Murphy Oil Corp. (MUR) Misses on Q2 Earnings, Guides Down

Murphy Oil Corporation MUR reported second-quarter 2014 adjusted earnings of 90 cents per share, missing the Zacks Consensus Estimate of $1.13 by 20.4%. Quarterly earnings decreased 34.8% from $1.38 per share in the prior-year quarter.

The underperformance was primarily due to increases in exploration as well as depreciation expenses, a rise in extraction costs in Malaysia, higher expenses for financing, lower realized sales prices of oil and natural gas for production at Sarawak and unfavorable commodity contracts in the U.S.

On a GAAP basis, the company's earnings per share were 72 cents compared with the prior-year figure of $2.12. The difference of 18 cents between GAAP and adjusted earnings was due to the combined impact of a loss from discontinued operations, mark-to-market loss on crude oil derivative contracts and foreign exchange loss.

Total Revenue

In the second quarter, Murphy Oil's total revenue came in at $1,349 million, lagging the Zacks Consensus Estimate of $1,408 million by 4.2%. However, the top line rose 1.3% from $1,332 million a year ago, mainly due to higher revenues from exploration and production activities.

Quarterly Highlights

In the quarter under review, Murphy Oil's total net hydrocarbons production volume increased 1.3% year over year to 210,191 barrels of oil equivalent per day (BOE/d), primarily on the back of higher production from the Eagle Ford Shale, the Gulf of Mexico (GoM) and Sarawak.

Total net hydrocarbons sales volume was 216,596 BOE/d in the quarter, up 3.6% from 208,990 BOE/d a year ago mainly due to higher net crude oil and condensate as well as net natural gas liquids sales volumes.

Total costs and expenses were $1,044.4 million, up 19% year over year mainly due to higher lease operating and exploration expenses, severance and ad valorem taxes, selling and general, and depreciation expenses.

In the reported quarter, the company's exploration expenses were $134.8 million, up 51.8% year over year mainly due to an increase in geological and geophysical expenses.

Interest expenses increased 14.2% to $33.8 million from $29.6 million a year ago.

Financial Condition

As of Jun 30, 2014, Murphy Oil had cash and cash equivalents of $661.1 million versus $750.2 million as of Dec 31, 2013.

Long-term debt was $3,786.5 million as of Jun 30, 2014 versus $2,936.6 million as of Dec 31, 2013.

Net cash from operating activities during the second quarter was $723.8 million, lower than $747.9 million in the year-ago period.

In the reported quarter, the company's total capital expenditure (continuing operations) was $969.1 million versus $997.3 million in the year-ago quarter.

Business Update

In the second quarter, Murphy Oil achieved first production at the Dalmatian project in the GoM. The company added 100 million barrels of oil equivalent of proved reserves in the first half of 2014 with a reserve replacement of over 150%.

Murphy Oil initiated a share repurchase program, worth $125 million, of the company's common stock.

Guidance

Murphy Oil expects third-quarter 2014 total net production and sales volume of 225,000 BOE/d and 218,000 BOE/d, respectively. The company estimates total exploration expense in the range of $65–$125 million for the third quarter of 2014.

Murphy Oil reduced its 2014 total production projection to 220,000–225,000 BOE/d from the previous estimate of 225,000–230,000 BOE/d, considering the slower-than-expected recovery of the unplanned maintenance downtime at Syncrude Canada, and an unplanned short-term outage at the Kikeh production facility in Malaysia and adjustments for additional risking of production through third-party controlled facilities.

Other Company Releases

Anadarko Petroleum Corporation APC reported second-quarter 2014 adjusted earnings of $1.32 per share, missing the Zacks Consensus Estimate of $1.34 by 1.5%.

Encana Corporation's ECA second-quarter 2014 adjusted earnings were 23 cents per share, lagging the Zacks Consensus Estimate of 28 cents by 17.9%.

Hess Corporation HES reported adjusted second-quarter 2014 earnings of $1.38 per share, surpassing the Zacks Consensus Estimate of $1.20.

Our Take

Murphy Oil continues to invest in exploration and production activities in the Eagle Ford Shale area, GoM, Malaysia and several other regions. These initiatives enable the company to expand its reserve base.

In addition, the company's effective share repurchase program will boost shareholder value and provide bottom-line support.

Murphy Oil currently has a Zacks Rank #2 (Buy).