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Murphy Oil Corporation (MUR - Analyst Report) reported first-quarter 2014 adjusted earnings of 96 cents per share, in line with the Zacks Consensus Estimate. Quarterly earnings edged down around 2% from 98 cents per share a year ago, primarily due to higher exploration and depreciation expenses, and a rise in expenses for debt financing. This was partially offset by a decline in lease operating expenses and lower share counts.

On a GAAP basis, the company’s earnings per share were 85 cents compared to the prior-year figure of $1.88. The variance between GAAP and adjusted earnings was due to the combined impact of loss from discontinued operations, mark-to-market loss on crude oil derivative contracts, foreign exchange gain and a gain from Oil Insurance Limited dividend.

Total Revenue

In first-quarter 2014, Murphy Oil’s top line came in at $1,286.4 million, surpassing the Zacks Consensus Estimate of $1,267 million by 1.5%. However, the revenues decreased 0.3% from $1,290.9 million reported in the year-ago quarter mainly due to lower contribution from the company’s Malaysian operations.

Quarterly Highlights

In the quarter under review, Murphy Oil's total net hydrocarbons production volume increased 1.3% year over year to 204,436 barrels of oil equivalents per day (“Boe/d”), primarily on the back of higher production from the Eagle Ford Shale.

Total net hydrocarbons sales volume was 200,503 Boe/d in the quarter, down 2.9% from 206,467 Boe/d a year ago primarily due to lower net natural gas, and crude oil and condensate sales volumes.

Murphy Oil's total costs and expenses in the reported quarter were $952.2 million, up 2.3% year over year mainly due to higher severance and ad valorem taxes, selling and general, and depreciation expenses.

The company’s exploration expenses were $138.5 million, up 27.6% year over year mainly due to an increase in dry hole costs.

The interest expenses increased 21.7% year over year to $32.9 million due to an increase in long-term debt level.

Financial Update

Murphy Oil's cash balance as of Mar 31, 2014 was $648.6 million versus $750.2 million as of Dec 31, 2013.

As of Mar 31, 2014, long-term debt was $3,415.6 million versus $2,936.6 million as of Dec 31, 2013.

Net cash provided by operating activities during first-quarter 2014 was $735.9 million, lower than $921.1 million in the year-ago comparable period.

In first-quarter 2014, the company’s total capital expenditure (continuing operations) was $887.2 million versus $969.8 million in the year-ago quarter.

Guidance

For second-quarter 2014, Murphy Oil anticipates its total net production and sales volume to average 217,000 Boe/d and 216,000 Boe/d, respectively. The company estimates total exploration expense in the range of $110 to $165 million for the second quarter of 2014.

Murphy Oil also provided 2014 production guidance in the band of 225,000 to 230,000 Boe/d, considering delay in the start-up of the Kakap-Gumusut project, Malaysia and unplanned maintenance downtime in Syncrude, Canada.

Peer Comparison

Hess Corporation (HES - Analyst Report) reported adjusted first-quarter 2014 earnings of $1.38 per share, surpassing the Zacks Consensus Estimate of $1.01.

Marathon Oil Corporation (MRO - Analyst Report) is slated to release its first-quarter 2014 earnings on May 6. The Zacks Consensus Estimate is pegged at 72 cents.

Occidental Petroleum Corporation (OXY - Analyst Report) is slated to release its first-quarter 2014 earnings on May 5. The Zacks Consensus Estimate is pegged at $1.70.

Our Take

Murphy Oil continues with its exploration and production activities in the Eagle Ford Shale area and other locations. The company has already advanced its development activities at Dalmatian in the Gulf of Mexico and completed the planned shut-in of the Kikeh field in Malaysia. The completion of these projects is expected to play an important role for a surge in future production.

In addition, we consider expansion of operations in the Gulf of Mexico and addition of acreage position in Namibia as a positive move for the company’s growth trajectory.

Murphy Oil introduced a share repurchase plan of $250 million, totaling $1 billion under the share repurchase program. This initiative will enable the company to improve shareholders’ value.

Murphy Oil currently has a Zacks Rank #3 (Hold).

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