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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 JUNE 30, 2000
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 June 30,
2000, was 45,031,138.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
June 30, December 31,
2000 1999
--------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 102,512 34,132
Accounts receivable, less allowance for
doubtful accounts of $8,500 in 2000 and
$8,298 in 1999 390,141 357,472
Inventories
Crude oil and blend stocks 90,290 61,853
Finished products 77,218 50,572
Materials and supplies 41,342 39,218
Prepaid expenses 35,103 28,145
Deferred income taxes 23,079 21,720
--------- ---------
Total current assets 759,685 593,112
Property, plant and equipment, at cost less
accumulated depreciation, depletion and
amortization of $3,046,803 in 2000 and
$3,007,578 in 1999 1,838,758 1,782,741
Deferred charges and other assets 66,499 69,655
--------- ---------
Total assets $2,664,942 2,445,508
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 69 71
Accounts payable and accrued liabilities 529,048 449,269
Income taxes 78,639 38,295
--------- ---------
Total current liabilities 607,756 487,635
Notes payable 258,000 248,569
Nonrecourse debt of a subsidiary 139,288 144,595
Deferred income taxes 167,145 154,109
Reserve for dismantlement costs 156,161 158,377
Reserve for major repairs 28,458 22,099
Deferred credits and other liabilities 176,547 172,952
Stockholders' equity
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 513,814 512,488
Retained earnings 702,052 601,956
Accumulated other comprehensive loss - foreign
currency translation (33,201) (4,984)
Unamortized restricted stock awards (1,984) (2,328)
Treasury stock, 3,744,176 shares of Common
Stock in 2000, 3,777,319 shares in 1999,
at cost (97,869) (98,735)
--------- ---------
Total stockholders' equity 1,131,587 1,057,172
--------- ---------
Total liabilities and stockholders'
equity $2,664,942 2,445,508
========= =========
See Notes to Consolidated Financial Statements, page 4.
The Exhibit Index is on page 15.
1
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Thousands of dollars, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
2000 1999 2000 1999
------- ------- --------- -------
REVENUES
Crude oil and natural gas sales $180,007 100,673 325,421 184,736
Petroleum product sales 684,081 340,675 1,253,512 545,822
Other operating revenues 9,951 8,614 22,563 22,283
Interest and other nonoperating
revenues 4,357 529 5,566 1,916
------- ------- --------- -------
Total revenues 878,396 450,491 1,607,062 754,757
------- ------- --------- -------
COSTS AND EXPENSES
Crude oil, products and related
operating expenses 644,194 334,985 1,178,775 555,000
Exploration expenses, including
undeveloped lease amortization 20,860 13,694 68,718 40,033
Selling and general expenses 20,781 16,902 38,641 33,428
Depreciation, depletion and
amortization 50,735 50,445 103,584 97,040
Provision for reduction in force - - - 1,513
Interest expense 6,779 7,701 13,572 13,317
Interest capitalized (3,541) (1,435) (6,739) (2,580)
------- ------- --------- -------
Total costs and expenses 739,808 422,292 1,396,551 737,751
------- ------- --------- -------
Income before income taxes 138,588 28,199 210,511 17,006
Federal and state income tax
expense 19,403 3,120 14,628 114
Foreign income tax expense 35,013 9,359 64,278 7,870
------- ------- --------- -------
NET INCOME $ 84,172 15,720 131,605 9,022
======= ======= ========= =======
Net income per Common share -
basic $ 1.87 .35 2.92 .20
======= ======= ========= =======
Net income per Common share -
diluted $ 1.86 .35 2.91 .20
======= ======= ========= =======
Cash dividends per Common
share $ .35 .35 .70 .70
======= ======= ========= =======
Average Common shares
outstanding - basic 45,021,888 44,963,681 45,015,956 44,959,429
Average Common shares
outstanding - diluted 45,255,936 45,035,215 45,203,079 44,981,607
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(Thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2000 1999 2000 1999
------ ------ ------- ------
Net income $ 84,172 15,720 131,605 9,022
Other comprehensive
income (loss) - net
gain (loss) from
foreign currency
translation (23,571) 3,335 (28,217) 1,107
------ ------ ------- ------
COMPREHENSIVE INCOME $ 60,601 19,055 103,388 10,129
====== ====== ======= ======
See Notes to Consolidated Financial Statements, page 4.
2
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Thousands of dollars)
Six Months Ended
June 30,
-----------------
2000 1999
------- -------
OPERATING ACTIVITIES
Net income $ 131,605 9,022
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 103,584 97,040
Provisions for major repairs 11,442 8,337
Expenditures for major repairs and dismantlement costs (6,358) (40,771)
Exploratory expenditures charged against income 62,486 34,511
Amortization of undeveloped leases 6,232 5,522
Deferred and noncurrent income tax charges 17,782 13,622
Pretax gains from disposition of assets (2,872) (280)
Other - net 4,340 6,571
------- -------
328,241 133,574
Net (increase) decrease in operating working capital
other than cash and cash equivalents 21,930 (33,396)
Other adjustments related to operating activities 5,167 (8,858)
------- -------
Net cash provided by operating activities 355,338 91,320
------- -------
INVESTING ACTIVITIES
Capital expenditures requiring cash (264,365) (187,082)
Proceeds from sale of property, plant and equipment 8,047 2,355
Other investing activities - net (67) (1,428)
------- -------
Net cash required by investing activities (256,385) (186,155)
------- -------
FINANCING ACTIVITIES
Increase in notes payable 9,429 152,630
Decrease in nonrecourse debt of a subsidiary (5,307) (6,586)
Cash dividends paid (31,509) (31,469)
Other financing activities - net 322 (2,080)
------- -------
Net cash provided (required) by financing activities (27,065) 112,495
------- -------
Effect of exchange rate changes on cash and cash
equivalents (3,508) (1,036)
------- -------
Net increase in cash and cash equivalents 68,380 16,624
Cash and cash equivalents at January 1 34,132 28,271
------- -------
Cash and cash equivalents at June 30 $ 102,512 44,895
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Cash income taxes paid (refunded) $ 7,140 (5,976)
Interest paid, net of amounts capitalized 6,052 7,931
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 Form 10-Q report.
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, 1999. In the opinion of Murphy's management, the
unaudited financial statements presented herein include all accruals necessary
to present fairly the Company's financial position at June 30, 2000, and the
results of operations and cash flows for the three-month and six-month periods
ended June 30, 2000 and 1999, in conformity with generally accepted accounting
principles.
Financial statements and notes to consolidated financial statements included
in this Form 10-Q report should be read in conjunction with the Company's 1999
Form 10-K report, as certain notes and other pertinent information have been
abbreviated or omitted in this report. Financial results for the six months
ended June 30, 2000 are not necessarily indicative of future results.
NOTE B - ENVIRONMENTAL CONTINGENCIES
The Company's operations are subject to numerous laws and regulations intended
to protect the environment and/or impose remedial obligations. The Company is
also 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 and facilities, including refineries, oil and gas fields,
gasoline stations, and terminals, for which known or potential obligations for
environmental remediation exist.
Under the Company's accounting policies, an environmental liability is
recorded when an obligation is 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 is used. Recorded liabilities are reviewed quarterly. Actual cash
expenditures often occur one or more years after a liability is recognized.
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.
The Company has received notices from the U.S. Environmental Protection Agency
(EPA) that it is currently considered a Potentially Responsible Party (PRP) at
three Superfund sites and has also been assigned responsibility by defendants
at another Superfund site. The potential total cost to all parties to perform
necessary remedial work at these sites may be substantial. Based on currently
available information, the Company has reason to believe that it is a
"de minimus" party as to ultimate responsibility at the four sites. The
Company does not expect that its related remedial costs will be material to
its financial condition or its results of operations, and it has not provided
a reserve for remedial costs on Superfund sites. 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.
On June 29, 2000, the U.S. Government and the State of Wisconsin each filed a
lawsuit against Murphy in the U.S. District Court for the Western District of
Wisconsin. The suits, arising out of a 1998 compliance inspection, include
claims for alleged violations of federal and state environmental laws at
Murphy's Superior, Wisconsin refinery. The suits seek compliance as well
as substantial monetary penalties. The Company believes it has valid defenses
to these allegations and plans a vigorous defense. While no assurance can be
given, the Company does not believe that these or other known environmental
matters will have a material adverse effect on its financial condition. There
is the possibility that expenditures could be required at currently
unidentified sites, and new or revised regulations could require additional
expenditures at known sites. Such expenditures could materially affect the
results of operations in a future period.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
NOTE B - ENVIRONMENTAL CONTINGENCIES (CONTD.)
Certain environmental expenditures are likely to be recovered by the Company
from other sources, primarily environmental funds maintained by certain
states. Since no assurance can be given that future recoveries from other
sources will occur, the Company has not recognized a benefit for likely
recoveries at June 30, 2000.
NOTE C - OTHER CONTINGENCIES
The Company's operations and earnings have been and may be affected by various
other forms of governmental action both in the United States and throughout
the world. Examples of such governmental action include, but are by no means
limited to: tax increases and retroactive tax claims; 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 the issuance of oil and gas or mineral
leases; restrictions on drilling and/or production; laws and regulations
intended for the promotion of safety; governmental support for other forms of
energy; 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.
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 considered material. In the normal course of its business,
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 June 30, 2000, the
Company had contingent liabilities of $55.4 million on outstanding letters of
credit and $71 million under certain financial guarantees.
NOTE D - DERIVATIVE INSTRUMENTS
The Company uses derivative instruments on a limited basis to manage certain
risks related to interest rates, foreign currency exchange rates and commodity
prices. Instruments that reduce the exposure of assets, liabilities or
anticipated transactions to interest rate, currency or price risks are
accounted for as hedges. Gains or losses on derivatives that cease to qualify
as hedges are recognized in income or expense. The use of derivative
instruments for risk management is covered by operating policies and is
closely monitored by the Company's senior management. The Company does not
hold any derivatives for trading purposes, and it does not use derivatives
with leveraged or complex features. Derivative instruments are traded either
with creditworthy major financial institutions or over national exchanges.
Murphy uses interest rate swap agreements to convert certain variable rate
long-term debt to fixed rates. Under the accrual/settlement method of
accounting, the Company records the net amount to be received or paid under
the swap agreements as part of "Interest Expense" in the Consolidated
Statements of Income. If the Company should terminate an interest rate swap
prior to maturity, any cash paid or received as settlement would be deferred
and recognized as an adjustment to "Interest Expense" over the shorter of
the remaining life of the debt or the remaining contractual life of the swap.
The Company periodically uses crude oil swap agreements to reduce a portion of
the financial exposure of its U.S. refineries to crude oil price movements.
Unrealized gains or losses on such swap contracts are generally deferred and
recognized in connection with the associated crude oil purchase. If
conditions indicate that the market price of finished products would not allow
for recovery of the costs of the finished products, including any unrealized
loss on the crude oil swap, a liability will be provided for the
nonrecoverable portion of the unrealized swap loss. The Company records the
pretax contract results in "Crude Oil, Products and Related Operating
Expenses" in the Consolidated Statements of Income.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
NOTE D - DERIVATIVE INSTRUMENTS (CONTD.)
The Company periodically uses natural gas swap agreements to reduce a portion
of the financial exposure of its Meraux, Louisiana refinery to fluctuations in
the price of future natural gas fuel purchases. Unrealized gains or losses on
such swap contracts are deferred and recognized in connection with the
associated fuel purchases. The Company records the pretax contract results in
"Crude Oil, Products and Related Operating Expenses" in the Consolidated
Statements of Income.
NOTE E - EARNINGS PER SHARE
Net income was used as the numerator in computing both basic and diluted
income per Common share for the three-month and six-month periods ended June
30, 2000 and 1999. The following table reconciles the weighted-average shares
outstanding used for these computations.
---------------------------------------------------------------------------
Reconciliation of Shares Three Months Ended Six Months Ended
Outstanding June 30, June 30,
---------------------------------------------------------------------------
(Weighted-average shares) 2000 1999 2000 1999
---------------------------------------------------------------------------
Basic method . . . . . . . . 45,021,888 44,963,681 45,015,956 44,959,429
Dilutive stock options . . . 234,048 71,534 187,123 22,178
---------------------------------------------------------------------------
Diluted method 45,255,936 45,035,215 45,203,079 44,981,607
===========================================================================
The computations of earnings per share in the Consolidated Statements of
Income did not consider outstanding options at the end of the periods of
73,500 shares for the three-month period of 2000, 687,750 shares for the
three-month period of 1999, 147,000 shares for the six-month period of 2000,
and 1,008,250 shares for the six-month period of 1999 because the effects of
these options would have improved the Company's earnings per share. Average
exercise prices per share of the options not used were $65.49, $53.33, $62.97
and $47.72, respectively.
NOTE F - PROVISION FOR REDUCTION IN FORCE
In early 1999, the Company offered enhanced voluntary retirement benefits to
eligible exploration, production and administrative employees in its New
Orleans and Calgary offices and severed certain other employees at these
locations. The voluntary retirements and severances reduced the Company's
work force by 31 employees, and a "Provision for Reduction in Force" of $1.5
million was recorded in the Consolidated Statement of Income for the six
months ended June 30, 1999. The provision included additional deferred
benefit plan expense of $1 million and severance and other costs of $.5
million, the latter of which was essentially all paid during 1999.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
NOTE G - BUSINESS SEGMENTS (unaudited)
Three Mos. Ended June 30, 2000
Total Assets ------------------------------
at June 30, External Interseg. Income
(Millions of dollars) 2000 Revenues Revenues (Loss)
- ----------------------------------------------------------------------------
Exploration and production*
United States $ 402.9 45.0 17.6 20.0
Canada 796.5 68.0 23.4 29.1
United Kingdom 286.7 54.8 - 21.6
Ecuador 60.5 10.2 - 5.8
Other 8.6 .6 - (9.3)
- ----------------------------------------------------------------------------
Total 1,555.2 178.6 41.0 67.2
- ----------------------------------------------------------------------------
Refining, marketing and
transportation
United States 626.8 592.6 .1 14.5
United Kingdom 211.5 95.4 - 5.7
Canada 98.5 7.4 .2 2.3
- ----------------------------------------------------------------------------
Total 936.8 695.4 .3 22.5
- ----------------------------------------------------------------------------
Total operating segments 2,492.0 874.0 41.3 89.7
Corporate and other 172.9 4.4 - (5.5)
- ----------------------------------------------------------------------------
Total consolidated $ 2,664.9 878.4 41.3 84.2
============================================================================
Three Mos. Ended June 30, 1999
------------------------------
External Interseg. Income
(Millions of dollars) Revenues Revenues (Loss)
- ----------------------------------------------------------------------------
Exploration and production*
United States $ 36.6 10.5 7.8
Canada 34.9 13.1 8.4
United Kingdom 21.8 6.0 3.4
Ecuador 7.0 - 3.1
Other .3 - (2.6)
- ----------------------------------------------------------------------------
Total 100.6 29.6 20.1
- ----------------------------------------------------------------------------
Refining, marketing and transportation
United States 280.3 1.1 (1.4)
United Kingdom 61.6 - 2.5
Canada 7.5 .1 2.1
- ----------------------------------------------------------------------------
Total 349.4 1.2 3.2
- ----------------------------------------------------------------------------
Total operating segments 450.0 30.8 23.3
Corporate and other .5 - (7.6)
- ----------------------------------------------------------------------------
Total consolidated $ 450.5 30.8 15.7
============================================================================
Six Mos. Ended June 30, 2000
-----------------------------
External Interseg. Income
(Millions of dollars) Revenues Revenues (Loss)
- ----------------------------------------------------------------------------
Exploration and production*
United States $ 81.9 36.1 13.9
Canada 118.2 53.2 54.5
United Kingdom 100.8 11.6 44.0
Ecuador 23.8 - 14.9
Other 1.3 - (10.8)
- ----------------------------------------------------------------------------
Total 326.0 100.9 116.5
- ----------------------------------------------------------------------------
Refining, marketing and transportation
United States 1,067.2 .8 12.9
United Kingdom 194.1 - 10.6
Canada 14.2 .3 3.8
- ----------------------------------------------------------------------------
Total 1,275.5 1.1 27.3
- ----------------------------------------------------------------------------
Total operating segments 1,601.5 102.0 143.8
Corporate and other 5.6 - (12.2)
- ----------------------------------------------------------------------------
Total consolidated $ 1,607.1 102.0 131.6
============================================================================
Six Mos. Ended June 30, 1999
-----------------------------
External Interseg. Income
(Millions of dollars) Revenues Revenues (Loss)
- ----------------------------------------------------------------------------
Exploration and production*
United States $ 69.5 17.9 3.1
Canada 61.6 21.4 8.6
United Kingdom 44.9 6.0 4.9
Ecuador 11.7 - 4.1
Other .9 - (3.8)
- ----------------------------------------------------------------------------
Total 188.6 45.3 16.9
- ----------------------------------------------------------------------------
Refining, marketing and transportation
United States 442.9 2.1 (1.4)
United Kingdom 107.5 - 3.8
Canada 13.9 .2 3.7
- ----------------------------------------------------------------------------
Total 564.3 2.3 6.1
- ----------------------------------------------------------------------------
Total operating segments 752.9 47.6 23.0
Corporate and other 1.9 - (14.0)
- ----------------------------------------------------------------------------
Total consolidated $ 754.8 47.6 9.0
============================================================================
*Additional details about results of operations, excluding special items, are
presented in the tables on page 12.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Income before a special item in the second quarter of 2000 totaled a Company
record $82.7 million, $1.83 a diluted share, compared to earnings of $15.7
million, $.35 a diluted share, in the second quarter of 1999. Including a
special gain on sale of assets of $1.5 million or $.03 a diluted share, net
income for the second quarter of 2000 totaled $84.2 million, $1.86 a diluted
share.
A combination of strong worldwide oil prices, improved North American natural
gas prices and healthier U.S. downstream margins propelled the Company to an
all-time high for quarterly net income. The Company's average worldwide crude
oil price improved 78% over the prior year, while the average sales price for
natural gas increased by almost 60% in North America. Downstream operations
made a significant contribution to Murphy's results as U.S. finished product
margins rebounded nicely in the second quarter from depressed levels earlier
in the year. The Company's natural gas sales in Canada set a record due to
start-up of production from recent discoveries in western Canada.
Murphy's exploration and production operations earned a record $67.2 million
in the second quarter of 2000 compared to $20.1 million in the same quarter of
1999. Exploration and production operations in the United States earned $20
million compared to $7.8 million in the second quarter of 1999. Operations in
Canada earned $29.1 million compared to $8.4 million a year ago, and U.K.
operations earned $21.6 million compared to $3.4 million. Operations in
Ecuador earned $5.8 million in the second quarter of 2000 compared to $3.1
million a year ago. Other international operations reported a loss of $9.3
million compared to a $2.6 million loss a year earlier. The Company's
worldwide crude oil and condensate sales prices averaged $25.83 a barrel in
the current quarter compared to $14.50 a year ago. Crude oil and condensate
sales prices averaged $28.54 a barrel in the United States, up 78%, and $28.04
in the United Kingdom, up 83%. In Canada, sales prices averaged $26.14 a
barrel for light oil, up 70% from last year; $19.41 for heavy oil, up 78%;
$27.86 for production from the offshore Hibernia field, up 91%; and $28.18
for synthetic oil, up 66%. The average crude oil sales price in Ecuador was
$19.54 a barrel, up 86%. Total crude oil and gas liquids production averaged
66,131 barrels a day compared to 65,547 in the second quarter of 1999.
Production increased 2,841 barrels a day or 42% at Hibernia, 1,934 or 23% for
Canadian heavy oil and 1,292 or 7% in the United Kingdom. In other areas,
production decreased 2,108 barrels a day or 24% in the United States, 1,656 or
15% for synthetic oil in Canada, 1,147 or 16% for crude oil in Ecuador and 572
or 16% for Canadian light oil. In the current quarter, natural gas sales
prices averaged $3.43 a thousand cubic feet (MCF) in the United States, up
61%; $2.81 in Canada, up 62%; and $1.70 in the United Kingdom, up 23%. Total
natural gas sales averaged 230 million cubic feet a day in the current quarter
compared to 246 million a year ago. Sales of natural gas in the United States
averaged 151 million cubic feet a day, down from 183 million in the second
quarter of 1999 as a result of a decrease in production from mature fields in
the Gulf of Mexico. Canadian natural gas sales averaged 70 million cubic feet
a day in the current quarter, an increase of 26%, and U.K. sales were 9
million, up 22%. Exploration expenses totaled $20.8 million compared to $13.7
million in 1999. Exploration efforts in the second quarter were primarily
focused on wells to be drilled later this year in the deepwater Gulf of Mexico
and offshore Malaysia and Nova Scotia. The tables on page 12 provide
additional details of the results of exploration and production operations for
the second quarter of each year.
Earnings from Murphy's downstream operations for the three months ended June
30, 2000 were $22.5 million, up from $3.2 million in 1999. Refining,
marketing and transportation operations in the United States reported earnings
of $14.5 million compared to a loss of $1.4 million a year ago. Operations in
the United Kingdom earned $5.7 million compared to $2.5 million in the second
quarter of 1999. Earnings from purchasing, transporting and reselling crude
oil in Canada were $2.3 million in the 2000 quarter compared to $2.1 million
in last year's second quarter. Refinery crude runs worldwide for the quarter
reached an all-time high of 173,168 barrels a day compared to 161,321 in the
second quarter of 1999; this increase was caused by record throughputs at the
Company's Meraux, Louisiana refinery. Worldwide refined product sales were
also a record at 180,733 barrels a day compared to 163,663 a year ago.
Corporate functions, which include interest income and expense and corporate
overhead not allocated to operating functions, reflected a loss of $7 million
before special items in the current quarter compared to a loss of $7.6 million
in the second quarter of 1999.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
RESULTS OF OPERATIONS (CONTD.)
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
For the first six months of 2000, the Company's net income totaled $131.6
million, $2.91 a diluted share, compared to $9 million, $.20 a share, a year
ago. The current six-month period included the special after-tax gain of $1.5
million, $.03 a diluted share, from the sale of assets, while the same period
a year ago included a special after-tax charge of $1 million, $.02 a share,
for a reduction in force.
Year-to-date earnings from exploration and production operations were up $99.6
million over the prior year, mainly due to increases in worldwide crude oil
prices, U.S. and Canadian natural gas sales prices, Canadian natural gas sales
volumes, and Canadian and U.K. crude oil production, partially offset by lower
volumes for U.S. natural gas sales and crude oil production and higher
exploration expenses. Improved results were also attained by the Company's
downstream operations as earnings increased $21.2 million, primarily because
of higher product margins in the United States and the United Kingdom and
higher product sales volumes in the United States.
Earnings from exploration and production operations for the six months ended
June 30, 2000 were $116.5 million, up from $16.9 million in 1999. Canadian
operations earned $54.5 million for the first half of 2000 compared to $8.6
million in the prior period, and U.K. operations earned $44 million compared
to $4.9 million in 1999. Increases from the prior year also occurred in the
United States, where earnings rose from $3.1 million in 1999 to $13.9 million
in the current year, and in Ecuador, which had earnings of $14.9 million
compared to $4.1 million. Other international operations recorded losses of
$10.8 million in the first six months of 2000 and $3.8 million in the 1999
period. The Company's worldwide crude oil and condensate sales prices
averaged $25.46 a barrel in the 2000 period compared to $12.56 a year ago.
Crude oil and condensate sales prices averaged $28.72 a barrel in the United
States, up 106%, and $27.35 in the United Kingdom, up 108%. In Canada, sales
prices averaged $26.27 a barrel for light oil, up 98% from last year;
$19.55 for heavy oil, up 105%; $26.51 for Hibernia production, up 93%; and
$28.23 for synthetic oil, up 90%. The average crude oil sales price in
Ecuador was $19.60 a barrel, up 128%. Crude oil and gas liquids production
for the first half of 2000 averaged 66,690 barrels a day compared to 64,557
during the same period of 1999. Production of crude oil and gas liquids in
the United Kingdom averaged 21,522 barrels a day, up 9%, and crude oil
production at Hibernia averaged 9,568, up 78%. In other areas, crude oil and
gas liquids production averaged 9,932 barrels a day for Canadian heavy oil, up
12%; 8,876 for Canadian synthetic oil, down 20%; 7,102 in the United States,
down 17%; 6,664 in Ecuador, down 8%; and 3,026 for Canadian light oil, down
16%. Natural gas sales prices for the first six months of 2000 averaged $2.99
an MCF in the United States, up 51%; $2.48 in Canada, also up 51%; and $1.73
in the United Kingdom, up 3%. Total natural gas sales averaged 230 million
cubic feet a day in 2000 compared to 248 million in 1999. Sales of natural
gas in the United States averaged 152 million cubic feet a day, down 15%.
Average natural gas sales volumes were 63 million cubic feet a day in Canada,
up 14%, and 15 million in the United Kingdom, up 9%. Exploration expenses
totaled $68.7 million for the six months ended June 30, 2000, up from $40
million a year ago. The increase in exploration expenses primarily occurred
in the United States, Malaysia and Canada. The tables on page 12 provide
additional details of the results of exploration and production operations for
the first half of each year.
Earnings from the Company's downstream operations for the six months ended
June 30, 2000 were $27.3 million, up from $6.1 million in 1999. Refining,
marketing and transportation operations in the United States reported earnings
of $12.9 million in the first six months of 2000 compared to a loss of $1.4
million for the same period last year; the improvement resulted from higher
product margins and higher product sales volumes. Operations in the United
Kingdom were also affected by higher product margins and earned $10.6 million
in the first half of 2000 compared to $3.8 million in the prior year.
Earnings from purchasing, transporting and reselling crude oil in Canada were
$3.8 million in the current year compared to $3.7 million a year ago.
Refinery crude runs worldwide were 167,566 barrels a day compared to 126,461 a
year ago. Petroleum product sales were 173,832 barrels a day, up from 140,658
in 1999. Crude runs and product sales in 1999 were both adversely affected by
a plant-wide turnaround at the Company's Meraux, Louisiana refinery. Also,
U.S. product sales in 2000 at Murphy's stations built on Wal-Mart parking lots
increased considerably from the prior year.
Excluding special items, financial results from corporate functions reflected
losses of $13.7 million in the first half of 2000 and $13 million a year ago.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
FINANCIAL CONDITION
Net cash provided by operating activities was $355.3 million for the first six
months of 2000 compared to $91.3 million for the same period in 1999. Changes
in operating working capital other than cash and cash equivalents provided
cash of $21.9 million in the first six months of 2000, while requiring cash of
$33.4 million in the 1999 period. Cash from operating activities was reduced
by expenditures for refinery turnarounds and abandonment of oil and gas
properties totaling $6.4 million in the current year and $40.8 million in
1999. Other predominant uses of cash in each year were for capital
expenditures, which including amounts expensed, are summarized in the
following table, and for dividends, which totaled $31.5 million each in 2000
and 1999.
--------------------------------------------------------------------
Capital Expenditures Six Months Ended June 30,
--------------------------------------------------------------------
(Millions of dollars) 2000 1999
--------------------------------------------------------------------
Exploration and production. . . . . . . . . . . $ 204.2 147.3
Refining, marketing and transportation. . . . . 51.6 38.8
Corporate and other . . . . . . . . . . . . . . 8.6 1.0
--------------------------------------------------------------------
$ 264.4 187.1
====================================================================
Working capital at June 30, 2000 was $151.9 million, up $46.4 million from
December 31, 1999. 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 $143.9 million below current costs at
June 30, 2000.
At June 30, 2000, long-term notes payable of $258 million were up $9.4 million
due to additional borrowing for certain oil and gas development projects.
Long-term nonrecourse debt of a subsidiary was $139.3 million, down $5.3
million from December 31, 1999. A summary of capital employed at June 30,
2000 and December 31, 1999 follows.
-----------------------------------------------------------------------
Capital Employed June 30, 2000 December 31, 1999
-----------------------------------------------------------------------
(Millions of dollars) Amount % Amount %
-----------------------------------------------------------------------
Notes payable . . . . . . . . $ 258.0 17 248.6 17
Nonrecourse debt of a
subsidiary . . . . . . . . . 139.3 9 144.6 10
Stockholders' equity . . . . 1,131.6 74 1,057.2 73
-----------------------------------------------------------------------
$ 1,528.9 100 1,450.4 100
=======================================================================
NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities," in 1998. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities.
Effective January 1, 2001, Murphy must recognize the fair value of all
derivative instruments as either assets or liabilities in its Consolidated
Balance Sheet. A derivative instrument meeting certain conditions may be
designated as a hedge of a specific exposure; accounting for changes in a
derivative's fair value will depend on the intended use of the derivative and
the resulting designation. Any transition adjustments resulting from adopting
this statement will be reported in either net income or other comprehensive
income, as appropriate, as the cumulative effect of a change in accounting
principle. As described under Note D on page 5 of this Form 10-Q report, the
Company makes limited use of derivative instruments to hedge specific market
risks. The Company has not yet determined the effects that SFAS No. 133 will
have on its future consolidated financial statements or the amount of the
cumulative adjustment that will be made upon adopting this new standard.
FORWARD-LOOKING STATEMENTS
This Form 10-Q report contains statements of the Company's expectations,
intentions, plans and beliefs that are forward-looking and are dependent on
certain events, risks and uncertainties that may be outside of the Company's
control. These forward-looking statements are made in reliance upon the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results and developments could differ materially from those expressed
or implied by such statements due to a number of factors including those
described in the context of such forward-looking statements as well as those
contained in the Company's January 15, 1997 Form 8-K report on file with the
U.S. Securities and Exchange Commission.
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks associated with interest rates, foreign
currency exchange rates, and prices of crude oil, natural gas and petroleum
products. As described in Note D on page 5 of this Form 10-Q report, Murphy
makes limited use of derivative financial and commodity instruments to manage
certain risks associated with existing or anticipated transactions.
At June 30, 2000, the Company had interest rate swaps with notional amounts
totaling $100 million that were designed to convert a similar amount of
variable-rate debt to fixed rates. These swaps mature in 2002 and 2004. The
swaps require the Company to pay an average interest rate of 6.46% over their
composite lives, and at June 30, 2000, the interest rate to be received by the
Company averaged 6.44%. The variable interest rate received by the Company
under each swap contract is repriced quarterly. The Company considers these
swaps to be a hedge against potentially higher future interest rates. The
estimated fair value of these interest rate swaps was a gain of $1 million at
June 30, 2000.
At June 30, 2000, the Company's long-term debt included $120.6 million with
variable interest rates and $79.4 million denominated in Canadian dollars.
Based on debt outstanding at June 30, 2000, a 10% increase in variable
interest rates would increase the Company's interest expense for the next 12
months by $.1 million after a $.6 million favorable effect of net settlements
under the aforementioned interest rate swaps. A 10% increase in the exchange
rate of the Canadian dollar vs. the U.S. dollar would increase interest
expense over the next 12 months by $.3 million on debt denominated in Canadian
dollars.
Prior to April 2000, the Company was a party to crude oil swap agreements for
a total notional volume of 2.3 million barrels that reduced a portion of the
financial exposure of Murphy's U.S. refineries to crude oil price movements in
2001 and 2002. Under each swap agreement, Murphy would pay a fixed crude oil
price and would receive the average near-month NYMEX West Texas Intermediate
crude oil price during the agreement's contractual maturity period. In April
2000, Murphy settled contracts for 1.7 million barrels, receiving cash of $5.8
million from the counterparties, and entered into offsetting contracts for the
remaining swap agreements, locking in a future net cash settlement of $1.9
million. These settlement gains will be deferred and recognized as a
reduction of costs of crude oil purchases in 2001 and 2002.
At June 30, 2000, Murphy was also a party to natural gas swap agreements for a
total notional volume of 7 million MMBTU that are intended to reduce a portion
of the financial exposure of its Meraux, Louisiana refinery to fluctuations in
the price of natural gas purchased for fuel. The agreements are to be settled
equally over the 12 months of 2004. In each month of settlement, the swaps
require Murphy to pay an average natural gas price of $2.61 an MMBTU and to
receive the average NYMEX Henry Hub price for the final three trading days of
the month. At June 30, 2000, the estimated fair value of these agreements was
a gain of $1.2 million; a 10% fluctuation in the average NYMEX Henry Hub price
of natural gas would have changed the estimated fair value of these swaps by
$1.5 million.
11
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
JUNE 30, 2000
Oil and gas sales,
other operating
revenues $ 62.6 67.2 54.8 10.2 .6 24.2 219.6
Production costs 9.5 11.7 7.7 2.7 - 10.8 42.4
Depreciation, depletion
and amortization 13.1 13.8 10.0 1.6 - 2.0 40.5
Exploration expenses
Dry hole costs 1.3 .4 - - .3 - 2.0
Geological and
geophysical costs 1.7 3.8 .1 - 7.4 - 13.0
Other costs .8 .2 .5 - 1.1 - 2.6
- ------------------------------------------------------------------------------
3.8 4.4 .6 - 8.8 - 17.6
Undeveloped lease
amortization 1.8 1.4 - - - - 3.2
- ------------------------------------------------------------------------------
Total exploration
expenses 5.6 5.8 .6 - 8.8 - 20.8
- ------------------------------------------------------------------------------
Selling and general
expenses 3.4 .9 .8 .1 1.0 .1 6.3
Income tax provisions 11.0 12.8 14.1 - .1 4.4 42.4
- ------------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 20.0 22.2 21.6 5.8 (9.3) 6.9 67.2
==============================================================================
THREE MONTHS ENDED
JUNE 30, 1999
Oil and gas sales,
other operating
revenues $ 47.1 30.8 27.8 7.0 .3 17.2 130.2
Production costs 9.9 8.7 7.5 1.8 - 9.4 37.3
Depreciation, depletion
and amortization 16.3 10.7 9.8 2.0 - 1.8 40.6
Exploration expenses
Dry hole costs .5 - 2.3 - 1.1 - 3.9
Geological and
geophysical costs 2.3 1.7 .3 - .8 - 5.1
Other costs .8 .1 .3 - .7 - 1.9
- ------------------------------------------------------------------------------
3.6 1.8 2.9 - 2.6 - 10.9
Undeveloped lease
amortization 1.7 1.1 - - - - 2.8
- ------------------------------------------------------------------------------
Total exploration
expenses 5.3 2.9 2.9 - 2.6 - 13.7
- ------------------------------------------------------------------------------
Selling and general
expenses 3.8 1.5 .8 .1 .2 - 6.4
Income tax provisions 4.0 2.6 3.4 - .1 2.0 12.1
- ------------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 7.8 4.4 3.4 3.1 (2.6) 4.0 20.1
==============================================================================
SIX MONTHS ENDED
JUNE 30, 2000
Oil and gas sales,
other operating
revenues $118.0 125.8 112.4 23.8 1.3 45.6 426.9
Production costs 18.3 22.4 15.5 5.2 - 19.1 80.5
Depreciation, depletion
and amortization 27.2 26.5 22.0 3.6 .1 3.8 83.2
Exploration expenses
Dry hole costs 35.0 3.3 - - .3 - 38.6
Geological and
geophysical costs 5.2 6.4 .2 - 7.7 - 19.5
Other costs 1.1 .4 .7 - 2.2 - 4.4
- ------------------------------------------------------------------------------
41.3 10.1 .9 - 10.2 - 62.5
Undeveloped lease
amortization 3.6 2.6 - - - - 6.2
- ------------------------------------------------------------------------------
Total exploration
expenses 44.9 12.7 .9 - 10.2 - 68.7
- ------------------------------------------------------------------------------
Selling and general
expenses 6.4 2.2 1.6 .1 1.6 .1 12.0
Income tax provisions 7.3 21.8 28.4 - .2 8.3 66.0
- ------------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 13.9 40.2 44.0 14.9 (10.8) 14.3 116.5
==============================================================================
SIX MONTHS ENDED
JUNE 30, 1999
Oil and gas sales, other
operating revenues $ 87.4 53.3 50.9 11.7 .9 29.7 233.9
Production costs 19.5 17.4 17.1 3.4 - 18.1 75.5
Depreciation, depletion
and amortization 32.0 19.6 20.8 4.1 - 3.5 80.0
Exploration expenses
Dry hole costs 13.5 2.0 2.3 - 1.1 - 18.9
Geological and
geophysical costs 5.8 4.2 .6 - 1.5 - 12.1
Other costs 1.2 .3 .6 - 1.4 - 3.5
- ------------------------------------------------------------------------------
20.5 6.5 3.5 - 4.0 - 34.5
Undeveloped lease
amortization 3.5 2.0 - - - - 5.5
- ------------------------------------------------------------------------------
Total exploration
expenses 24.0 8.5 3.5 - 4.0 - 40.0
- ------------------------------------------------------------------------------
Selling and general
expenses 7.9 3.0 1.6 .1 .5 - 13.1
Income tax provisions .9 1.6 3.0 - .2 2.7 8.4
- ------------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 3.1 3.2 4.9 4.1 (3.8) 5.4 16.9
==============================================================================
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 29, 2000, the U.S. Government and the State of Wisconsin each filed a
lawsuit against Murphy in the U.S. District Court for the Western District of
Wisconsin. The suits, arising out of a 1998 compliance inspection, include
claims for alleged violations of federal and state environmental laws at
Murphy's Superior, Wisconsin refinery. The suits seek compliance as well
as substantial monetary penalties. The Company believes it has valid defenses
to these allegations and plans a vigorous defense. While no assurance can be
given, the Company does not believe that the ultimate resolution of these
matters will have a material adverse effect on its financial condition.
Murphy and its subsidiaries are engaged in a number of other legal
proceedings, all of which Murphy considers routine and incidental to its
business and none of which is expected to have a material adverse effect on
the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of security holders on May 10, 2000, the directors
proposed by management were elected with a tabulation of votes to the nearest
share as shown below.
For Withheld
---------- --------
B. R. R. Butler 41,555,478 656,872
George S. Dembroski 41,373,781 838,569
Claiborne P. Deming 41,560,272 652,078
H. Rodes Hart 41,560,828 651,522
Robert A. Hermes 41,562,756 649,594
Michael W. Murphy 41,515,216 697,134
R. Madison Murphy 41,561,637 650,713
William C. Nolan Jr. 41,512,718 699,632
Caroline G. Theus 41,513,942 698,408
The security holders approved amendments to the Employee Stock Purchase Plan
as described in the Proxy Statement by a vote of 41,691,082 shares in favor,
407,802 shares against and 113,466 shares not voted. In addition, the earlier
appointment by the Board of Directors of KPMG LLP as independent auditors for
2000 was approved, with 42,131,287 shares voted in favor, 14,138 shares voted
in opposition, and 66,925 shares not voted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibit Index on page 15 of this Form 10-Q report lists the
exhibits that are hereby filed or incorporated by reference.
(b) No reports on Form 8-K were filed for the quarter ended June 30,
2000.
13
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/ JOHN W. ECKART
-----------------------------------
John W. Eckart, Controller
(Chief Accounting Officer and Duly
Authorized Officer)
August 9, 2000
(Date)
14
EXHIBIT INDEX
Exhibit
No. Incorporated by Reference to
- ------- -----------------------------
3.1 Certificate of Incorporation of Exhibit 3.1 of Murphy's Form
Murphy Oil Corporation as of 10-K report for the year
September 25, 1986 ended December 31, 1996
3.2 By-Laws of Murphy Oil Corporation Exhibit 3.2 filed herewith
as amended effective May 10, 2000
4 Instruments Defining the Rights
of Security Holders. Murphy is
party to several long-term debt
instruments in addition to the
ones in Exhibits 4.1 and 4.2,
none of which authorizes securities
exceeding 10% of the total
consolidated assets of Murphy and
its subsidiaries. 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 Credit Agreement among Murphy Exhibit 4.1 of Murphy's Form
Oil Corporation and certain 10-K report for the year
subsidiaries and the Chase ended December 31, 1997
Manhattan Bank et al as of
November 13, 1997
4.2 Form of Indenture and Form of Exhibits 4.1 and 4.2 of
Supplemental Indenture Murphy's Form 8-K report
between Murphy Oil Corporation filed April 29, 1999 under
and SunTrust Bank, Nashville, the Securities Exchange Act
N.A., as Trustee of 1934
4.3 Rights Agreement dated as of Exhibit 4.3 of Murphy's Form
December 6, 1989 between 10-K report for the year
Murphy Oil Corporation and ended December 31, 1999
Harris Trust Company of
New York, as Rights Agent
4.4 Amendment No. 1 dated as of Exhibit 3 of Murphy's
April 6, 1998 to Rights Form 8-A/A, Amendment No. 1,
Agreement dated as of filed April 14, 1998 under
December 6, 1989 between the Securities Exchange Act
Murphy Oil Corporation and of 1934
Harris Trust Company of
New York, as Rights Agent
4.5 Amendment No. 2 dated as of Exhibit 4 of Murphy's Form
April 15, 1999 to Rights 8-A/A, Amendment No. 2, filed
Agreement dated as of April 19, 1999 under the
December 6, 1989 between Securities Exchange Act of
Murphy Oil Corporation and 1934
Harris Trust Company of
New York, as Rights Agent
10.1 1987 Management Incentive Plan Exhibit 10.1 of Murphy's Form
as amended February 7, 1990 10-K report for the year
retroactive to February 3, 1988 ended December 31, 1999
10.2 1992 Stock Incentive Plan as Exhibit 10.2 of Murphy's Form
amended May 14, 1997 10-Q report for the quarterly
period ended June 30, 1997
10.3 Employee Stock Purchase Plan as Exhibit 99.01 of Murphy's
amended May 10, 2000 Form S-8 Registration
Statement filed August 4,
2000 under the Securities Act
of 1933
27 Financial Data Schedule for the Exhibit 27 filed herewith in
six months ended June 30, 2000 electronic filing
Exhibits other than those listed above have been omitted since they are either
not required or not applicable.
15