===============================================================================
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 MARCH 31, 1998
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 March 31,
1998 was 44,956,718.
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<PAGE>
PART I - FINANCIAL INFORMATION
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 16,312 24,288
Accounts receivable, less allowance for
doubtful accounts of $13,483 in 1998
and $13,530 in 1997 245,791 272,447
Inventories
Crude oil and blend stocks 50,902 55,075
Finished products 60,977 64,394
Materials and supplies 39,382 38,947
Prepaid expenses 47,025 47,323
Deferred income taxes 13,916 15,278
--------- ---------
Total current assets 474,305 517,752
Property, plant and equipment, at cost less
accumulated depreciation, depletion and
amortization of $2,816,220 in 1998 and
$2,762,805 in 1997 1,699,919 1,655,838
Deferred charges and other assets 65,376 64,729
--------- ---------
Total assets $2,239,600 2,238,319
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations $ 7,965 6,227
Notes payable - 2,175
Accounts payable and accrued liabilities 380,738 435,390
Income taxes 25,078 25,627
--------- ---------
Total current liabilities 413,781 469,419
Notes payable and capitalized lease obligations 75,524 28,367
Nonrecourse debt of a subsidiary 178,089 177,486
Deferred income taxes 141,895 136,390
Reserve for dismantlement costs 153,813 153,021
Reserve for major repairs 44,150 43,038
Deferred credits and other liabilities 146,299 151,247
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 511,016 509,615
Retained earnings 622,340 622,532
Accumulated other comprehensive income - foreign
currency translation 7,270 891
Unamortized restricted stock awards (3,539) (944)
Treasury stock, 3,818,596 shares of Common Stock
in 1998, 3,883,883 shares in 1997, at cost (99,813) (101,518)
--------- ---------
Total stockholders' equity 1,086,049 1,079,351
--------- ---------
Total liabilities and stockholders' equity $2,239,600 2,238,319
========= =========
</TABLE>
See Notes to Consolidated Financial Statements, page 4.
The Exhibit Index is on page 12.
1
<PAGE>
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
------- -------
<S> <C> <C>
REVENUES
Sales $418,820 493,489
Other operating revenues 20,716 13,683
Interest, income from equity companies and
other nonoperating revenues 1,115 1,144
------- -------
Total revenues 440,651 508,316
------- -------
COSTS AND EXPENSES
Crude oil, products and related operating expenses 329,421 363,270
Exploration expenses, including undeveloped
lease amortization 18,054 28,550
Selling and general expenses 16,768 14,305
Depreciation, depletion and amortization 50,272 48,725
Interest expense 3,876 2,914
Interest capitalized (2,550) (2,896)
------- -------
Total costs and expenses 415,841 454,868
------- -------
Income before income taxes 24,810 53,448
Federal and state income taxes 7,733 10,971
Foreign income taxes 1,536 11,861
------- -------
NET INCOME $ 15,541 30,616
======= =======
Net income per Common share - basic $ .35 .68
======= =======
Net income per Common share - diluted $ .35 .68
======= =======
Cash dividends per Common share $ .35 .325
======= =======
Average Common shares outstanding - basic 44,940,128 44,873,856
Average Common shares outstanding - diluted 45,016,395 44,939,247
</TABLE>
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
------- -------
<S> <C> <C>
Net income $ 15,541 30,616
Other comprehensive income - net gain (loss)
from foreign currency translation 6,379 (12,867)
------- -------
COMPREHENSIVE INCOME $ 21,920 17,749
======= =======
</TABLE>
See Notes to Consolidated Financial Statements, page 4.
2
<PAGE>
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 15,541 30,616
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization 50,272 48,725
Provisions for major repairs 5,526 5,610
Expenditures for major repairs and
dismantlement costs (6,126) (3,872)
Exploratory expenditures charged against income 15,337 25,948
Amortization of undeveloped leases 2,717 2,602
Deferred and noncurrent income taxes 3,732 6,562
Pretax gains from disposition of assets (484) (3,000)
Other - net 2,368 357
------- -------
88,883 113,548
Net increase in operating working capital
other than cash and cash equivalents (19,730) (2,347)
Other adjustments related to operating activities (5,806) (9,261)
------- -------
Net cash provided by operating activities 63,347 101,940
------- -------
INVESTING ACTIVITIES
Capital expenditures requiring cash (102,039) (117,125)
Proceeds from sale of property, plant and equipment 1,213 4,361
Other investing activities - net (2,296) (181)
------- -------
Net cash required by investing activities (103,122) (112,945)
------- -------
FINANCING ACTIVITIES
Increase (decrease) in notes payable and
capitalized lease obligations 44,982 (1)
Increase (decrease) in nonrecourse debt of
a subsidiary 2,341 (854)
Sale of treasury shares under employee stock
purchase plan 184 -
Cash dividends paid (15,733) (14,580)
------- -------
Net cash provided (required) by
financing activities 31,774 (15,435)
------- -------
Effect of exchange rate changes on cash and
cash equivalents 25 (1,903)
------- -------
Net decrease in cash and cash equivalents (7,976) (28,343)
Cash and cash equivalents at January 1 24,288 109,707
------- -------
Cash and cash equivalents at March 31 $ 16,312 81,364
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Cash income taxes paid, net of refunds $ 10,188 25,947
Interest paid, net of amounts capitalized 711 (1,148)
</TABLE>
See Notes to Consolidated Financial Statements, page 4.
3
<PAGE>
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, 1997. In the opinion of Murphy'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 March 31, 1998, and the results of
operations and cash flows for the three-month periods ended March 31, 1998 and
1997, 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
1997 Annual Report on Form 10-K, as certain notes and other pertinent
information have been abbreviated or omitted in this report. Financial
results for the three months ended March 31, 1998 are not necessarily
indicative of future results.
NOTE B - 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 is used. 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.
The Company has received notices from the U.S. Environmental Protection Agency
(EPA) that it is a Potentially Responsible Party (PRP) at eight 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 these sites may be substantial. Based on currently available
information, the Company has reason to believe that it is no longer considered
a PRP by the EPA at five of these sites and that it is a "de minimus" party as
to ultimate responsibility at the other 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 any reserve
for remediation 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.
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.
Certain liabilities for environmentally related obligations and prior
environmental expenditures are expected to be recovered by the Company from
other sources, primarily environmental funds maintained by the various states.
Since no assurance can be given that recoveries from other sources will occur,
the Company has not recognized a benefit for these potential recoveries at
March 31, 1998.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
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 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; 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.
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 March 31, 1998, the Company had contingent liabilities of
$17 million on outstanding letters of credit and $13 million under certain
financial guarantees.
NOTE D - DERIVATIVE INSTRUMENTS
Derivative instruments are used by the Company on a limited basis to manage
well-defined risks related to interest rates, foreign currency exchange rates
and commodity prices. The use of derivative instruments is closely monitored
by the Company's senior management, and all such transactions are designed to
address risk-management objectives. The Company does not hold any derivatives
for trading purposes, and it does not use derivatives with leveraged features.
Derivative instruments are traded either with creditworthy major financial
institutions or over national exchanges. Instruments that reduce the exposure
of assets, liabilities or anticipated transactions to price, currency or
interest rate risks are accounted for as hedges. Gains and losses on
derivatives that cease to qualify as hedges are recognized in income or
expense.
At March 31, 1998, Murphy had interest rate swap agreements with notional
amounts totaling $100 million that serve to convert an equal amount of
variable rate long-term debt to fixed rates. The swaps mature in 2002 and
2004 and have a weighted-average fixed interest rate of 6.46 percent. No
interest rate swaps were outstanding at March 31, 1997. Using the
accrual/settlement method of accounting, the net amount to be received or paid
on a quarterly basis under the swap agreements is accrued as part of "Interest
Expense" in the Consolidated Income Statement. Although the Company has never
terminated an interest rate swap prior to maturity, if it did, 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.
At March 31, 1998, the Company had a forward foreign currency exchange
contract that serves to fix the U.S. dollar cost for Canadian dollar
nonrecourse debt associated with the Company's investment in the Syncrude
project. When the currency exchange contract matures in December 1998, Murphy
will pay US $28.5 million to acquire the Canadian dollars needed to meet the
payment of Cdn $38 million. The Company records the unrealized difference
between the contract exchange rate and the actual period-ending exchange rate
in the Consolidated Balance Sheet as an adjustment to "Nonrecourse Debt of a
Subsidiary" with the offset to "Accumulated Other Comprehensive Income." When
the contract is settled, any adjustment to the difference previously recorded
will be included in the same accounts.
The Company previously used 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 were generally deferred and
recognized in connection with the associated crude oil purchase. If
conditions indicated 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 was provided for the
nonrecoverable portion of the unrealized swap loss. The final swap matured in
the third quarter of 1997. The Company recorded pretax operating results
associated with crude oil swaps in "Crude Oil, Products and Related Operating
Expenses" in the Consolidated Statement of Income. An after-tax gain of $4.1
million in the three months ended March 31, 1997 was due to crude oil swaps.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
NOTE E - NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in June 1997. This statement will alter
the Company's disclosures about its operating segments beginning with the
results for the year ending December 31, 1998 and for each period thereafter,
with restated comparative disclosures for earlier periods. This statement
does not amend any existing accounting procedures, but it requires disclosures
about an enterprise's components for which separate financial information is
available and regularly used by the chief operating decision maker in
allocating resources and assessing performance. Although the Company has not
fully determined the effects that the new statement will have on its future
consolidated financial statements, it expects to provide certain additional
segment information for revenues, expenses and assets on a geographical
basis.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and fair
value of plan assets that is intended to facilitate financial analysis. SFAS
No. 132 does not change the measurement or recognition rules related to these
benefit plans. To comply with this statement, Murphy will change the benefit
plan disclosures in its 1998 annual consolidated financial statements.
The American Institute of Certified Public Accountants' Accounting Standards
Executive Committee issued Statement of Position 98-5, "Reporting on the Costs
of Start-Up Activities," in early 1998. This statement requires that start-up
and organization costs be expensed as incurred and is effective January 1,
1999. Upon adoption, all start-up costs carried as assets must be written off
to net income as a cumulative adjustment. The Company has not determined the
amount of the cumulative adjustment that will be made upon adoption of the
statement but believes it will be insignificant.
During 1997, the Securities and Exchange Commission amended Regulation S-K to
require expanded disclosures concerning a broad range of market-sensitive
instruments, including debt and equity securities and derivative instruments,
beginning with the Company's 1998 Annual Report. Specifically, the new rules
will require the Company to make disclosure outside of the consolidated
financial statements of both quantitative and qualitative information
concerning the market risks posed by risk-sensitive instruments. As described
in Note D, the Company makes limited use of derivative instruments to hedge
specific market risks. The Company has not determined which of several
acceptable methods it will use to present the required quantitative and
qualitative disclosures.
NOTE F - YEAR 2000 ISSUES
The Company has assessed its electronic operating systems to identify those
that are not Year 2000 compliant and is developing plans to correct
noncompliant systems. Although the Company cannot predict with any degree of
certainty the total amount that will be spent to address this issue, the
assessment indicates that up to $5 million of expense could be incurred
through 1999 to modify systems to be Year 2000 compliant. The Company is also
in the process of communicating with significant vendors and business partners
to determine its risks relative to these third parties' systems on which the
Company relies. Although the Company expects to have all of its major systems
compliant by year-end 1999, there can be no assurance that the Company will
not be adversely affected if internal or third-party operating systems
encounter Year 2000 problems.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
NOTE G - BUSINESS SEGMENTS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
- -----------------------------------------------------------------------------
(Millions of dollars) Revenues Income Revenues Income
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exploration and production*
United States . . . . . . . . . . . . $ 52.2 7.0 68.3 12.1
Canada. . . . . . . . . . . . . . . . 31.2 .5 44.5 7.2
United Kingdom. . . . . . . . . . . . 21.9 .6 34.0 6.1
Ecuador . . . . . . . . . . . . . . . 5.7 1.4 9.0 2.6
Other international . . . . . . . . . .8 (3.5) .3 (3.0)
- -----------------------------------------------------------------------------
111.8 6.0 156.1 25.0
- -----------------------------------------------------------------------------
Refining, marketing and transportation
United States . . . . . . . . . . . . 268.6 6.0 318.3 5.7
United Kingdom. . . . . . . . . . . . 74.1 4.5 57.2 .4
Canada. . . . . . . . . . . . . . . . 7.0 1.9 6.7 1.7
- -----------------------------------------------------------------------------
349.7 12.4 382.2 7.8
- -----------------------------------------------------------------------------
461.5 18.4 538.3 32.8
Intrasegment transfers elimination . . (21.9) - (31.1) -
- -----------------------------------------------------------------------------
439.6 18.4 507.2 32.8
Corporate. . . . . . . . . . . . . . . 1.1 (2.9) 1.1 (2.2)
- -----------------------------------------------------------------------------
$440.7 15.5 508.3 30.6
=============================================================================
*Additional details are presented in the tables on page 10.
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Murphy Oil Corporation's net income in the first quarter of 1998 totaled $15.5
million, $.35 a diluted share, compared to $30.6 million, $.68 a diluted
share, in the first quarter a year ago. Net cash from operating activities
excluding changes in noncash working capital items totaled $83.1 million in
the first quarter of 1998 compared to $104.3 million a year ago.
All three of the Company's downstream systems reported higher earnings in the
current quarter, with refining operations in the U.S. and U.K. particularly
benefiting from low crude oil prices. In total, worldwide downstream
operations earned $12.4 million, a 59-percent improvement over the $7.8
million earned in the first quarter of 1997, which included a $4.1 million
after-tax benefit related to crude oil swap agreements. Exploration and
production operations earned $6 million in the current quarter compared to $25
million a year ago, as a five-percent increase in U.S. natural gas sales and
lower exploration expenses were more than offset by a decline of nearly $7.00
a barrel in average worldwide crude oil sales prices and a 16-percent
reduction in U.S. natural gas sales prices.
Exploration and production operations in the U.S. earned $7 million compared
to $12.1 million in the first quarter of 1997. Operations in Canada earned
$.5 million compared to $7.2 million a year ago, and U.K. operations earned
$.6 million in the current quarter, down from $6.1 million. Operations in
Ecuador earned $1.4 million in the first quarter of 1998 compared to $2.6
million a year ago. Other international operations reported a loss of $3.5
million compared to a $3 million loss a year earlier. The Company's crude oil
and condensate sales prices averaged $14.60 a barrel in the U.S. and $13.99 in
the U.K., decreases of 33 percent and 32 percent, respectively. In Canada,
sales prices averaged $13.27 a barrel for light oil, down 34 percent; $5.12
for heavy oil, down 61 percent; and $15.30 for synthetic oil, down 31 percent.
The average sales price for production from the Hibernia field, offshore
Canada, which came on stream in the fourth quarter of 1997, was $12.98 a
barrel in the current quarter. In Ecuador, sales prices averaged $8.67 a
barrel, down 36 percent. Total crude oil and gas liquids production averaged
54,059 barrels a day compared to 55,078 in the first quarter of 1997. U.S.
production declined 18 percent. In Canada, light oil production was down nine
percent, synthetic oil production was up two percent, and production at
Hibernia averaged 2,481 barrels a day. While heavy oil production in Canada
was essentially unchanged from a year ago, production in the current quarter
of 10,630 barrels a day was down 14 percent from the fourth quarter of 1997.
The decline reflects a selective shut-in of production during the current
quarter in response to the substantial drop in heavy oil sales prices. At the
end of the first quarter of 1998, heavy oil production in Canada was averaging
8,500 barrels a day, and further reductions should be expected. Production
in the U.K. was down 10 percent and production in Ecuador was up one percent.
Murphy's average natural gas sales price in the U.S. was $2.33 a thousand
cubic feet (MCF) in the current quarter compared to $2.76 a year ago. The
average natural gas sales price in Canada was down from $1.77 an MCF to $1.11.
Sales prices averaged $2.09 an MCF in the U.K. compared to $2.68 a year ago.
Total natural gas sales averaged 249 million cubic feet a day compared to 246
million a year ago. Sales of natural gas in the U.S. averaged 189 million
cubic feet a day, up from 180 million in the first quarter of 1997, with this
increase principally offset in the U.K., where production from the Amethyst
field was shut in during part of the current quarter to repair damages to the
field's pipeline. Exploration expenses totaled $18.1 million in the current
quarter compared to $28.6 million a year ago. The tables on page 10 provide
additional details of the results of exploration and production operations
for the first quarter of each year.
Refining, marketing and transportation operations in the U.S. earned $6
million compared to $5.7 million a year ago, which included the $4.1 million
benefit related to crude oil swap agreements. Operations in the U.K. earned
$4.5 million in the current quarter compared to $.4 million in the first
quarter of 1997. Earnings from purchasing, transporting and reselling crude
oil in Canada were $1.9 million in the current quarter compared to $1.7
million in the first quarter of 1997. Refinery crude runs were 167,031
barrels a day compared to 151,610 in the first quarter of 1997. Refined
product sales were 196,443 barrels a day, up from 159,667 a year ago.
Corporate activities, which include interest income and expense and corporate
overhead not allocated to operating functions, reflected a loss of $2.9
million in the current quarter compared to a loss of $2.2 million in the first
quarter of 1997.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
FINANCIAL CONDITION
Net cash provided by operating activities was $63.3 million for the first
three months of 1998 compared to $101.9 million for the same period in 1997.
Changes in operating working capital other than cash and cash equivalents
required cash of $19.7 million in the first quarter of 1998 and $2.4 million
in the 1997 period. Cash provided by operating activities was reduced by
expenditures for refinery turnarounds and abandonment of oil and gas
properties totaling $6.1 million in the current quarter compared to $3.9
million a year ago. 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.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Capital Expenditures Three Months Ended March 31,
------------------------------------------------------------------------
(Millions of dollars) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
Exploration and production . . . . . . . . . . $ 92.7 110.3
Refining, marketing and transportation . . . . 9.0 6.6
Corporate . . . . . . . . . . . . . . . . . . . .3 .2
------------------------------------------------------------------------
$102.0 117.1
========================================================================
</TABLE>
Working capital at March 31, 1998 was $60.5 million, up $12.2 million from
December 31, 1997. 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 $52.6 million below current costs
at March 31, 1998.
At March 31, 1998, long-term nonrecourse debt of a subsidiary was $178.1
million, up slightly from December 31, 1997 due to changes in foreign currency
exchange rates. Notes payable and capitalized lease obligations of $75.5
million were up $47.1 million due to additional borrowing for certain oil and
gas development projects. A summary of capital employed at March 31, 1998 and
December 31, 1997 follows.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Capital Employed March 31, 1998 Dec. 31, 1997
------------------------------------------------------------------------
(Millions of dollars) Amount % Amount %
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notes payable and capitalized lease
obligations . . . . . . . . . . . $ 75.5 6 28.4 2
Nonrecourse debt of a subsidiary . . 178.1 13 177.5 14
Stockholders' equity . . . . . . . . 1,086.0 81 1,079.4 84
------------------------------------------------------------------------
$1,339.6 100 1,285.3 100
========================================================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
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
MARCH 31, 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Oil and gas sales and
operating revenues $52.2 18.8 21.9 5.7 .8 12.4 111.8
Production costs 9.9 9.6 7.9 1.8 - 7.1 36.3
Depreciation, depletion
and amortization 18.3 8.7 9.9 2.5 - 1.5 40.9
Exploration expenses
Dry hole costs 5.4 1.0 - - 2.7 - 9.1
Geological and geophysical
costs 2.1 2.0 .3 - .3 - 4.7
Other costs .3 .2 .4 - .7 - 1.6
- -----------------------------------------------------------------------------
7.8 3.2 .7 - 3.7 - 15.4
Undeveloped lease
amortization 1.6 1.1 - - - - 2.7
- -----------------------------------------------------------------------------
Total exploration
expenses 9.4 4.3 .7 - 3.7 - 18.1
- -----------------------------------------------------------------------------
Selling and general expenses 4.1 1.7 .8 - .4 - 7.0
Income tax provisions (benefits) 3.5 (3.3) 2.0 - .2 1.1 3.5
- -----------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 7.0 (2.2) .6 1.4 (3.5) 2.7 6.0
=============================================================================
THREE MONTHS ENDED
MARCH 31, 1997
Oil and gas sales and
operating revenues $68.3 27.5 34.0 9.0 .3 17.0 156.1
Production costs 10.3 8.6 8.7 3.5 - 9.8 40.9
Depreciation, depletion
and amortization 17.0 7.3 11.2 2.7 - 1.6 39.8
Exploration expenses
Dry hole costs 14.8 2.2 - - - - 17.0
Geological and geophysical
costs 2.6 2.1 .1 - 1.9 - 6.7
Other costs .5 .2 .6 - 1.0 - 2.3
- -----------------------------------------------------------------------------
17.9 4.5 .7 - 2.9 - 26.0
Undeveloped lease
amortization 1.8 .8 - - - - 2.6
- -----------------------------------------------------------------------------
Total exploration
expenses 19.7 5.3 .7 - 2.9 - 28.6
- -----------------------------------------------------------------------------
Selling and general expenses 3.1 1.3 .8 .1 .4 - 5.7
Income tax provisions 6.1 1.2 6.5 .1 - 2.2 16.1
- -----------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $12.1 3.8 6.1 2.6 (3.0) 3.4 25.0
=============================================================================
</TABLE>
10
<PAGE>
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 12 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)
May 11, 1998
(Date)
11
<PAGE>
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 3.2, Page Ex. 3.2-1,
at January 24, 1996 of Murphy's Annual Report on
Form 10-K for the year ended
December 31, 1997
4 Instruments Defining the Rights of
Security Holders. Murphy is party
to several long-term debt instruments
in addition to the one in Exhibit 4.1,
none of which authorizes securities
exceeding 10 percent 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 Oil Exhibit 4.1, Page Ex. 4.1-0,
Corporation and certain subsidiaries of Murphy's Annual Report on
and the Chase Manhattan Bank et al Form 10-K for the year ended
as of November 13, 1997 December 31, 1997
4.2 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
4.3 Amendment No. 1 dated as of April 6, Exhibit 3 of Murphy's Form
1998 to Rights Agreement dated as of 8-A/A, Amendment No. 1, filed
December 6, 1989 between Murphy Oil April 14, 1998 under the
Corporation and Harris Trust Company Securities Exchange Act of
of New York, as Rights Agent 1934
10.1 1987 Management Incentive Plan Exhibit 10.2, Page Ex. 10.2-0,
(adopted May 13, 1987, amended of Murphy's Annual Report on
February 7, 1990 retroactive to Form 10-K for the year ended
February 3, 1988) 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
filed May 19, 1997 under the
Securities Act of 1933
27 Financial Data Schedule for the three Only in electronic filing
months ended March 31, 1998
Exhibits other than those listed above have been omitted since they are either
not required or not applicable.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY UNAUDITED FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998, AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS THEN ENDED OF MURPHY OIL
CORPORATION AND CONSOLIDATED SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,312
<SECURITIES> 0
<RECEIVABLES> 259,274
<ALLOWANCES> 13,483
<INVENTORY> 151,261
<CURRENT-ASSETS> 474,305
<PP&E> 4,516,139
<DEPRECIATION> 2,816,220
<TOTAL-ASSETS> 2,239,600
<CURRENT-LIABILITIES> 413,781
<BONDS> 253,613
0
0
<COMMON> 48,775
<OTHER-SE> 1,037,274
<TOTAL-LIABILITY-AND-EQUITY> 2,239,600
<SALES> 418,820
<TOTAL-REVENUES> 440,651
<CGS> 379,693
<TOTAL-COSTS> 379,693
<OTHER-EXPENSES> 18,054
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,326
<INCOME-PRETAX> 24,810
<INCOME-TAX> 9,269
<INCOME-CONTINUING> 15,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,541
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
