration and Production (Contd.)
Third quarter 2008 vs. 2007 (Contd.)
which was approximately $24.31 per barrel in September 2008. Prior to this change, the government's revenue sharing was 50% of realized prices that exceeded the benchmark price. Production expense in Ecuador was lower in 2008 due to less crude oil sales volumes. See page 25 for further discussion regarding Ecuador.
Other international operations reported a loss of $6.1 million in the third quarter of 2008 compared to a loss of $6.7 million in the 2007 period. The favorable variance was primarily related to slightly lower administrative costs in the 2008 quarter.
On a worldwide basis, the Company's crude oil, condensate and natural gas liquids prices averaged $107.98 per barrel in the third quarter 2008 compared to $63.96 per barrel in the 2007 period. Average oil and gas liquids production was 118,797 barrels per day in the third quarter of 2008 compared to 87,962 barrels per day in the third quarter of 2007, with the increase primarily attributable to ramp-up of production at the Kikeh field in Malaysia during the 2008 period. Crude oil production was lower in the U.S. in 2008 mostly due to shut-in of Gulf of Mexico fields caused by two hurricanes during the third quarter. Certain offshore oil and natural gas production remained shut-in during October and early November 2008. There was no Canadian light oil production in the 2008 third quarter due to sale of the Company's interest in Berkana Energy in January 2008. Canadian heavy oil production was lower in the 2008 quarter compared to 2007 due to sale of the Lloydminster area properties during the second quarter of 2008. Canadian offshore crude oil production fell in 2008 due to a production decline at the Hibernia field and more equipment downtime and a higher royalty rate at the Terra Nova field. Ecuador oil production was lower in 2008 due to less drilling activity in Block 16 following the increase in the government revenue share in October 2007. North American natural gas sales prices averaged $11.51 per thousand cubic feet (MCF) in the most recent quarter compared to $6.22 per MCF in the same quarter of 2007. Natural gas sales volumes averaged 46 million cubic feet per day in the third quarter 2008, down from 56 million cubic feet per day in the 2007 quarter, due to a combination of lower volumes in Canada caused by the sale of Berkana Energy in January 2008 and Gulf of Mexico fields shut-in during the third quarter of 2008 due to two hurricanes during the period. Natural gas sales volumes increased in the U.K. in 2008 primarily due to higher volumes sold from the Amethyst and Mungo/Monan offshore fields.
The sales prices for crude oil and natural gas have declined significantly in the fourth quarter 2008 compared to the average prices in the third quarter and for the first nine months of 2008.
Nine months 2008 vs. 2007
U.S. E&P operations produced income of $159.5 million for the nine months ended September 30, 2008 compared to income of $59.3 million in the 2007 period. The 2008 period had higher oil and natural gas sales prices and higher natural gas sales volumes, but lower crude oil sales volumes. Production expenses in the U.S. were lower in 2008 mostly due to less costs for workovers and other field maintenance. U.S. depreciation expense was unfavorable in 2008 due to higher per-unit depletion rates compared to 2007. Exploration expenses in the 2008 period in the U.S. were $2.0 million lower than 2007 due to less dry holes expense in 2008, but partially offset by higher geological and geophysical and leasehold amortization expenses in 2008.
Canadian operations earned $554.5 million in the 2008 period compared to $263.6 million a year ago. Higher sales prices for crude oil and natural gas and after-tax gains of $108.3 million on sales of properties primarily led to the increase in earnings. Higher Canadian production expenses in 2008 were mostly related to higher energy costs at Syncrude. Lower depreciation expense in 2008 in Canada was attributable to less oil and natural gas volumes produced and sold. Exploration expenses in Canada were $58.3 million higher in 2008 primarily due to more seismic costs and higher undeveloped lease amortization for new acreage acquired at the Tupper field in British Columbia, but these were partially offset by lower dry hole expense during 2008.
Income in the U.K. for the nine-month period in 2008 was $67.0 million compared to $37.9 million a year ago, with the increase primarily due to higher oil and natural gas sales prices and higher natural gas sales volumes, partially offset by lower crude oil sales volumes.
Results of Operations (Contd.)
Nine months 2008 vs. 2007 (Contd.)
Malaysia operations earned $776.4 million in the first nine months of 2008 compared to earnings of $29.2 million in the 2007 period. The earnings improvement was primarily caused by crude oil sales volumes associated with the Kikeh field, offshore Sabah, which commenced production in the third quarter of 2007. Production at Kikeh increased during 2008 as more wells came on stream. Average crude oil sales prices were also significantly higher in 2008 than in 2007. Production and depreciation expenses in Malaysia were significantly higher and were related to the increase in Kikeh field production. Malaysian exploration expense was higher in 2008 mostly due to more costs for unsuccessful exploration drilling during 2008. Selling and general expense in Malaysia declined in 2008 due to higher levels of costs charged to production and development operations.
Earnings in Ecuador were $0.9 million for the first nine months of 2008 compared to $24.3 million for the 2007 period. The earnings decline in 2008 was due to higher revenue sharing with the government for sales prices above a benchmark price. In addition, crude oil production and associated sales volumes were lower in 2008 due to less spending on development drilling following the increase in government revenue sharing that took effect in October 2007. See page 25 for further discussion regarding Ecuador.
Other international operations reported a loss of $23.2 million in the first nine months of 2008 compared to a loss of $25.4 million in the 2007 period. The smaller loss in the 2008 period was primarily due to lower geophysical expenses in the Republic of Congo, but partially offset by higher costs in 2008 for exploration and administrative activities in other foreign jurisdictions.
For the first nine months of 2008, the Company's sales price for crude oil, condensate and natural gas liquids averaged $100.53 per barrel compared to $56.10 per barrel in 2007. Crude oil, condensate and gas liquids production in the first nine months of 2008 averaged 114,559 barrels per day compared to 84,169 barrels per day a year ago. The increase was mostly attributable to Kikeh field production, offshore Malaysia, which continued to ramp up during 2008, but production volumes were lower in the Gulf of Mexico mostly caused by shut-in of fields due to third quarter hurricanes. Production in the heavy oil area of Western Canada was lower mostly due to the sale of the Lloydminster property in the second quarter 2008. Oil production was lower at the West Patricia field, offshore Sarawak, Malaysia, due to both field decline and a lower percentage of production allocable to the Company under the production sharing contract. The average sales price for North American natural gas in the first nine months of 2008 was $10.27 per MCF, up from $7.16 per MCF in 2007. Natural gas sales volumes in 2008 were 57 million cubic feet per day compared to 58 million cubic feet per day in 2007, with the decrease due mostly to wells shut-in by two hurricanes in the third quarter 2008. Lower natural gas volumes in Canada were caused by the sale of the Company's interest in Berkana Energy in January 2008.
Additional details about results of oil and gas operations are presented in the tables on pages 20 and 21.
Results of Operations (Contd.)
Exploration and Production (Contd.)
Selected operating statistics for the three-month and nine-month periods ended
September 30, 2008 and 2007 follow.
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Net crude oil, condensate and gas liquids produced
- barrels per day 118,797 87,962 114,559 84,169
United States 9,151 11,680 11,373 13,069
Canada - light - 640 62 587
- heavy 7,254 11,144 8,801 11,197
- offshore 16,379 20,248 17,214 19,862
- synthetic 13,110 14,423 11,953 12,865
United Kingdom 2,713 3,575 4,917 5,108
Malaysia 63,144 17,358 52,673 12,473
Ecuador 7,046 8,894 7,566 9,008
Net crude oil, condensate and gas liquids sold -
barrels per day 117,891 78,702 118,395 82,245
United States 9,151 11,680 11,373 13,069
Canada - light - 640 62 587
- heavy 7,254 11,144 8,801 11,197
- offshore 15,014 20,153 16,132 20,151
- synthetic 13,110 14,423 11,953 12,865
United Kingdom 5,460 5,123 5,616 6,152
Malaysia 61,349 6,359 56,951 8,706
Ecuador 6,553 9,180 7,507 9,518
Net natural gas sold - thousands of cubic feet per
day 45,948 55,712 56,518 57,784
United States 38,846 41,667 46,816 42,283
Canada 1,122 10,582 2,538 9,569
United Kingdom 5,980 3,463 7,164 5,932
Total net hydrocarbons produced - equivalent
barrels per day (1) 126,455 97,247 123,979 93,800
Total net hydrocarbons sold - equivalent barrels
per day (1) 125,549 87,987 127,815 91,876
Weighted average sales prices
Crude oil, condensate and natural gas liquids -
dollars per barrel (2)
United States $ 118.87 70.50 108.99 59.55
Canada (3) - light - 56.77 70.37 50.73
- heavy 80.87 34.91 70.97 32.43
- offshore 119.06 73.97 111.76 65.66
- synthetic 122.41 77.78 111.70 69.15
United Kingdom 111.89 75.88 106.48 65.68
Malaysia (4) 111.71 61.01 105.48 53.33
Ecuador (5) 30.40 43.07 29.20 38.00
Natural gas - dollars per thousand cubic feet
United States (2) $ 11.64 6.59 10.44 7.37
Canada (3) 7.05 4.74 7.19 6.21
United Kingdom (3) 11.81 7.17 11.21 6.84
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(1) Natural gas converted on an energy equivalent basis of 6:1.
(2) Includes intracompany transfers at market prices.
(3) U.S. dollar equivalent.
(4) Prices are net of payments under the terms of the production sharing contract for Blocks K and SK 309.
(5) All prices are net of revenue sharing with Ecuadorian government.
Results of Operations (Contd.)
OIL AND GAS OPERATING RESULTS - THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
Synthetic
United United Oil -
(Millions of dollars) States Canada Kingdom Malaysia Ecuador Other Canada Total
Three Months Ended September 30, 2008
Oil and gas sales and other revenues $ 142.5 219.7 62.9 649.2 18.6 1.5 148.6 1,243.0
Production expenses 15.8 20.0 10.9 65.1 7.6 - 45.5 164.9
Depreciation, depletion and
amortization 25.2 25.6 7.3 63.4 10.1 .3 7.1 139.0
Accretion of asset retirement
obligations 1.7 1.1 .6 1.4 - .2 .1 5.1
Exploration expenses
Dry holes 17.9 - - 25.0 - - - 42.9
Geological and geophysical 5.1 2.2 - 1.2 - .7 - 9.2
Other .5 .1 .1 (.1 ) - 1.8 - 2.4
23.5 2.3 .1 26.1 - 2.5 - 54.5
Undeveloped lease amortization 6.8 22.0 - - - .1 - 28.9
Total exploration expenses 30.3 24.3 .1 26.1 - 2.6 - 83.4
Selling and general expenses 6.1 2.9 1.8 (.6 ) .3 4.0 .3 14.8
Results of operations before taxes 63.4 145.8 42.2 493.8 .6 (5.6 ) 95.6 835.8
Income tax expenses 22.4 45.8 21.7 185.5 1.2 .5 28.8 305.9
Results of operations (excluding
corporate overhead and interest) $ 41.0 100.0 20.5 308.3 (.6 ) (6.1 ) 66.8 529.9
Three Months Ended September 30, 2007
Oil and gas sales and other revenues $ 101.4 180.5 38.3 33.4 36.3 1.0 103.3 494.2
Production expenses 16.2 29.3 9.0 9.9 8.8 - 35.6 108.8
Depreciation, depletion and
amortization 17.6 41.0 5.2 5.2 10.0 .2 7.3 86.5
Accretion of asset retirement
obligations 1.1 1.3 .5 .9 - .2 .2 4.2
Exploration expenses
Dry holes 4.5 6.9 - (2.2 ) - - - 9.2
Geological and geophysical 9.5 4.2 - 9.0 - .7 - 23.4
Other .5 .1 .1 - - 1.3 - 2.0
14.5 11.2 .1 6.8 - 2.0 - 34.6
Undeveloped lease amortization 4.5 3.1 - - - .3 - 7.9
Total exploration expenses 19.0 14.3 .1 6.8 - 2.3 - 42.5
Selling and general expenses 13.0 4.0 .9 1.6 .2 4.8 .2 24.7
Minority interest - (.4 ) - - - - - (.4 )
Results of operations before taxes 34.5 91.0 22.6 9.0 17.3 (6.5 ) 60.0 227.9
Income tax expenses 9.7 23.9 11.6 4.7 7.0 .2 20.0 77.1
Results of operations (excluding
corporate overhead and interest) $ 24.8 67.1 11.0 4.3 10.3 (6.7 ) 40.0 150.8
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Results of Operations (Contd.)
OIL AND GAS OPERATING RESULTS - NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
Synthetic
United United Oil -
(Millions of dollars) States Canada Kingdom Malaysia Ecuador Other Canada Total
Nine Months Ended September 30,
2008
Oil and gas sales and other
revenues $ 468.1 807.6 186.5 1,657.9 60.7 2.3 387.2 3,570.3
Production expenses 48.5 66.5 24.1 174.1 24.9 - 146.5 484.6
Depreciation, depletion and
amortization 80.8 85.5 21.3 166.9 32.2 .7 20.3 407.7
Accretion of asset retirement
obligations 4.6 3.5 1.7 4.0 - .6 .5 14.9
Exploration expenses
Dry holes 18.1 - - 35.8 - - - 53.9
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