MURPHY OIL CORPORATION Summary
In the first quarter of 2022, crude oil and natural gas benchmark prices increased when compared to the same period of 2021. Prices were higher in the first quarter 2022 principally due to market concerns over supply shortfalls stemming from lack of investment in the exploration and production sector, ongoing demand recovery from COVID-19 and geopolitical uncertainty following the Russian invasion ofUkraine . On input costs, and similarly to the overall inflationary pressure observed in the wider economy; the oil and gas industry, and hence the Company, is observing higher costs for goods and services used in exploration and production. Murphy continues to manage input costs through its dedicated procurement department focused on managing supply chain and other costs. For the three months endedMarch 31, 2022 , West Texas Intermediate (WTI) crude oil prices averaged approximately$94.29 per barrel (compared to$57.84 in the first quarter of 2021 and$77.19 in the fourth quarter of 2021). The closing price for WTI at the end of the first quarter of 2022 was approximately$108.26 per barrel, reflecting a 74% increase from the first quarter 2021 closing price and a 51% increase from the fourth quarter of 2021 closing price. The average price inApril 2022 was$101.64 per barrel. As of close onMay 2, 2022 , the NYMEX WTI forward curve price for the remainder of 2022 and 2023 were$99.44 and$86.38 per barrel, respectively. For the three months endedMarch 31, 2022 , the Company produced 150 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations. The Company invested$304.7 million in capital expenditures (on a value of work done basis) in the three months endedMarch 31, 2022 , (which included$22.3 million related to the deferral of the Cutthroat exploration well inBrazil from 2021). The Company reported net loss from continuing operations of$64.9 million for the three months endedMarch 31, 2022 . This amount includes income attributable to noncontrolling interest of$47.9 million and after-tax losses on unrealized mark to market revaluations on commodity price derivative positions and contingent consideration of$148.9 million and$77.2 million , respectively. For the three months endedMarch 31, 2021 , the Company produced 165 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations. The Company invested$251.1 million in capital expenditures (on a value of work done basis) for the three months endedMarch 31, 2021 , which included$17.2 million to fund the development of the King's Quay floating production system (which was subsequently reimbursed by Arclight). The Company reported net loss from continuing operations of$267.0 million for the three months endedMarch 31, 2021 . This amount included income attributable to noncontrolling interest of$20.6 million , after-tax impairment charges of$128.0 million and after-tax losses on unrealized mark to market revaluations on commodity price derivative positions and contingent consideration of$121.3 million and$11.8 million , respectively. In the first quarter of 2021, the Company's subsidiary "Murphy Exploration & Production Company -USA " closed a transaction withArcLight Capital Partners, LLC (ArcLight) for the sale of Murphy's entire 50% interest in the King's Quay FPS and associated export lateral pipelines. The transaction reimbursed Murphy for its share of project costs from inception to closing with proceeds of$267.7 million . OnApril 12, 2022 , subsequent to quarter end, the Company announced that it has achieved first oil from the Khaleesi, Mormont, Samurai field development project in the deepwaterGulf of Mexico , as production has begun flowing through the Murphy-operated King's Quay FPS. 21
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Summary (contd.)
Results of Operations
Murphy's income (loss) by type of business is presented below.
Income (Loss)
Three Months Ended March 31,
(Millions of dollars) 2022 2021
Exploration and production $ 231.4 (12.2)
Corporate and other (296.3) (254.8)
Loss from continuing operations (64.9) (267.0)
Discontinued operations ¹ (0.6) 0.2
Net loss including noncontrolling interest $ (65.5) (266.8)
1 The Company has presented its formerU.K. andU.S. refining and marketing and Malaysian exploration and production operations as discontinued operations in its consolidated financial statements.
Exploration and Production
Results of E&P continuing operations are presented by geographic segment below.
Income (Loss)
Three Months Ended March 31,
(Millions of dollars) 2022 2021
Exploration and production
United States $ 252.9 119.0
Canada 22.7 (124.3)
Other (44.2) (6.9)
Total $ 231.4 (12.2)
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Results of Operations (contd.)
Other key performance metrics
The Company uses other operational performance and income metrics to review operational performance. The table below presents Earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA. Management uses EBITDA and adjusted EBITDA internally to evaluate the Company's operational performance and trends between periods and relative to its industry competitors. EBITDA and adjusted EBITDA are non-GAAP financial measures and should not be considered a substitute for Net income (loss) or Cash provided by operating activities as determined in accordance with accounting principles generally accepted inthe United States of America . Also presented below is adjusted EBITDA per barrel of oil equivalent sold, a non-GAAP financial metric. Management uses EBITDA per barrel of oil equivalent sold to evaluate the Company's profitability of one barrel of oil equivalent sold in the period.
Three Months Ended
March 31,
(Millions of dollars, except per barrel of oil equivalents sold) 2022 2021
Net loss attributable to Murphy (GAAP) $ (113.3) (287.4)
Income tax benefit (17.0) (88.2)
Interest expense, net 37.3 88.1
Depreciation, depletion and amortization expense ¹ 156.6 188.3
EBITDA attributable to Murphy (Non-GAAP) 63.6 (99.2)
Mark-to-market loss on derivative instruments 188.5 153.5
Mark-to-market loss on contingent consideration 98.1 14.9
Accretion of asset retirement obligations ¹ 10.5 10.5
Discontinued operations loss (income) 0.6 (0.2)
Impairment of assets ¹ - 171.3
Unutilized rig charges - 2.8
Foreign exchange (gain) loss - 1.3
Adjusted EBITDA attributable to Murphy (Non-GAAP) $ 361.3 254.9
Total barrels of oil equivalents sold from continuing operations attributable to Murphy (thousands of barrels)
12,565 13,670
Adjusted EBITDA per barrel of oil equivalents sold $ 28.75 18.65
1 Depreciation, depletion, and amortization expense, impairment of assets and
accretion of asset retirement obligations used in the computation of Adjusted
EBITDA exclude the portion attributable to the non-controlling interest.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Results of Operations (contd.)
OIL AND GAS OPERATING RESULTS - THREE MONTHS ENDED
United
(Millions of dollars) States 1 Canada Other Total
Three Months Ended March 31, 2022
Oil and gas sales and other operating revenues $ 707.4 129.3 - 836.7
Sales of purchased natural gas - 36.8 - 36.8
Lease operating expenses 99.9 36.9 - 136.8
Severance and ad valorem taxes 14.2 0.4 - 14.6
Transportation, gathering and processing 29.2 17.7 - 46.9
Costs of purchased natural gas - 33.7 - 33.7
Depreciation, depletion and amortization 126.5 34.2 0.1 160.8
Accretion of asset retirement obligations 9.4 2.5 - 11.9
Exploration expenses
Dry holes and previously suspended exploration
costs - - 32.8 32.8
Geological and geophysical 2.6 - 0.2 2.8
Other exploration 1.5 0.1 6.1 7.7
4.1 0.1 39.1 43.3
Undeveloped lease amortization 2.4 0.1 1.8 4.3
Total exploration expenses 6.5 0.2 40.9 47.6
Selling and general expenses 8.3 5.1 2.4 15.8
Other 102.8 5.1 0.4 108.3
Results of operations before taxes 310.6 30.3 (43.8) 297.1
Income tax provisions (benefits) 57.7 7.6 0.4 65.7
Results of operations (excluding Corporate
segment) $ 252.9 22.7 (44.2) 231.4
Three months ended March 31, 2021
Oil and gas sales and other operating revenues $ 490.3 104.0 - 594.3
Lease operating expenses 116.1 30.8 0.3 147.2
Severance and ad valorem taxes 8.9 0.3 - 9.2
Transportation, gathering and processing 28.5 14.4 - 42.9
Depreciation, depletion and amortization 149.6 44.8 0.5 194.9
Accretion of asset retirement obligations 9.0 1.5 - 10.5
Impairment of assets - 171.3 - 171.3
Exploration expenses
Dry holes and previously suspended exploration
costs 0.7 - - 0.7
Geological and geophysical 0.6 - 0.2 0.8
Other exploration 0.6 - 5.0 5.6
1.9 - 5.2 7.1
Undeveloped lease amortization 2.3 0.1 2.2 4.6
Total exploration expenses 4.2 0.1 7.4 11.7
Selling and general expenses 5.5 4.1 1.4 11.0
Other 21.5 3.1 (3.5) 21.1
Results of operations before taxes 147.0 (166.4) (6.1) (25.5)
Income tax provisions (benefits) 28.0 (42.1) 0.8 (13.3)
Results of operations (excluding Corporate
segment) $ 119.0 (124.3) (6.9) (12.2)
1 Includes results attributable to a noncontrolling interest in MP GOM.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Results of Operations (contd.)
Exploration and Production First quarter 2022 vs. 2021
All amounts include amount attributable to a noncontrolling interest in MP GOM, unless otherwise noted.
United States E&P operations reported earnings of$252.9 million in the first quarter of 2022 compared to earnings of$119.0 million in the first quarter of 2021. Results were$133.9 million favorable in the 2022 period compared to the 2021 period, driven by higher revenues ($217.1 million ), lower DD&A ($23.1 million ), lower lease operating expenses (LOE:$16.2 million ), partially offset by higher income tax expense ($29.7 million ) and higher other operating expense ($81.3 million ). Higher revenues are primarily attributable to higher realized prices (oil and condensate, natural gas and NGLs) in 2022 compared to 2021, offset by lower oil sales and production volumes driven primarily by a focused effort to reduce capital expenditures to prioritize corporate debt reduction. Lower DD&A is a result of lower production volumes and lower rates driven by positive reserve revisions. Lower lease operating expenses were primarily due to higher GOM workover costs in the prior year at St. Malo. Higher income tax expense is a result of higher pre-tax income principally due to higher oil price and lower DD&A and LOE. Higher other operating expense is primarily due to an unfavorable mark to market revaluation on contingent consideration ($98.1 million ; as a result of higher commodity prices) from prior GOM acquisitions. Canadian E&P operations reported earnings of$22.7 million in the first quarter of 2022 compared to a loss of$124.3 million in the first quarter of 2021. Results were$147.0 million favorable compared to the 2021 period. Prior year results included an impairment charge ($171.3 million ) recorded in the first quarter of 2021 following notice from the operator of asset abandonment at Terra Nova at the time of the assessment, and prior to the sanctioning of an asset life extension project in the third quarter of 2021. The current year results also include higher revenue from production ($25.3 million ) and lower DD&A ($10.6 million ) offset by higher income tax expense ($49.7 million ), lease operating expenses ($6.1 million ) and transportation, gathering and processing expenses ($3.3 million ). Higher revenue is primarily attributable to higher oil prices at Hibernia and Kaybob Duvernay and higher natural gas prices and volumes at Tupper Montney. Lower DD&A is primarily due to lower production volumes at Kaybob Duvernay following reduced capital expenditures throughout 2020 and 2021. Higher income tax expense is a result of higher pre-tax income principally due to higher revenue and no repeat of the impairment charge. Higher lease operating expenses and transportation, gathering and processing costs are due to higher gas processing and downstream transportation rates and capacity. Higher capacity is expected to be utilized by growth at Tupper Montney in the future. Other international E&P operations reported a loss of$44.2 million in the first quarter of 2022 compared to a loss of$6.9 million in the prior year. Results were$37.3 million unfavorable compared to the 2021 period primarily due to the Cutthroat-1 exploration well in block SEAL-M-428 in theSergipe-Alagoas Basin offshoreBrazil being expensed because no hydrocarbons were discovered.
Corporate
First quarter 2022 vs. 2021
Corporate activities, which include interest expense and income, foreign exchange effects, realized and unrealized gains/losses on derivative instruments (forward swaps and collars to hedge the price of oil sold) and corporate overhead not allocated to Exploration and Production, reported a loss of$296.3 million in the first quarter of 2022 compared to a loss of$254.8 million in the first quarter of 2021. The$41.5 million unfavorable variance is primarily due to higher realized and unrealized losses on derivative instruments in 2022 compared to 2021 (2022:$320.8 million loss; 2021:$214.4 million loss), partially offset by lower interest expense ($56.0 million ) and higher tax benefits ($7.8 million ). Realized and unrealized losses on derivative instruments are due to an increase in oil prices for current (realized) and future (unrealized) periods whereby the swap contracts provide the Company with a fixed price and the collar contracts provide for a minimum (floor) and a maximum (ceiling) price. As ofMarch 31, 2022 , the average forward NYMEX WTI price for the remainder of 2022 was$94.52 (versus swap contract fixed hedge price of$44.88 ). Interest charges are lower in the first quarter of 2022 primarily due the prior year redemption premium ($34.2 million ) incurred by the Company upon the early retirement of the notes originally due June andDecember 2022 , lower overall debt and higher capitalized interest on GOM capital projects. Higher income tax benefit is a result of pre-tax losses driven by the higher realized and unrealized losses on derivative instruments. 25
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Results of Operations (contd.)
Production Volumes and Prices
First quarter 2022 vs. 2021
Total hydrocarbon production from Exploration and Production averaged 149,854 barrels of oil equivalent per day in the first quarter of 2022, which represented a 9% decrease from the 165,382 barrels per day produced in the first quarter of 2021. The decrease in production is principally due to an ongoing focused effort to reduce capital expenditures that began in 2020 to prioritize corporate debt reduction. Average crude oil and condensate production was 83,560 barrels per day in the first quarter of 2022 compared to 97,475 barrels per day in the first quarter of 2021. The decrease of 13,915 barrels per day was principally due to lowerGulf of Mexico production (9,110 barrels per day) due to the focused effort to reduce capital expenditures and several planned downtime events including a facility upgrade which lowered current production at Neidermeyer and Marmalard as well as maintenance operations at Front Runner, Habanero and Chinook.Canada production is lower (3,176 barrels per day) due to normal field decline at Kaybob coupled with temporary operational issues at Hibernia.Eagle Ford Shale production is lower (1,835 barrels per day) due to normal well decline and temporary operational issues impacting production in the first quarter of 2022. On a worldwide basis, the Company's crude oil and condensate prices averaged$95.17 per barrel in the first quarter of 2022 compared to$58.08 per barrel in the 2021 period, an increase of 64% year over year.
Total production of natural gas liquids (NGL) was 9,342 barrels per day in the first quarter of 2022 compared to 9,845 barrels per day in the 2021 period.
The
average sales price forU.S. NGL was$40.76 per barrel in 2022 compared to$22.68 per barrel in 2021. The average sales price for NGL inCanada was$55.02 per barrel in 2022 compared to$35.92 per barrel in 2021. NGL prices are higher inCanada due to the higher value of the product at the Kaybob Duvernay andPlacid Montney assets. Natural gas production volumes averaged 341.7 million cubic feet per day (MMCFD) in the first quarter of 2022 compared to 348.4 MMCFD in 2021. The decrease of 6.7 MMCFD was primarily the result of lower volumes in theGulf of Mexico (16.6 MMCFD) partially offset by higher volumes atEagle Ford Shale (5.3 MMCFD) andCanada (4.6 MMCFD). The lower natural gas volumes in theGulf of Mexico are principally due to planned facility and maintenance downtime. Natural gas prices for the total Company averaged$3.13 per thousand cubic feet (MCF) in the first quarter of 2022, versus$2.56 per MCF average in the same period of 2021. Average realized natural gas prices in theU.S. andCanada in the quarter were$5.00 and$2.52 , respectively. Average realized gas prices inCanada are lower as a result of certain fixed price sales volume contracts.
Additional details about results of oil and natural gas operations are presented in the tables on page 24.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Results of Operations (contd.)
The following table reports hydrocarbons produced during the three-month periods
ended
Three Months Ended
March 31,
Barrels per day unless otherwise noted 2022 2021
Net crude oil and condensate
United States Onshore 20,330 22,165
Gulf of Mexico 1 55,253 64,363
Canada Onshore 4,380 6,288
Offshore 3,321 4,589
Other 276 70
Total net crude oil and condensate - continuing operations 83,560 97,475
Net natural gas liquids
United States Onshore 4,833 3,933
Gulf of Mexico 1 3,526 4,679
Canada Onshore 983 1,233
Total net natural gas liquids - continuing operations 9,342 9,845
Net natural gas - thousands of cubic feet per day
United States Onshore 27,361 22,016
Gulf of Mexico 1 56,058 72,658
Canada Onshore 258,291 253,697
Total net natural gas - continuing operations 341,710 348,371
Total net hydrocarbons - continuing operations including NCI 2,3 149,854 165,382
Noncontrolling interest
Net crude oil and condensate - barrels per day (8,128) (9,174)
Net natural gas liquids - barrels per day (287) (354)
Net natural gas - thousands of cubic feet per day 2 (2,590) (4,159)
Total noncontrolling interest (8,847) (10,221)
Total net hydrocarbons - continuing operations excluding NCI 2,3 141,007 155,161
1 Includes net volumes attributable to a noncontrolling interest in MP Gulf of
Mexico , LLC (MP GOM).
2 Natural gas converted on an energy equivalent basis of 6:1
3 NCI - noncontrolling interest in MP GOM.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Results of Operations (contd.)
The following table reports the weighted average sales prices excluding
transportation cost deduction and sales of purchased natural gas for the
three-month periods ended
Three Months
Ended
March 31,
2022 2021
Weighted average Exploration and Production sales prices
Continuing operations
Crude oil and condensate - dollars per barrel
United States Onshore $ 93.87 57.41
Gulf of Mexico 1 95.02 58.78
Canada 2 Onshore 93.09 52.84
Offshore 110.66 59.39
Natural gas liquids - dollars per barrel
United States Onshore 38.32 21.25
Gulf of Mexico 1 44.05 23.87
Canada 2 Onshore 55.02 35.92
Natural gas - dollars per thousand cubic feet
United States Onshore 4.61 3.27
Gulf of Mexico 1 5.19 3.39
Canada 2 Onshore 2.52 2.26
1 Prices include the effect of noncontrolling interest share for MP GOM.
Financial Condition
Cash Provided by Operating Activities
Net cash provided by continuing operating activities was$338.3 million for the first three months of 2022 compared to$237.8 million during the same period in 2021. The increased cash from operating activities is primarily attributable to higher revenue from production ($242.0 million ), offset by the timing of working capital settlements ($80.9 million ; primarily higher revenue received in cash following the end of the quarter) and higher realized losses on derivative instruments ($71.4 million ).
Cash Required by Investing Activities
Net cash required by investing activities was$244.9 million for the first three months of 2022 compared to net cash provided by investing activities of$9.7 million during the same period in 2021. The first quarter of 2021 included sales proceeds for the King's Quay FPS of$268.0 million , which was sold toArcLight Capital Partners, LLC (ArcLight). Property additions and dry hole costs (excluding King's Quay), which includes amounts expensed, were$244.9 million and$240.5 million in the first three months of 2022 and 2021, respectively.
Total accrual basis capital expenditures were as follows:
Three Months Ended
March 31,
(Millions of dollars) 2022 2021
Capital Expenditures
Exploration and production $ 299.4 247.3
Corporate 5.3 3.8
Total capital expenditures $ 304.7 251.1
A reconciliation of property additions and dry hole costs in the Consolidated
Statements of Cash Flows to total capital expenditures for continuing operations
follows.
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