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Murphy Oil Corporation reported its third-quarter 2012 pro forma earnings of $1.17 per share, missing the Zacks Consensus Estimate of $1.20. Quarterly earnings per share was also lower than the year-ago figure of $1.79 due to weaker U.S. retail marketing margins, lower North American natural gas sales prices, and an after tax loss from foreign exchange transactions.

The company’s third-quarter 2012 GAAP earnings were $1.16 per share versus $2.09 in the prior-year quarter. The variance between GAAP and pro forma earnings was due to a penny charge from discontinued operations.  

Total Revenue

Murphy's total revenue for third-quarter 2012 decreased to $7,122.2 million from $7,220.2 million in the year-ago quarter. This revenue decline was due to lower numbers in refining and marketing segment, and a loss from corporate segment; partially offset by a marginal rise in exploration and production segment revenue. However, quarterly revenue was higher than the Zacks Consensus Estimate of $7,077.0 million.

Segment Details

Exploration and Production: Third-quarter 2012 revenue from this division was $1,083.8 million, up from $1,051.8 million in the prior-year quarter. This increase was driven by a rise in crude oil and natural gas sales volume compared with the prior-year quarter; partially offset by lower natural gas sales volume compared with the year-ago quarter.

Refining and Marketing: Revenue from this division decreased to $6,046.9 million from $6,181.3 million in the year-ago quarter. This was primarily due to weaker performance from the company’s two U.S. ethanol production facilities.

Corporate: In the quarter, this division reported a cost of $8.5 million versus revenue of $29.8 million in the year-earlier period. Quarterly performance negatively impacted due to an after-tax loss of $12.6 million related to foreign currencies transactions.

Though the company had a negative $42.7 million as intersegment transfers elimination in the year-ago quarter, it has no intersegment transfers elimination in this quarter.

Quarterly Highlights

Murphy's total worldwide production in this quarter was 181,558 barrels of oil equivalent per day (“Boe/d”), up from 174,801 Boe/d. The production increase was driven by higher volumes produced at the Kikeh field and the Eagle Ford Shale area; partially offset by lower volumes produced at fields in the Terra Nova at offshore Eastern Canada, offshore Newfoundland and the Azurite field at offshore Republic of the Congo.

Total sales volumes of crude oil and gas liquids averaged 105,796 barrels per day in third-quarter 2012 compared with 96,437 barrels per day in the year-ago quarter.

In the quarter under review, natural gas sales volumes averaged 454 million cubic feet per day (“MMcf/d”), down from 470 MMcf/d due to lower production at the Tupper area in British Columbia, and at the offshore Sarawak in Malaysia. These negatives were partially offset by higher production volumes at the Eagle Ford Shale assets.

Murphy's third-quarter 2012 worldwide average crude oil, condensate and gas liquids sales price was $96.09 per barrel compared with $95.95 per barrel in the prior-year quarter. North American natural gas sales prices decreased to $2.61 per thousand cubic feet (“Mcf”) in the reported quarter compared with $4.20 per Mcf in the year-ago quarter.

Exploration expenses during the quarter increased to $94.0 million from $85.5 million in the third quarter of 2011.

Interest expenses of the company at the end of the quarter decreased $12.9 million versus $17.3 million in the year-ago quarter.

Financial Update

Long-term debt of the company as of September 30, 2012 was $1.2 billion versus $0.2 billion as of December 31, 2011.

During the quarter, net cash provided by operating activities was $754.1 million, down from $958.8 million in third-quarter 2011.

Total capital expenditure during the third quarter of 2012 was $1.2 billion compared with $0.7 billion in the year-ago quarter.  

Dividend update

Currently, Murphy is paying quarterly dividend of 31.3 cents per share. On an annualized basis, the dividend is $1.25 per share. In addition, the company will pay a special dividend of $2.50 per share on December 3, 2012.

Guidance

In the fourth quarter of 2012, the company expects total worldwide production volumes of 207,000 Boe/d. Sales volumes of oil and natural gas are expected to average 206,000 Boe/d.

The company expects exploration expense in fourth-quarter 2012 to be in the range of $60.0 million - $190.0 million.

In the next quarter, the company expects earnings to be in the range of $1.10 - $1.70 per share, taking into account earnings from downstream businesses of approximately $63 million.

Murphy has authorized a share buyback program of up to $1 billion. The company has already announced its plan to separate its U.S. Downstream business.

Peer Comparison

One of the company’s peers Occidental Petroleum Corporation reported third-quarter 2012 pro forma earnings per share of $1.70, beating the Zacks Consensus Estimate of $1.63. However, quarterly earnings were down from the year-ago figure of $2.18.

Occidental's quarterly revenue marginally decreased to $5,965.0 million from $6,006.0 million in the year-ago quarter. However, the top line beats the Zacks Consensus Estimate of $5,761.0 million.

Our Take

Murphy has reported mixed result in the third quarter of 2012; missing our earnings projection, but beating the revenue estimates due to rise in sales from exploration and production segment. These were negatively impacted by lower North American natural gas sales prices.

Murphy possesses one of the best upstream portfolios among the domestic oil and natural gas companies. The company continues to enhance shareholder’s value by maintaining a superior Exploration and Production (“E&P”) production profile. In addition, significant progress in offshore drilling activities in Kurdistan and Eagle Ford Shale, natural gas discoveries in Malaysia and Brunei, and first well completion at the Three Forks zone of Southern Alberta might fuel the company’s future performance.

However, volatile oil prices and uncertainty related to drilling results will challenge the company’s forthcoming financial results.

Murphy Oil Corporation currently has short-term Zacks #3 Rank (Hold rating).

El Dorado, Arkansas-based Murphy Oil Corporation engages in the exploration, production, refining and marketing of oil and gas in the U.S. With a market capitalization of $11.66 billion, the company has 3,176 full time employees.

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