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Murphy Oil Posts Mixed Bag

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Murphy Oil Corporation (MUR - Free Report) reported second-quarter 2012 pro forma earnings of $1.52 per share, up from $1.44 per share in the prior-year quarter.

This was driven by a decline in exploration expenses and interest costs, partially offset by higher operating costs, a rise in selling and general expenses and depreciation, depletion and amortization charges. Quarterly earnings, however, beat the Zacks Consensus Estimate of $1.33 per share.

Total Revenue

Murphy's total revenue for second-quarter of 2012 decreased 3.0% to $7.2 billion from $7.4 billion in the year-ago quarter. This revenue decline was due to lower numbers in refining and marketing segment; partially offset by a rise in exploration and production segment revenue. Revenue in the quarter under review was lower than the Zacks Consensus Estimate of $9.6 billion.

Segment Details

Exploration and Production: Second-quarter 2012 revenue from this division was $1,110.8 million, up 5.1% year over year from $1,056.5 million. This increase was driven by a rise in crude oil and natural gas sales volume compared to the prior-year quarter. This positive was partially offset by lower average realized sales prices on worldwide oil and North American natural gas production.

Refining and Marketing: Revenue from this division decreased 5.3% to $6.1 billion from $6.4 billion in the year-ago quarter. This was due to lower fuel sales volume per store, a decline in merchandise sales per store volume in the U.S., and weak contribution from ethanol production facilities.

Corporate: In the quarter, revenues from corporate activities were $10.8 million versus $8.3 million in the year-earlier period.

Quarterly Highlights

Murphy's total worldwide production in the most recent quarter was 188,575 barrels of oil equivalent per day (“Boe/d”), up 10.6% year over year. The production increase was driven by higher volumes produced at the Kikeh field, offshore Sabah, Eagle Ford Shale area, and Tupper West area in British Columbia. This was partially offset by lower volumes produced at fields in the Gulf of Mexico, Terra Nova at offshore Eastern Canada, and Azurite field at offshore Republic of the Congo.

Total sales volumes of crude oil and gas liquids averaged 104,768 barrels per day in the second-quarter 2012 compared with 90,004 barrels per day in 2011.

Natural gas sales volumes spurred 11% year over year as the company benefited from production in Tupper West area in Northeast British Columbia during the quarter.

Murphy's worldwide crude oil and condensate sales price averaged $94.33 per barrel for the second quarter of 2012 compared with $99.37 per barrel in the prior-year quarter. North American natural gas sales prices decreased to $2.15 per thousand cubic feet (“Mcf”) in the reported quarter compared with $4.26 per Mcf in the comparable quarter last year.

Exploration expenses during the quarter declined 21.1% to $96.6 million from $122.5 million recorded in the second quarter of 2011. The lower expense primarily reflects lower dry hole expenses.

Interest expenses of the company at the end of the quarter were down 8% year over year to $11.6 million.

Financial Update

Long-term debt of the company as of June 30, 2012 was $791.5 million versus $249.6 million as of December 31, 2011.

During the quarter, net cash provided by operating activities was $356.1 million, down from $395.0 million in second-quarter 2011.

Total capital expenditure during the second quarter of 2012 was $909.6 million, up 16.3% from $782.1 million in the second quarter of 2011.

Quarterly Dividend

The Board of Directors of Murphy Oil Corporation announced an increase to its quarterly dividend: 31.3 cents per share from 27.5 cents per share. On an annualized basis, the dividend will be $1.25 per share, up 15 cents from $1.10 per share.


In the third quarter of 2012, the company expects total worldwide production volumes of 183,000 Boe/d. Sales volumes of oil and natural gas are expected to average 179,000 Boe/d. For full-year 2012, the company expects production rate to remain at 193,000 Boe/d level.

The company expects exploration expense in the third quarter of 2012 to be in the range of $50 million - $120 million.

In the next quarter, the company expects earnings to be in the range of 90 cents - $1.15 per share, taking into account earnings from downstream businesses of approximately $45 million.

Peer Comparison

In July 2012, one of the company’s peer Occidental Petroleum Corporation (OXY - Free Report) reported second-quarter 2012 operating earnings of $1.64 per share, down 26.5% year over year from $2.23 per share in the prior-year quarter. The quarterly earnings surpassed the Zacks Consensus Estimate of $1.60 per share.

Occidental's quarterly revenue decreased 6.6% to $5,768 million from $6,173 million in the year-ago quarter. Reported revenue fell short of the Zacks Consensus Estimate of $5,958 million.

Our Take

The company is well positioned to move into the third quarter of 2012 with a good start at exploratory drilling. The company continues to make progress with its offshore drilling activities at Central Dohuk block in Kurdistan as well as in Eagle Ford Shale.

The company also plans to start its 2012 offshore drilling program in Australia, Congo and Malaysia. The company has made two natural gas discoveries in Malaysia and Brunei.

In addition to its international expansion, the company is also strengthening its American operations, which include its recent entry into the Three Forks zone of Southern Alberta and the Muskwa oil play in Northern Alberta.

Moreover, the company continues to augment shareholder value by maintaining a superior exploration and production profile, which reflects a robust earnings per share growth opportunity. A continuously evolving production landscape and an expanding global acreage make Murphy an attractive investment.

However, we are concerned regarding the volatile commodity environment, fluctuation in oil prices, crude oil and natural gas sales timing, U.K. refining margins and drilling results.

Murphy Oil Corporation currently retains a Zacks #3 Rank, which translates into a short-term 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. and U.K.

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