Murphy Oil Corporation (MUR) announced fourth-quarter 2010 operating earnings of 90 cents per share compared with 85 cents per share in the year-ago quarter. The results of the company were nevertheless 7 cents short of the Zacks Consensus Estimate of 97 cents.
Murphy’s operating earnings of 2010 were $4.13 per share compared with $2.89 in 2009. The results again lagged the Zacks Consensus Estimate, provided by 9 covering analysts, by 10 cents.
Total Revenue
Murphy’s total revenue for fourth-quarter 2010 was $6.5 billion versus $5.8 billion reported in the year-ago period reflecting a growth of 11.7%. The year-over-year growth in revenue was driven by improved performance from the Refining and Marketing (R&M) segment of the company.
Reported quarter revenue surpassed the Zacks Consensus Estimate of $5.7 billion.
Murphy’s total revenue for 2010 was $23.3 billion versus $19 billion reported in the prior fiscal year, reflecting a growth of 22.8%. The year-over-year revenue spike was driven by higher contribution from its Exploration and Production (E&P) and Refining and Marketing (R&M) segments.
Fiscal year 2010 revenue of the company surpassed the Zacks Consensus Estimate of $21.8 billion.
Segment Details
Exploration and Production: The fourth quarter 2010 revenue from this division was $0.9 billion versus $1.1 billion in the year-ago quarter reflecting a decline of 19.3%. Lower contribution from the company’s United States operations was mainly to be blamed for the lackluster results.
Despite a 6.9% annual decline in United States operations, full year 2011 revenues at this segment registered a growth of 21.5% year over year. The annualized growth was driven by positive contribution from its other international operations, with activities in United Kingdom and Republic of Congo showing major improvements.
Refining and Marketing: The fourth quarter 2010 revenue from this division was $6.9 billion versus $5.6 billion in the year-ago quarter reflecting a growth of 22.9%. The results were positively impacted by strong contribution from United States refining and higher resale of merchandise in retail marketing operations.
Full year 2010 revenue from this segment was $23.7 billion versus $18.9 billion reported in the previous year. The strong United States retail gasoline sales boosted results.
Corporate: In the fourth quarter 2010, revenues from Corporate activities were $1.7 million versus $35.4 million in the year-earlier period.
For 2010, revenues were ($56.9) million versus $102.2 million recorded in 2009. The decline was due to foreign exchange losses in 2010 compared with gains in the year before.
Quarterly Highlights
The total worldwide production of the company during the fourth quarter of 2010 was 117,084 barrels of oil equivalents per day (boe/d), down 15.3% year over year.
The decline in crude oil production in the fourth quarter 2010 was primarily attributable to lower volumes produced at the Kikeh field, offshore Malaysia, attributable to downtime for well maintenance and weather delays during installation of drilling equipment on the production facility. This shortfall was marginally offset by higher production from its Republic of Congo operations.
Natural gas sales volumes improved year over year primarily due to higher natural gas production offshore Sarawak, Malaysia, and at the Tupper area in Western Canada.
Exploration expenses during the quarter increased by $29.6 million from $81.2 million recorded in fourth quarter 2009. The increase in expenses was due to the higher dry hole costs, primarily related to unsuccessful offshore drilling in the Republic of Congo and Suriname, and higher amortization of undeveloped leases in the U.S. and Western Canada.
Murphy’s worldwide crude oil and condensate sales prices averaged $73.60 per barrel for the fourth quarter of 2010 compared with $67.59 per barrel in the fourth quarter of 2009. North American natural gas sales prices declined by 22 cents per thousand cubic feet (MCF) in the quarter to $3.95 per MCF from $4.17 per MCF in the same quarter of 2009.
Interest expenses of the company at the end of the quarter were $11.7 million versus $15.2 million in the year-ago quarter. The reduction in expenses was due to lower levels of borrowings and higher amounts capitalized for oil and gas development projects.
Annual Highlights
The total worldwide production of the company during 2010 was 126,927 boe/d, down 3.7% over the prior year.
The decline in crude oil production in 2010 was primarily attributable to lower volumes at the Kikeh field, partially offset by higher crude oil production at the Azurite field, offshore Republic of Congo, and the Thunder Hawk field in the Gulf of Mexico.
Natural gas sales volumes in 2010 registered a significant growth from the previous year , driven by higher gas production offshore Sarawak, Malaysia, and at the Tupper area in Western Canada.
Exploration expenses during the year increased by 10.2% to $292.3 million from $265.2 million recorded in 2009. The increase in expenses was due to the higher undeveloped leasehold amortization at Eagle Ford Shale leases in South Texas, higher seismic acquisition costs in the U.S., Indonesia and the Republic of Congo, and higher unsuccessful exploratory drilling costs in the Republic of Congo and Suriname.
Murphy’s worldwide crude oil and condensate sales prices averaged $67.11 per barrel for 2010 compared with $56.41 per barrel in 2009. North American natural gas sales prices were $4.34 per thousand cubic feet (MCF) in the quarter versus $3.57 per MCF in 2009.
Financial Update
Total cash and cash equivalents as of December 31, 2010, were $535.8 million versus $301.1 million as of December 31, 2009.
The company repaid a debt of $400 million during the year. Long-term debt of the company as of December 31, 2010 stood at $0.9 billion versus $1.3 billion as of December 31, 2009.
Total capital expenditure during 2010 was $2.5 billion versus $2.2 billion in 2009. During the year the capital investment at the E&P segment shot up by 12.6% to $2.03 billion, while capital investment at the R&M segment jumped 8.4% to $0.4 billion.
2011 Guidance
Murphy expects total production in the first quarter 2011 to average 185,000 boe/d and sales volumes during the quarter to average 171,000 boe/d.
Murphy expects the full year average production to come in between 200,000 boe/d and 210,000 boe/d. The company also anticipates a boom in production during 2011 with the Kikeh fields operating in full steam and incremental gas production from Tupper West.
Murphy expects first quarter 2011 earnings in the range of 55 cents to 95 cents per share. This earnings projection takes into account downstream contribution of approximately $8 million, and total exploration expense within a broad range of $70 million to $160 million.
Our View
We appreciate the initiatives taken by the company to reward its shareholders through dividend payments. The annualized dividend of the company for 2010 was $1.05 per share, a hike of 5 cents from 2009 levels.
We also like the strategic move taken by Murphy Oil during 2010 to dispose of some refining assets, which we believe will enable the company to re-focus more on its upstream business.
We have a short-term Zacks #3 Rank (Hold) and a long-term Neutral recommendation on the stock.
Based in El Dorado, Arkansas, Murphy Oil Corporation engages in the exploration, production, refining and marketing of oil and gas in the United States and the United Kingdom.
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