USA: Murphy Oil Announces Quarterly Earnings and Drilling Results

Murphy Oil Corporation  announced today that net income in the fourth quarter of 2010 was $174.1 million ($0.90 per diluted share), compared to net income of $318.8 million ($1.65 per diluted share) in the fourth quarter 2009.

Although there were no significant unusual items in the fourth quarter of 2010, the 2009 fourth quarter was affected by several unusual items, including a $185.3 million after-tax benefit (with associated interest thereon) related to a recovery of deepwater federal royalties previously paid for certain oil and gas properties in the deepwater Gulf of Mexico.

The 2009 fourth quarter also included a $31.3 million after-tax charge for reduction of the Company’s working interest in the Terra Nova field, offshore Eastern Canada. In the second quarter 2009, the Company recognized a charge at Terra Nova assuming a working interest reduction from the original 12.0% to approximately 11.5%. The charge recorded in the fourth quarter 2009 further reduced the Company’s anticipated working interest to 10.475%. Excluding these two items, income for the fourth quarter 2009 was $164.8 million.

For the year of 2010, net income totaled $798.1 million ($4.13 per diluted share), compared to net income of $837.6 million ($4.35 per diluted share) in 2009. The 2009 results included income from discontinued operations of $97.1 million ($0.50 per diluted share), which arose primarily from a gain on sale of the Company’s operations in Ecuador in March 2009. The 2009 period also benefited by $185.3 million after taxes from a recovery of federal royalties and associated interest, but the prior period included after-tax costs of $58.4 million for a 1.525% working interest reduction at the Terra Nova field. Excluding these unusual items noted above, 2009 net income was $613.6 million.

Fourth Quarter 2010 vs. Fourth Quarter 2009

Exploration and Production (E&P)

The Company’s income contribution from exploration and production operations was $154.1 million in the fourth quarter of 2010 compared to $339.1 million in the same quarter of 2009. Lower earnings in 2010 were primarily attributable to the previously mentioned benefit for recovery of federal royalties in 2009, plus higher exploration expenses in the 2010 fourth quarter. Additionally, the 2009 period was unfavorably affected by the aforementioned $31.3 million after-tax charge related to a reduction in the Company’s working interest in the Terra Nova field.

The Company’s crude oil, condensate and gas liquids production averaged 117,084 barrels per day in the fourth quarter of 2010 compared to 138,269 barrels per day in the 2009 quarter. The decline in crude oil production in 2010 was primarily attributable to lower volumes produced at the Kikeh field, offshore Malaysia, where downtime occurred in the 2010 quarter for well maintenance and weather delays during installation of drilling equipment on the production facility. Oil sales volumes from continuing operations averaged 117,581 barrels per day in the fourth quarter of 2010 compared to 130,386 barrels per day in the 2009 quarter. Natural gas sales volumes were 365 million cubic feet per day in the 2010 fourth quarter, up from 306 million cubic feet per day in the 2009 quarter. Natural gas sales volumes in the fourth quarter 2010 were above 2009 levels, primarily due to higher natural gas production offshore Sarawak, Malaysia, and at the Tupper area in Western Canada.

Worldwide crude oil, condensate and gas liquids sales prices averaged $73.60 per barrel for the 2010 fourth quarter compared to $67.59 per barrel in the 2009 quarter. North American natural gas sales prices averaged $3.95 per thousand cubic feet (MCF) in the 2010 fourth quarter compared to $4.17 per MCF in the 2009 quarter. The average sales prices for Sarawak natural gas were $5.57 per MCF and $4.04 per MCF in the fourth quarters of 2010 and 2009, respectively. Exploration expenses were $110.8 million in the 2010 fourth quarter compared to $81.2 million in the 2009 quarter. The increase in exploration expense in the 2010 quarter was attributable to higher dry hole costs, primarily related to unsuccessful drilling offshore Republic of the Congo and Suriname, and higher amortization of undeveloped leases in the U.S. and Western Canada. However, dry hole expense in Malaysia was significantly lower in 2010 due to recent successful delineation drilling results and a reversal of overestimated prior-year costs associated with unsuccessful exploration drilling. Production expense increased in 2010 compared to 2009 mostly due to well workover costs at the Kikeh field in the current period.

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Source:Murphy Oil , January 27, 2011; Image1:BoM