Quarterly / Earnings Reports | Third Quarter (3Q) Update

Murphy Oil Reports Q3 2019 Results

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Murphy Oil Corp. reported its Q3 2019r results.

As previously announced, Murphy closed the Malaysia asset divestiture in the third quarter for $2.0 billion in cash proceeds. These assets were reported as "discontinued operations" and classified as "held for sale" for financial reporting purposes beginning with the first quarter 2019. Unless otherwise noted, the financial and operating highlights and metrics discussed in this commentary exclude discontinued operations and noncontrolling interest.

Operating highlights for the third quarter:

• Produced 192 thousand barrels of oil equivalent per day (MBOEPD), which includes 113 thousand barrels of oil per day (MBOPD) - Murphy's highest oil volumes since first quarter 2015, excluding Syncrude and heavy oil
• Increased Eagle Ford Shale production by 15 percent from second quarter 2019 to 51 MBOEPD, with oil volumes increasing 22 percent during the same period
• Reduced lease operating expenses to $7.68 per barrel of oil equivalent (BOE), driven by improvements in the Eagle Ford Shale and the Gulf of Mexico
• Sanctioned St. Malo waterflood project in the Gulf of Mexico, which is expected to contribute an estimated ultimate recovery of 30 to 35 million barrels of oil equivalent (MMBOE) contingent resources net to Murphy
• Expanded exploration acreage in Brazil with a farm-in to three blocks in Potiguar Basin and successful bid on three additional blocks in Sergipe-Alagoas Basin, bringing the total in Brazil to 12 blocks

Financial highlights for the third quarter:

• Generated adjusted EBITDA of $438 million in the quarter, the highest level since fourth quarter 2014
• Delivered cash flow in excess of property additions and dry hole costs of $134 million
• Repaid borrowings of $1.4 billion under the $1.6 billion senior unsecured revolving credit facility and $500 million senior unsecured term loan with proceeds from the Malaysia asset divestiture
• Continued the $500 million share repurchase program, which was completed in the fourth quarter, leading to a total share count reduction since April 2019 of 20.7 million shares, or approximately 12 percent of outstanding shares, to 152.9 million shares as of October 2019
• Entered into additional crude oil commodity hedge contracts, resulting in 35 MBOPD hedged for fourth quarter 2019 at an average price of $60.51 per BOE, and subsequent to the third quarter, 45 MBOPD hedged for 2020 at an average price of $56.42 per BOE

Q3 Ops Summary

North American Onshore

The North American onshore business produced approximately 109 MBOEPD in the third quarter.

Eagle Ford Shale - Production for the quarter averaged approximately 51 MBOEPD, comprised of 80 percent oil. Murphy drilled and completed 10 Tilden wells and 15 Catarina wells during the quarter. The Tilden wells were in the Lower Eagle Ford Shale and had average gross 30-day (IP30) rates of 1,300 BOEPD. The Catarina wells were brought online late in the quarter with production continuing to ramp up.

Tupper Montney - Natural gas production for the quarter averaged 269 million cubic feet per day (MMCFD). No further activity is planned for the remainder of the year.

Kaybob Duvernay - During the quarter, production averaged approximately 11 MBOEPD, comprised of 69 percent liquids. Murphy recommenced drilling in the third quarter to satisfy lease maintenance requirements, with 16 wells expected to be completed and brought online in 2020.

Global Offshore

The offshore business produced 83 MBOEPD for the third quarter, comprised of 79 percent oil. This excludes production from discontinued operations and noncontrolling interest. Gulf of Mexico production in the quarter averaged 78 MBOEPD, consisting of 77 percent oil.

Canada offshore production averaged 4 MBOEPD, comprised of 100 percent oil.

Gulf of Mexico - In the third quarter, Murphy successfully completed the Nearly Headless Nick well (Mississippi Canyon 387), which will be tied back to the Delta House facility, and completed a workover on a Medusa well, with first oil expected in the fourth quarter from both wells. The company also tied-in the new Dalmatian #2 well (Desoto Canyon 4), which began flowing late in the quarter, as well as the non-operated Lucius #3 well (Keathley Canyon 875).

As previously announced, Murphy and its partners sanctioned the St. Malo waterflood project in the resource-rich Wilcox formation in the deepwater Gulf of Mexico. This project is expected to increase total estimated ultimate recovery by 30 to 35 MMBOE contingent resources net to Murphy.

Fourth quarter activity includes the previously announced workover project at the Chinook #5 well (Walker Ridge 425) and the launch of a three-well rig campaign at Front Runner.

Southeast Asia - Brunei production was approximately 350 BOEPD for the quarter. Beginning in the third quarter, these assets are classified as "held for sale" for financial reporting purposes.

Exploration

Gulf of Mexico Exploration - In the third quarter, Murphy successfully bid on Green Canyon 522 block, which provides additional exploration upside given its location near the newly acquired Khaleesi/Mormont field development.

Brazil Exploration - During the quarter, Murphy successfully bid on three additional blocks in the Sergipe-Alagoas Basin (blocks 505, 575 and 637), increasing total gross acreage in the basin to 1.7 million acres across nine total blocks. The company holds a 20 percent WI, with ExxonMobil's Brazilian subsidiary at 50 percent as operator and Enauta Energia S.A. holding the remaining 30 percent WI.

Murphy also farmed into a 30 percent WI in three blocks spanning approximately 774 thousand total gross acres in the Potiguar Basin (POT-W-857, POT-W-863 and POT-W-865) with Wintershall Dea as operator with 70 percent WI. This expands the company's focus in Brazil with ownership in a second proven oil basin in close proximity to the Pitu oil discovery.

"In support of Murphy's future, we remain committed to a portfolio of exploration projects, achieved through low-cost entries with appropriate working interests. The recently added Brazilian blocks reiterate our focus on Western Hemisphere assets near existing discoveries," said Jenkins.

Q3 Financials & Production

The company recorded net income, attributable to Murphy, of $1.1 billion, or $6.76 per diluted share, for the third quarter 2019. The results include a gain on the divestiture of Malaysia assets of $960 million. Adjusted net income, which excludes both the results of discontinued operations and certain other items that affect comparability of results between periods, was $57 million, or $0.36 per diluted share for the same period. The adjusted income from continuing operations excludes both the gain on the Malaysian asset sale and the following primary after-tax items: a $39 million mark-to-market non-cash gain on crude oil derivatives and a $22 million mark-to-market non-cash gain on contingent consideration. Details for third 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 $438 million, or $24.65 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 $450 million, or $25.35 per BOE sold. Details for third quarter EBITDA and EBITDAX reconciliations can be found in the attached schedules.

Beginning with the third quarter 2019, Murphy is disclosing weighted average realized prices excluding transportation, gathering and processing expenses. A separate line item on the income statement reports transportation, gathering and processing expenses. Comparative periods have been conformed to current presentation.

Murphy continued to realize premium pricing in the third quarter 2019, with Eagle Ford Shale oil prices registering above $58 per barrel and North America offshore prices approaching $61 per barrel, both excluding the impact of commodity hedges. In the third quarter, more than 94 percent of the company's oil volumes were sold at a premium to the average West Texas Intermediate (WTI) price of $56.45 per barrel.

Third quarter production averaged 192 MBOEPD with 66 percent liquids. Overall, production was impacted by non-operated, unplanned downtime of 2,600 BOEPD in offshore Canada and 1,400 BOEPD in the Gulf of Mexico, partially offset by higher than anticipated volumes of 500 BOEPD from operated Gulf of Mexico assets and 1,000 BOEPD in Kaybob Duvernay. Details for third quarter production can be found in the attached schedules.

"Our company is performing exceptionally well. With a significant gain on sale of nearly $1.0 billion, we have the Malaysia divestiture behind us and are pleased to complete our first quarter as a transformed and streamlined Murphy. As an oil-weighted, Western Hemisphere focused company, our primary operations in the Gulf of Mexico and Eagle Ford Shale continue to achieve low operating costs and strong realized prices, driving healthy EBITDA given their prime access to premium markets," stated Roger W. Jenkins, President and Chief Executive Officer.

Financial Position

Murphy repurchased an additional $106 million of outstanding shares in the third quarter, with the remaining $94 million under the authorized $500 million stock repurchase plan acquired in the fourth quarter, marking completion of the program. Since the beginning of the program on April 30, 2019, the company has reduced its outstanding shares by approximately 12 percent, or 20.7 million shares, from 173.6 million shares to 152.9 million shares outstanding as of October 4, 2019.

The company had $2.8 billion of outstanding long-term, fixed-rate notes at the end of third quarter 2019. The fixed-rate notes had a weighted average maturity of 7 years and a weighted average coupon of 5.5 percent.

As of September 30, 2019, Murphy had approximately $2.0 billion of liquidity, comprised of full availability under the $1.6 billion senior unsecured credit facility and $435 million of cash and cash equivalents.

"Murphy has meaningfully de-levered its balance sheet and improved liquidity this quarter with cash from the Malaysia asset sale as part of ongoing portfolio transformation," said Jenkins. "As promised, we consistently return cash through our substantial dividend and reliably delivered on our share repurchase program ahead of schedule, supporting Murphy's tenet of benefitting our shareholders."

Hedges

The company employs derivative commodity instruments to manage certain risks associated with commodity prices and underpin capital spending associated with certain assets. Since second quarter 2019, Murphy has executed additional WTI fixed price swaps for 2019 and 2020, as well as fixed price forward sales at AECO for November 2019 through March 2020.

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

2019 Guidance

For the fourth quarter, Murphy estimates total production of 198 to 206 MBOEPD, comprised of 69 percent liquids. Full year production is expected to be in the range of 174 to 178 MBOEPD, excluding noncontrolling interest.

Murphy confirms its previously announced 2019 capital program of $1.35 to $1.45 billion.

Details for fourth quarter and full year guidance can be found in the attached schedules.