Murphy Oil Corporation (MUR) posted earnings from continuing operations of 77 cents per share in the first quarter of 2010, below the Zacks Consensus Estimate of $1.00. However, earnings were significantly higher than 37 cents reported last year, primarily driven by improved earnings in the Exploration & Production (E&P) segment as a result of higher realized oil prices in the quarter.
Murphy’s 23% negative surprise was due to weakness in its Refining and Marketing (R&M) business, offset by outperformance of the E&P business. The company’s earnings surprise history has been positive so far, with a positive surprise of 1.19% and 1.03%, respectively, in the last two quarters. Murphy has also recorded a four-quarter average earnings surprise of 19.51% for the past year.
Segment Earnings
Earnings from Murphy’s E&P business improved 391% from a year-ago quarter, primarily due to a 50% higher average realized crude oil sales price. Additionally, the increase is attributed to higher natural gas sales volumes, higher natural gas sales prices and lower exploration expenses compared with 2009. Refining and Marketing segment posted earnings loss of $29.7 million in the quarter versus net income of $10.8 million posted in the year-ago quarter, mainly due to lower refining margins and planned shutdowns for major turnarounds at the company’s two largest refineries at Meraux in Louisiana and Milford Haven in Wales.
Operating Results
Revenues in the quarter improved 50% year over year to $5.2 billion, on account of improved oil and gas prices.
Murphy’s total hydrocarbon production in the quarter was 196,226 equivalent barrels per day (up 24% year over year), while total hydrocarbon sales amounted to 202,949 equivalent barrels per day (up 33%).
Total oil and gas liquids production declined 0.2%, averaging 139,060 barrels per day (Bbls/d). Excluding production in 2009 from discontinued operations in Ecuador, quarterly oil production increased 4% in 2010. This was mostly driven by the third quarter 2009 production start-ups at the Thunder Hawk field in the Gulf of Mexico and the Azurite field, offshore Republic of the Congo. Oil sales improved 12.5% year over year to 145,783 Bbls/d.
Natural gas sales volumes increased nearly 208% over last year to 343 million cubic feet per day (MMcf/d), primarily due to higher production at the Tupper field in British Columbia, improved sales volumes at the Kikeh field, and the third quarter 2009 start-up of natural gas production offshore Sarawak in Malaysia and at Thunder Hawk in the Gulf of Mexico.
Average oil and liquids sales prices in the quarter were $64.89 per barrel versus $43.15 per barrel in the first quarter of 2009. North American natural gas sales prices averaged $5.14 per thousand cubic feet (Mcf) in the quarter compared with $4.66 per Mcf in the same quarter last year.
Exploration expenses improved 40% to $66.3 million in the quarter versus $111.1 million last year, primarily attributable to lower dry hole costs offshore Western Australia, and lower undeveloped lease amortization expense for the Tupper properties.
Outlook
For the second quarter, Murphy guided production volumes to average 188,000 barrels of oil equivalent (BOE) per day, with sales volumes of 184,000 BOE per day. It expects earnings in the range of $1.15−$1.25 per share, based on projected earnings of $28.0 million from the R&M business and exploration expense range of $60 to $90 million. Currently, the Zacks Consensus Estimate for the second quarter of 2010 earnings is $1.30 per share.
For the full-year 2010, the company anticipates total production to be roughly 200,000 BOE per day.
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