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| MUR > SEC Filings for MUR > Form 10-Q on 7-May-2009 | All Recent SEC Filings |
7-May-2009
Quarterly Report
Results of Operations
Murphy's net income in the first quarter of 2009 was $171.1 million, $0.89 per diluted share, down significantly from net income of $409.0 million, $2.14 per diluted share, in the same quarter of 2008. Net income includes income from discontinued operations in 2009 of $99.9 million, $0.52 per diluted share, with this income mostly being generated from a gain on sale of the Company's Ecuador operations in March 2009. Income from discontinued operations in the first quarter of 2008 was $0.8 million, $0.01 per diluted share. In 2009, substantially lower income from the Company's exploration and production business was partially offset by favorable results from corporate activities. Murphy's income from continuing operations by operating segment is presented below.
Income (Loss)
Three Months Ended
March 31,
(Millions of dollars) 2009 2008
Exploration and production $ 50.3 427.2
Refining and marketing 10.8 10.2
Corporate 10.1 (29.2 )
Income from continuing operations $ 71.2 408.2
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Murphy's income from continuing exploration and production operations was $50.3 million in the first quarter of 2009 compared to $427.2 million in the same quarter of 2008. Lower realized sales prices for crude oil and natural gas and higher exploration expenses were the primary reasons for the lower 2009 earnings. In addition, earnings in the 2008 quarter included a $39.9 million after-tax gain from sale of Berkana Energy in Canada. Exploration expense in the 2009 period was $111.1 million, up from $66.5 million in 2008. Murphy's refining and marketing operations generated earnings of $10.8 million in the 2009 quarter compared to earnings of $10.2 million in the 2008 quarter. Corporate functions reflected a net benefit of $10.1 million in the 2009 first quarter compared to net costs of $29.2 million in 2008.
Exploration and Production
Results of continuing exploration and production operations are presented by
geographic segment below.
Income (Loss)
Three Months Ended
March 31,
(Millions of dollars) 2009 2008
Exploration and production
United States $ (7.3 ) 47.1
Canada 0.6 151.3
United Kingdom 3.4 32.1
Malaysia 117.5 204.7
Other International (63.9 ) (8.0 )
Total $ 50.3 427.2
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In the United States, exploration and production operations had a loss of $7.3 million in the first quarter of 2009 compared to earnings of $47.1 million in the 2008 quarter. This unfavorable result was primarily due to lower oil and natural gas sales prices and higher exploration expenses. Production expense in the U.S. was less in the 2009 period due to lower operating costs compared to 2008. Depreciation expense rose in 2009 primarily due to higher per barrel equivalent amortization rates. Exploration expenses in the U.S. were $2.4 million higher in 2009 as more dry hole costs, primarily for an unsuccessful well in South Louisiana, were only partially offset by lower geophysical costs.
Earnings from operations in Canada were $0.6 million in the 2009 quarter versus $151.3 million in the 2008 quarter. The 2008 earnings included a $39.9 million after-tax gain on disposal of Berkana Energy. Canadian operations realized lower crude oil sales prices and had lower overall oil sales volumes in the current period. Natural gas sales volumes were higher in the 2009 quarter due to start-up of production in the Tupper area in British Columbia in December 2008, but natural gas sale prices were significantly lower in 2009. Production expenses in Canada were favorable in 2009 due to lower energy costs at Syncrude and the sale of the Lloydminster heavy oil field in the second quarter of 2008. Depreciation expense increased in the 2009 period compared to 2008 due mostly to the new Tupper natural gas sales volumes. Exploration expenses in Canada were $20.3 million in 2009 compared to $32.6 million in
Results of Operations (Contd.)
Exploration and Production (Contd.)
2008, and the reduction was due to higher seismic costs incurred in 2008 in the Tupper natural gas area. The effective tax rate was low in Canada in 2008 due to a capital gain tax effect attributable to the profit on sale of Berkana Energy.
U.K. operations earned $3.4 million in the 2009 period versus $32.1 million in the same quarter a year ago, with the reduction due to a combination of lower crude oil and natural gas sales prices and lower crude oil and natural gas sales volumes. Production and depreciation expenses decreased in 2009 compared to 2008 in the U.K. due to the lower oil and gas sales volumes.
Operations in Malaysia reported a profit of $117.5 million in the first quarter of 2009 compared to a profit of $204.7 million in the same period in 2008. The 2009 results were unfavorable to 2008 essentially due to lower crude oil sales prices. Production volumes for crude oil and natural gas increased during the 2009 period at the Kikeh field. Depreciation expense in Malaysia rose significantly in 2009 due to Kikeh field production increases. Dry hole costs were higher in the 2009 quarter than in 2008 due to unsuccessful drilling in Block P, offshore Sabah. Geological and geophysical expenses were lower in 2009 primarily due to 3-D seismic acquisition and processing costs in Block P in the first quarter a year ago. Certain exploration expenses in Malaysia do not receive income tax benefits at the present time.
Other international operations reported a loss of $63.9 million in the 2009 period versus a loss of $8.0 million in the same period a year ago. The higher loss in 2009 was primarily due to unsuccessful exploratory drilling costs for the Abalone Deep well, offshore Western Australia, and 3-D seismic expense for Block 37 offshore Suriname.
On a worldwide basis, the Company's crude oil, condensate and natural gas liquids sales price averaged $43.15 per barrel for the 2009 first quarter compared to $89.51 per barrel in the first quarter of 2008. Crude oil and liquids production averaged a quarterly record 139,318 barrels per day in the 2009 quarter, up from 113,339 barrels per day in the 2008 period. Average oil sales volumes increased from 126,932 barrels per day in 2008 to 134,306 barrels per day in 2009. The higher crude oil production and sales volumes were mostly attributable to the Kikeh field in Block K, offshore Sabah Malaysia, where additional production wells were drilled and put onstream during 2008. Oil production in the United States was higher in 2009 than 2008 due to better production at the Front Runner field in the deepwater Gulf of Mexico. Heavy oil production in Western Canada was lower in the 2009 first quarter compared to the 2008 period primarily due to the sale of the Lloydminster heavy oil property in the second quarter 2008. Synthetic oil production at Syncrude in northern Alberta was higher in 2009 than 2008 primarily caused by a lower royalty rate attributable to lower oil prices. Production volumes offshore Eastern Canada were lower in 2009 versus 2008 due to a combination of field decline and a higher net royalty rate. Production in the U.K. was lower in 2009 due to lower volumes produced at the Schiehallion field due to equipment downtime. North American natural gas sales prices averaged $4.66 per thousand cubic feet (MCF) in the 2009 first quarter compared to $8.40 per MCF in the same quarter of 2008. Total natural gas sales volumes averaged 111 million cubic feet per day in 2009, up from 69 million cubic feet per day in the same period last year. The increase in 2009 was primarily attributable to gas production from the Kikeh field offshore Sabah Malaysia and gas production in the Tupper area in Western Canada, both of which started up in December 2008. Natural gas sales volumes in the U.K. were lower in 2009 than in 2008 due to equipment failure at the Amethyst field that shut down production for the entire 2009 quarter.
Additional details about results of oil and gas operations are presented in the tables on page 19.
Results of Operations (Contd.)
Exploration and Production (Contd.)
Selected operating statistics for the three-month periods ended March 31, 2009
and 2008 follow.
Three Months Ended
March 31,
2009 2008
Net crude oil, condensate and gas liquids produced - barrels per
day 139,318 113,339
Continuing operations 133,977 105,458
United States 13,268 12,112
Canada - light - 186
- heavy 7,436 9,907
- offshore 15,542 18,717
- synthetic 13,464 11,431
United Kingdom 4,769 6,727
Malaysia 79,498 46,378
Discontinued operations 5,341 7,881
Net crude oil, condensate and gas liquids sold - barrels per day 134,306 126,932
Continuing operations 129,595 117,707
United States 13,268 12,112
Canada - light - 186
- heavy 7,436 9,907
- offshore 13,459 17,153
- synthetic 13,464 11,431
United Kingdom 2,464 8,772
Malaysia 79,504 58,146
Discontinued operations 4,711 9,225
Net natural gas sold - thousands of cubic feet per day 111,309 68,983
United States 53,307 56,884
Canada 29,711 4,440
United Kingdom 2,492 7,659
Malaysia 25,799 -
Total net hydrocarbons produced - equivalent barrels per day (1) 157,870 124,836
Total net hydrocarbons sold - equivalent barrels per day (1) 152,858 138,429
Weighted average sales prices
Crude oil, condensate and natural gas liquids - dollars per
barrel (2)
United States $ 37.55 92.03
Canada (3) - light - 70.37
- heavy 22.30 53.57
- offshore 42.17 96.35
- synthetic 44.63 100.56
United Kingdom 44.79 98.51
Malaysia (4) 45.90 89.63
Natural gas - dollars per thousand cubic feet
United States (2) $ 5.12 8.52
Canada (3) 3.84 6.80
United Kingdom (3) 7.40 10.48
Malaysia 0.23 -
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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 production sharing contracts for Blocks SK 309 and K.
Results of Operations (Contd.)
OIL AND GAS OPERATING RESULTS (unaudited)
Synthetic
United United Oil -
(Millions of dollars) States Canada Kingdom Malaysia Other Canada Total
Three Months Ended March 31, 2009
Oil and gas sales and other
operating revenues $ 71.0 80.4 11.7 337.4 .5 54.1 555.1
Production expenses 15.2 21.7 1.9 49.5 - 44.9 133.2
Depreciation, depletion and
amortization 43.3 34.5 2.1 73.7 .4 6.3 160.3
Accretion of asset retirement
obligations 1.7 1.0 .5 1.7 .1 1.0 6.0
Exploration expenses
Dry holes 11.4 - - 13.7 42.4 - 67.5
Geological and geophysical .8 1.0 - (.2 ) 12.2 - 13.8
Other 1.6 .1 - - 2.4 - 4.1
13.8 1.1 - 13.5 57.0 - 85.4
Undeveloped lease amortization 5.9 19.2 - - .6 - 25.7
Total exploration expenses 19.7 20.3 - 13.5 57.6 - 111.1
Selling and general expenses 5.4 3.5 .8 .1 6.3 .2 16.3
Results of operations before taxes (14.3 ) (.6 ) 6.4 198.9 (63.9 ) 1.7 128.2
Income tax provisions (benefits) (7.0 ) 2.0 3.0 81.4 - (1.5 ) 77.9
Results of operations (excluding
corporate overhead and interest) $ (7.3 ) (2.6 ) 3.4 117.5 (63.9 ) 3.2 50.3
Three Months Ended March 31, 2008
Oil and gas sales and other
operating revenues $ 143.1 244.9 86.1 464.6 1.4 104.6 1,044.7
Production expenses 16.9 24.2 10.0 53.4 - 48.1 152.6
Depreciation, depletion and
amortization 27.2 29.9 10.3 52.1 .2 6.7 126.4
Accretion of asset retirement
obligations 1.4 1.3 .5 1.3 .2 .2 4.9
Exploration expenses
Dry holes .5 - - (.3 ) - - .2
Geological and geophysical 10.2 10.5 - 12.7 .6 - 34.0
Other 1.5 .1 .1 - 3.1 - 4.8
12.2 10.6 .1 12.4 3.7 - 39.0
Undeveloped lease amortization 5.1 22.0 - - .4 - 27.5
Total exploration expenses 17.3 32.6 .1 12.4 4.1 - 66.5
Selling and general expenses 7.1 3.6 1.0 1.2 4.5 .2 17.6
Results of operations before taxes 73.2 153.3 64.2 344.2 (7.6 ) 49.4 676.7
Income tax provisions 26.1 36.8 32.1 139.5 .4 14.6 249.5
Results of operations (excluding
corporate overhead and interest) $ 47.1 116.5 32.1 204.7 (8.0 ) 34.8 427.2
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Results of Operations (Contd.)
Refining and Marketing
Refining and marketing operations in North America had earnings of $14.6 million in the 2009 first quarter compared to earnings of $1.0 million during the first quarter of 2008. The improved results in 2009 were primarily due to higher U.S. refining margins in the just completed quarter compared to one year ago. U.S. refining margins in 2009 benefited from lower prices for crude oil feedstocks. The economic downturn in the United States in 2009 has led to reduced demand for refined products such as gasoline and diesel, which in turn led to lower retail marketing margins in the U.S. in the 2009 quarter compared to 2008. Refining and marketing operations in the United Kingdom had a loss of $3.8 million in the first quarter of 2009 compared to a profit of $9.2 million in the same quarter of 2008. Results in the U.K. were hurt by both a decrease in demand for refined products and unplanned downtime of the fluid catalytic cracking unit at the Milford Haven, Wales, refinery.
Worldwide refinery inputs were 235,274 barrels per day in the first quarter of 2009 compared to 244,508 barrels per day in the 2008 quarter. Petroleum product sales were 503,878 barrels per day in the 2009 quarter, down from 524,061 barrels per day a year ago.
Selected operating statistics for the three-month periods ended March 31, 2009 and 2008 follow.
Three Months Ended
March 31,
2009 2008
Refinery inputs - barrels per day 235,274 244,508
North America 136,719 135,550
United Kingdom 98,555 108,958
Petroleum products sold - barrels per day 503,878 524,061
North America 406,243 427,411
Gasoline 300,470 307,784
Kerosine 15,210 3,934
Diesel and home heating oils 70,589 97,128
Residuals 15,601 13,268
Asphalt, LPG and other 4,373 5,297
United Kingdom 97,635 96,650
Gasoline 27,515 30,644
Kerosine 10,767 10,262
Diesel and home heating oils 34,876 27,570
Residuals 7,575 12,380
LPG and other 16,902 15,794
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Corporate
Corporate activities, which include interest income and expense, foreign exchange effects, and corporate overhead not allocated to operating functions, reported a net benefit of $10.1 million in the 2009 first quarter compared to net costs of $29.2 million in the first quarter of 2008. The results from corporate activities improved in 2009 compared to 2008 primarily due to a combination of favorable foreign currency exchange effects and lower net interest expense. The foreign currency exchange benefits occurred mostly in Malaysia where a stronger U.S. dollar led to foreign currency exchange gains on Malaysian income tax liabilities. Total after-tax profit for foreign exchange was $26.1 million in the 2009 quarter compared to a $4.8 million loss in 2008. The lower net interest expense was attributable to a combination of lower interest rates, lower average debt levels, and higher amounts of interest capitalized to ongoing oil and gas development projects.
Financial Condition
Net cash provided by operating activities was $380.0 million for the first three months of 2009 compared to $446.5 million during the same period in 2008. Changes in operating working capital other than cash and cash equivalents generated cash of $45.0 million in the first quarter of 2009 and used cash of $245.2 million in the first quarter of 2008.
Other predominant uses of cash in both years were for dividends, which totaled $47.6 million in 2009 and $35.6 million in 2008, and for property additions and dry holes, which, including amounts expensed, were $511.4 million and $506.7 million in the three month periods ended March 31, 2009 and 2008, respectively. Cash of $193.2 million was used to purchase Canadian government securities with maturity dates greater than 90 days during the three months ended March 31, 2009. Total capital expenditures for continuing operations were as follows:
Three Months Ended
March 31,
(Millions of dollars) 2009 2008
Capital expenditures - Continuing operations
Exploration and production $ 430.9 452.0
Refining and marketing 48.6 119.8
Corporate and other 1.2 1.0
Total capital expenditures - continuing operations $ 480.7 572.8
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Working capital (total current assets less total current liabilities) at March 31, 2009 was 922.2 million, down $36.6 million from December 31, 2008. This level of working capital does not fully reflect the Company's liquidity position, because the lower historical costs assigned to inventories under last-in first-out accounting were $283.6 million below fair value at March 31, 2009.
At March 31, 2009, long-term notes payable of $996.3 million had decreased by $29.9 million compared to December 31, 2008. A summary of capital employed at March 31, 2009 and December 31, 2008 follows.
March 31, 2009 Dec. 31, 2008
(Millions of dollars) Amount % Amount %
Capital employed
Notes payable $ 996.3 13.6 $ 1,026.2 14.0
Stockholders' equity 6,340.2 86.4 6,279.0 86.0
Total capital employed $ 7,336.5 100.0 $ 7,305.2 100.0
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The Company's ratio of earnings to fixed charges was 9.0 to 1 for the three-month period ended March 31, 2009. In May 2009, Standard & Poor's maintained its "BBB" rating for the Company, but amended its outlook from negative to stable.
Accounting and Other Matters
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. This statement was adopted by the Company on January 1, 2009 and it is to be applied prospectively, except for presentation and disclosure requirements which are applied retrospectively. This statement requires noncontrolling interests to be reclassified as equity, and consolidated net income and comprehensive income shall include the respective results attributable to noncontrolling interests. The adoption of this statement did not have a significant effect on the Company's consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations. This statement was adopted by the Company as of January 1, 2009 and it establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired business. It also establishes how to recognize and measure goodwill acquired in the business combination or a gain from a bargain purchase, if applicable. Assets and liabilities that arise from business combinations that occurred prior to 2009 are not affected by this statement. The adoption of this statement had no effect on the Company's financial statements for the three-month period ended March 31, 2009. This statement will impact the recognition and measurement of assets and liabilities in business combinations that occur beginning in 2009, and the Company is unable to predict at this time how the application of this statement will affect its financial statements in 2009 and future periods.
Accounting and Other Matters (Contd.)
Recent Accounting Pronouncements (Contd.)
In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative Instruments and Hedging Activities. This statement was adopted by the Company in January 2009, and it expands required disclosures regarding derivative instruments to include qualitative information about objectives and strategies for using derivatives, quantities disclosures about fair value amounts and gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. See Note G to the consolidated financial statements.
In June 2008, the FASB issued FASB Staff Position on EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities (FSP EITF 03-6-1). This statement, which was adopted by the Company in 2009, provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and, therefore, need to be included in the earnings per share (EPS) calculation under the two-class method. All prior-period EPS calculations must be adjusted retrospectively. The adoption of this statement did not have a significant impact on the Company's prior-period . . .
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