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Murphy Oil Corporation’s (MUR - Analyst Report) first-quarter 2013 pro forma earnings of $1.08 per share surpassed the Zacks Consensus Estimate by 11 cents. Quarterly earnings decreased 25% year over year due to increase in exploration, administration and financing expenses, and higher income taxes; partially offset by strong contribution from downstream operations.

On a GAAP basis, the company’s quarterly earnings per share were $1.88 compared with $1.49 a year-ago. The variance between GAAP and pro forma earnings was due to an 80 cents gain associated with discontinued operations.

Total Revenue

Murphy Oil generated revenues of $6,640 million, missing the Zacks Consensus Estimate by $611 million. Reported revenues decreased 4.6% year over year primarily due to a decline in contribution from the refining and marketing segment.

Quarterly Highlights

Murphy Oil's total worldwide production was 201,876 barrels of oil equivalents per day (Boe/d), up 3.5% year over year, primarily attributable to an 18% year-over-year rise in oil production from increase in volumes in the Eagle Ford Shale.

Natural gas sales volumes decreased 14.4% year over year to 447 million cubic feet per day as gas production at the Tupper area in Western Canada showed a decline and sales volume at offshore Sarawak, Malaysia decreased.

Murphy Oil's worldwide crude oil and condensate sales price averaged $96.00 per barrel, down 1.8% year over year.

North American natural gas sales prices increased 55 cents per thousand cubic feet (Mcf) to $3.11 per Mcf. Natural gas-produced offshore Sarawak Malaysia was sold at $6.82 per Mcf on average, down from $7.80 per Mcf in the prior-year quarter.

Exploration expenses more than doubled from the year-ago level to $108.5 million primarily due to higher dry hole expenses in Western Canada and Cameroon.

Segment Details

Exploration and Production: Revenues from this segment were $1,299 million, up 13% year over year due to rise in revenues from the U.S. and Republic of the Congo.

Refining and Marketing: Segmental revenues decreased 7.8% year over year to $5,349 million owing to lower contribution from the U.S. and UK.

Corporate: The segment reported a cost of $8 million compared with revenue of $3 million a year-ago due to steeper administrative expense.

Financial Update

Cash balance as of Mar 31, 2013 was $1.1 billion versus $0.9 billion a year ago.

As of Mar 31, 2013, long-term debt was $2.5 billion versus $2.2 billion as of Dec 31, 2012.

Net cash provided by operating activities during the first three months of 2013 was $0.9 billion, lower than $1 billion in the year-ago comparable period.

Total capital expenditures increased to $1 billion from $0.7 billion in the prior-year quarter due to a rise in investments in all its segments.

Guidance

Murphy Oil estimates total worldwide production in the second quarter of 2013 to average 202,000 Boe/d and sales volumes of 201,000 Boe/d.

Earnings are expected in the range of $1.50 to $1.65 per share. This earnings projection takes into account an income of approximately $73 million from downstream operations, and exploration expenses of $50–$80 million.

Other Energy Company Releases

ConocoPhillips (COP - Analyst Report) announced first-quarter adjusted earnings of $1.42 per share, at par with the Zacks Consensus Estimate.

Occidental Petroleum Corporation (OXY - Analyst Report) reported first-quarter pro forma earnings of $1.69, beating the Zacks Consensus Estimate by 12 cents.

Hess Corporation (HES - Analyst Report) reported adjusted first-quarter earnings of $1.95 per share, beating the Zacks Consensus Estimate of $1.57.

Our Take

We have identified several catalysts including significant progress in offshore drilling activities in Eagle Ford Shale along with a strong financial position. These will likely boost Murphy Oil’s forthcoming results.

However, we are cautious about stringent drilling regulations and volatile commodity pricing, which may to some extent challenge the company’s future performance.

El Dorado, Ark.-based Murphy Oil Corporation is a global oil and gas exploration and production company with refining and marketing operations in the U.S. and the UK. The company currently has a Zacks Rank #3 (Hold).

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