Murphy Oil Corporation announces fourth quarter and full year 2020 results, provides 2021 capital expenditure and production guidance

Oil and Gas 360

Sanctioned Low Cost Tupper Montney Natural Gas Development

Murphy Oil Corporation (NYSE: MUR) today announced its financial and operating results for the fourth quarter ended December 31, 2020, including a net loss attributable to Murphy of $172 million, or $1.11 net loss per diluted share. Adjusted net loss, which excludes discontinued operations and other one-off items, was $14 million, or $0.09 net loss per diluted share.

Unless otherwise noted, the financial and operating highlights and metrics discussed in this commentary exclude noncontrolling interest. ¹

Highlights for the fourth quarter include:

• Sanctioned low cost, capital efficient Tupper Montney development
• Produced 149 thousand barrels of oil equivalent per day, in line with guidance
• Generated adjusted EBITDAX of $271 million, or $19.77 per barrel of oil equivalent sold
• Continued on-time and on-budget execution of major Gulf of Mexico projects

Highlights for full year 2020 include:

• Preserved liquidity of $1.7 billion, including $311 million of cash at year-end
• Maintained capital discipline with full year accrued capital expenditures of $712 million, excluding King’s Quay floating production system
• Decreased full year G&A costs by 40 percent from 2019, establishing a baseline for a continued lower cost structure
• Established a greenhouse gas emissions intensity reduction goal of 15 to 20 percent by 2030 from 2019 levels, excluding Malaysia
• Instituted COVID-19 protocols, resulting in an offshore infection rate at half the industry average while maintaining all project timelines
• Maintained a reserve life index of more than 11 years with 57 percent proved developed reserves

During and subsequent to the fourth quarter:

• Entered into additional crude oil hedges for 2021 and 2022, bringing the total contracted position to 45 thousand barrels of oil per day and 20 thousand barrels of oil per day, respectively
• Committed to fixed price forward sales contracts related to the Tupper Montney asset for calendar years 2021 through 2024

“We quickly responded to the major pullback in commodity prices by drastically reducing our capital budget and cost structure while adjusting our operational plans, and continued supporting capital allocation to our major offshore projects. Our efforts resulted in strong liquidity, cash on hand and paying a dividend to our shareholders,” stated Roger W. Jenkins, President and Chief Executive Officer.

FOURTH QUARTER 2020 RESULTS

The company recorded a net loss, attributable to Murphy, of $172 million, or $1.11 net loss per diluted share, for the fourth quarter 2020. Adjusted net loss, which excludes both the results of discontinued operations and certain other items that affect comparability of results between periods, was $14 million, or $0.09 net loss per diluted share for the same period. The adjusted net loss from continuing operations excludes the following primary after-tax items: $137 million mark-to-market loss on crude oil derivative contracts and $12 million mark-to-market loss on contingent consideration. Details for fourth quarter results can be found in the attached schedules.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations attributable to Murphy was $246 million, or $17.96 per barrel of oil equivalent (BOE) sold. Adjusted earnings before interest, tax, depreciation, amortization and exploration expenses (EBITDAX) from continuing operations attributable to Murphy was $271 million, or $19.77 per BOE sold. Details for fourth quarter EBITDA and EBITDAX reconciliations can be found in the attached schedules.

Fourth quarter production averaged 149 thousand barrels of oil equivalent per day (MBOEPD) with 55 percent oil and 62 percent liquids. Production was impacted by two subsea equipment issues in the Gulf of Mexico late in the quarter, totaling approximately 3,700 BOEPD of unplanned downtime. The subsea repairs are ongoing, with a return to full production expected during the first quarter 2021. Our onshore assets were able to offset the impact of the subsea matters due to strong well performance.

Details for fourth quarter production can be found in the attached schedules.

FULL YEAR 2020 RESULTS

The company recorded a net loss, attributable to Murphy, of $1.1 billion, or $7.48 net loss per diluted share, for the full year 2020. The company reported an adjusted loss, which excludes both the results of discontinued operations and certain other items that affect comparability of results between periods, of $193 million, or $1.25 net loss per diluted share. This includes after tax impairments of $854 million. Details for full year 2020 results can be found in the attached schedules.

Production for the full year averaged 164 MBOEPD and consisted of 57 percent oil and 64 percent liquids volumes. Details for 2020 production can be found in the attached tables.

FINANCIAL POSITION

The company had $2.8 billion of outstanding long-term, fixed-rate notes at the end of fourth quarter 2020. The fixed-rate notes had a weighted average maturity of 6.8 years and a weighted average coupon of 5.9 percent. Murphy also had $200 million drawn on the $1.6 billion senior unsecured credit facility at year-end 2020.

As of December 31, 2020, Murphy had approximately $1.7 billion of liquidity, comprised of $1.4 billion available under the $1.6 billion senior unsecured credit facility and approximately $311 million of cash and cash equivalents.

COMMODITY HEDGE POSITIONS MITIGATE CASH FLOW VOLATILITY

The company employs commodity derivative instruments to manage certain risks associated with commodity price volatility and underpin capital returns associated with certain assets. During and subsequent to the fourth quarter, Murphy layered on hedges to protect cash flow with the execution of West Texas Intermediate (WTI) fixed price swaps, as detailed in the table below.

As of January 26, 2021

To support the sanctioned Tupper Montney development, the company also entered into fixed price forward sales contracts for physical delivery at the AECO hub in Canada, with the current contracts as follows:

As of January 26, 2021

YEAR-END 2020 PROVED RESERVES

Murphy’s preliminary year-end 2020 proved reserves were 697 million barrels of oil equivalent (MMBOE), consisting of 36 percent oil and 41 percent liquids. Total proved reserves were 13 percent lower than at year-end 2019 in part due to a nearly 30 percent reduction in crude oil prices. Additionally, Murphy’s focus on free cash flow generation, resulting in a lower capital allocation and flatter oil shale production over the five-year plan, has led to approximately 149 MMBOE net of Eagle Ford Shale and Kaybob Duvernay proved undeveloped reserves being reclassified as probable reserves.

These proved reserve reductions were partially offset by improved well performance in the Gulf of Mexico totaling 13 MMBOE net, as well as sanctioning the Tupper Montney development, which added more than 750 billion cubic feet equivalent (BCFE), or 126 MMBOE, of proved reserves with low subsurface risk.

The company maintained a reserve life index in excess of 11 years with 57 percent proved developed reserves.

“We are pleased with the improved well performance in our Gulf of Mexico wells. Further, by sanctioning the low-cost Tupper Montney development, we were able to add more than 750 BCFE of, natural gas reserves with minimal subsurface risk to our proved reserve base,” stated Jenkins. “Outside of the current five-year plan, we do plan to continue developing the Eagle Ford Shale and Kaybob Duvernay, which would lead to the probable reserves being reclassified as proved undeveloped reserves.”

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