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| MUR > SEC Filings for MUR > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
Results of Operations
Murphy's net income in the third quarter of 2009 was $188.9 million, $0.98 per diluted share, compared to net income of $584.4 million, $3.04 per diluted share, in the third quarter of 2008. The 2008 results included a loss from discontinued operations of $0.6 million, with no effect on diluted earnings per share. The lower income in 2009 primarily related to weaker results for both the Company's exploration and production and refining and marketing businesses.
For the first nine months of 2009, net income totaled $518.8 million, $2.70 per diluted share, compared to net income of $1.613 billion, $8.39 per diluted share, for the same period in 2008. Nine-month income in 2009 compared unfavorably to 2008 due to lower earnings for exploration and production and refining and marketing operations. The 2009 net income included income from discontinued operations of $97.8 million, $0.51 per diluted share, with the amount primarily being generated from a gain on sale of Ecuador assets that occurred in March 2009. Net income for the nine months in 2008 included income from discontinued operations of $0.9 million, with no effect per diluted share.
Murphy's income from continuing operations by operating segment is presented below.
Income (Loss)
Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars) 2009 2008 2009 2008
Exploration and production $ 184.1 530.5 352.7 1,534.2
Refining and marketing 37.2 85.8 75.8 173.3
Corporate (32.4 ) (31.3 ) (7.5 ) (95.8 )
Income from continuing operations $ 188.9 585.0 421.0 1,611.7
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In the 2009 third quarter, the Company's exploration and production continuing operations earned $184.1 million compared to $530.5 million in the 2008 quarter. Income in the 2009 quarter was adversely affected by significantly lower crude oil and natural gas sales prices compared to the 2008 quarter. The Company's average realized worldwide sales prices for oil fell more than $51.00 per barrel in 2009 compared to 2008, and average North American natural gas sales prices were lower by $8.50 per thousand cubic feet. Higher oil and natural gas sales volume and lower exploration expenses partially offset the impact of lower oil and gas sales prices. Exploration expenses were $37.9 million in the third quarter of 2009 compared to $83.4 million in the same period of 2008. The Company's refining and marketing operations generated income of $37.2 million in the 2009 third quarter compared to income of $85.8 million in the same quarter of 2008. The third quarter 2009 was affected by weaker margins for U.K. refining operations and U.S. retail marketing operations compared to 2008. The after-tax costs of corporate functions were $32.4 million in the 2009 third quarter compared to costs of $31.3 million in the 2008 period with the cost increase primarily due to lower net interest earned on invested cash balances in 2009.
For the nine months of 2009, the Company's exploration and production continuing operations earned $352.7 million compared to $1.53 billion in the 2008 period. Earnings from continuing operations in 2009 were impacted by significantly lower realized crude oil and natural gas sales prices, and no significant gains on sale of assets, whereas 2008 included higher sales prices and significant gains on asset sales in Canada. Continuing operations excludes the results of discontinued operations in Ecuador, which had income of $97.8 million in the 2009 period mostly associated with a gain on sale of these assets. The Company's refining and marketing operations had earnings of $75.8 million in the first nine months of 2009, compared to earnings of $173.3 million in the same 2008 period. The 2009 period included lower earnings in the North American downstream business compared to a year ago, caused by significantly weaker retail marketing margins in the U.S. Earnings from downstream operations in the U.K. in 2009 were significantly lower than 2008 due to weak margins in refining operations in the current period. Corporate after-tax costs were $7.5 million in the 2009 nine-month period compared to costs of $95.8 million in the 2008 period. Foreign currency exchange gains in 2009 compared to exchange losses in 2008 primarily accounted for the lower net costs in 2009.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Results of Operations (Contd.)
Exploration and Production
Results of exploration and production continuing operations are presented by
geographic segment below.
Income (Loss)
Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars) 2009 2008 2009 2008
Exploration and production
United States $ 6.0 41.0 2.6 159.5
Canada 44.6 166.8 38.8 554.5
United Kingdom 2.1 20.5 9.1 67.0
Malaysia 156.2 308.3 400.9 776.4
Other International (24.8 ) (6.1 ) (98.7 ) (23.2 )
Total $ 184.1 530.5 352.7 1,534.2
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Third quarter 2009 vs. 2008
United States exploration and production operations had earnings of $6.0 million in the third quarter of 2009 compared to $41.0 million in the 2008 quarter. U.S. earnings were significantly lower in the 2009 period predominantly due to much weaker oil and natural gas sales prices. Higher U.S. oil production volumes and natural gas sales volumes were primarily attributable to start-up of production at the Thunder Hawk field in the Gulf of Mexico in the 2009 quarter, plus the effects of fields shut-in for part of the 2008 quarter in the Gulf of Mexico due to hurricanes Gustav and Ike. Production and depreciation expenses in the U.S. were significantly higher in 2009 mostly due to increased oil and natural gas production volumes. U.S. exploration expenses in the 2009 quarter were $17.3 million less than the prior year primarily due to lower dry hole costs and lower geological and geophysical expenses, somewhat offset by higher undeveloped lease amortization expense. Selling and general expenses in the U.S. were lower in the 2009 third quarter than in 2008 due to a larger credit in the current period for recovery of partners' share of operated overhead as permitted under joint operating agreements.
Operations in Canada earned $44.6 million in the third quarter 2009 compared to $166.8 million in the 2008 quarter. Canadian earnings declined in the 2009 quarter mostly due to lower oil and natural gas sales prices and lower oil sales volumes. Oil production and sales volumes decreased in the 2009 period compared to 2008 primarily due to lower amounts produced offshore Eastern Canada and in the heavy oil area of Western Canada. Natural gas sales volumes increased in 2009 due to higher gas volumes produced at the Tupper area in British Columbia, which came on production in December 2008. Depreciation expense was higher in 2009 due to more natural gas production in the just completed quarter. Exploration expense was $19.9 million less in the 2009 quarter due mostly to lower lease amortization expense attributable to the Tupper West natural gas area in British Columbia.
United Kingdom operations earned $2.1 million in the 2009 third quarter, down from $20.5 million in the 2008 quarter. The 2009 reduction was due to a combination of lower crude oil and natural gas sales volumes and lower oil and gas sales prices in the current quarter. Production and depreciation expenses were lower in the 2009 period in the U.K. primarily due to the reduced crude oil and natural gas sales volumes.
Operations in Malaysia reported earnings of $156.2 million in the 2009 third quarter compared to earnings of $308.3 million during the same period in 2008. The earnings decline in 2009 in Malaysia was primarily attributable to lower crude oil sales prices. Total crude oil sales volumes increased in the 2009 quarter compared to the prior year due to higher production levels at the Kikeh field, offshore Sabah. Natural gas sales volumes in 2009 were due to start-up of Kikeh gas production in December 2008 and start-up of gas production offshore Sarawak in September 2009. No natural gas was produced in Malaysia in the 2008 quarter. Production and depreciation expenses were higher in Malaysia in the current quarter due to higher oil and natural gas sales volumes. Malaysian exploration expense was $25.6 million lower in 2009 primarily due to unsuccessful exploration drilling in the third quarter of 2008. Selling and general expense in Malaysia was a credit in both quarterly periods due to overhead charges to production and development operations under joint operating agreements.
Results of Operations (Contd.)
Exploration and Production (Contd.)
Third quarter 2009 vs. 2008 (Contd.)
Other international operations reported a loss of $24.8 million in the third quarter of 2009 compared to a loss of $6.1 million in the 2008 period. The unfavorable variance was primarily related to unsuccessful exploratory drilling costs in the Republic of the Congo and higher other exploration expense in this segment in the 2009 quarter. The Azurite field in Block MPS, offshore the Republic of the Congo, commenced oil production in August 2009.
On a worldwide basis, the Company's crude oil, condensate and natural gas liquids prices averaged $61.13 per barrel in the third quarter 2009 compared to $112.55 per barrel in the 2008 period. Average oil and gas liquids production from continuing operations was 131,637 barrels per day in the third quarter of 2009 compared to 111,751 barrels per day in the third quarter of 2008, with the 18% increase primarily attributable to higher production at the Kikeh field in Malaysia and start-up of the Thunder Hawk and Azurite fields in the just completed quarter. Crude oil production was higher in the U.S. in the 2009 quarter mostly due to Thunder Hawk start-up and partial downtime in the 2008 quarter for Gulf of Mexico fields caused by two hurricanes. Canadian heavy oil production was lower in the 2009 quarter compared to 2008 due to normal decline and inclement weather at the Seal area in Alberta. Canadian offshore crude oil production fell in 2009 due to volume decline and a higher royalty rate at the Hibernia field and more equipment downtime at the Terra Nova field. North American natural gas sales prices averaged $3.01 per thousand cubic feet (MCF) in the 2009 quarter compared to $11.51 per MCF in the same quarter of 2008. Worldwide natural gas sales volumes averaged 182 million cubic feet per day in the third quarter 2009, up from 46 million cubic feet per day in the 2008 quarter, primarily due to production from the Tupper area in Western Canada and the Kikeh field offshore Sabah Malaysia, both of which started up in December 2008. Additionally, certain Gulf of Mexico fields were shut-in for a portion of the third quarter 2008 due to two hurricanes during the period. Natural gas sales volumes decreased in the U.K. in 2009 primarily due to lower volumes sold from the Amethyst and Mungo/Monan offshore fields.
Nine months 2009 vs. 2008
U.S. E&P operations produced income of $2.6 million for the nine months ended September 30, 2009 compared to income of $159.5 million in the 2008 period. The 2009 period had lower oil and natural gas sales prices, but higher crude oil and natural gas sales volumes. Production expenses in the U.S. were higher in 2009 mostly due to higher overall production. U.S. depreciation expense was unfavorable in 2009 due to combined impacts of higher production levels and higher per-unit depletion rates compared to 2008. Exploration expenses in the 2009 period in the U.S. were $25.9 million lower than 2008 due to less dry hole and geological and geophysical expenses, but partially offset by higher undeveloped leasehold amortization expense. Income taxes in 2009 included benefits from favorable adjustment of taxes related to prior years.
Canadian operations earned $38.8 million in the 2008 period compared to $554.5 million a year ago. Lower sales prices for crude oil and natural gas in 2009, coupled with after-tax gains of $108.3 million on sales of properties in 2008, primarily led to the earnings reduction in 2009. Higher natural gas volumes were sold in 2009 due to Tupper start-up, but crude oil sales volumes were lower in the current period. Lower Canadian production expense in 2009 was mostly related to less energy costs at Syncrude. Higher depreciation expense in 2009 in Canada was attributable to more natural gas sales volumes after start-up of production at Tupper. Exploration expenses in Canada were $36.4 million lower in 2009 primarily due to less seismic costs and less undeveloped lease amortization at the Tupper West natural gas area development.
Income in the U.K. for the nine-month period in 2009 was $9.1 million compared to $67.0 million a year ago, with the decrease primarily due to lower oil and natural gas sales volumes and sales prices. Production and depreciation expenses were both lower in 2009 than 2008 primarily due to the reduced production levels.
Malaysia operations earned $400.9 million in the first nine months of 2009 compared to earnings of $776.4 million in the 2008 period. The earnings decline was primarily caused by lower crude oil sales prices. Production at the Kikeh field increased during 2009 as more wells came on stream in late 2008. Depreciation expense in Malaysia was higher in 2009 and primarily related to the increase in Kikeh field production. Malaysian exploration expense was $34.7 million lower in 2009 mostly due to less unsuccessful exploration drilling and geophysical costs during the current year. Selling and general expense in 2009 was favorable compared to 2008 due to higher levels of costs charged to production and development operations under joint operating agreements.
Results of Operations (Contd.)
Exploration and Production (Contd.)
Nine months 2009 vs. 2008 (Contd.)
Other international operations reported a loss of $98.7 million in the first nine months of 2009 compared to a loss of $23.2 million in the 2008 period. The larger loss in the 2009 period was primarily due to higher dry hole costs in Australia and higher geophysical expenses offshore Suriname in 2009.
For the first nine months of 2009, the Company's sales price for crude oil, condensate and natural gas liquids averaged $52.59 per barrel compared to $105.36 per barrel in 2008. Crude oil, condensate and gas liquids production from continuing operations in the first nine months of 2009 averaged 127,911 barrels per day compared to 106,993 barrels per day a year ago. The 20% increase in crude oil volumes was mostly attributable to higher Kikeh field production, offshore Malaysia. Production in the heavy oil area of Western Canada was lower in 2009 mostly due to less production at the Seal properties. Crude oil production offshore Eastern Canada was lower in 2009 due to less volumes produced at both the Hibernia and Terra Nova fields. Lower oil production at the Schiehallion field offshore the U.K. was mostly caused by equipment issues and maintenance downtime. The average sales price for North American natural gas in the first nine months of 2009 was $3.50 per MCF, down from $10.27 per MCF in 2008. Natural gas sales volumes in 2009 were 147 million cubic feet per day compared to 57 million cubic feet per day in 2008, with the greater than 150% increase due mostly to new production at the Tupper area in Western Canada and the Kikeh field, offshore Sabah, Malaysia.
Additional details about results of oil and gas operations are presented in the tables on pages 23 and 24.
Results of Operations (Contd.)
Exploration and Production (Contd.)
Selected operating statistics for the three-month and nine-month periods ended
September 30, 2009 and 2008 follow.
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net crude oil, condensate and gas liquids produced
- barrels per day 131,637 118,797 129,672 114,559
Continuing operations 131,637 111,751 127,911 106,993
United States 19,639 9,151 15,502 11,373
Canada - light 21 - 8 62
- heavy 6,581 7,254 6,976 8,801
- offshore 10,538 16,379 12,822 17,214
- synthetic 13,804 13,110 12,458 11,953
United Kingdom 2,165 2,713 3,487 4,917
Malaysia 76,290 63,144 75,782 52,673
Republic of Congo 2,599 - 876 -
Discontinued operations - 7,046 1,761 7,566
Net crude oil, condensate and gas liquids sold -
barrels per day 128,187 117,891 124,988 118,395
Continuing operations 128,187 111,338 123,435 110,888
United States 19,639 9,151 15,502 11,373
Canada - light 21 - 8 62
- heavy 6,581 7,254 6,976 8,801
- offshore 9,554 15,014 13,087 16,132
- synthetic 13,804 13,110 12,458 11,953
United Kingdom 2,202 5,460 2,434 5,616
Malaysia 76,386 61,349 72,970 56,951
Republic of Congo - - - -
Discontinued operations - 6,553 1,553 7,507
Net natural gas sold - thousands of cubic feet per
day 182,199 45,948 147,240 56,518
United States 63,304 38,846 55,141 46,816
Canada 55,115 1,122 45,982 2,538
United Kingdom 2,758 5,980 2,782 7,164
Malaysia - Kikeh 57,980 - 42,310 -
- other 3,042 - 1,025 -
Total net hydrocarbons produced - equivalent
barrels per day (1) 162,004 126,455 154,212 123,979
Total net hydrocarbons sold - equivalent barrels
per day (1) 158,554 125,549 149,528 127,815
Weighted average sales prices
Crude oil, condensate and natural gas liquids -
dollars per barrel (2)
United States $ 65.57 118.87 54.50 108.99
Canada (3) - heavy 46.75 80.87 36.35 70.97
- offshore 67.94 119.06 54.25 111.76
- synthetic 66.54 122.41 56.62 111.70
United Kingdom 68.93 111.89 56.75 106.48
Malaysia (4) 59.18 111.71 52.62 105.48
Natural gas - dollars per thousand cubic feet
United States (2) $ 3.33 11.64 3.96 10.44
Canada (3) 2.65 7.05 2.95 7.19
United Kingdom (3) 3.91 11.81 5.15 11.21
Malaysia - Kikeh 0.24 - 0.23 -
- other 3.31 - 3.31 -
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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.
Results of Operations (Contd.)
OIL AND GAS OPERATING RESULTS - THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
Synthetic
United United Oil -
(Millions of dollars) States Canada Kingdom Malaysia Other Canada Total
Three Months Ended September 30,
2009
Oil and gas sales and other
revenues $ 138.5 100.9 15.1 416.3 .3 84.5 755.6
Production expenses 31.9 23.3 7.8 85.4 - 41.5 189.9
Depreciation, depletion and
amortization 79.9 41.3 3.1 76.9 .5 7.7 209.4
Accretion of asset retirement
obligations 1.7 1.1 .4 2.0 .1 1.2 6.5
Exploration expenses
Dry holes .9 - - .1 14.7 - 15.7
Geological and geophysical 1.2 3.0 - .4 .5 - 5.1
Other .6 .1 .1 - 3.5 - 4.3
2.7 3.1 .1 .5 18.7 - 25.1
Undeveloped lease amortization 10.3 1.3 - - 1.2 - 12.8
Total exploration expenses 13.0 4.4 .1 .5 19.9 - 37.9
Terra Nova working interest
redetermination - 1.3 - - - - 1.3
Selling and general expenses 2.8 4.3 .5 (.6 ) 4.6 .2 11.8
Results of operations before taxes 9.2 25.2 3.2 252.1 (24.8 ) 33.9 298.8
Income tax expenses 3.2 5.5 1.1 95.9 - 9.0 114.7
Results of operations (excluding
corporate overhead and interest) $ 6.0 19.7 2.1 156.2 (24.8 ) 24.9 184.1
Three Months Ended September 30,
2008
Oil and gas sales and other
revenues $ 142.5 219.7 62.9 649.2 1.5 148.6 1,224.4
Production expenses 15.8 20.0 10.9 65.1 - 45.5 157.3
Depreciation, depletion and
amortization 25.2 25.6 7.3 63.4 .3 7.1 128.9
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 ) 4.0 .3 14.5
Results of operations before taxes 63.4 145.8 42.2 493.8 (5.6 ) 95.6 835.2
Income tax expenses 22.4 45.8 21.7 185.5 .5 28.8 304.7
Results of operations (excluding
corporate overhead and interest) $ 41.0 100.0 20.5 308.3 (6.1 ) 66.8 530.5
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Results of Operations (Contd.)
OIL AND GAS OPERATING RESULTS - NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
Synthetic
United United Oil -
(Millions of dollars) States Canada Kingdom Malaysia Other Canada Total
Nine Months Ended September 30,
2009
Oil and gas sales and other
revenues $ 292.4 302.5 41.9 1,059.9 1.0 192.6 1,890.3
Production expenses 62.8 71.7 13.3 174.5 - 131.3 453.6
Depreciation, depletion and
amortization 167.4 122.8 8.4 212.4 1.2 19.9 532.1
Accretion of asset retirement
obligations 5.1 3.1 1.2 5.6 .4 3.2 18.6
Exploration expenses
Dry holes 11.7 - - 13.9 58.6 - 84.2
Geological and geophysical 2.8 4.3 - .6 13.4 - 21.1
Other 5.0 .3 .3 - 6.6 - 12.2
19.5 4.6 .3 14.5 78.6 - 117.5
Undeveloped lease amortization 23.2 40.2 - - 3.1 - 66.5
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