What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-02-27 compared with 2022-02-25 · 56 added, 97 removed, 95 unchanged (62% of the section changed)

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SHAREHOLDER RETURN PERFORMANCE PRESENTATION

The following graph presents a comparison of cumulative five-year shareholder returns (including the reinvestment of dividends) as if a $100 investment was made on December 31, 2016 in the Company, the Standard & Poor’s 500 Stock Index (S&P 500 Index), and the Company’s peer group.

The following graph presents a comparison of cumulative five-year shareholder returns (including the reinvestment of dividends) as if a $100 investment was made on December 31, 2017 in the Company, the Standard & Poor’s 500 Stock Index (S&P 500 Index), the S&P Oil & Gas Exploration & Production Select Industry Index (XOP Index) and the Company’s peer group.

XOP Index reports a comprehensive view of the oil and gas exploration and production segment of the S&P Total Market Index which is more comparable for the Company than the S&P 500 Index.

This performance information is “furnished” by the Company and is not considered as “filed” with this Form 10-K report and it is not incorporated into any document that incorporates this Form 10-K report by reference.

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XOP Index 100 81 90 58 109 173

In 2021, the Company elected to include the S&P Oil and Gas Exploration and Production Index (XOP) in its shareholder return performance presentation as XOP reports a comprehensive view of the oil and gas exploration and production segment of the S&P Total Market Index which is more comparable for the Company than the S&P 500 Index.

SELECTED FINANCIAL DATA

The following table contains select financial data which highlight certain trends in Murphy’s results of operations and financial condition for the last five years.

The income statement data for the last three years excludes Malaysia as the Malaysia operations were classified as discontinued operations effective January 1, 2019.

See Note E – Assets Held for Sale and Discontinued Operations and Note D – Property, Plant and Equipment for more information regarding the sale of Malaysia.

( Thousands of dollars except per share data )

Results of Operations for the Year 2021 2020 2019 2018 2017

Revenue from sales to customers $ 2,801,215 1,751,709 2,817,111 1,806,473 1,300,464

Net cash provided by continuing operations 1,422,163 802,708 1,489,105 749,395 613,351

Income (loss) from continuing operations 48,753 (1,255,294) 188,815 169,138 (553,015)

Net income (loss) attributable to Murphy (73,664) (1,148,777) 1,149,732 411,094 (311,789)

Cash dividends – diluted 77,204 95,989 163,669 173,044 172,565

Per Common share – diluted

Income (loss) from continuing operations (0.47) (7.43) 0.52 0.92 (3.21)

Net income (loss) attributable to Murphy (0.48) (7.48) 6.98 2.36 (1.81)

Average common shares outstanding (thousands) – diluted 154,291 153,507 164,812 174,209 172,524

Cash dividends per Common share $ 0.50 0.625 1.00 1.00 1.00

Capital Expenditures for the Year 1

Continuing operations

Exploration and production $ 690,100 $ 813,300 2,683,200 1,818,800 942,500

Corporate and other 21,100 13,300 15,000 22,700 10,300

Total capital expenditures - continuing operations 711,200 826,600 2,698,200 1,841,500 952,800

Discontinued operations — — 64,400 145,800 22,891

Total capital expenditures 711,200 826,600 2,762,600 1,987,300 975,691

Financial Condition at December 31

Current ratio 0.76 1.40 1.03 1.04 1.64

Working capital (deficit) (283,416) 283,971 31,538 33,756 537,396

Net property, plant and equipment 8,127,852 8,269,038 9,969,743 8,432,133 8,220,031

Total assets 10,304,940 10,620,852 11,718,504 11,052,587 9,860,942

Long-term debt 2

2,465,414 2,988,067 2,803,381 3,109,318 2,906,520

Murphy shareholders’ equity 4,157,311 4,214,337 5,467,460 4,829,299 4,620,191

Per share 26.91 27.44 35.75 27.91 26.77

Long-term debt – percent of capital employed 3

37.2 41.5 33.9 39.2 38.6

Stockholder and Employee Data at December 31

Common shares outstanding (thousands) 154,463 153,599 152,935 173,059 172,573

Number of stockholders of record 2,237 2,379 2,265 2,324 2,506

1 Capital expenditures include accruals for incurred but unpaid capital activities, while property additions and dry holes in the Statements of Cash Flows are cash-based capital expenditures and do not include capital accruals and geological, geophysical and certain other exploration expenses that are not eligible for capitalization under oil and natural gas accounting rules.

2021 Corporate and other Capital Expenditures includes capitalized interest costs of $16.1 million.

2019 includes $1,261.1 million for proved property acquisitions, primarily related to the LLOG transaction.

2018 includes $794.6 million capital expenditures in relation to the MP GOM transaction.

2 Long-term debt includes non-current finance lease obligations (see Note G – Financing Arrangements and Debt ).

3 Long-term debt – percent of capital employed is calculated as total long-term debt at the balance sheet date divided by the sum of total long-term debt plus total Murphy shareholders’ equity at that date.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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A more detailed description of the Company’s significant assets can be found in Item 1 of this Form 10-K report.

In 2021, a combination of the global availability of vaccines and a relaxation of certain government-imposed lockdowns in response to the ongoing COVID-19 pandemic has led to an improving global economic outlook and subsequently increased demand for oil and gas.

Several COVID-19 variants, such as Delta and Omicron, temporarily created uncertainty in the outlook;

however, vaccines remained effective and therefore demand for oil and gas has remained resilient in the second half of 2021 and early 2022.

The demand resilience has revealed an oil supply shortage, and hence is applying upward pressure to current and future oil and gas prices.

The OPEC+ group continues to target increasing supply by 0.4 million barrels per day (bpd) a month, with aims to fully phase out prior cuts by September 2022, at the current rate of OPEC+ supply increases.

In 2020, OPEC+ cut production by 10 million bpd following the COVID-19 demand reduction.

It has gradually reinstated supply so that the curtailments were approximately 5.8 million bpd at the end of 2021.

However, some members of the OPEC+ are not meeting their commitments to reinstate supply.

Overall, the combination of OPEC+ supply constraints and the increase in demand driven by the global COVID-19 vaccine roll out and the relaxation of certain government-imposed lockdowns has provided upward pressure to the oil price which directly impacts the Company’s product revenue from sales compared to one year ago.

In 2022, a combination of demand recovery from the COVID-19 pandemic, geopolitical uncertainty and market disruption from the Russia/Ukraine conflict and lack of investment in the exploration and production sector contributed to increased crude oil and natural gas benchmark prices compared to 2021.

Prices declined in the second half of 2022, due to increased supply related to the Strategic Petroleum Reserve oil release and ongoing concerns related to a possible economic slowdown and demand from China.

Similar to the overall inflation in the wider economy, the oil and gas industry, and hence the Company, is observing higher costs for goods and services used in exploration and production operations.

Murphy continues to manage input costs through its dedicated procurement department focused on managing supply chain and other costs.

Significant Company operating and financial highlights during and at the end of 2022 were as follows:

• Produced 167 thousand barrels of oil equivalent (BOE) per day (158 thousand excluding noncontrolling interest, NCI)

• Maintained capital discipline with full year accrued capital expenditures of $711.2 million, including noncontrolling interest ($23.0 million) and King’s Quay Floating Production System (FPS) of $17.3 million (which was sold in the first quarter of 2021)

• Generated $1,422.2 million of net cash provided by operating activities and $734.0 million of adjusted cash flow 1 , which includes a working capital inflow of $118.5 million

• Reduced Lease operating expense per barrel of oil equivalent by 5% year-over-year

• Preserved liquidity of $2.1 billion, including $521.2 million of cash as of December 31, 2021 and $1.6 billion available on an unsecured revolving credit facility

• Decreased full year Selling, general and administrative costs by 13% from 2020

• Repaid approximately $530 million of total debt, a 17% debt reduction in the year

• Achieved 103% total proved reserve replacement with year-end proved reserves of 716.9 million barrels of oil equivalent

• Generated net income of $965 million and $2,180.2 million of net cash provided by operating activities and $1,070.8 million of adjusted cash flow 1 ;

• Produced 175 thousand barrels of oil equivalent (BOE) per day (167 thousand excluding noncontrolling interest, NCI) and completed the Khaleesi, Mormont, Samurai field development project in the Gulf of Mexico with seven wells brought online;

• Acquired additional working interest in non-operated Lucius and Kodiak fields in the Gulf of Mexico for $128.5 million;

• Announced capital allocation framework 2 and reduced total debt by approximately $650 million, a 26% debt reduction in the year;

• Doubled the cash dividend since the fourth quarter of 2021 to $1.00 per share annualized;

• Achieved 98% total proved reserve replacement with year-end proved reserves of 715.4 million barrels of oil equivalent (697.2 million excluding NCI).

1 Adjusted cash flow is a non-GAAP financial measure calculated as cash flow from operations less capital expenditures ($1,109.4 million).

Management believes adjusted cash flow is important to provide as it is used by management to evaluate the Company’s ability to generate additional cash from business operations after providing for capital investments.

Adjusted cash flow is a non-GAAP financial measure and should not be considered a substitute for other financial measures as determined in accordance with accounting principles generally accepted in the United States of America.

Additionally, our definition of adjusted cash flow is limited and does not represent residual cash flows available for other discretionary expenditures as the measure does not deduct the payments required for debt service and other obligations.

Therefore, we believe it is important to view adjusted cash flow as supplemental to our entire statement of cash flows.

2 Details of the capital allocation framework can be found as part of the Company’s Form 8-K filed on August 4, 2022.

Throughout this section, the term, ‘excluding noncontrolling interest’ or ‘excluding NCI’ refers to amounts attributable to Murphy.

Unless noted, amounts include noncontrolling interest.

Murphy’s continuing operations generate revenue by producing crude oil, natural gas liquids (NGL) and natural gas in the United States, Gulf of Mexico and Canada and then selling these products to customers.

Murphy’s continuing operations generate revenue by producing crude oil, natural gas liquids (NGL) and natural gas in the United States and Canada and then selling these products to customers.

The Company’s revenue is affected by the prices of crude oil, natural gas and NGL.

In order to make a profit and generate cash in its exploration and production business, revenue generated from the sales of oil and natural gas produced must exceed the combined costs of producing these products and expenses related to exploration, administration and for capital borrowed from lending institutions and note holders.

1 Adjusted cash flow is calculated as cash flow from operations less capital expenditures ( $688.2 million).

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Changes in the price of crude oil and natural gas have a significant impact on the profitability of the Company.

In 2021, liquids from continuing operations represented 62% of total hydrocarbons produced on an energy equivalent basis.

In 2022, liquids from continuing operations represented approximately 62% of total hydrocarbons produced on an energy equivalent basis.

In 2023, the Company’s ratio of hydrocarbon production represented by liquids is expected to be 63%.

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The Company, from time to time, may choose to use a variety of commodity hedge instruments to reduce commodity price risk, including forward sale fixed financial swaps and long-term fixed-price physical commodity sales.

Oil prices recovered in 2021 compared to the 2020 period and were higher compared to 2019.

Oil prices were higher in 2022 compared to the 2021 and 2020 periods.

The sales price of a barrel of West Texas Intermediate (WTI) crude oil averaged $94.23 in 2022, $67.91 in 2021 and $39.40 in 2020.

In 2022, the WTI price has thus far been above those in the comparable period in 2021.

The WTI index increased 72% over the prior year principally as a result of OPEC+ supply constraints and the increase in demand driven by the global COVID-19 vaccine roll out as discussed above.

The most common crude oil indices used to price the Company’s crude include WTI Houston (MEH), Heavy Louisiana Sweet (HLS), Mars and Brent.

The NYMEX natural gas price per million British Thermal Units (MMBTU) averaged $3.84 in 2021, $1.99 in 2020 and $2.52 in 2019.

The 2021 NYMEX natural gas price was higher compared to the 2020 price and natural gas prices in North America in 2022 have thus far been above those in the comparable period in 2021.

In 2023, the WTI price has thus far been below the comparable period in 2022, however, higher than the comparable period 2021.

WTI average price for 2022 increased 39% over the prior year principally as a result of demand recovery from the COVID-19 pandemic, geopolitical uncertainty and market disruption following the Russia/Ukraine conflict and market concerns over supply shortfalls as discussed above.

The most common crude oil indices used to price the Company’s crude include Mars, WTI Houston (MEH), Heavy Louisiana Sweet (HLS) and Brent.

The New York Mercantile Exchange (NYMEX) natural gas price per million British Thermal Units (MMBTU) averaged $6.38 in 2022, $3.84 in 2021 and $1.99 in 2020.

The 2022 NYMEX natural gas price was higher compared to 2021 and NYMEX prices in 2023 have thus far been below the comparable period in 2022.

Results of Operations

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Income (loss) from continuing operations before income taxes $ 1,450.3 $ 42.9 $ (1,549.0)

Net (loss) income attributable to Murphy (73.7) (1,148.8) 1,149.7

Net income (loss) attributable to Murphy 965.0 (73.7) (1,148.8)

Diluted EPS 6.13 (0.48) (7.48)

(Loss) income from continuing operations attributable to Murphy (72.4) (1,141.6) 85.2

Income (Loss) from continuing operations attributable to Murphy 967.1 (72.4) (1,141.6)

Diluted EPS 6.14 (0.47) (7.43)

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For the year ended December 31, 2022, the Company produced 175 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations.

The Company invested $711.2 million in capital expenditures (on a value of work done basis) for the year ended December 31, 2021, which included $23.0 million attributable to noncontrolling interest and $17.3 million to fund the development of the King’s Quay FPS (which was subsequently sold).

The Company reported net income from continuing operations of $48.8 million (which included post tax impairment charges of $151.5 million and income attributable to noncontrolling interest of $121.2 million) for the year ended December 31, 2021.

The Company invested $1,183.2 million in capital expenditures (on a value of work done basis) for the year ended December 31, 2022, which included $25.9 million attributable to noncontrolling interest and $128.5 million for capital acquisitions.

The Company reported net income from continuing operations of $1,140.8 million for the year ended December 31, 2022.

This amount includes income attributable to noncontrolling interest of $173.7 million, after-tax gains on unrealized mark to market revaluations on commodity price swap and collar positions of $169.6 million and after-tax losses on contingent consideration (see Note P ) of $61.6 million.

In 2022, the Company achieved first production from the Khaleesi, Mormont, Samurai field development project in the Gulf of Mexico and acquired a 3.4% working interest in the Lucius field and an 11.0% working interest in the Kodiak field in the Gulf of Mexico, with both acquisitions having no noncontrolling interests.

For the year ended December 31, 2021, the Company produced 167 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations.

The Company invested $826.6 million in capital expenditures (on a value of work done basis) for the year ended December 31, 2020, which included $21.7 million attributable to noncontrolling interest and $92.8 million to fund the development of the King’s Quay FPS.

The Company reported net loss from continuing operations of $1,255.3 million (which included post tax impairment charges of $854.2 million and loss attributable to noncontrolling interest of $113.7 million) for the year ended December 31, 2020.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

floating production system (FPS).

Other Key Performance Metrics

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EBITDA attributable to Murphy (Non-GAAP) 2,173.5 902.8 (340.5)

Impairment of assets ¹ 196.3 1,072.5 —

Mark-to-market loss (gain) on crude oil derivative contracts 112.1 69.3 33.4

Asset retirement obligation (gains) losses (71.8) (2.8) —

Mark-to-market (gain) loss on derivative instruments (214.7) 112.1 69.3

Mark-to-market loss (gain) on contingent consideration 78.3 63.2 (13.8)

Foreign exchange (gain) loss (23.0) (1.0) 0.7

Loss (gain) on sale of assets ¹ (14.5) — —

Accretion of asset retirement obligations ¹ 40.9 41.1 42.1

Write-off of previously suspended exploration wells 22.7 — —

Asset retirement obligation losses (gains) 30.8 (71.8) (2.8)

Discontinued operations loss 2.1 1.2 7.2

Impairment of assets 1

— 196.3 1,072.5

Unutilized rig charges — 8.7 16.0

Discontinued operations loss (income) 1.2 7.2 (1,064.5)

Foreign exchange losses (gains) (1.0) 0.7 6.4

Restructuring expenses — — 50.0

Inventory loss — — 8.3

Seal insurance proceeds — (1.7) (8.0)

Business development transaction costs — — 24.4

Write-off of previously suspended exploration wells — — 13.2

Insurance Proceeds — — (1.7)

Adjusted EBITDA attributable to Murphy (Non-GAAP) $ 2,096.1 $ 1,252.6 $ 907.3

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Adjusted EBITDA per barrel of oil equivalents sold $ 34.45 $ 21.79 $ 15.07

1 Depreciation, depletion, and amortization expense, impairment of assets and accretion of asset retirement obligations used in the computation of adjusted EBITDA exclude the portion attributable to the non-controlling interest.

1 Depreciation, depletion and amortization expense, impairment of assets, loss (gain) on sale of sale of assets and accretion of asset retirement obligations used in the computation of adjusted EBITDA exclude the portion attributable to the non-controlling interest.

Segment Results – In the following table, the Company’s results of operations for the three years ended December 31, 2022, are presented by segment.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

A summary of Net (loss) income is presented in the following table.

A summary of Net income (loss) is presented in the following table.

( Millions of dollars )

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Net income (loss) attributable to noncontrolling interest 173.7 121.2 (113.7)

Net (loss) income attributable to Murphy $ (73.7) (1,148.7) 1,149.7

Net income (loss) attributable to Murphy $ 965.0 $ (73.7) $ (1,148.7)

A summary of oil and natural gas revenues is presented in the following table.

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Please refer to Schedule 6 – Results of Operations for Oil and Natural Gas Producing Activities in the Supplemental Oil and Natural Gas Information section for supporting tables.

All amounts include amounts attributable to a noncontrolling interest in MP GOM (a subsidiary of Murphy Expro USA, operating and developing properties in the Gulf of Mexico) and exclude discontinued operations, unless otherwise noted.

Exploration and production (E&P) from continuing operations recorded earnings of $716.7 million in 2021 compared to a loss of $1,134.9 million in 2020.

Results were favorable $1,851.6 million in 2021 compared to 2020 primarily due to higher oil, natural gas liquid and natural gas prices, lower impairment charges, lower depreciation, depletion and amortization (DD&A), lower lease operating expenses (LOE), lower exploration expenses and lower general and administrative (G&A) expenses, partially offset by higher transportation, gathering and processing and income tax charges.

The results of operations in this section include amounts attributable to a noncontrolling interest in MP GOM (a subsidiary of Murphy Expro USA, operating and developing properties in the Gulf of Mexico) and exclude discontinued operations, unless otherwise noted.

Exploration and production (E&P) from continuing operations recorded earnings of $1,579.1 million in 2022 compared to earnings of $716.7 million million in 2021.

Results were favorable $862.4 million in 2022 compared to 2021 primarily due to higher oil, natural gas liquid and natural gas prices and volumes, lower impairment charges and lower depreciation, depletion and amortization (DD&A) expense, partially offset by higher lease operating expenses (LOE), other operating expense, exploration expenses, transportation, gathering and processing, severance and ad valorem taxes and income tax charges.

See below for further details.

Crude oil price realizations averaged $66.80 per barrel in the current year compared to $38.02 per barrel in 2020, a price increase of 76% year over year.

natural gas realized price per thousand cubic feet (MCF) averaged $3.71 in the current year compared to $2.02 per MCF in 2020, a price increase of 84% year over year.

E&P crude oil price realizations averaged $94.89 per barrel in 2022 compared to $66.80 per barrel in 2021, an increase of 42% year over year.

natural gas realized price per thousand cubic feet (MCF) averaged $6.68 in the current year compared to $3.71 per MCF in 2021, an increase of 80% year over year.

Canada natural gas realized price per MCF averaged U.S.

$2.43 in the current year compared to U.S.

$1.79 per MCF in 2020, a price increase of 36% year over year.

Oil and natural gas production costs, including associated production taxes, on a per-unit basis, were $9.53 in 2021 excluding transportation, gathering and processing (TGP) (2020:

The favorable decrease in per-unit production costs in 2021 was primarily attributable to reduced costs associated with well workovers and concerted efficiency efforts.

$2.76 in 2022compared to U.S.

$2.43 per MCF in 2021, an increase of 14% year over year.

E&P oil and natural gas LOE and severance and ad valorem taxes (production costs), on a per-unit basis, were $11.55 in 2022 (2021:

The increase in per-unit production costs in 2022 was primarily attributable to cost increases from inflationary pressures related to the onshore business and higher production from the Khaleesi and Mormont assets.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity