Murphy Oil(MUR) - 2019 Q1 - Quarterly Report

Part I – Financial Information Item 1. Financial Statements For Q1 2019, Murphy Oil's net income attributable to the company significantly decreased to $40.2 million from $168.3 million in Q1 2018, primarily due to a prior-year tax benefit, while total assets increased to $11.98 billion and cash flow from continuing operations improved to $217.2 million, despite a net cash decrease of $73.6 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $2,638,244 | $879,814 | | Assets held for sale | $1,879,568 | $173,865 | | Total assets | $11,983,117 | $11,052,587 | | Total current liabilities | $1,638,230 | $846,058 | | Liabilities associated with assets held for sale | $819,694 | $286,458 | | Long-term debt | $3,110,098 | $3,109,318 | | Total equity | $5,326,677 | $5,197,642 | Consolidated Operations Highlights (in thousands, except per share data) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Total revenues | $591,004 | $374,790 | | Income from continuing operations | $22,923 | $90,581 | | Income from discontinued operations | $49,846 | $77,672 | | Net Income Attributable to Murphy | $40,182 | $168,253 | | Diluted EPS | $0.23 | $0.96 | Consolidated Cash Flow Highlights (in thousands) | Activity | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net cash provided by continuing operations | $217,197 | $110,887 | | Net cash required by investing activities | ($270,338) | ($246,794) | | Net cash required by financing activities | ($68,986) | ($49,900) | | Net cash provided by discontinued operations | $94,484 | $138,133 | | Net (decrease) increase in cash | ($73,642) | $206,900 | Notes to Consolidated Financial Statements The notes detail significant corporate activities, including the pending $2.127 billion sale of Malaysian operations now classified as discontinued, the acquisition of Gulf of Mexico assets from Petrobras, a subsequent agreement to acquire additional Gulf of Mexico assets from LLOG for $1.375 billion, and the adoption of ASC 842 resulting in $618.1 million in right-of-use assets and liabilities - On March 21, 2019, Murphy agreed to sell its Malaysian subsidiaries to PTTEP for $2.127 billion in cash, plus a potential $100 million contingent payment, with these operations now classified as discontinued[52] - In December 2018, the company acquired Petrobras Americas Inc.'s (PAI) Gulf of Mexico assets for $788.7 million in cash and a 20% interest in the newly formed MP GOM, LLC, with these assets contributing $234.0 million in revenue in Q1 2019[110][111][114] - Subsequent to the quarter end, on April 23, 2019, Murphy agreed to acquire deep water Gulf of Mexico assets from LLOG for $1.375 billion in cash, with the deal expected to close in Q2 2019[118] - The company adopted the new lease accounting standard ASC 842, resulting in the recognition of $618.1 million in right-of-use assets and corresponding current ($155.5 million) and non-current ($468.4 million) lease liabilities[23] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion focuses on the strategic divestiture of Malaysian assets and integration of newly acquired Gulf of Mexico properties, with production from continuing operations increasing 39% year-over-year to 162 MBOEPD due to the MP GOM acquisition, despite income from continuing operations falling to $23.0 million from $90.6 million due to a non-recurring 2018 tax benefit, while capital expenditures rose to $346.6 million primarily for Eagle Ford Shale development, and Q2 2019 production is projected between 155-159 MBOEPD Results of Operations Total income from Exploration and Production (E&P) from continuing operations more than doubled to $95.4 million in Q1 2019 from $45.2 million in Q1 2018, driven by U.S. operations' surge to $116.2 million due to higher volumes from the MP GOM acquisition, partially offset by declines in Canadian E&P and wider losses in Other International operations, while corporate expenses resulted in a $72.4 million loss due to a non-recurring $120 million tax credit in Q1 2018 E&P Income (Loss) from Continuing Operations by Geography (in millions) | Region | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | United States | $116.2 | $36.2 | | Canada | $7.5 | $24.4 | | Other International | ($28.3) | ($15.4) | | Total E&P | $95.4 | $45.2 | Average Daily Production from Continuing Operations (BOEPD) | Product | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Crude oil and condensate (barrels) | 101,820 | 57,300 | | Natural gas liquids (barrels) | 9,154 | 8,437 | | Natural gas (thousand cubic feet converted at 6:1) | 50,626 | 50,876 | | Total (incl. NCI) | 161,600 | 116,605 | - The 39% increase in total hydrocarbon production from continuing operations was principally due to the acquisition of producing Gulf of Mexico assets as part of the MP GOM transaction in Q4 2018[132] - The Corporate segment's unfavorable variance of $118.3 million was primarily due to a $120.0 million income tax credit in 2018 related to an IRS interpretation of the Tax Act[146] Financial Condition Net cash from continuing operations increased to $217.2 million in Q1 2019 from $110.9 million in Q1 2018, driven by higher revenues from the MP GOM acquisition, while capital expenditures on an accrual basis rose to $346.6 million from $281.3 million, primarily for Eagle Ford Shale development, and the company's capital structure remained stable with a long-term debt to total capital ratio of 36.9% Total Accrual Basis Capital Expenditures (in millions) | Category | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Exploration and production | $342.5 | $276.2 | | Corporate | $4.1 | $5.1 | | Total | $346.6 | $281.3 | - The increase in capital expenditures was primarily attributable to higher development drilling activities in Eagle Ford Shale[153] - At March 31, 2019, the company had $325.0 million in outstanding borrowings under its $1.6 billion revolving credit facility[58] Outlook The company anticipates Q2 2019 production to average between 155,000 and 159,000 BOEPD, with full-year 2019 capital expenditures forecast between $1.15 and $1.35 billion, and new hedging contracts for U.S. oil and Canadian natural gas entered to manage price risk for the remainder of 2019 and into 2020 - Q2 2019 production is expected to be 155,000 – 159,000 BOEPD (including 12,000 BOEPD noncontrolling interest)[158] - Full-year 2019 capital expenditures are anticipated to be between $1.15 and $1.35 billion[158] Post-Quarter Hedging Activity (as of April 30, 2019) | Commodity | Dates | Volumes per Day | Average Prices | | :--- | :--- | :--- | :--- | | U.S. Oil (WTI) | May – Dec. 2019 | 20,000 barrels/day | $63.64 per barrel | | U.S. Oil (WTI) | Jan. – Dec. 2020 | 20,000 barrels/day | $60.10 per barrel | | Canada Natural Gas | Apr. 2019 – Dec. 2020 | 59 million cubic feet/day | C$2.81 per thousand cubic feet | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, commodity prices, and foreign currency exchange rates, and while no commodity derivative or foreign exchange contracts were outstanding as of March 31, 2019, new derivative contracts were subsequently entered to hedge future oil and gas sales - At March 31, 2019, the Company had no WTI crude oil swap financial contracts or derivative foreign exchange contracts outstanding[79][164] Controls and Procedures The company's principal executive and financial officers concluded that disclosure controls and procedures are effective, with no material changes in internal control over financial reporting during the quarter - The principal executive and financial officers concluded that the Company's disclosure controls and procedures are effective[166] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[167] Part II – Other Information Legal Proceedings The company is involved in routine legal proceedings incidental to its business, with management not expecting their ultimate resolution to have a material adverse effect on financial condition or results - Murphy is engaged in a number of legal proceedings, all of which are considered routine and incidental to its business and are not expected to have a material adverse effect[168] Risk Factors No new risk factors have been identified since the company's 2018 Form 10-K report filed on February 27, 2019, with existing risks detailed in that report - The Company has not identified any additional risk factors not previously disclosed in its 2018 Form 10-K report[169] Exhibits This section references the Exhibit Index on page 35, listing all exhibits filed or incorporated by reference into the Form 10-Q, including the Share Sale and Purchase Agreement for the Malaysian assets and various officer certifications - A key exhibit filed is the Share Sale and Purchase Agreement for the sale of Murphy's Sarawak and Sabah oil companies, dated March 21, 2019[176]