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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-8590
MURPHY OIL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 71-0361522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 PEACH STREET
P. O. Box 7000, El Dorado, Arkansas 71731-7000
(Address of principal executive offices) (Zip Code)
(870) 862-6411
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
Number of shares of Common Stock, $1.00 par value, outstanding at September
30, 1997 was 44,886,865.
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PART I - FINANCIAL INFORMATION
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(unaudited)
September 30, December 31,
1997 1996
------------ -----------
ASSETS
Current assets
Cash and cash equivalents $ 69,571 109,707
Accounts receivable, less allowance for
doubtful accounts of $15,320 in 1997 and
$15,267 in 1996 243,995 319,661
Inventories
Crude oil and raw materials 55,012 42,811
Finished products 48,854 44,310
Materials and supplies 41,679 44,234
Prepaid expenses 38,468 29,820
Deferred income taxes 18,410 19,626
--------- ---------
Total current assets 515,989 610,169
Property, plant, and equipment, at cost
less accumulated depreciation, depletion,
and amortization of $2,691,741 in 1997
and $2,573,606 in 1996 1,639,972 1,556,830
Deferred charges and other assets 67,010 76,787
--------- ---------
$ 2,222,971 2,243,786
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations $ 19,211 13,635
Accounts payable and accrued liabilities 414,225 503,013
Income taxes 50,775 37,393
--------- ---------
Total current liabilities 484,211 554,041
Notes payable and capitalized lease obligations 29,557 20,871
Nonrecourse debt of a subsidiary 180,319 180,957
Deferred income taxes 138,786 127,319
Reserve for dismantlement costs 152,337 152,528
Reserve for major repairs 36,567 29,776
Deferred credits and other liabilities 131,502 150,816
Stockholders' equity
Capital stock
Cumulative Preferred Stock, par $100, authorized
400,000 shares, none issued - -
Common Stock, par $1.00, authorized 80,000,000
shares, issued 48,775,314 shares 48,775 48,775
Capital in excess of par value 509,760 509,008
Retained earnings 606,332 550,699
Currency translation adjustments 7,805 22,573
Unamortized restricted stock awards (1,341) (1,298)
Treasury stock, 3,888,449 shares of Common Stock
in 1997, 3,912,971 shares in 1996, at cost (101,639) (102,279)
--------- ---------
Total stockholders' equity 1,069,692 1,027,478
--------- ---------
$ 2,222,971 2,243,786
========= =========
See Notes to Consolidated Financial Statements, page 4.
The Exhibit Index is on page 13.
1
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Thousands of dollars, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1997 1996 1997 1996
------- ------- ---------- ---------
REVENUES
Sales $ 540,307 477,875 1,527,914 1,364,319
Other operating revenues 14,897 47,069 40,835 73,138
Interest, income from equity
companies, and other
nonoperating revenues 1,110 2,255 3,605 5,229
------- ------- --------- ---------
Total revenues 556,314 527,199 1,572,354 1,442,686
------- ------- --------- ---------
COSTS AND EXPENSES
Crude oil, products, and related
operating expenses 391,954 378,545 1,131,421 1,067,942
Exploration expenses, including
undeveloped lease amortization 19,734 19,084 71,508 43,945
Selling and general expenses 18,660 16,107 47,691 45,638
Depreciation, depletion,
and amortization 56,565 42,221 156,073 134,243
Impairment of long-lived assets 5,100 - 5,100 -
Interest expense 3,263 3,187 9,207 9,504
Interest capitalized (3,227) (2,452) (9,126) (6,998)
------- ------- --------- ---------
Total costs and expenses 492,049 456,692 1,411,874 1,294,274
------- ------- --------- ---------
Income (loss) from continuing
operations before income taxes 64,265 70,507 160,480 148,412
Federal and state income taxes 15,832 16,792 37,172 31,956
Foreign income taxes 6,108 13,189 22,811 30,842
------- ------- --------- ---------
Income from continuing
operations 42,325 40,526 100,497 85,614
DISCONTINUED FARM, TIMBER, AND
REAL ESTATE OPERATIONS
Income from discontinued operations - 3,879 - 10,877
Costs of spin-off transaction - (2,100) - (2,100)
------- ------- --------- ---------
Total discontinued operations - 1,779 - 8,777
------- ------- --------- ---------
NET INCOME $ 42,325 42,305 100,497 94,391
======= ======= ========= =========
Average Common shares
outstanding 45,031,706 45,008,387 45,034,455 44,944,594
Income per Common share
Continuing operations $ .94 .90 2.23 1.90
Discontinued operations - .04 - .20
------- ------- --------- ---------
Net income $ .94 .94 2.23 2.10
======= ======= ========= =========
Cash dividends per
Common share $ .35 .325 1.00 .975
======= ======= ========= =========
See Notes to Consolidated Financial Statements, page 4.
2
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Thousands of dollars)
Nine Months Ended
September 30,
-----------------
1997 1996
------- -------
OPERATING ACTIVITIES
Income from continuing operations $ 100,497 85,614
Adjustments to reconcile above income to net cash
provided by operating activities
Depreciation, depletion, and amortization 156,073 134,243
Impairment of long-lived assets 5,100 -
Provisions for major repairs 17,402 18,677
Expenditures for major repairs and dismantlement costs (12,749) (8,931)
Exploratory expenditures charged against income 63,733 36,897
Amortization of undeveloped leases 7,775 7,048
Deferred and noncurrent income tax charges 7,268 17,751
Pretax gains from disposition of assets (6,247) (31,997)
Other - net 5,701 3,712
------- -------
344,553 263,014
Net (increase) decrease in operating
working capital other than cash and cash
equivalents (21,362) 45,535
Other adjustments related to continuing operations (8,228) 14,160
------- -------
Net cash provided by continuing operations 314,963 322,709
Net cash provided by discontinued operations - 9,727
------- -------
Net cash provided by operating activities 314,963 332,436
------- -------
INVESTING ACTIVITIES
Capital expenditures requiring cash (335,596) (289,246)
Proceeds from sale of property, plant, and equipment 14,277 51,685
Other continuing operations - net 196 (1,082)
Investing activities of discontinued operations - (7,810)
------- -------
Net cash required by investing activities (321,123) (246,453)
------- -------
FINANCING ACTIVITIES
Increase (decrease) in notes payable and capitalized
lease obligations 8,686 (3)
Increase in nonrecourse debt of a subsidiary 4,938 23,602
Cash dividends paid (44,864) (43,717)
------- -------
Net cash required by financing activities (31,240) (20,118)
------- -------
Effect of exchange rate changes on cash and
cash equivalents (2,736) 294
------- -------
Net increase (decrease) in cash and cash equivalents (40,136) 66,159
Increase applicable to discontinued operations - (4,017)
------- -------
Net increase (decrease) in cash and cash equivalents
of continuing operations (40,136) 62,142
Cash and cash equivalents of continuing operations
at January 1 109,707 60,853
------- -------
Cash and cash equivalents of continuing operations
at September 30 $ 69,571 122,995
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Cash income taxes paid, net of refunds $ 56,146 25,964
Interest paid, net of amounts capitalized (2,728) (90)
See Notes to Consolidated Financial Statements, page 4.
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These notes are an integral part of the financial statements of Murphy Oil
Corporation and Consolidated Subsidiaries (Murphy/the Company) on pages 1
through 3 of this report on Form 10-Q.
NOTE A - INTERIM FINANCIAL STATEMENTS
The consolidated financial statements of the Company presented herein have not
been audited by independent auditors, except for the Consolidated Balance
Sheet at December 31, 1996. In the opinion of the Company's management, the
unaudited financial statements presented herein include all adjustments
(consisting only of normal, recurring accruals) necessary to present fairly
the Company's financial position at September 30, 1997, and the results of
operations and cash flows for the three-month and nine-month periods ended
September 30, 1997 and 1996, in conformity with generally accepted accounting
principles.
Financial statements and notes to consolidated financial statements included
in this report on Form 10-Q should be read in conjunction with the Company's
1996 Annual Report on Form 10-K, as certain notes and other pertinent
information have been abbreviated in or omitted from this report. Financial
results for the nine months ended September 30, 1997 are not necessarily
indicative of future results.
NOTE B - DISCONTINUED OPERATIONS
On December 31, 1996, Murphy completed a tax-free spin-off to its stockholders
of all common stock of its wholly owned farm, timber, and real estate
subsidiary Deltic Farm & Timber Co., Inc. (reincorporated as "Deltic Timber
Corporation"). The spin-off resulted in a net charge of $172.6 million to
"Retained Earnings" in 1996. As a result of the transaction, activities of
the farm, timber, and real estate segment have been accounted for as
discontinued operations, with prior periods restated. Selected operating
results for these activities, presented as net amounts in the Consolidated
Statements of Income for the three-month and nine-month periods ended
September 30, 1996 were as follows.
- ----------------------------------------------------------------------
Discontinued Operations Periods Ended September 30, 1996
- ----------------------------------------------------------------------
Three Nine
(Millions of dollars, except per share amounts) Months Months
- ----------------------------------------------------------------------
Revenues . . . . . . . . . . . . . . . . . . . . . $25.5 65.6
Income tax provisions . . . . . . . . . . . . . . . 2.4 6.9
Income from operations . . . . . . . . . . . . . . 3.9 10.9
Cost of spin-off transaction . . . . . . . . . . . (2.1) (2.1)
Income from operations per share . . . . . . . . . .09 .24
Cost of spin-off transaction per share . . . . . . (.05) (.05)
- ----------------------------------------------------------------------
NOTE C - ENVIRONMENTAL CONTINGENCIES
The Company's worldwide operations are subject to numerous laws and
regulations intended to protect the environment and/or impose remedial
obligations. In addition, the Company is involved in personal injury and
property damage claims, allegedly caused by exposure to or by the release or
disposal of materials manufactured or used in the Company's operations. The
Company operates or has previously operated certain sites or facilities,
including refineries, oil and gas fields, service stations, and terminals, for
which known or potential obligations for environmental remediation exist.
Under the Company's accounting policies, liabilities for environmental
obligations are recorded when such obligations are probable and the cost can
be reasonably estimated. If there is a range of reasonably estimated costs,
the most likely amount will be recorded, or if no amount is most likely, the
minimum of the range. Recorded liabilities are reviewed quarterly and
adjusted as needed. Actual cash expenditures often occur one or more years
after recognition of the liabilities.
The Company's reserve for remedial obligations, which is included in "Deferred
Credits and Other Liabilities" in the Consolidated Balance Sheets, contains
certain amounts that are based on anticipated regulatory approval for proposed
remediation of former refinery waste sites. If regulatory authorities require
more costly alternatives than the proposed processes, future expenditures
could exceed the amount reserved by up to an estimated $3 million.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
NOTE C - ENVIRONMENTAL CONTINGENCIES (CONTD.)
The Company is currently identified by the U.S. Environmental Protection
Agency as a Potentially Responsible Party (PRP) at five Superfund sites and
has been assigned responsibility by defendants at another Superfund site. The
potential total cost to all parties to perform necessary remedial work at
the Superfund sites is substantial; however, current information indicates
that the Company is a "de minimus" party, with assigned or potentially
assigned responsibility of less than two percent at all but two of the sites.
At those two sites, the Company has not determined either its potentially
assigned responsibility percentage or its potential total remedial cost.
Based on currently available information about the Superfund sites, the
Company does not expect that its related remedial costs will be material to
its financial condition or its results of operations. Additional information
may become known in the future that would alter this assessment, including any
requirement to bear a pro rata share of costs attributable to nonparticipating
PRPs or indications of additional responsibility by the Company.
Although the Company is not aware of any environmental matters that might have
a material effect on its financial condition, there is the possibility that
expenditures could be required at currently unidentified sites, and new or
revised regulatory requirements could necessitate additional expenditures at
known sites. Such expenditures could materially affect the results of
operations in a future period.
The Company believes that certain environmentally related liabilities and
prior environmental expenditures are either covered by insurance or will be
recovered from other sources. The outcome of potential insurance recoveries
is the subject of ongoing litigation, including the appeal of a judgment
awarded the Company in 1995. Since no assurance can be given that the
judgment will be upheld upon appeal or that recoveries from other sources will
occur, the Company has not recognized a benefit for these potential recoveries
at September 30, 1997.
NOTE D - OTHER CONTINGENCIES
The Company's operations and earnings have been and may be affected by various
other forms of governmental action both in the U.S. and throughout the world.
Examples of such governmental action include, but are by no means limited to:
tax increases and retroactive tax claims; restrictions on production; import
and export controls; price controls; currency controls; allocation of supplies
of crude oil and petroleum products and other goods; expropriation of
property; restrictions and preferences affecting issuance of oil and gas or
mineral leases; laws and regulations intended for the promotion of safety; and
laws and regulations affecting the Company's relationships with employees,
suppliers, customers, stockholders, and others. Because governmental actions
are often motivated by political considerations, may be taken without full
consideration of their consequences, and may be taken in response to actions
of other governments, it is not practical to attempt to predict the likelihood
of such actions, the form the actions may take, or the effect such actions may
have on the Company.
In the normal course of its business activities, the Company is required under
certain contracts with various governmental authorities and others to provide
letters of credit that may be drawn upon if the Company fails to perform under
those contracts. At September 30, 1997, the Company had contingent
liabilities of $17 million on outstanding letters of credit and $15 million
under certain financial guarantees.
NOTE E - ACCOUNTING POLICIES FOR CERTAIN DERIVATIVE INSTRUMENTS
Derivative instruments are used by the Company on a limited basis to manage
well-defined risks related to commodity prices, foreign currency exchange
rates, and interest rates. The Company accounts for these instruments as
hedges. To qualify as hedges, the instruments must reduce the exposure to
price, currency, or interest rate risks of assets, liabilities, or anticipated
transactions. The Company does not hold any derivatives for trading purposes.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
NOTE E - ACCOUNTING POLICIES FOR CERTAIN DERIVATIVE INSTRUMENTS (CONTD.)
The Company has forward foreign exchange contracts to buy Cdn $56 million,
fixing the U.S. dollar costs for certain Canadian dollar denominated
nonrecourse debt. The unrealized difference between the contract exchange
rates and the actual exchange rate at September 30, 1997 is recognized on the
Consolidated Balance Sheet as an adjustment to "Nonrecourse Debt of a
Subsidiary" with an offset to "Currency Translation Adjustments." When these
contracts are settled, any adjustment to the difference previously recorded
will be included in the same accounts.
At September 30, 1997, the Company had several interest rate swap agreements,
under each of which the Company pays interest at a fixed rate and receives
interest at a quarterly U.S. dollar LIBOR rate. These contracts fix the
interest rate for $85 million of the Company's floating rate long-term
obligations during the next five to seven years. Cash received or paid at the
time of each quarterly settlement is accounted for as an adjustment of
"Interest Expense" in the Consolidated Statement of Income.
NOTE F - NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," effective for periods ending after December 15, 1997. After the
effective date, any prior period earnings per share (EPS) data in
subsequent reports must be restated to conform to the new standard. The
following table compares pro forma basic EPS and pro forma diluted EPS for net
income as computed under the provisions of SFAS No. 128 to the EPS as reported
on the Consolidated Statements of Income for the three-month and nine-month
periods ended September 30, 1997 and 1996.
- --------------------------------------------------------------------------
Three Nine
Earnings per Share (EPS) for Net Income Months Ended Months Ended
September 30, September 30,
- --------------------------------------------------------------------------
(Dollars per share of Common Stock) 1997 1996 1997 1996
- --------------------------------------------------------------------------
EPS as reported. . . . . . . . . . . . . . . $ .94 .94 2.23 2.10
Pro forma basic EPS. . . . . . . . . . . . . .94 .94 2.24 2.10
Pro forma diluted EPS. . . . . . . . . . . . .94 .94 2.23 2.10
- --------------------------------------------------------------------------
The FASB issued SFAS No. 130, "Reporting Comprehensive Income," in June 1997.
This statement will require the Company to disclose comprehensive income for
all periods reported beginning with the quarter ended March 31, 1998. For the
three-month and nine-month periods ended September 30, 1997 and 1996, the
Company's only item of other comprehensive income as defined by SFAS No. 130
relates to foreign currency translation adjustments. The following table
shows the Company's pro forma comprehensive income for these periods.
- --------------------------------------------------------------------------
Three Nine
Pro Forma Comprehensive Income Months Ended Months Ended
September 30, September 30,
- --------------------------------------------------------------------------
(Million of dollars) 1997 1996 1997 1996
- --------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . $ 42.3 42.3 100.5 94.4
Other comprehensive income - net gain (loss)
from foreign currency translation,
net of taxes. . . . . . . . . . . . . . . . (6.9) 2.4 (14.8) 2.3
- --------------------------------------------------------------------------
Pro forma comprehensive income $ 35.4 44.7 85.7 96.7
==========================================================================
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
NOTE G - BUSINESS SEGMENTS (UNAUDITED)
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
- ----------------------------------------------------------------------------
(Millions of dollars) Revenues Income Revenues Income
- ----------------------------------------------------------------------------
Exploration and production*
United States ...................... $ 66.1 13.5 53.4 11.4
Canada ............................. 44.7 6.4 42.7 7.5
United Kingdom ..................... 30.5 1.8 31.1 1.8
Ecuador ............................ 9.3 3.1 8.8 3.5
Other international ................ .2 (3.7) 2.3 (.4)
- ----------------------------------------------------------------------------
150.8 21.1 138.3 23.8
- ----------------------------------------------------------------------------
Refining, marketing, and transportation
United States ...................... 357.9 19.2 322.0 (.8)
United Kingdom ..................... 76.1 3.9 83.1 1.2
Canada ............................. 6.6 1.5 6.0 1.5
- ----------------------------------------------------------------------------
440.6 24.6 411.1 1.9
- ----------------------------------------------------------------------------
591.4 45.7 549.4 25.7
Intrasegment transfers elimination ... (36.1) - (52.3) -
- ----------------------------------------------------------------------------
555.3 45.7 497.1 25.7
Corporate ............................ 1.1 (3.3) 2.2 (2.9)
- ----------------------------------------------------------------------------
Revenues/income from continuing
operations before special items ..... 556.4 42.4 499.3 22.8
Refund of U.K. income taxes .......... - 3.2 - -
Impairment of long-lived assets ...... - (3.3) - -
Gain on sale of U.S. onshore
producing properties ................ - - 27.9 17.7
- ----------------------------------------------------------------------------
Revenues/income from continuing
operations .......................... 556.4 42.3 527.2 40.5
Income from discontinued operations .. - - - 1.8
- ----------------------------------------------------------------------------
$ 556.4 42.3 527.2 42.3
============================================================================
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
- ----------------------------------------------------------------------------
(Millions of dollars) Revenues Income Revenues Income
- ----------------------------------------------------------------------------
Exploration and production*
United States ...................... $ 196.7 34.4 175.6 39.7
Canada ............................. 123.2 15.5 118.3 20.2
United Kingdom ..................... 90.7 10.1 92.7 9.1
Ecuador ............................ 26.1 8.4 24.2 8.3
Other international ................ 1.3 (10.9) 7.6 (2.1)
- ----------------------------------------------------------------------------
438.0 57.5 418.4 75.2
- ----------------------------------------------------------------------------
Refining, marketing, and transportation
United States ...................... 1,004.7 37.9 903.2 (4.1)
United Kingdom ..................... 195.2 6.0 224.7 .4
Canada ............................. 19.1 4.5 17.0 3.9
- ----------------------------------------------------------------------------
1,219.0 48.4 1,144.9 .2
- ----------------------------------------------------------------------------
1,657.0 105.9 1,563.3 75.4
Intrasegment transfers elimination ... (88.2) - (153.7) -
- ----------------------------------------------------------------------------
1,568.8 105.9 1,409.6 75.4
Corporate ............................ 3.6 (5.3) 5.2 (7.5)
- ----------------------------------------------------------------------------
Revenues/income from continuing
operations before special items...... 1,572.4 100.6 1,414.8 67.9
Refund of U.K. income taxes .......... - 3.2 - -
Impairment of long-lived assets ...... - (3.3) - -
Gain on sale of U.S. onshore
producing properties ................ - - 27.9 17.7
- ----------------------------------------------------------------------------
Revenues/income from continuing
operations .......................... 1,572.4 100.5 1,442.7 85.6
Income from discontinued operations .. - - - 8.8
- ----------------------------------------------------------------------------
$ 1,572.4 100.5 1,442.7 94.4
============================================================================
*Additional details are presented in the tables on page 11.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net income in the third quarter of 1997 totaled $42.3 million, $.94 a share,
and included a charge of $3.3 million, $.07 a share, for an impairment of
long-lived assets that was nearly offset by a gain of $3.2 million, $.07 a
share, from a refund of U.K. income taxes. Earnings before these special
items for the current quarter totaled $42.4 million, $.94 a share, which was
up 86 percent from the $22.8 million, $.51 a share, of income from continuing
operations before special items in the 1996 third quarter. Net income in the
third quarter a year ago also totaled $42.3 million, $.94 a share, but
included an after-tax gain of $17.7 million, $.39 a share, from sale of
onshore producing properties in the U.S. and earnings of $1.8 million, $.04 a
share, from the now independent Deltic Timber Corporation. Cash flow from
operating activities, excluding changes in noncash working capital items,
totaled $124.7 million in the third quarter of 1997, up 28 percent from a year
ago.
Murphy's worldwide downstream operations earned $24.6 million in the third
quarter compared to $1.9 million a year ago, with U.S. downstream operations
turning in the best quarter since the fourth quarter of 1988. Earnings from
exploration and production operations were $21.1 million compared to $23.8
million in the third quarter of 1996, as record natural gas sales in the U.S.
and Canada and a 22-percent increase in crude oil production were offset by
lower crude oil sales prices.
Exploration and production operations in the U.S. earned $13.5 million
compared to $11.4 million in the third quarter of 1996. Operations in Canada
earned $6.4 million, down from $7.5 million a year ago, and U.K. operations
earned $1.8 million in the current quarter, unchanged from a year ago.
Operations in Ecuador earned $3.1 million in the third quarter of 1997
compared to $3.5 million in 1996. Other international operations reported a
loss of $3.7 million compared to a $.4 million loss a year earlier, which
included the operations of a natural gas field in Spain that ceased production
in late 1996. The Company's crude oil and condensate sales prices averaged
$18.50 a barrel in the U.S. and $18.58 in the U.K., decreases of 13 percent
each. In Canada, sales prices averaged $16.77 a barrel for light oil, down 17
percent, and $10.91 for heavy oil, a decrease of 33 percent. The average
sales price for synthetic oil in Canada was $19.27 a barrel, down 11 percent
from a year ago. In Ecuador, sales prices averaged $12.53 a barrel, down 24
percent. Total crude oil and gas liquids production averaged 61,194 barrels a
day compared to 50,159 in the third quarter of 1996. U.S. production
increased nine percent. In Canada, heavy oil production increased 24 percent,
light oil production was down 10 percent, and net production of synthetic oil
increased 24 percent. Production in the U.K. was up 34 percent, and
production in Ecuador increased 36 percent. Murphy's average natural gas
sales price in the U.S. was $2.35 a thousand cubic feet (MCF) in the current
quarter compared to $2.31 a year ago. The average natural gas sales price in
Canada increased from $.87 an MCF to $1.08. Total natural gas sales averaged
284 million cubic feet a day compared to 204 million a year ago. Sales of
natural gas in the U.S. averaged 233 million cubic feet a day, up 57 percent
from the third quarter of 1996. Exploration expenses totaled $19.7 million in
the current quarter compared to $19 million in 1996. The tables on page 11
provide additional details of the results of exploration and production
operations for the third quarter of each year.
Refining, marketing, and transportation operations in the U.S. had earnings of
$19.2 million compared to a loss of $.8 million a year ago. Average gross
margins per barrel of products sold were strong until late in the current
quarter, and sales of refined products set a quarterly record at 161,321
barrels a day. The U.S. results included after-tax benefits of $.9 million in
1997 and $2.3 million in 1996 related to crude oil swap agreements.
Operations in the U.K. earned $3.9 million compared to $1.2 million in the
third quarter of 1996. Earnings from purchasing, transporting, and reselling
crude oil in Canada were $1.5 million in the current quarter, unchanged from a
year ago. The Company's refinery crude runs worldwide were 164,274 barrels a
day compared to 162,415 in the third quarter of 1996. Worldwide petroleum
product sales were 195,820 barrels a day, up from 177,176 a year ago.
Corporate functions reflected a loss of $3.3 million in the current quarter
compared to a loss of $2.9 million in the third quarter of 1996.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
RESULTS OF OPERATIONS (CONTD.)
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
For the first nine months of 1997, net income totaled $100.5 million, $2.23 a
share, including the net charge of $.1 million in the third quarter for the
previously mentioned special items. For the first nine months of 1996, income
from continuing operations before special items totaled $67.9 million, $1.51 a
share. Net income for the nine months ended September 30, 1996 totaled $94.4
million, $2.10 a share, and included the after-tax gain of $17.7 million, $.39
a share, from sale of onshore producing properties in the U.S. and earnings of
$8.8 million, $.20 a share, from Deltic Timber Corporation.
The 48-percent increase in income from continuing operations before special
items was primarily due to the Company's worldwide downstream operations,
which earned $48.4 million in the first nine months of 1997 compared to only
$.2 million a year ago, with the increase mainly attributable to a $42 million
improvement in the U.S. Earnings from exploration and production operations
decreased $17.7 million as the effects of higher exploration expenses and
lower U.S. natural gas prices more than offset higher U.S. natural gas sales
and higher crude oil production. Corporate functions reflected a loss of
$5.3 million for the 1997 period compared to a loss of $7.5 million a year
earlier.
Earnings from exploration and production operations for the nine months ended
September 30, 1997 were $57.5 million, down from $75.2 million in 1996.
Operations in the U.S. earned $34.4 million for the first nine months of 1997
compared to $39.7 million in the prior period, and Canadian operations earned
$15.5 million compared to $20.2 million in 1996. Increased earnings from the
prior year occurred in the U.K., up $1 million to $10.1 million, and in
Ecuador, up $.1 million to $8.4 million. Other international operations
reported losses of $10.9 million in the first nine months of 1997 and $2.1
million in the 1996 period; higher exploration expenses and the cessation
of production in Spain accounted for the increased loss. The Company's crude
oil and condensate sales prices averaged $19.56 a barrel in the U.S., up one
percent, and $19.12 in the U.K., down six percent. In Canada, sales prices
averaged $17.94 a barrel for light oil, down six percent from last year;
$11.43 for heavy oil, down 20 percent; and $20.14 for synthetic oil, down one
percent. The average crude oil sales price in Ecuador was $12.63 a barrel,
down 18 percent. Crude oil and gas liquids production for the first nine
months of 1997 averaged 56,870 barrels a day compared to 53,319 during the
same period of 1996. Crude oil production in Ecuador was up 32 percent to
7,631 barrels a day, and heavy oil production in Canada increased 18 percent
to 11,238. U.S. crude oil and gas liquids production of 11,128 barrels a day
was down nine percent, primarily due to the sale of onshore producing
properties in 1996. In other areas, production averaged 3,972 barrels a day
for Canadian light oil, down 15 percent; 8,942 for Canadian synthetic crude,
up eight percent; and 13,959 for crude oil and gas liquids in the U.K., also
up eight percent. Natural gas sales prices for the first nine months of 1997
averaged $2.37 an MCF in the U.S., down six percent; $1.32 in Canada, up 33
percent; and $2.54 in the U.K., down two percent. Total natural gas sales
averaged 268 million cubic feet a day in 1997 compared to 222 million in 1996.
Sales of natural gas in the U.S. averaged 212 million cubic feet a day, up 34
percent. In other areas, average natural gas sales increased five percent in
Canada but were down 10 percent in the U.K. Natural gas production in Spain
ceased at the end of 1996. Exploration expenses totaled $71.5 million for the
nine months ended September 30, 1997 compared to $43.9 million a year ago.
Exploration expenses were down in the U.K., but were up in the U.S., Canada,
and other international areas. The tables on page 11 provide additional
details of the results of exploration and production operations for the first
nine months of each year.
Refining, marketing, and transportation operations in the U.S. benefited from
improved margins as well as higher volumes in the first nine months of 1997
and reported earnings of $37.9 million compared to a loss of $4.1 million for
the same period last year. The U.S. results included after-tax benefits of $5
million in 1997 and $4.6 million in 1996 related to crude oil swap agreements.
Operations in the U.K. earned $6 million in the nine months ended September
30, 1997 compared to $.4 million in the prior year. Earnings from purchasing,
transporting, and reselling crude oil in Canada were $4.5 million in the
current nine-month period compared to $3.9 million a year ago. The Company's
refinery crude runs worldwide for the 1997 period were 159,583 barrels a day
compared to 155,704 a year ago. Petroleum product sales worldwide were
178,355 barrels a day, up from 167,954 in 1996.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
FINANCIAL CONDITION
Cash provided by continuing operations was $315 million for the first nine
months of 1997 compared to $322.7 million for the same period in 1996.
Changes in operating working capital other than cash and cash equivalents
required cash of $21.4 million for the first nine months of 1997 but provided
cash of $45.5 million for the 1996 period. Cash provided by operating
activities was reduced by expenditures for refinery turnarounds and
abandonment of oil and gas properties totaling $12.7 million in the current
year and $8.9 million in 1996. Investing activities included $51.7 million
provided by proceeds from the sale of property, plant, and equipment in 1996,
primarily from the sale of U.S. onshore producing properties, compared to
$14.3 million in the 1997 period. Predominant uses of cash in both years were
for capital expenditures (which, including amounts expensed, are summarized
in the following table) and payment of dividends.
--------------------------------------------------------------------------
Capital Expenditures Nine Months Ended September 30,
--------------------------------------------------------------------------
(Millions of dollars) 1997 1996
--------------------------------------------------------------------------
Exploration and production. . . . . . . . . . . . $ 312.1 263.5
Refining, marketing, and transportation . . . . . 22.3 25.1
Corporate . . . . . . . . . . . . . . . . . . . . 1.2 .6
--------------------------------------------------------------------------
$ 335.6 289.2
==========================================================================
Working capital at September 30, 1997 was $31.8 million, down $24.4 million
from December 31, 1996. This level of working capital does not fully reflect
the Company's liquidity position, because the lower historical costs assigned
to inventories under LIFO accounting were $89.9 million below current costs at
September 30, 1997.
At September 30, 1997, long-term nonrecourse debt of a subsidiary was $180.3
million, down slightly from December 31, 1996 due to changes in foreign
currency exchange rates. Notes payable and capitalized lease obligations of
$29.6 million were up $8.7 million due to additional borrowing for certain oil
and gas development projects. A summary of capital employed at September 30,
1997 and December 31, 1996 follows.
--------------------------------------------------------------------------
Capital Employed September 30, 1997 December 31, 1996
--------------------------------------------------------------------------
(Millions of dollars) Amount % Amount %
--------------------------------------------------------------------------
Notes payable and capitalized lease
obligations. . . . . . . . . . . . . $ 29.6 2 20.9 2
Nonrecourse debt of a subsidiary. . . 180.3 14 180.9 15
Stockholders' equity. . . . . . . . . 1,069.7 84 1,027.5 83
--------------------------------------------------------------------------
$ 1,279.6 100 1,229.3 100
==========================================================================
10
OIL AND GAS OPERATING RESULTS* (UNAUDITED)
- ------------------------------------------------------------------------------
United Synthetic
United King- Ecua- Oil -
(Millions of dollars) States Canada dom dor Other Canada Total
- ------------------------------------------------------------------------------
THREE MONTHS ENDED
SEPTEMBER 30, 1997
Oil and gas sales and
operating revenues . . . $ 66.1 26.3 30.5 9.3 .2 18.4 150.8
Production costs . . . . . 11.8 9.8 6.9 2.8 - 10.1 41.4
Depreciation, depletion,
and amortization. . . . . 22.2 8.2 11.9 2.9 - 1.8 47.0
Exploration expenses
Dry hole costs . . . . . 1.9 .6 4.4 - .8 - 7.7
Geological and geophysical
costs . . . . . . . . . 3.1 1.0 1.2 - 1.6 - 6.9
Other costs . . . . . . .6 .3 .4 - 1.1 - 2.4
- ------------------------------------------------------------------------------
5.6 1.9 6.0 - 3.5 - 17.0
Undeveloped lease
amortization . . . . . 1.6 1.0 - - .1 - 2.7
- ------------------------------------------------------------------------------
Total exploration
expenses 7.2 2.9 6.0 - 3.6 - 19.7
- ------------------------------------------------------------------------------
Selling and general
expenses. . . . . . . . . 4.0 1.3 .7 .1 .6 .1 6.8
Income tax provisions
(benefits). . . . . . . . 7.4 1.7 3.2 .4 (.3) 2.4 14.8
- ------------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 13.5 2.4 1.8 3.1 (3.7) 4.0 21.1
==============================================================================
THREE MONTHS ENDED
SEPTEMBER 30, 1996
Oil and gas sales and
operating revenues. . . . $ 53.4 26.2 31.1 8.8 2.3 16.5 138.3
Production costs . . . . . 9.2 8.5 6.7 2.8 .1 9.3 36.6
Depreciation, depletion,
and amortization. . . . . 13.8 6.4 8.3 2.2 1.4 1.4 33.5
Exploration expenses
Dry hole costs . . . . . 2.2 - 5.7 - - - 7.9
Geological and geophysical
costs . . . . . . . . . 4.6 1.4 .6 - .3 - 6.9
Other costs . . . . . . 1.0 .1 .5 - .4 - 2.0
- ------------------------------------------------------------------------------
7.8 1.5 6.8 - .7 - 16.8
Undeveloped lease
amortization . . . . . 1.4 .8 - - - - 2.2
- ------------------------------------------------------------------------------
Total exploration
expenses 9.2 2.3 6.8 - .7 - 19.0
- ------------------------------------------------------------------------------
Selling and general
expenses. . . . . . . . . 3.5 1.4 .7 - .3 .1 6.0
Income tax provisions. . . 6.3 3.6 6.8 .3 .2 2.2 19.4
- ------------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 11.4 4.0 1.8 3.5 (.4) 3.5 23.8
==============================================================================
NINE MONTHS ENDED
SEPTEMBER 30, 1997
Oil and gas sales and
operating revenues. . . . $196.7 74.0 90.7 26.1 1.3 49.2 438.0
Production costs . . . . . 33.5 28.0 25.0 8.4 - 28.2 123.1
Depreciation, depletion,
and amortization. . . . . 59.4 22.7 33.5 8.3 - 4.8 128.7
Exploration expenses
Dry hole costs . . . . . 25.5 3.1 5.0 - 3.3 - 36.9
Geological and geophysical
costs . . . . . . . . . 8.6 5.6 1.4 - 4.4 - 20.0
Other costs . . . . . . 1.7 .6 1.5 - 3.0 - 6.8
- ------------------------------------------------------------------------------
35.8 9.3 7.9 - 10.7 - 63.7
Undeveloped lease
amortization . . . . . 5.0 2.7 - - .1 - 7.8
- ------------------------------------------------------------------------------
Total exploration
expenses 40.8 12.0 7.9 - 10.8 - 71.5
- ------------------------------------------------------------------------------
Selling and general
expenses. . . . . . . . . 10.6 3.9 1.8 .3 1.5 .1 18.2
Income tax provisions
(benefits). . . . . . . . 18.0 2.0 12.4 .7 (.1) 6.0 39.0
- ------------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 34.4 5.4 10.1 8.4 (10.9) 10.1 57.5
==============================================================================
NINE MONTHS ENDED
SEPTEMBER 30, 1996
Oil and gas sales and
operating revenues. . . . $175.6 72.5 92.7 24.2 7.6 45.8 418.4
Production costs . . . . . 35.0 22.6 23.3 8.5 .7 28.4 118.5
Depreciation, depletion,
and amortization. . . . . 45.8 18.4 29.3 6.5 4.5 4.1 108.6
Exploration expenses
Dry hole costs . . . . . 7.4 .7 9.4 - - - 17.5
Geological and geophysical
costs . . . . . . . . . 8.0 2.7 1.7 - .9 - 13.3
Other costs . . . . . . 2.4 .4 1.3 - 2.0 - 6.1
- ------------------------------------------------------------------------------
17.8 3.8 12.4 - 2.9 - 36.9
Undeveloped lease
amortization . . . . . 4.8 2.2 - - - - 7.0
- ------------------------------------------------------------------------------
Total exploration
expenses 22.6 6.0 12.4 - 2.9 - 43.9
- ------------------------------------------------------------------------------
Selling and general
expenses. . . . . . . . . 10.1 4.0 2.2 .1 .9 .1 17.4
Income tax provisions. . . 22.4 9.5 16.4 .8 .7 5.0 54.8
- ------------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 39.7 12.0 9.1 8.3 (2.1) 8.2 75.2
==============================================================================
*Excludes special items.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are engaged in a number of legal
proceedings, all of which the Company considers routine and incidental to
its business and none of which is material as defined by the rules and
regulations of the U.S. Securities and Exchange Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibit Index on page 13 of this Form 10-Q report lists the
exhibits that are hereby filed or incorporated by reference.
(b) No reports on Form 8-K have been filed for the quarter covered by
this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MURPHY OIL CORPORATION
(Registrant)
By /s/ Ronald W. Herman
--------------------
Ronald W. Herman, Controller
(Chief Accounting Officer and Duly
Authorized Officer)
November 12, 1997
(Date)
12
EXHIBIT INDEX
Exhibit Page Number or
No. Incorporation by Reference to
- ------- -----------------------------
3.1 Certificate of Incorporation of Exhibit 3.1, Page Ex. 3.1-1,
Murphy Oil Corporation as of of Murphy's Annual Report on
September 25, 1986 Form 10-K for the year ended
December 31, 1996
3.2 Bylaws of Murphy Oil Corporation Exhibit 3.3, Page Ex. 3.3-1,
at October 4, 1995 of Murphy's Annual Report on
Form 10-K for the year ended
December 31, 1995
4 Instruments Defining the Rights of
Security Holders. Murphy is party
to several long-term debt instruments,
none of which authorizes securities
that exceed 10 percent of the total
assets of Murphy and its subsidiaries
on a consolidated basis. Pursuant to
Regulation S-K, item 601(b), paragraph
4(iii)(A), Murphy agrees to furnish a
copy of each such instrument to the
Securities and Exchange Commission
upon request.
4.1 Rights Agreement dated as of December Exhibit 4.1, Page Ex. 4.1-0,
6, 1989 between Murphy Oil Corporation of Murphy's Annual Report on
and Harris Trust Company of New York, Form 10-K for the year ended
as Rights Agent December 31, 1994
10.1 1987 Management Incentive Plan (adopted Exhibit 10.2, Page Ex. 10.2-0,
May 13, 1987, amended February 1, 1990 of Murphy's Annual Report on
retroactive to February 3, 1988) Form 10-K for the year ended
December 31, 1994
10.2 1992 Stock Incentive Plan amended Exhibit 10.2, Page Ex. 10.2-1,
May 14, 1997 of Murphy's Report on Form 10-Q
for the quarterly period ended
June 30, 1997
10.3 Employee Stock Purchase Plan Exhibit 99.01 of Murphy's Form
S-8 Registration Statement
under the Securities Act of
1933 dated May 19, 1997
27 Financial Data Schedule for the nine Included only in electronic
months ended September 30, 1997 filing
Exhibits other than those listed above have been omitted since they either are
not required or are not applicable.
13
5
1,000
9-MOS
DEC-31-1997
SEP-30-1997
69,571
0
259,315
15,320
145,545
515,989
4,331,713
2,691,741
2,222,971
484,211
209,876
0
0
48,775
1,020,917
2,222,971
1,527,914
1,572,354
1,287,494
1,287,494
76,608
0
81
160,480
59,983
100,497
0
0
0
100,497
2.23
2.23
