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Murphy Oil First Quarter 2020 Results

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   |    Thursday,May 07,2020

Murphy Oil Corp. reported its Q1 2020 results.

Murphy reported a net loss attributable to Murphy of $416 million, or $2.71 net loss per diluted share. Adjusted net loss, which excludes discontinued operations and other one-off items, was $46 million, or $0.30 per diluted share.

Significant items include:

  • Delivered first quarter production of 186 thousand barrels of oil equivalent per day (MBOEPD), comprised of more than 110 thousand barrels of oil per day (MBOPD) and 66 percent liquids
  • Received $42 million of cash crude oil hedge settlements for the quarter and recorded a $358 million non-cash mark-to-market gain on crude oil contracts
  • Reduced cash flow volatility by entering into additional crude oil hedges of 20 MBOPD for May and June 2020 at an average price of $26.45 per barrel. Overall for full year 2020, Murphy will have an average of 48 MBOPD hedged at an average price of $54.35 per barrel
  • Recorded $968 million non-cash impairment charge due to low commodity prices in first quarter 2020
  • Lowered planned capital expenditures further to a midpoint of $740 million, representing approximately a 50 percent reduction from the original 2020 capital budget
  • Announced the closure of corporate headquarters in El Dorado, Arkansas and office in Calgary, Alberta
  • Targeted $30 to $40 million reduction in operating expenses and approximately $50 million in cash G&A and related expenses in 2020
  • Decreased quarterly dividend by 50 percent to $0.50 per share annualized

Q1 2020 Financials

The company recorded a net loss, attributable to Murphy, of $416 million, or $2.71 net loss per diluted share, for the first quarter 2020. Adjusted net loss, which excludes both the results of discontinued operations and certain other items that affect comparability of results between periods, was $46 million, or $0.30 per diluted share for the same period. The adjusted loss from continuing operations excludes the following after-tax items: a $693 million non-cash impairment of certain Gulf of Mexico and other foreign properties, a $283 million mark-to-market non-cash gain on crude oil derivatives and a $47 million mark-to-market non-cash gain on liabilities associated with future contingent consideration. Details for first quarter results can be found in the attached schedules.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations attributable to Murphy was $287 million, or nearly $17 per barrel of oil equivalent (BOE) sold. Adjusted earnings before interest, tax, depreciation, amortization and exploration expenses (EBITDAX) from continuing operations attributable to Murphy was $307 million, or nearly $18 per BOE sold. Details for first quarter adjusted EBITDA and EBITDAX reconciliations can be found in the attached schedules.

First quarter production averaged 186 thousand barrels of oil equivalent per day (MBOEPD) with 59 percent oil and 66 percent liquids. Details for first quarter production can be found in the attached schedules.

Balance Sheet

At the end of first quarter 2020, Murphy had outstanding debt of $2.8 billion in long-term, fixed-rate notes and $170 million drawn under its $1.6 billion senior unsecured credit facility. The fixed-rate notes had a weighted average maturity of 7.5 years and a weighted average coupon of 5.8 percent.

As of March 31, 2020, Murphy had approximately $1.8 billion of liquidity, comprised of $1.4 billion undrawn under the $1.6 billion senior unsecured credit facility and approximately $408 million of cash and cash equivalents.

"We remain focused on protecting our balance sheet and liquidity through this unstable market while maintaining future flexibility through our long-dated debt maturity profile, with the first tranche not due until mid-2022," said Roger W. Jenkins, President and Chief Executive Officer.

Hedging

The company employs derivative commodity instruments to manage certain risks associated with commodity price volatility and underpin capital spending associated with certain assets. For full year 2020, Murphy will have an average of 48 thousand barrels of oil per day (MBOPD) hedged at an average price of $54.35 per barrel. Since fourth quarter 2019, Murphy has executed additional WTI fixed price swaps to hedge an additional 20 MBOPD for May and June 2020 at an average price of $26.45 per barrel, resulting in a total 65 MBOPD of volumes hedged for the months of May and June 2020 at an average price of $47.20 per barrel. For the month of April 2020, as well as July through December 2020, the company has 45 MBOPD of volumes hedged at an average price of $56.42 per barrel.

Additionally, subsequent to quarter end, Murphy entered into fixed price forward sales contracts for the delivery of 25 million cubic feet per day (MMCFD) at the AECO hub in Canada at an average price of C$2.62 per thousand cubic feet (MCF) for calendar year 2021.

Details for the current hedge positions can be found in the attached schedules.

2020 Capex Changes

As previously announced, in response to challenging macroeconomic conditions, the severe decline in commodity prices and reduced demand for crude oil and natural gas, Murphy lowered its 2020 planned capital expenditures to a midpoint of $780 million. Since April 1, the company has revised its budget a further $40 million down to a midpoint of $740 million, representing an approximate 50 percent decrease from the original capital guidance midpoint. For first quarter 2020, Murphy spent a total of $365 million, or approximately half of the company's new 2020 budget, consisting of $345 million for CAPEX, excluding King's Quay, and $20 million for exploration. Note that CAPEX guidance ranges exclude Gulf of Mexico noncontrolling interest (NCI).

In addition to lowering capital expenditures, the company continues to prudently and dynamically manage all expenses. Currently, Murphy is focusing on improving its operating cost structure and cash position, and is targeting $30 million to $40 million in reductions across operating expenses, along with approximately $50 million in lower cash G&A and related expenses in 2020. This includes the previously announced closing of two offices and meaningful executive salary and board compensation reductions. Further, we announced in April a 50 percent dividend reduction to $0.50 per share on an annualized basis.

Regional Ops Summary

North American Onshore

The North American onshore business produced approximately 95 MBOEPD in the first quarter.

Eagle Ford Shale - Production averaged 42 MBOEPD with 74 percent oil volumes in the first quarter. Murphy executed its first quarter wells as planned and brought online 10 Catarina wells and four Karnes wells with an average drilling and completion cost of $4.8 million per well. The company also participated in drilling 32 non-operated Karnes wells, with five completions planned for second quarter 2020 and the remainder deferred until 2021.

Tupper Montney - Natural gas production averaged 246 MMCFD for the quarter. For the first quarter, the company drilled four of the five planned wells, with all well completions delayed until 2021.

Kaybob Duvernay - First quarter production averaged 10 MBOEPD. Murphy brought online 11 wells during the quarter with strong gross 30-day initial production (IP30) rates averaging above 900 barrels of oil equivalent per day (BOEPD) and average liquids content of more than 80 percent. Drilling and completions costs continue to decrease, with the best well year-to-date at less than $6 million. With first quarter activity, the capital carry obligation with its partner is now complete.

Placid Montney - Produced 2 MBOEPD in the first quarter through Murphy's non-operated position. As planned, four wells were brought online in the quarter.

Global Offshore

The offshore business produced 91 MBOEPD for the first quarter, comprised of 79 percent oil. This excludes production from discontinued operations and noncontrolling interest. Gulf of Mexico production in the quarter averaged 86 MBOEPD, consisting of 78 percent oil. Canada offshore production averaged 5 MBOEPD, comprised of 100 percent oil.

Gulf of Mexico - The A4 (Green Canyon 338) well is the first in the Front Runner rig program and came online in the first quarter. Murphy is evaluating near-field exploitation opportunities, as it encountered more than 250 feet of net pay in the well. The well has outperformed expectations with a gross peak rate of approximately 7 MBOEPD. Also during the quarter, Murphy completed the Neidermeyer Field (Mississippi Canyon 209) subsea repair.

Construction of the King's Quay floating production system (FPS) continues to progress. Transaction documentation with ArcLight Capital Partners, LLC and other parties is moving forward, and Murphy expects to close the transaction in second quarter 2020.

Canada Offshore - As previously announced, non-operated Terra Nova is expected to remain offline for the year.

Southeast Asia - Brunei production was approximately 340 BOEPD for the quarter. These assets are classified as "held for sale" for financial reporting purposes.

EXPLORATION

Gulf of Mexico - Murphy is on track to spud the Mt. Ouray well (Green Canyon 767) in second quarter 2020 at an expected net cost of approximately $7 million. EnVen Energy Ventures, LLC as operator and a managed entity of Ridgewood Energy Company each hold 40 percent working interest, with Murphy owning the remaining 20 percent.

2020 Production / Capex Outlook

For the month of April 2020, production averaged approximately 179 MBOEPD, while approximately 7 MBOEPD was not produced due to curtailments and shut-ins primarily onshore. The company anticipates approximately 40 MBOEPD of production shut-ins and curtailments for the month of May, with the majority planned from offshore wells. These decisions are made each month based on current pricing, and therefore June production curtailments are unknown at this time. Given current market volatility and the potential for additional curtailments in the coming months, the company cannot accurately guide production for the full second quarter. Additionally, the company's previous full year 2020 guidance should no longer be relied upon.

"Given the current industry turmoil, including shut-ins and curtailments across the sector, it is difficult to accurately forecast production volumes. However, if we assume NYMEX strip oil prices occur, we are confident that the combination of the King's Quay transaction proceeds, hedge realizations, and lower CAPEX, operating and G&A costs will allow us to exit 2020 with a strong liquidity position. This enables us to methodically continue our cost reduction plans over the course of this year and next, so that we are better positioned to weather a possible long-term low commodity price environment," commented Jenkins.

The table below illustrates the capital allocation by area.

2020 Revised $740 Million
Capital Expenditure Guidance

Area

 

Percent of
Total CAPEX

US Onshore

 

27

Gulf of Mexico

 

43

Canada Onshore

 

16

Exploration

 

8

Canada Offshore

 

3

Other

 

3

 

Approximately $70 million is remaining after first quarter 2020 for Eagle Ford Shale spending to bring online 11 operated and five non-operated wells. For the second quarter through fourth quarter 2020, less than $20 million of spending remains for Canada onshore to bring five operated wells and six non-operated wells online.

2020 Revised Onshore Wells Online

 

1Q 2020

 

2Q 2020

 

3Q 2020

 

4Q 2020

 

2020 Total

 

Eagle Ford Shale

14

 

11

 

-

 

-

 

25

 

Kaybob Duvernay

11

 

5

 

-

 

-

 

16

 

Tupper Montney

-

 

-

 

-

 

-

 

-

 

Non-Op Eagle Ford Shale

-

 

5

 

-

 

-

 

5

 

Non-Op Placid Montney

4

 

6

 

-

 

-

 

10

 

Note: Non-operated wells are shown gross. Eagle Ford Shale non-operated working interest averages seven percent.

Murphy has reduced its capital allocation to approximately $335 million for its offshore assets, with 94 percent planned for the Gulf of Mexico and the remaining six percent for Canada offshore. Revisions from the original plan include adjusting the three-well rig program at Front Runner to two wells with the third well deferred to a later date, no longer drilling or completing certain operated wells and non-operated projects, and shifting timing of other plans. Expenditures for the St. Malo waterflood and the Khaleesi / Mormont and Samurai projects are still planned for 2020. Canada offshore spending remains budgeted for development drilling.

Murphy has adjusted its 2020 exploration plans to a one-well non-operated program, deferring the two exploration wells in offshore Mexico to 2021. The revised budget is approximately $60 million, with $40 million remaining for 2020. Other capital of approximately $25 million supports corporate activities and Eastern Hemisphere field development expenditures.

COVID-19 Response

The effects of COVID-19 have been dramatic and vast, impacting everything from the overall economy and global oil demand to personal interactions. Murphy is grateful to all the healthcare workers, first responders and volunteers fighting the virus on the front lines, and to its field employees and contractors who continue to operate safely.

Murphy quickly recognized the growing concern of COVID-19 overseas and initiated its Incident Management Team in the first quarter 2020. The team began monitoring the situation and establishing a strategy for the safety and wellbeing of its worldwide employees, while various departments collaborated in preparation for a possibly prolonged work-at-home scenario. In conjunction with government officials and health organizations advising citizens to stay at home in North America, the executive-level Crisis Management Team was activated, and all Murphy office employees began working remotely. Concurrently, the company implemented additional protocols across its field operations to ensure the safety of employees, contractors and the communities in which it works.

"We're continually focused on the safety and health of our employees, partners and the communities in which we work, in addition to maintaining safe operations while ensuring business continuity. With gratitude, I would like to commend everyone for being flexible, supporting each other and showing resilience during this challenging time. Thank you as well to our incident and crisis teams for their outstanding planning and execution that has kept our employees and contractors safe, and to other internal groups for ensuring a smooth and stable transition for office employees to work remotely," said Jenkins.


US Frac Crews Tracking

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