Murphy Oil(MUR) - 2020 Q2 - Quarterly Report

Part I – Financial Information Financial Statements This section presents the unaudited consolidated financial statements for the period ended June 30, 2020 Consolidated Balance Sheets Total assets decreased to $10.75 billion while total equity declined to $4.77 billion as of June 30, 2020 Consolidated Balance Sheet Highlights (unaudited) | (Thousands of dollars) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $763,390 | $974,327 | | Total assets | $10,754,030 | $11,718,504 | | Total current liabilities | $670,739 | $942,789 | | Total liabilities | $5,980,548 | $5,913,893 | | Total equity | $4,773,482 | $5,804,611 | Consolidated Statements of Operations The company reported a Q2 2020 net loss of $317.2 million, a significant downturn from a $92.3 million net income in Q2 2019 Consolidated Statements of Operations Highlights (unaudited) | (Thousands of dollars, except per share) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue from sales to customers | $285,745 | $680,436 | $886,303 | $1,309,790 | | Operating (loss) income from continuing operations | $(374,137) | $171,003 | $(928,654) | $255,565 | | Net (loss) income attributable to Murphy | $(317,184) | $92,272 | $(733,288) | $132,454 | | Net (loss) income per common share – diluted | $(2.06) | $0.54 | $(4.78) | $0.77 | Consolidated Statements of Comprehensive Income A comprehensive loss of $949.3 million was recorded for H1 2020, driven by net loss and negative currency adjustments Comprehensive (Loss) Income (unaudited) | (Thousands of dollars) | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net (loss) income including noncontrolling interest | $(324,400) | $(833,102) | | Other comprehensive (loss) income | $11,643 | $(116,180) | | Comprehensive (Loss) Income | $(312,757) | $(949,282) | Consolidated Statements of Cash Flows Net cash from operations for H1 2020 was $369.4 million, leading to a period-end cash balance of $145.5 million Cash Flow Summary (unaudited) | (Thousands of dollars) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by continuing operations | $369,379 | $655,431 | | Net cash required by investing activities | $(589,236) | $(1,854,614) | | Net cash provided by financing activities | $59,960 | $1,113,471 | | Net (decrease) in cash and cash equivalents | $(161,255) | $(33,879) | | Cash and cash equivalents at end of period | $145,505 | $326,044 | Consolidated Statements of Stockholders' Equity Total shareholders' equity declined to $4.57 billion by June 30, 2020, driven by a net loss and comprehensive loss adjustments - For the six months ended June 30, 2020, Retained Earnings decreased by $790.9 million, mainly due to a net loss of $733.3 million and cash dividends of $57.6 million[18] - Accumulated Other Comprehensive Loss increased by $116.2 million during the first half of 2020, primarily due to unfavorable foreign currency translation and retirement benefit plan adjustments[18] Notes to Consolidated Financial Statements Provides detailed explanations on accounting policies, impairments, debt, derivatives, and segment performance Note A – Nature of Business and Interim Financial Statements Murphy Oil Corporation is an international oil and gas company with production in the U.S. and Canada and global exploration activities - The company's primary activities are producing oil and natural gas in the U.S. and Canada, alongside global exploration[21] Note B – New Accounting Principles and Recent Accounting Pronouncements The company adopted new standards for financial instruments and fair value measurement with no material impact - Adopted ASU 2016-13 (Financial Instruments - Credit Losses) and ASU 2018-13 (Fair Value Measurement) in Q1 2020 without material impact[25][26] Note C – Revenue from Contracts with Customers Total revenue from customer contracts was $886.3 million for H1 2020, a significant decrease from $1.31 billion year-over-year Disaggregation of Revenue | (Thousands of dollars) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Total crude oil and condensate revenue | $755,418 | $1,170,411 | | Total natural gas liquids revenue | $21,179 | $32,946 | | Total natural gas revenue | $109,706 | $106,433 | | Total revenue from contracts with customers | $886,303 | $1,309,790 | Note D – Property, Plant, and Equipment Details a pretax noncash impairment charge of $987.1 million in H1 2020 due to declining oil and gas price forecasts - Recorded a noncash impairment charge of $987.1 million in H1 2020, driven by reduced demand from COVID-19 and increased supply from foreign producers[51] - Total capitalized exploratory well costs pending determination of proved reserves were $180.1 million as of June 30, 2020[45] Impairments for Six Months Ended June 30, 2020 | (Thousands of dollars) | Impairment Charge | | :--- | :--- | | U.S. | $947,437 | | Other Foreign | $39,709 | | Total | $987,146 | Note E – Discontinued Operations and Assets Held for Sale Discontinued operations resulted in a loss of $6.1 million for H1 2020, with assets held for sale totaling $124.3 million - Loss from discontinued operations was $6.1 million for the first six months of 2020, compared to income of $74.3 million in the same period of 2019[54] - Assets held for sale totaled $124.3 million as of June 30, 2020, primarily related to Brunei operations and the El Dorado, AR office building[55] Note F – Financing Arrangements and Debt The company maintained a $1.6 billion revolving credit facility with $170.0 million in outstanding borrowings - The company has a $1.6 billion revolving credit facility (RCF) with $170.0 million outstanding as of June 30, 2020[56] Note H – Employee and Retiree Benefit Plans Office closures triggered a pension remeasurement, increasing benefit liabilities by $63.0 million - Office closures and restructuring led to a pension remeasurement, increasing benefit liabilities by $63.0 million due to lower discount rates and plan assets[64] - Total net periodic benefit expense for pension and postretirement benefits for the six months ended June 30, 2020 was $21.8 million, including special termination benefits[66] Note I – Incentive Plans Shareholders approved the 2020 Long-Term Incentive Plan, authorizing 5,000,000 shares for issuance - Shareholders approved the new 2020 Long-Term Incentive Plan in May 2020, authorizing 5 million shares[70][71] Note K – Income Taxes The effective tax rate for H1 2020 was 18.4%, below the U.S. statutory rate due to unbenefited foreign expenses Effective Income Tax Rates | Period | 2020 | 2019 | | :--- | :--- | :--- | | Three months ended June 30, | 22.7% | 8.4% | | Six months ended June 30, | 18.4% | 14.1% | Note L – Financial Instruments and Risk Management The company uses derivatives to manage commodity price risk, recognizing a gain of $324.8 million on crude contracts in H1 2020 - At June 30, 2020, the company had WTI crude oil swap contracts for 45,000 bpd through Dec 2020 at an average price of $56.42/bbl and 2,000 bpd for 2021 at $41.54/bbl[87] - Recognized a gain of $324.8 million on crude contracts for the six months ended June 30, 2020, primarily from marking contracts to market[91] Note O – Business Segments The U.S. Exploration and Production segment reported a loss of $839.1 million for H1 2020, largely due to impairments Income (Loss) from Continuing Operations by Segment | (Millions of dollars) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Exploration and production | | | | United States | $(839.1) | $249.2 | | Canada | $(26.4) | $1.6 | | Other | $(61.3) | $(31.7) | | Total E&P | $(926.8) | $219.1 | Note P – Acquisitions Assets acquired from LLOG in 2019 contributed $134.5 million in revenue and a pre-tax loss of $437.9 million in H1 2020 - The LLOG acquisition added approximately 67 MMBOE of proven reserves[112] - In H1 2020, the acquired LLOG assets generated $134.5 million in revenue but incurred a pre-tax loss of $437.9 million, including a $432.9 million impairment[114] Note Q – Restructuring Charges The company recognized $41.4 million in Q2 2020 restructuring charges related to office closures Restructuring Charges for Q2 2020 | (Thousands of dollars) | Amount | | :--- | :--- | | Severance | $19,867 | | Pension and termination benefit charges | $10,913 | | Contract exit costs and other | $10,617 | | Total Restructuring Charges | $41,397 | Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes the significant impact of COVID-19 and commodity prices on operations, liquidity, and the company's outlook Summary H1 2020 was marked by economic disruption and volatile commodity prices, resulting in a net loss from continuing operations of $827.0 million - The global spread of COVID-19 and increased supply from major oil producers led to significantly lower commodity prices in H1 2020[118] - WTI crude oil prices averaged approximately $28 per barrel in Q2 2020, compared to $60 in Q2 2019[119] Results of Operations Results shifted to a net loss of $833.1 million in H1 2020, driven by E&P segment impairments but aided by corporate derivative gains - U.S. E&P operations reported a loss of $839.1 million in H1 2020, a $1.09 billion unfavorable swing from H1 2019, primarily due to a $947.4 million impairment charge and lower revenues[140] - Corporate activities reported earnings of $99.8 million in H1 2020 versus a loss of $97.4 million in H1 2019, a $197.2 million favorable variance mainly due to gains on forward swap commodity contracts[145] Adjusted EBITDA (Non-GAAP) | (Millions of dollars) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Adjusted EBITDA attributable to Murphy | $411.6 | $672.8 | Production Volumes and Prices Total production increased 14% in H1 2020, but the average realized crude oil price fell 42% to $35.65 per barrel Production and Price Comparison (H1 2020 vs H1 2019) | Metric | H1 2020 | H1 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Production (boe/d) | 189,350 | 166,269 | +14% | | Crude Oil Production (bbl/d) | 115,396 | 104,567 | +10% | | Avg. Crude Price ($/bbl) | $35.65 | $61.83 | -42% | Financial Condition Cash from operations decreased due to lower sales, while the ratio of long-term debt to total capital employed increased to 39.3% - Net cash provided by continuing operating activities decreased to $369.4 million in H1 2020 from $655.4 million in H1 2019, primarily due to lower sales revenue[168] - Accrual basis capital expenditures for H1 2020 were $557.6 million, a significant decrease from $1.97 billion in H1 2019 which included the LLOG acquisition[171][172] - Long-term debt to total capital employed increased to 39.3% at June 30, 2020, up from 33.9% at December 31, 2019[177] Outlook The company has significantly cut its 2020 capital budget and hedged future oil production to manage continued price volatility - The 2020 capital expenditure budget was reduced from an original $1.4-$1.5 billion to a range of $680-$720 million in response to market conditions[179] Key Hedging Positions as of August 5, 2020 | Commodity | Type | Volumes | Price | Period | | :--- | :--- | :--- | :--- | :--- | | WTI Crude Oil | Fixed price swap | 45,000 Bbl/d | $56.42/Bbl | 7/1/20 - 12/31/20 | | WTI Crude Oil | Fixed price swap | 15,000 Bbl/d | $42.93/Bbl | 1/1/21 - 12/31/21 | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, commodity prices, and foreign currency exchange rates - A 10% increase in benchmark commodity prices would decrease the net receivable on derivative contracts by about $35.7 million, while a 10% decrease would increase it by a similar amount[184] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020 - The company's disclosure controls and procedures were deemed effective as of the end of the reporting period[186] - No material changes were made to internal controls over financial reporting during the quarter ended June 30, 2020[187] Part II – Other Information Legal Proceedings The company is involved in routine legal proceedings not expected to have a material adverse effect on its financial condition - Ongoing legal proceedings are considered routine and are not expected to have a material adverse effect on the company's financials[189] Risk Factors Highlights significant risks from commodity price volatility, the COVID-19 pandemic, and heightened credit risks - Global price volatility for oil and gas is a primary risk, influenced by OPEC+ actions, non-OPEC production, political instability, and demand shocks like the COVID-19 pandemic[191][194] - The COVID-19 pandemic poses significant risks, including weakened demand, downward pressure on prices, potential operational disruptions, and supply chain delays[198][199] - The company is exposed to heightened credit risks from customers, joint venture partners, and derivative counterparties due to the economic downturn[202] Exhibits This section provides an index of exhibits filed with the Form 10-Q, including officer certifications and XBRL data - Lists exhibits filed with the report, including Sarbanes-Oxley certifications (31.1, 31.2, 32) and XBRL interactive data files[210]