Murphy Oil Corporation (MUR) announced its second-quarter 2010 operating earnings of $1.41 per share, which surpassed the Zacks Consensus Estimate of $1.21. The results of the company also outpaced 90 cents per share reported in the year-ago quarter.
Total Revenue
Total revenue during the quarter increased 22.7% to $5.6 billion from $4.5 billion in the year-ago quarter. Revenue, however, missed the Zacks Consensus Estimate of $5.8 billion.
The year-over-year growth in revenue was driven by improved performance at both the segments, Exploration and Production (E&P) and Refining and Marketing (R&M), of the company.
Exploration and Production revenue increased 54.0% year over year to $892.7 million versus $579.6 million in the year-ago quarter. The improvement was due to higher oil and natural gas sales volumes complimented by a higher sales price.
Refining and Marketing revenue increased 23.8% year over year to $5.8 billion versus $4.7 billion in the year-ago quarter. The improvement issued from strong U.S. retail and marketing margins.
Corporate and Intersegment elimination during the second quarter of 2010 was $1.1 billion versus $0.7 billion in the year-ago quarter.
Operational Update
Total worldwide production of the company during the reported quarter was 189, 951 barrels of oil equivalents per day (boe/d), up 33% year over year.
Increase in oil production during the second quarter was primarily due to higher crude oil produced at the Thunder Hawk field in the Gulf of Mexico and the Azurite field, offshore Republic of the Congo .
Natural gas sales volumes improved year over year resulting from new volumes produced at a Sarawak natural gas field, offshore Malaysia , ramp-up of gas production at the Tupper area in British Columbia , and higher sales volumes from the Kikeh field, offshore Sabah , Malaysia .
Exploration expenses were $53.2 million in the second quarter of 2010 compared with $35.0 million in the same period of 2009. Higher exploration expenses resulted from remaining dry hole costs for the Batai well in Malaysia , geophysical costs in the Eagle Ford shale area of South Texas, the Gulf of Mexico and Republic of the Congo , and early exploration activities in Suriname .
Murphy’s worldwide crude oil and condensate sales price averaged $64.68 per barrel for the second quarter of 2010 compared with $53.55 per barrel in the second quarter of 2009. American natural gas sales price averaged $4.16 per thousand cubic feet (MCF) in the reported quarter compared with $3.25 per MCF in the year-ago quarter.
Interest expenses of the company at the end of the quarter were $13.9 million versus $13.1 million at year-ago quarter end due to higher borrowing levels in the current period and lower amounts of interest capitalized to ongoing oil and natural gas development projects.
Financial Update
Total cash and cash equivalents as of June 30, 2010, were $398.8 million versus $507.1 million as of June 30, 2009.
Murphy spent $549.1 million on capital expenditure in the quarter, up from $541.2 million in the prior-year quarter. During the quarter the company invested $439 million in the E&P segment, $108.7 million in the R&M segment and $1.4 million in the Corporate segment.
Dividend
The Murphy board of directors announced an increase in the quarterly dividend by 2.5 cents to 27.5 cents per share. The dividend is payable on September 1, 2010, to shareholders of record on August 16, 2010.
The current annualized dividend of the company is $1.10 per share versus the previous rate of $1.00 per share, up by 10%.
Guidance
Murphy expects total production in the third quarter of 2010 to average 180,000 boe/d and sales volumes to average 178,000 boe/d.
The current production guidance was lowered due to unplanned downtime at Kikeh in Malaysia and continued delays in bringing on new wells at the Azurite development in Republic of the Congo .
Consequently, Murphy lowered its total production forecast for 2010 to 194,000 boe/d from the previous expectation of 200,000 boe/d.
Murphy expects third-quarter earnings in the range of $1.10 and $1.15 per share. This earnings projection includes a contribution of approximately $70 million from the Refining and Marketing business, and total exploration expense in a range of $80 million to $90 million.
Our View
In a nutshell, counted among the highlights for the company are – improvement in production and sales price, hike in dividend payout rate, strategic plans to exit from some of its loss making assets at the R&M segment and a greater focus on its E&P operations.
However, we believe the delay in bringing in new facilities into operations on time remains a cause of concern for Murphy. The 6,000 boe/d reduction in the production guidance for 2010 is effectively due to this delay.
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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