story by Wesley Brown
wesbrocomm@gmail.com
El Dorado oil giant Murphy Oil Corp. saw third quarter earnings fall 10.8% from a year ago as sliding crude prices and weaker international oil demand cut into the company’s bottom line and flattened the company’s profit margins for the fifth straight quarter.
For the period ended Sept. 30, Murphy reported adjusted income of $205.6 million, or $1.15 per diluted share, compared to $230.4 million, or $1.22 per diluted share, a year ago. Murphy’s revenue rose marginally to $1.42 billion, compared to $1.41 billion a year ago.
Wall Street had expected the Arkansas oil company to report third quarter earnings of 99 cents per share on revenue of $1.41 billion, according to Thomson Reuters.
Murphy Oil President and CEO Roger Jenkins said third quarter earnings were “negatively impacted due to lower average realized oil sales prices of nearly $9.00 per barrel.” He said he was still pleased with the progress the company made in portfolio optimization, production operations, and return to shareholders.
“The signing of the Malaysia sales agreement marks the value of those long term assets at near $7 billion, and we continue to progress our exit of the downstream business in the United Kingdom. In production we continue to set quarterly production records, with the Eagle Ford Shale and offshore Malaysia projects leading in oil growth,” Jenkins said. “We look forward to a strong closing quarter of the year, and I anticipate setting another quarterly production record as we maintain our current annual guidance.”
During the third quarter, spot prices for West Texas Intermediate (WTI) crude oil fell from a monthly average of $97 per barrel (BBL) in August to $93/bbl in September. The discount of WTI crude oil to international Brent crude oil fell from an average of $8/bbl during this year’s first half to an average of $4/bbl in the third quarter, according to the U.S. Energy Information Administration. More closely, spot prices for WTI crude oil have dropped 21.7% since the Fourth of July, from $105.52 to $82.62 in midday trading on Wednesday.
Going forward, most Wall Street forecasters don’t expect the current low-price environment to improve anytime soon for Murphy and other oil producers and explorers in the fourth quarter or early 2015.
On Monday, highly influential Goldman Sachs forecasted that it expected the nation’s benchmark WTI crude to continue downward to $75 a barrel and Brent to $85 a barrel in the first quarter of 2015, down a whopping $15 from their previous forecast. Goldman analysts also predicted WTI could fall as low as $70 in the second quarter and Brent as low as $80, if supply and demand levels don’t improve.
During the third quarter, Murphy’s Malaysian business units announced an agreement with Indonesian state-owned oil company, PT Pertamina, to sell its 30 percent stake in the company’s Malaysian oil and gas portfolio for $2 billion in cash. That deal is expected to close in two phases, with the first Pertamina expected to be completed in the fourth quarter. The second phase will be completed by the first quarter of 2015, company officials said.
Although Murphy said it is not giving up on its long-term partnership with Pertamina to develop future deep- and shallow-water offshore exploration projects in Malaysia, the company has signaled it will follow the recent trend of other international oil giants such as ExxonMobil, BP and Chevron and divert more capital to grow the company’s U.S. shale operations.
“We will continue to evaluate all aspects of our portfolio,” Jenkins said following the deal on Sept. 30. “This transaction allows us to re-deploy the proceeds through an individual or combination of strategic and financial initiatives such as increased drilling capital in the Eagle Ford Shale, acquisition opportunities, debt reduction and share repurchases.”
Still, Moody’s Investor Service affirmed the company’s senior debt as “negative” on Oct. 1, saying the company’s outlook was negative because of the uncertain use of the proceeds from the Malaysian sell-off and the oil giant’s relatively higher risk asset portfolio compared to its industry peers.
Moody analyst Gretchen French said Murphy would need to increase capital spending on its U.S. shale operations and make better acquisitions to offset poor exploration results and low natural gas prices.
“Moody’s believes that acquisitions and increased capital spending in the Eagle Ford Shale will account for a meaningful use of the asset sale proceeds, given longer term asset portfolio durability concerns,” French wrote in a research note. “In order to support production growth post 2017, Murphy will need to make acquisitions, as exploration successes have been lacking and natural gas prices have not been supportive of economically growing production in (Canada).”
Following are additional highlights of Murphy’s third quarter report:
• Signed a Sales and Purchase Agreement to sell 30% of Murphy`s Malaysia business for $2.0 billion;
• Authorized a new $500 million share repurchase program on Aug. 6, 2014 and announced a 12% dividend increase to $1.40 per share on an annualized basis;
• Set a new quarterly production record of 229,759 barrels of oil equivalent per day (boepd);
• Grew Eagle Ford Shale production 15% compared to the second quarter and set a new quarterly record of 60,563 boepd; and
• Closed on the sale of the U.K. retail gasoline business on Sept. 30, 2014 and remains on-track to close on the Milford Haven refinery sale Oct. 31, 2014.
At the close of business Wednesday, Murphy’s shares were down 63 cents at $52 a share. More than 2.34 million shares traded hands in the mid-week session, well above the Arkansas oil producer’s daily volume of nearly 1.4 million shares. Murphy has a 52-week high of $68.43 and a yearly low of $49.38.
Murphy USA Inc., the retail marketing business that was spun off by Murphy Oil as an independent public trade concern just over a year ago, is scheduled to release its third quarter earnings on Nov. 5.