Murphy Oil(MUR) - 2020 Q4 - Annual Report

Part I Business Murphy Oil Corporation is a global oil and natural gas exploration and production company with operations in the United States, Canada, and Other International, detailing operational areas, reserves, and human capital management - Murphy Oil is a global oil and natural gas exploration and production company with headquarters relocated to Houston, Texas in 2020[11][12] - Worldwide production in 2020 was 174,636 barrels of oil equivalent per day, a 5.9% decrease compared to 2019[17] Exploration and Production The company's principal exploration and production activities are in the United States, Canada, and internationally, with U.S. operations accounting for the majority of oil and NGL production in 2020 2020 Production by Geography | Geography | Oil & NGL Production (bpd) | Natural Gas Production (MMCFD) | | :--- | :--- | :--- | | United States | 101,300 | 94 | | Canada (Onshore) | 9,200 | 261 | | Canada (Offshore) | 4,893 | - | - U.S. operations represented 87.7% of the company's total worldwide oil and natural gas liquids production and 26.5% of worldwide natural gas production in 2020[19] - International exploration and development activities are ongoing in Australia, Brazil, Brunei, Mexico, and Vietnam, with varying working interests and operational statuses[30][33][34][37][38] Proved Reserves Total proved reserves decreased to 714.9 million BOE in 2020 due to reduced capital allocation, lower prices, and production, with proved undeveloped reserves constituting 43% of the total Total Proved Reserves as of December 31, 2020 | Category | All Products (MMBOE) | Crude Oil (MMBBL) | Natural Gas Liquids (MMBBL) | Natural Gas (BCF) | | :--- | :--- | :--- | :--- | :--- | | Proved Developed | 410.8 | 179.8 | 28.7 | 1,213.8 | | Proved Undeveloped | 304.1 | 86.7 | 9.5 | 1,247.2 | | Total Proved | 714.9 | 266.5 | 38.2 | 2,461.0 | Reconciliation of Total Proved Reserves (MMBOE) | Category | Total Proved Reserves | Total Proved Undeveloped Reserves | | :--- | :--- | :--- | | Beginning of year 2020 | 825.0 | 352.7 | | Revisions of previous estimates | (194.7) | (178.0) | | Extensions and discoveries | 150.3 | 148.8 | | Production | (63.9) | — | | End of year 2020 | 714.9 | 304.1 | - The company spent approximately $594 million in 2020 to convert proved undeveloped reserves to proved developed reserves and expects to spend approximately $447 million in 2021 for the same purpose[44] - The company has established internal and external controls for estimating proved reserves, with 94.8% of 2020 proved reserves audited by third-party firms Ryder Scott and McDaniel & Associates[48][49][50] Acreage and Well Count As of year-end 2020, Murphy held 8.851 million net acres, mostly undeveloped, with a significant decrease in drilling activity compared to 2019 Acreage Summary as of December 31, 2020 (Thousands of acres) | Area | Developed Net | Undeveloped Net | Total Net | | :--- | :--- | :--- | :--- | | United States | 114 | 299 | 413 | | Canada | 115 | 260 | 375 | | Other International | — | 8,058 | 8,058 | | Totals | 229 | 8,617 | 8,846 | Net Wells Drilled | Year | Productive | Dry | | :--- | :--- | :--- | | 2020 | 31.1 | 0.4 | | 2019 | 103.8 | — | | 2018 | 75.2 | 0.4 | Human Capital Resources Murphy had 675 employees as of December 31, 2020, with a human capital strategy focusing on compensation, performance, talent development, benefits, and diversity, equity, and inclusion - The company's human capital strategy focuses on five key factors: Employee Compensation, Performance and Feedback, Talent Development, Health and Welfare Benefits, and Diversity, Equity and Inclusion[82][88] - Voluntary employee turnover was 6% in 2020[87] 2020 Workforce Diversity Representation | Category | Women (US & Intl) | Minorities (US-Based Only) | | :--- | :--- | :--- | | Executive & Senior Level | 12% | 12% | | First- & Mid-Level Managers | 17% | 23% | | Professionals | 34% | 33% | | Total | 21% | 30% | Risk Factors The company identifies significant price, operational, financial, and general risks, including commodity price volatility, reserve replacement challenges, operational hazards, regulatory changes, and the material adverse effects of the COVID-19 pandemic Price Risk Factors Operating results are significantly affected by volatile crude oil and natural gas prices, influenced by global supply/demand, OPEC actions, political instability, and the COVID-19 pandemic, which can reduce cash flows and lead to asset impairments - The global economic downturn from the COVID-19 pandemic and supply increases from major global suppliers in early 2020 applied significant downward pressure on hydrocarbon prices[100][101] Average WTI Crude Oil Prices | Year | Average Price per Barrel | | :--- | :--- | | 2020 | $39 | | 2019 | $57 | | 2018 | $65 | Operational Risk Factors Operational risks include intense competition, exploration uncertainty, the critical need to replace produced reserves, operational hazards, severe weather, and extensive environmental, health, and safety regulations - The company must successfully replace the oil and natural gas it produces to sustain and grow its business, competing with larger companies for acreage, equipment, and talent[112][115] - As of December 31, 2020, approximately 43% of the company's total proved reserves were undeveloped, highlighting the dependency on future successful development projects[45][119] - The company faces significant regulatory risk from bodies like BOEM and BSEE for its Gulf of Mexico operations and potential future regulations that could restrict flaring or hydraulic fracturing[127][130][134] Financial Risk Factors Financial risks include potential inability to access capital financing, interest rate risk from LIBOR phase-out, foreign exchange rate fluctuations, and credit risks from customers, joint venture partners, and hedge counterparties - The company relies on operating cash flow and a $1.6 billion revolving credit facility (expiring Nov 2023) to fund capital needs, which could be impacted by low commodity prices or credit rating downgrades[138][142] - The company is exposed to foreign currency risk as the Canadian dollar is the functional currency for Canadian operations, which can lead to impacts on consolidated financial results from currency translation[145] General Risk Factors General risks include the material adverse effects of health pandemics like COVID-19, cybersecurity threats from increasing digital dependence, and impacts from domestic and worldwide political developments, including U.S. federal leasing policies - The COVID-19 pandemic poses significant risks, including weakened demand for hydrocarbons, potential workforce and supply chain disruptions, and adverse impacts on capital markets[150][151][152] - The company is exposed to political and regulatory risks, including a 60-day moratorium on new oil and gas leases on federal lands and offshore waters issued by the Biden administration in January 2021[160][161] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Murphy Oil Corporation's common stock trades on the NYSE under "MUR", with a performance graph showing a $100 investment in MUR would be worth $66 at the end of 2020 Five-Year Shareholder Return Performance | Investment | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Murphy Oil Corporation | $100 | $146 | $151 | $118 | $140 | $66 | | Peer Group | $100 | $148 | $125 | $82 | $83 | $59 | | S&P 500 Index | $100 | $112 | $136 | $130 | $171 | $203 | Selected Financial Data This section provides a five-year summary of key financial data, highlighting a net loss of $1.15 billion in 2020 compared to a net income of $1.15 billion in 2019, with total assets decreasing and long-term debt increasing Selected Financial Data (2018-2020) | (Thousands of dollars except per share data) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue from sales to customers | $1,751,709 | $2,817,111 | $1,806,473 | | Net cash provided by continuing operations | $802,708 | $1,489,105 | $749,395 | | Net income (loss) attributable to Murphy | ($1,148,777) | $1,149,732 | $411,094 | | Net income (loss) per share - diluted | ($7.48) | $6.98 | $2.36 | | Cash dividends per Common share | $0.625 | $1.00 | $1.00 | | Total assets at Dec 31 | $10,620,852 | $11,718,504 | $11,052,587 | | Long-term debt at Dec 31 | $2,988,067 | $2,803,381 | $3,109,318 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The MD&A details the significant impacts of the COVID-19 pandemic and lower commodity prices on 2020 results, including reduced capital expenditures, cost reductions, and a net loss from continuing operations of $1.26 billion due to impairment charges - The COVID-19 pandemic led to a significant disruption in the global economy, weakness in crude oil demand, and lower commodity prices in 2020[191] - In response to market conditions, the company reduced 2020 capital expenditures from a planned $1.4-$1.5 billion to an adjusted $712 million and executed a cost reduction plan, including office closures and consolidation[192] 2020 Financial Highlights | Metric | Value | | :--- | :--- | | Liquidity | $1.7 billion (including $1.4B available on credit facility) | | Realized gain from commodity hedges | $272.0 million | | Accrued capital expenditures (excl. NCI & FPS) | $712.1 million | | SG&A cost decrease from 2019 | 40% | | Production (BOE per day) | 174,636 (163,617 excl. NCI) | Results of Operations For 2020, Murphy reported a net loss attributable to the company of $1.15 billion, a reversal from 2019, driven by significant impairment charges and lower commodity prices Results of Operations Summary (2019 vs. 2020) | (Millions of dollars) | 2020 | 2019 | | :--- | :--- | :--- | | (Loss) income from continuing operations | ($1,255.3) | $188.8 | | Net (loss) income attributable to Murphy | ($1,148.8) | $1,149.7 | | Diluted EPS | ($7.48) | $6.98 | - The 2020 loss was heavily impacted by post-tax impairment charges of $854.2 million[199] Adjusted EBITDA (Non-GAAP) | (Millions of dollars) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Adjusted EBITDA attributable to Murphy | $907.3 | $1,514.3 | $919.8 | | Adjusted EBITDA per BOE sold | $15.07 | $23.99 | $20.62 | Production Volumes and Prices Total hydrocarbon production decreased by 6% in 2020 to 174,636 BOE/day, impacted by hurricane shut-ins and lower capital spending, with the average realized crude oil price dropping 37% - Total hydrocarbon production from continuing operations averaged 174,636 BOE/day in 2020, a 6% decrease from 2019[231] Average Realized Sales Prices (Continuing Operations) | Commodity | 2020 | 2019 | | :--- | :--- | :--- | | Crude oil & condensate ($/bbl) | $38.02 | $60.27 | | U.S. NGL ($/bbl) | $11.29 | $14.85 | | U.S. Natural gas ($/MCF) | $2.02 | $2.45 | | Canada Natural gas ($/MCF) | $1.79 | $1.60 | Production Volumes by Product (Continuing Operations) | Product | 2020 | 2019 | | :--- | :--- | :--- | | Crude oil & condensate (bbl/day) | 103,966 | 114,742 | | Natural gas liquids (bbl/day) | 11,541 | 11,888 | | Natural gas (MMCFD) | 354.8 | 354.1 | Financial Condition Net cash from continuing operations decreased to $802.7 million in 2020, reflecting lower revenues and significantly reduced capital spending, while long-term debt increased and shareholders' equity decreased - Net cash provided by continuing operating activities decreased to $802.7 million in 2020 from $1,489.1 million in 2019, mainly due to lower revenue from sales[249] - Capital expenditures (accrual basis) were $826.6 million in 2020, a sharp decrease from $2.7 billion in 2019, which included the $1.26 billion LLOG acquisition[253] - At year-end 2020, the company had a $1.6 billion revolving credit facility expiring in November 2023, with $200.0 million drawn and approximately $1.4 billion available[257][261] Capital Employed (December 31) | (Millions of dollars) | 2020 | % | 2019 | % | | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $2,988.1 | 41.5% | $2,803.4 | 33.9% | | Murphy shareholders' equity | $4,214.3 | 58.5% | $5,467.5 | 66.1% | | Total capital employed | $7,202.4 | 100.0% | $8,270.8 | 100.0% | Outlook For 2021, the company anticipates capital expenditures between $675.0 million and $725.0 million, with average daily production expected between 164,800 and 174,800 BOE/day, supported by commodity price hedging - 2021 capital expenditure is budgeted to be between $675.0 million and $725.0 million[311] - 2021 average daily production is forecasted to be between 164,800 and 174,800 BOE/day (including noncontrolling interest)[312] 2021 & 2022 WTI Crude Oil Hedges | Commodity | Type | Volumes (Bbl/d) | Price (USD/Bbl) | Period | | :--- | :--- | :--- | :--- | :--- | | WTI | Fixed price derivative swap | 45,000 | $42.77 | Full Year 2021 | | WTI | Fixed price derivative swap | 20,000 | $44.88 | Full Year 2022 | Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated financial statements, notes, and supplemental oil and gas information - This section provides an index of all financial statements, schedules, and exhibits included in or incorporated by reference into the Form 10-K report[329][332] Financial Statements and Supplementary Data This section contains the full consolidated financial statements for Murphy Oil Corporation for the fiscal year ended December 31, 2020, including the independent auditor's report and unaudited supplemental oil and gas information Consolidated Financial Statements The consolidated financial statements present the company's financial position and results of operations, showing total assets of $10.6 billion and a net loss attributable to Murphy of $1.15 billion for 2020, driven by a $1.21 billion pre-tax impairment charge Consolidated Balance Sheet Summary (December 31, 2020) | (Thousands of dollars) | Amount | | :--- | :--- | | Total Assets | $10,620,852 | | Total Current Assets | $1,000,292 | | Net Property, Plant and Equipment | $8,269,038 | | Total Liabilities | $6,226,705 | | Total Current Liabilities | $716,321 | | Long-Term Debt | $2,988,067 | | Total Equity | $4,394,147 | | Murphy Shareholders' Equity | $4,214,337 | Consolidated Statement of Operations Summary (Year Ended Dec 31, 2020) | (Thousands of dollars) | Amount | | :--- | :--- | | Total revenues and other income | $1,967,341 | | Total costs and expenses | $3,329,650 | | Impairment of assets | $1,206,284 | | (Loss) from continuing operations | ($1,255,294) | | Net (loss) attributable to Murphy | ($1,148,777) | Notes to Consolidated Financial Statements The notes provide detailed disclosure on significant accounting policies, acquisitions, discontinued operations, property, plant, and equipment (including a $1.2 billion impairment charge), financing, asset retirement obligations, income taxes, incentive plans, leases, and restructuring charges - The company uses the successful efforts method of accounting for exploration and development expenditures[385] - In 2020, the company recognized pre-tax noncash impairment charges of $1,206.3 million on its oil and gas properties due to declines in future commodity prices[387][448] - In May 2020, the company announced the closure of its El Dorado, AR and Calgary, AB offices, resulting in $50.0 million of restructuring charges for severance, contract exits, and pension costs[580][581] Supplemental Oil and Gas Information (Unaudited) This supplemental section provides detailed unaudited data on oil and gas activities, including a reconciliation of proved reserves showing a decrease to 714.9 MMBOE and a standardized measure of discounted future net cash flows falling to $2.6 billion in 2020 Change in Total Proved Equivalent Reserves (MMBOE) | Category | Amount | | :--- | :--- | | December 31, 2019 | 825.0 | | Revisions of previous estimates | (194.7) | | Extensions and discoveries | 150.3 | | Sales of properties | (1.7) | | Production | (63.9) | | December 31, 2020 | 714.9 | Standardized Measure of Discounted Future Net Cash Flows | (Millions of dollars) | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | :--- | | Standardized Measure | $2,618.6 | $5,827.6 | $8,279.9 |