Murphy Oil Corporation (MUR), engaging in the exploration, production, refining and marketing of oil and gas in the U.S. and the U.K., announced first quarter 2012 results. Income from continuing operations during the quarter was $1.49 per share, marginally missing the Zacks Consensus Estimate by 3 cents. However, it was up 22% from $1.22 a year ago.
The results were driven by higher average realized sales price for crude oil and lower exploration expenses partially offset by lower crude oil sales volumes and significantly lower North American natural gas sales prices.
There were no charges or gain related to income from discontinued operations in the quarter. Therefore, GAAP earnings reported by the company were also $1.49 per share during the quarter versus $1.38 in first quarter of 2011.
Total Revenue
Murphy's total revenue for first quarter of 2012 grew 11.5% to $6.99 billion from $6.27 billion reported in the year-ago period. The company experienced a year-over-year growth in both the Exploration and Production and Refining and Marketing segments.
However, revenue in the reported quarter was lower than the Zacks Consensus Estimate of $7.21 billion.
Segment Details
Exploration and Production: First quarter 2012 revenue from this division was $1.19 billion, up 14.4% from $1.04 billion in the year-ago quarter.
Refining and Marketing: Reported quarter revenue from this division grew 10.3% to $5.80 billion from $5.27 billion in the year-ago quarter.
Corporate: In the quarter under review, revenues from Corporate activities were $3.1 million versus $5.6 million in the year-earlier period.
Quarterly Highlights
Murphy's total worldwide production in the most recent quarter was 107,490 barrels of oil equivalents per day (boe/d), down 5.1% year over year. The decline reflects lower volumes produced at the Kikeh field, offshore Sabah, Malaysia, the Azurite field, offshore Republic of the Congo, and at Syncrude in Western Canada. However, it was partially offset by higher year over year oil production in the U.S., attributable to the continuous development activities in the Eagle Ford Shale, South Texas.
Total sales volumes of crude oil, condensate and natural gas liquids averaged 108,562 barrels per day in the first quarter 2012 compared with 112,804 barrels per day in the 2011 quarter.
Natural gas sales volumes spurred 27.1% year over year as the company benefited from production in Tupper West area in Northeast British Columbia during the quarter. In the year-ago period, production from the region partially contributed to the volumes as it came on line in February 2011.
Murphy's worldwide crude oil and condensate sales price averaged $97.78 per barrel for the first quarter of 2012 compared with $86.73 per barrel in the first quarter of 2011, reflecting an increase of 12.7%. North American natural gas sales prices decreased 17.9 cents per thousand cubic feet (MCF) in the quarter to $2.56 per MCF.
Exploration expenses during the quarter declined 45% to $53 million from $96.3 million recorded in the first quarter of 2011. The lower expenses reflect lower dry hole expenses, lower geological and geophysical expenses, and lower undeveloped lease amortization expenses.
Interest expenses of the company at the end of the quarter were marginally up by 0.17% year over year to $11.74 million.
Financial Update
Long-term debt of the company as of March 31, 2012, was $249.6 million versus $974.4 million as of March 31, 2011.
During the quarter, net cash provided by operating activities was $991 million, up from $522.9 million in first quarter of 2011. Total capital expenditure during the first quarter of 2012 was $739.7 million, up 30.6% from $566.6 million in the first quarter of 2011.
Guidance
In the second quarter of 2012, the company expects total worldwide production volumes of 185,000 barrels of oil equivalent per day. Sales volumes of oil and natural gas are expected to average 184,000 barrels of oil equivalent per day. For full year 2012, the company expects production rate of 193,000 barrel equivalents per day, down from the company’s prior expectation due to reduced dry gas volumes at the Tupper area, revised Syncrude performance, and workover delays at Kikeh.
In the next quarter, the company expects earnings to be in the range of $1.35 to $1.60 taking into account exploration expense in the range of $50 million to $110 million and earnings from downstream businesses of approximately $67 million.
Peer Comparison
In April 2012, one of the company’s peer Occidental Petroleum Corporation (OXY) reported first quarter 2012 operating earnings of $1.92 per share, up 1.1% year over year from $1.90 per share in first quarter 2011. The quarterly earnings missed the Zacks Consensus Estimate by a penny.
Our Take
The company is well poised moving into the second quarter of 2012 with a good start at exploratory drilling. The company continues to make progress with its drilling activities offshore Central Dohuk block in Kurdistan, Brunei in Block CA-1 and Eagle Ford Shale.
Moreover, it continues to augment shareholder value by maintaining a superior exploration and production (E&P) profile, which translates into a robust EPS-growth opportunity. A continuously evolving production landscape and an expanding global acreage make Murphy an attractive investment. However, we are concerned due to the volatile commodity environment and fluctuation in oil prices.
The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
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