Item 5. Market for Registrant’s Common Equity
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Continued
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, 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. The companies in the peer group included:
APA Corporation Hess Corporation PDC Energy, Inc.
Coterra Energy Inc. Kosmos Energy Ltd. Range Resources Corporation
CNX Resources Corporation Marathon Oil Corporation Southwestern Energy Company
Devon Energy Corporation Ovintiv Inc. Talos Energy Inc.
2017 2018 2019 2020 2021 2022
Murphy Oil Corporation 100 78 93 44 97 164
Peer Group 100 72 79 62 110 169
S&P 500 Index 100 96 126 149 192 157
XOP Index 100 81 90 58 109 173
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Item 6. RESERVED
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Murphy Oil Corporation is a worldwide oil and natural gas exploration and production company. A more detailed description of the Company’s significant assets can be found in Item 1 of this Form 10-K report.
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:
• 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; and
• 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 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.
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Item 7. 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 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%. If the prices for crude oil and natural gas are lower in 2023 or beyond, this will have an unfavorable impact on the Company’s operating profits; likewise, if prices are higher, this will have a favorable impact. 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 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 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
Murphy Oil’s results of operations, with associated diluted earnings per share (EPS), for the last three years are presented in the following table.
Years Ended December 31,
(Millions of dollars, except EPS )
2022 2021 2020
Income (loss) from continuing operations before income taxes $ 1,450.3 $ 42.9 $ (1,549.0)
Net income (loss) attributable to Murphy 965.0 (73.7) (1,148.8)
Diluted EPS 6.13 (0.48) (7.48)
Income (Loss) from continuing operations attributable to Murphy 967.1 (72.4) (1,141.6)
Diluted EPS 6.14 (0.47) (7.43)
(Loss) income from discontinued operations (2.1) (1.2) (7.2)
Diluted EPS (0.01) (0.01) (0.05)
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 $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 $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
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
floating production system (FPS). 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.
Other Key Performance Metrics
The Company uses other operational performance and income metrics to review operational performance. The table below presents Earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA. Management uses EBITDA and adjusted EBITDA internally to evaluate the Company’s operational performance and trends between periods and relative to its industry competitors. EBITDA and adjusted EBITDA are non-GAAP financial measures and should not be considered a substitute for Net income (loss) or Cash provided by operating activities as determined in accordance with accounting principles generally accepted in the United States of America. Also presented below is adjusted EBITDA per barrel of oil equivalent sold. Management uses Adjusted EBITDA per barrel of oil equivalent sold to evaluate the Company’s profitability of one barrel of oil equivalent sold in the period. Adjusted EBITDA per barrel of oil equivalent sold is a non-GAAP financial metric.
Year Ended December 31,
(Millions of dollars, except per barrel of oil equivalents sold) 2022 2021 2020
Net (loss) income attributable to Murphy (GAAP) $ 965.0 $ (73.7) $ (1,148.8)
Income tax expense (benefit) 309.5 (5.9) (293.7)
Interest expense, net 150.8 221.8 169.4
Depreciation, depletion and amortization expense ¹ 748.2 760.6 932.6
EBITDA attributable to Murphy (Non-GAAP) 2,173.5 902.8 (340.5)
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
Restructuring expenses — — 50.0
Inventory loss — — 8.3
Insurance Proceeds — — (1.7)
Adjusted EBITDA attributable to Murphy (Non-GAAP) $ 2,096.1 $ 1,252.6 $ 907.3
Total barrels of oil equivalents sold from continuing operations attributable to Murphy (thousands of barrels) 60,837 57,476 60,189
Adjusted EBITDA per barrel of oil equivalents sold $ 34.45 $ 21.79 $ 15.07
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. More detailed reviews of operating results for the Company’s exploration and production and other activities follow the table.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
A summary of Net income (loss) is presented in the following table.
( Millions of dollars )
2022 2021 2020
Exploration and production – continuing operations
United States $ 1,521.9 $ 766.3 $ (1,014.3)
Canada 134.2 (16.1) (35.0)
Other International (77.0) (33.5) (85.6)
Total exploration and production – continuing operations 1,579.1 716.7 (1,134.9)
Corporate and other (438.3) (668.0) (120.3)
Income (loss) from continuing operations 1,140.8 48.7 (1,255.2)
(Loss) income from discontinued operations (2.1) (1.2) (7.2)
Net income (loss) including noncontrolling interest 1,138.7 47.5 (1,262.4)
Net income (loss) attributable to noncontrolling interest 173.7 121.2 (113.7)
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.
( Millions of dollars )
2022 2021 2020
United States Oil and natural gas liquids $ 3,210.3 $ 2,199.7 $ 1,335.8
Natural gas 225.2 121.7 69.4
Canada Oil and natural gas liquids 267.5 228.9 174.0
Natural gas 312.6 245.9 170.6
Other Oil 22.8 4.9 1.8
Total oil and natural gas revenues $ 4,038.4 $ 2,801.1 $ 1,751.6
Exploration and Production
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.
2022 vs 2021
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.
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. U.S. 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. $2.76 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: $9.53). 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.
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