=============================================================================
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, 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 June 30,
1998 was 44,961,027.
=============================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 22,636 24,288
Accounts receivable, less allowance for
doubtful accounts of $12,063 in 1998
and $13,530 in 1997 248,082 272,447
Inventories
Crude oil and blend stocks 60,282 55,075
Finished products 42,458 64,394
Materials and supplies 36,899 38,947
Prepaid expenses 44,698 47,323
Deferred income taxes 13,365 15,278
--------- ---------
Total current assets 468,420 517,752
Property, plant and equipment, at cost less
accumulated depreciation, depletion and
amortization of $2,830,739 in 1998 and
$2,762,805 in 1997 1,704,003 1,655,838
Deferred charges and other assets 62,799 64,729
--------- ---------
Total assets $2,235,222 2,238,319
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations $ 7,703 6,227
Notes payable - 2,175
Accounts payable and accrued liabilities 369,153 435,390
Income taxes 23,582 25,627
--------- ---------
Total current liabilities 400,438 469,419
Notes payable and capitalized lease obligations 92,886 28,367
Nonrecourse debt of a subsidiary 175,449 177,486
Deferred income taxes 143,024 136,390
Reserve for dismantlement costs 153,796 153,021
Reserve for major repairs 39,507 43,038
Deferred credits and other liabilities 151,454 151,247
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 511,417 509,615
Retained earnings 628,804 622,532
Accumulated other comprehensive income - foreign
currency translation (7,058) 891
Unamortized restricted stock awards (3,570) (944)
Treasury stock, 3,814,287 shares of Common
Stock in 1998, 3,883,883 shares in
1997, at cost (99,700) (101,518)
--------- ---------
Total stockholders' equity 1,078,668 1,079,351
--------- ---------
Total liabilities and stockholders' equity $2,235,222 2,238,319
========= =========
</TABLE>
See Notes to Consolidated Financial Statements, page 4.
The Exhibit Index is on page 13.
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 Six Months Ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- ----------
<S> <C> <C> <C> <C>
REVENUES
Sales $ 424,571 494,118 843,391 987,607
Other operating revenues 22,998 12,255 43,714 25,938
Interest, income from equity
companies and other nonoperating
revenues 1,076 1,351 2,191 2,495
------- ------- ------- ---------
Total revenues 448,645 507,724 889,296 1,016,040
------- ------- ------- ---------
COSTS AND EXPENSES
Crude oil, products and related
operating expenses 323,975 376,197 653,396 739,467
Exploration expenses, including
undeveloped lease amortization 21,906 23,224 39,960 51,774
Selling and general expenses 16,876 14,726 33,644 29,031
Depreciation, depletion and
amortization 47,571 50,783 97,843 99,508
Interest expense 4,094 3,030 7,970 5,944
Interest capitalized (2,636) (3,003) (5,186) (5,899)
------- ------- ------- ---------
Total costs and expenses 411,786 464,957 827,627 919,825
------- ------- ------- ---------
Income before income taxes 36,859 42,767 61,669 96,215
Federal and state income taxes 12,680 10,369 20,413 21,340
Foreign income taxes 1,980 4,842 3,516 16,703
------- ------- ------- ---------
NET INCOME $ 22,199 27,556 37,740 58,172
======= ======= ======= =========
Net income per Common
share - basic $ .49 .62 .84 1.30
======= ======= ======= =========
Net income per Common
share - diluted $ .49 .61 .84 1.29
======= ======= ======= =========
Cash dividends per Common share $ .35 .325 .70 .65
======= ======= ======= =========
Average Common shares
outstanding - basic 44,959,704 44,876,554 44,948,944 44,875,096
Average Common shares
outstanding - diluted 45,034,378 44,932,670 45,024,016 44,935,663
</TABLE>
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 22,199 27,556 37,740 58,172
Other comprehensive
income - net gain (loss) from
foreign currency translation (14,328) 4,973 (7,949) (7,894)
------ ------ ------ ------
COMPREHENSIVE INCOME $ 7,871 32,529 29,791 50,278
====== ====== ====== ======
</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>
Six Months Ended
June 30,
-----------------
1998 1997
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 37,740 58,172
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization 97,843 99,508
Provisions for major repairs 11,347 11,303
Expenditures for major repairs and dismantlement costs (17,210) (10,977)
Exploratory expenditures charged against income 34,554 46,626
Amortization of undeveloped leases 5,406 5,148
Deferred and noncurrent income taxes 11,526 11,574
Pretax gains from disposition of assets (708) (3,225)
Other - net 6,026 2,690
------- -------
186,524 220,819
Net increase in operating working capital other
than cash and cash equivalents (20,602) (67,905)
Other adjustments related to operating activities (4,366) (9,192)
------- -------
Net cash provided by operating activities 161,556 143,722
------- -------
INVESTING ACTIVITIES
Capital expenditures requiring cash (197,088) (228,807)
Proceeds from sale of property, plant and equipment 3,584 5,553
Other investing activities - net (62) 191
------- -------
Net cash required by investing activities (193,566) (223,063)
------- -------
FINANCING ACTIVITIES
Increase in notes payable and capitalized lease
obligations 62,344 28,360
Increase (decrease) in nonrecourse debt of a subsidiary (561) 1,390
Cash dividends paid (31,468) (29,159)
Sale of treasury shares under employee stock purchase plan 346 -
------- -------
Net cash provided by financing activities 30,661 591
------- -------
Effect of exchange rate changes on cash and cash
equivalents (303) (1,720)
------- -------
Net decrease in cash and cash equivalents (1,652) (80,470)
Cash and cash equivalents at January 1 24,288 109,707
------- -------
Cash and cash equivalents at June 30 $ 22,636 29,237
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Cash income taxes paid, net of refunds $ 23,559 37,639
Interest paid, net of amounts capitalized 2,999 (1,621)
</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 June 30, 1998, and the results of
operations and cash flows for the three-month and six-month periods ended June
30, 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 six months ended June 30, 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, a liability for environmental
obligations 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 and
adjusted as needed. Actual cash expenditures often occur one or more years
after recognition of a liability.
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
two 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 three 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
June 30, 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 June 30, 1998, the Company had contingent liabilities of
$12 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 June 30, 1998 and 1997, Murphy had interest rate swap agreements with
notional amounts totaling $100 million and $70 million, respectively; these
serve to convert an equal amount of variable rate long-term debt to fixed
rates. The swaps outstanding at June 30, 1998 will mature in 2002 and 2004
and have a weighted-average fixed interest rate of 6.46 percent. 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 Statement of Income. Although the Company has
not 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 June 30, 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 six months ended June 30, 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
disclosures in 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. 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 consolidated
financial statements for the year ending December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting
and reporting standards for derivative instruments and hedging activities.
Effective January 1, 2000, it will require Murphy to recognize all derivatives
as either assets or liabilities and to measure those instruments at fair value
in its Consolidated Balance Sheet. A derivative 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 net income or other comprehensive
income, as appropriate, as the cumulative effect of a change in accounting
principle. As described in Note D, 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.
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. The Company
has not determined which of several acceptable methods it will use to present
the required quantitative and qualitative disclosures.
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 believes that the
amount of the cumulative adjustment required upon adoption of the statement
will not be material to its financial position or its results of operations.
NOTE F - YEAR 2000 ISSUES
The Company has assessed its electronic operating systems to identify those
that are not Year 2000 compliant, is developing plans to correct noncompliant
systems, and has started correcting certain 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
June 30, 1998 June 30, 1997
- -----------------------------------------------------------------------------
(Millions of dollars) Revenues Income Revenues Income
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exploration and production*
United States . . . . . . . . . . . . $ 51.1 7.9 62.3 8.8
Canada. . . . . . . . . . . . . . . . 31.8 (.2) 34.0 1.9
United Kingdom. . . . . . . . . . . . 20.3 (1.8) 26.2 2.2
Ecuador . . . . . . . . . . . . . . . 4.7 1.2 7.8 2.7
Other international . . . . . . . . . .4 (6.3) .8 (4.2)
- -----------------------------------------------------------------------------
108.3 .8 131.1 11.4
- -----------------------------------------------------------------------------
Refining, marketing and transportation
United States . . . . . . . . . . . . 278.3 15.2 328.5 13.0
United Kingdom. . . . . . . . . . . . 67.8 4.1 61.9 1.7
Canada. . . . . . . . . . . . . . . . 5.5 1.0 5.8 1.3
- -----------------------------------------------------------------------------
351.6 20.3 396.2 16.0
- -----------------------------------------------------------------------------
459.9 21.1 527.3 27.4
Intersegment transfers elimination . . (17.8) - (21.0) -
- -----------------------------------------------------------------------------
442.1 21.1 506.3 27.4
Corporate. . . . . . . . . . . . . . . 1.1 (3.1) 1.4 .2
- -----------------------------------------------------------------------------
Revenues/income before special items . 443.2 18.0 507.7 27.6
Modification of U.K. natural gas sales
contract. . . . . . . . . . . . . . . 4.0 2.8 - -
Net recovery pertaining to 1996
modifications of foreign crude
oil contracts . . . . . . . . . . . . 1.4 1.4 - -
- -----------------------------------------------------------------------------
Total revenues/net income $ 448.6 22.2 507.7 27.6
=============================================================================
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
- -----------------------------------------------------------------------------
(Millions of dollars) Revenues Income Revenues Income
- -----------------------------------------------------------------------------
Exploration and production*
United States . . . . . . . . . . . . $ 103.3 14.9 130.6 20.9
Canada. . . . . . . . . . . . . . . . 63.0 .3 78.5 9.1
United Kingdom. . . . . . . . . . . . 42.2 (1.2) 60.2 8.3
Ecuador . . . . . . . . . . . . . . . 10.4 2.6 16.8 5.3
Other international . . . . . . . . . 1.2 (9.8) 1.1 (7.2)
- -----------------------------------------------------------------------------
220.1 6.8 287.2 36.4
- -----------------------------------------------------------------------------
Refining, marketing and transportation
United States . . . . . . . . . . . . 546.9 21.2 646.8 18.7
United Kingdom. . . . . . . . . . . . 141.9 8.6 119.1 2.1
Canada. . . . . . . . . . . . . . . . 12.5 2.9 12.5 3.0
- -----------------------------------------------------------------------------
701.3 32.7 778.4 23.8
- -----------------------------------------------------------------------------
921.4 39.5 1,065.6 60.2
Intersegment transfers elimination . . (39.7) - (52.1) -
- -----------------------------------------------------------------------------
881.7 39.5 1,013.5 60.2
Corporate. . . . . . . . . . . . . . . 2.2 (6.0) 2.5 (2.0)
- -----------------------------------------------------------------------------
Revenues/income before special items . 883.9 33.5 1,016.0 58.2
Modification of U.K. natural gas sales
contract. . . . . . . . . . . . . . . 4.0 2.8 - -
Net recovery pertaining to 1996
modifications of foreign crude
oil contracts . . . . . . . . . . . . 1.4 1.4 - -
- -----------------------------------------------------------------------------
Total revenues/net income $ 889.3 37.7 1,016.0 58.2
=============================================================================
*Additional details are presented in the tables on page 11.
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net income in the second quarter of 1998 totaled $22.2 million, $.49 a diluted
share, compared to $27.6 million, $.61 a diluted share, in the second quarter
a year ago. The current quarter included earnings from special items of $4.2
million, $.09 a diluted share. The special items in the 1998 quarter
consisted of a $2.8 million benefit from modification of a natural gas sales
contract in the U.K. and a $1.4 million benefit from partial recovery of a
1996 loss resulting from modification to a crude oil production contract in
Ecuador. Cash flow from operating activities, excluding changes in noncash
working capital items, totaled $99.1 million in the second quarter of 1998
compared to $107.3 million a year ago.
Murphy's worldwide downstream operations earned $20.3 million, up 27 percent
from the $16 million earned a year ago, with refining operations in the U.S.
and the U.K. particularly benefiting from lower crude costs. Exploration and
production operations, reflecting a decline in average worldwide crude oil
prices of nearly $5.00 a barrel, earned $.8 million in the current quarter
compared to $11.4 million in the second quarter of 1997.
Exploration and production operations in the U.S. earned $7.9 million compared
to $8.8 million in the second quarter of 1997. Operations in Canada lost $.2
million compared to earning $1.9 million a year ago, and U.K. operations
reported a loss of $1.8 million in the current quarter compared to earnings of
$2.2 million. Operations in Ecuador earned $1.2 million in the second quarter
of 1998 compared to $2.7 million a year ago. Other international operations
reported a loss of $6.3 million compared to a $4.2 million loss a year
earlier. The Company's crude oil and condensate sales prices averaged $12.66
a barrel in the U.S. and $13.03 in the U.K., decreases of 32 percent and 29
percent, respectively. In Canada, sales prices averaged $12.00 a barrel for
light oil, down 29 percent; $5.78 for heavy oil, down 44 percent; and $14.01
for synthetic oil, down 27 percent. The average sales price for production
from the Hibernia field, offshore Canada, which came on stream in the fourth
quarter of 1997, was $11.63 a barrel. In Ecuador, sales prices averaged $7.38
a barrel, down 36 percent. Total crude oil and gas liquids production
averaged 54,476 barrels a day compared to 54,271 in the second quarter of
1997. An increase of 49 percent in synthetic oil production in Canada was
offset by declines of 33 percent in U.S. production and 17 percent in Canadian
heavy oil production, with the latter due to a selective shut-in of wells in
response to the drop in heavy oil prices. In other areas, oil production at
Hibernia averaged 2,318 barrels a day, production of Canadian light oil
increased one percent, oil production in the U.K. was down two percent and oil
production in Ecuador was essentially unchanged. Murphy's average natural gas
sales price in the U.S. was $2.28 a thousand cubic feet (MCF) in the current
quarter compared to $2.08 a year ago. The average natural gas sales price in
Canada increased from $1.12 an MCF to $1.31. Sales prices averaged $2.69 an
MCF in the U.K. compared to $2.50 a year ago. Total natural gas sales
averaged 230 million cubic feet a day in the current quarter compared to 275
million a year ago. Sales of natural gas in the U.S. averaged 175 million
cubic feet a day, down from 221 million in the second quarter of 1997.
Natural gas sales in Canada increased seven percent, while U.K. sales were
down 10 percent. Exploration expenses totaled $21.9 million compared to $23.2
million in 1997. The tables on page 11 provide additional details of the
results of exploration and production operations for the second quarter of
each year.
Refining, marketing and transportation operations in the U.S. earned $15.2
million compared to $13 million a year ago. Operations in the U.K. earned
$4.1 million compared to $1.7 million in the second quarter of 1997. Earnings
from purchasing, transporting and reselling crude oil in Canada were $1
million in the current quarter compared to $1.3 million in the second quarter
of 1997. Refinery crude runs worldwide were 164,339 barrels a day compared to
162,727 in the second quarter of 1997. Worldwide refined product sales were
201,142 barrels a day, up from 179,181 a year ago.
Corporate functions, which include interest income and expense and corporate
overhead not allocated to operating functions, reflected a loss of $3.1
million in the current quarter compared to earnings of $.2 million in the
second quarter of 1997.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
RESULTS OF OPERATIONS (CONTD.)
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
For the first six months of 1998, net income totaled $37.7 million, $.84 a
diluted share, compared to $58.2 million, $1.29 a diluted share, a year ago.
The current six-month period included total benefits of $4.2 million, $.09 a
diluted share, from the previously mentioned special items. There were no
special items during the six-month period of 1997.
Year-to-date earnings of the Company's worldwide downstream operations
increased 37 percent, primarily because refining operations in the U.S. and
the U.K. benefited from lower crude oil costs. This improvement was more than
offset by a $29.6 million decrease in earnings from exploration and production
operations for the first six months of 1998 as compared to the same period
last year. The decrease in earnings from exploration and production was
mainly caused by a decline of nearly $6.00 a barrel in average worldwide crude
oil prices, lower natural gas sales prices, and lower U.S. natural gas sales
volumes, partially offset by the effects of lower exploration expenses.
Earnings from exploration and production operations for the six months ended
June 30, 1998 were $6.8 million, down from $36.4 million in 1997, as all
producing areas were affected by the lower crude oil prices. Operations in
the U.S. earned $14.9 million for the first half of 1998 compared to $20.9
million in the prior period, and Canadian operations earned $.3 million
compared to $9.1 million in 1997. Decreases from the prior year also occurred
in the U.K., which had a loss of $1.2 million compared to earnings of $8.3
million, and in Ecuador, which had earnings of $2.6 million compared to $5.3
million. Other international operations recorded losses of $9.8 million in
the first six months of 1998 and $7.2 million in the 1997 period. The
Company's crude oil and condensate sales prices averaged $13.65 a barrel in
the U.S., down 32 percent, and $13.51 in the U.K., down 30 percent. In
Canada, sales prices averaged $12.63 a barrel for light oil, down 32 percent
from last year; $5.41 for heavy oil, down 54 percent; and $14.56 for synthetic
oil, down 30 percent. The average crude oil sales price for production from
the Hibernia field, which came on stream in the fourth quarter of 1997, was
$12.33 a barrel, while the average sales price in Ecuador was $7.70 a barrel,
down 39 percent. Crude oil and gas liquids production for the first half of
1998 averaged 54,269 barrels a day compared to 54,672 during the same period
of 1997. Oil production at Hibernia averaged 2,399 barrels a day, and
production of Canadian synthetic oil increased 24 percent to 10,259. Canadian
heavy oil production was down nine percent to 9,555 barrels a day due to a
selective shut-in of wells in response to the drop in heavy oil prices. In
other areas, crude oil and gas liquids production averaged 8,267 barrels a
day in the U.S, down 27 percent; 3,879 for Canadian light oil, down four
percent; 12,400 in the U.K., down six percent; and 7,510 in Ecuador,
essentially unchanged. Natural gas sales prices for the first six months of
1998 averaged $2.30 an MCF in the U.S., down four percent; $1.21 in Canada,
down 17 percent; and $2.34 in the U.K., down 14 percent. Total natural gas
sales averaged 240 million cubic feet a day in 1998 compared to 260 million in
1997. Sales of natural gas in the U.S. averaged 182 million cubic feet a day,
down nine percent. In other areas, average natural gas sales volumes
increased six percent in Canada and were down 27 percent in the U.K., where
production from the Amethyst field was shut in during the early part of the
year to repair pipeline damages. Exploration expenses totaled $40 million for
the six months ended June 30, 1998 compared to $51.8 million a year ago.
Exploration expenses were down in the U.S. and Canada, but were up in the U.K.
and other international areas. The tables on page 11 provide additional
details of the results of exploration and production operations for the first
half of each year.
Refining, marketing and transportation operations in the U.S. benefited from
slightly higher margins and earned $21.2 million in the first six months of
1998 compared to $18.7 million for the same period last year, which included
after-tax benefits of $4.1 million related to crude oil swap agreements.
Operations in the U.K. earned $8.6 million in the first half of 1998 compared
to $2.1 million in the prior year. Earnings from purchasing, transporting and
reselling crude oil in Canada were $2.9 million in the current year compared
to $3 million a year ago. Refinery crude runs worldwide were 165,678 barrels
a day compared to 157,199 a year ago. Petroleum product sales were 198,806
barrels a day, up from 169,478 in 1997.
Financial results from corporate functions reflected a loss of $6 million in
the first half of 1998 compared to a loss of $2 million a year ago.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
FINANCIAL CONDITION
Net cash provided by operating activities was $161.6 million for the first six
months of 1998 compared to $143.7 million for the same period in 1997.
Changes in operating working capital other than cash and cash equivalents
required cash of $20.6 million in the first six months of 1998 and $67.9
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 $17.2 million in the current year and $11 million in 1997.
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 Six Months Ended June 30,
--------------------------------------------------------------------------
(Millions of dollars) 1998 1997
--------------------------------------------------------------------------
<S> <C> <C>
Exploration and production. . . . . . . . . . $174.9 213.9
Refining, marketing and transportation. . . . 21.1 14.4
Corporate . . . . . . . . . . . . . . . . . . 1.1 .5
--------------------------------------------------------------------------
$197.1 228.8
==========================================================================
</TABLE>
Working capital at June 30, 1998 was $68 million, up $19.6 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 $52.7 million below current costs
at June 30, 1998.
At June 30, 1998, long-term nonrecourse debt of a subsidiary was $175.4
million, down slightly from December 31, 1997 due to changes in foreign
currency exchange rates. Notes payable and capitalized lease obligations of
$92.9 million were up $64.5 million due to additional borrowings for certain
oil and gas development projects. A summary of capital employed at June 30,
1998 and December 31, 1997 follows.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Capital Employed June 30, 1998 December 31, 1997
--------------------------------------------------------------------------
(Millions of dollars) Amount % Amount %
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notes payable and capitalized lease
obligations. . . . . . . . . . . . $ 92.9 7 28.4 2
Nonrecourse debt of a subsidiary. . 175.4 13 177.5 14
Stockholders' equity . . . . . . . 1,078.7 80 1,079.4 84
--------------------------------------------------------------------------
$1,347.0 100 1,285.3 100
==========================================================================
</TABLE>
10
<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
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
JUNE 30, 1998
Oil and gas sales and
operating revenues $ 51.1 16.7 20.3 4.7 .4 15.1 108.3
Production costs 9.8 8.1 7.7 1.7 - 9.8 37.1
Depreciation, depletion
and amortization 17.1 7.7 9.0 2.5 - 1.7 38.0
Exploration expenses
Dry hole costs 5.6 2.2 - - 5.6 - 13.4
Geological and geophysical
costs .2 .9 2.3 - .7 - 4.1
Other costs .6 .1 .6 - .4 - 1.7
- -----------------------------------------------------------------------------
6.4 3.2 2.9 - 6.7 - 19.2
Undeveloped lease
amortization 1.6 1.1 - - - - 2.7
- -----------------------------------------------------------------------------
Total exploration
expenses 8.0 4.3 2.9 - 6.7 - 21.9
- -----------------------------------------------------------------------------
Selling and general expenses 4.0 1.5 .9 .1 .4 - 6.9
Income tax provisions
(benefits) 4.3 (2.4) 1.6 (.8) (.4) 1.3 3.6
- -----------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 7.9 (2.5) (1.8) 1.2 (6.3) 2.3 .8
=============================================================================
THREE MONTHS ENDED
JUNE 30, 1997
Oil and gas sales and
operating revenues $ 62.3 20.2 26.2 7.8 .8 13.8 131.1
Production costs 11.4 9.6 9.4 2.1 - 8.3 40.8
Depreciation, depletion and
amortization 20.2 7.2 10.4 2.7 - 1.4 41.9
Exploration expenses
Dry hole costs 8.8 .3 .6 - 2.5 - 12.2
Geological and geophysical
costs 2.9 2.5 .1 - .9 - 6.4
Other costs .6 .1 .5 - .9 - 2.1
- -----------------------------------------------------------------------------
12.3 2.9 1.2 - 4.3 - 20.7
Undeveloped lease
amortization 1.6 .9 - - - - 2.5
- -----------------------------------------------------------------------------
Total exploration
expenses 13.9 3.8 1.2 - 4.3 - 23.2
- -----------------------------------------------------------------------------
Selling and general expenses 3.5 1.3 .3 .1 .5 - 5.7
Income tax provisions
(benefits) 4.5 (.9) 2.7 .2 .2 1.4 8.1
- -----------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 8.8 (.8) 2.2 2.7 (4.2) 2.7 11.4
=============================================================================
SIX MONTHS ENDED
JUNE 30, 1998
Oil and gas sales and
operating revenues $ 103.3 35.5 42.2 10.4 1.2 27.5 220.1
Production costs 19.7 17.7 15.6 3.5 - 16.9 73.4
Depreciation, depletion
and amortization 35.4 16.4 18.9 5.0 - 3.2 78.9
Exploration expenses
Dry hole costs 11.0 3.2 - - 8.3 - 22.5
Geological and geophysical
costs 2.3 2.9 2.6 - 1.0 - 8.8
Other costs .9 .3 1.0 - 1.1 - 3.3
- -----------------------------------------------------------------------------
14.2 6.4 3.6 - 10.4 - 34.6
Undeveloped lease
amortization 3.2 2.2 - - - - 5.4
- -----------------------------------------------------------------------------
Total exploration
expenses 17.4 8.6 3.6 - 10.4 - 40.0
- -----------------------------------------------------------------------------
Selling and general expenses 8.1 3.2 1.7 .1 .8 - 13.9
Income tax provisions
(benefits) 7.8 (5.7) 3.6 (.8) (.2) 2.4 7.1
- -----------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 14.9 (4.7) (1.2) 2.6 (9.8) 5.0 6.8
=============================================================================
SIX MONTHS ENDED JUNE 30, 1997
Oil and gas sales and
operating revenues $ 130.6 47.7 60.2 16.8 1.1 30.8 287.2
Production costs 21.7 18.2 18.1 5.6 - 18.1 81.7
Depreciation, depletion
and amortization 37.2 14.5 21.6 5.4 - 3.0 81.7
Exploration expenses
Dry hole costs 23.6 2.5 .6 - 2.5 - 29.2
Geological and geophysical
costs 5.5 4.6 .2 - 2.8 - 13.1
Other costs 1.1 .3 1.1 - 1.9 - 4.4
- -----------------------------------------------------------------------------
30.2 7.4 1.9 - 7.2 - 46.7
Undeveloped lease
amortization 3.4 1.7 - - - - 5.1
- -----------------------------------------------------------------------------
Total exploration
expenses 33.6 9.1 1.9 - 7.2 - 51.8
- -----------------------------------------------------------------------------
Selling and general expenses 6.6 2.6 1.1 .2 .9 - 11.4
Income tax provisions 10.6 .3 9.2 .3 .2 3.6 24.2
- -----------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 20.9 3.0 8.3 5.3 (7.2) 6.1 36.4
=============================================================================
*Excludes special items.
</TABLE>
11
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of security holders on May 13, 1998, the directors
proposed by management were elected with a tabulation of votes to the
nearest share as shown below.
<TABLE>
<CAPTION>
For Withheld
---------- ----------
<S> <C> <C>
B. R. R. Butler 37,718,797 619,915
George S. Dembroski 37,709,613 629,099
Claiborne P. Deming 37,696,151 642,561
H. Rodes Hart 37,710,529 628,183
Vester T. Hughes Jr. 37,717,205 621,507
C. H. Murphy Jr. 37,228,188 1,110,524
Michael W. Murphy 37,235,998 1,102,714
R. Madison Murphy 37,695,796 642,916
William C. Nolan Jr. 37,695,033 643,679
Caroline G. Theus 37,695,600 643,112
Lorne C. Webster 37,709,364 629,348
</TABLE>
In addition, the earlier appointment of KPMG Peat Marwick LLP by the
Board of Directors as independent auditors for 1998 was ratified with
38,292,323 shares voted in favor, 11,972 shares voted in opposition, and
34,417 shares not voted.
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)
August 3, 1998
(Date)
12
<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 Exhibit 4.1, Page Ex. 4.1-0,
December 6, 1989 between Murphy Oil of Murphy's Annual Report on
Corporation and Harris Trust Company Form 10-K for the year ended
of New York, as Rights Agent December 31, 1994
4.3 Amendment No. 1 dated as of April 6, Exhibit 3 of Murphy's
1998 to Rights Agreement dated as of Form 8-A/A, Amendment No. 1,
December 6, 1989 between Murphy Oil filed April 14, 1998 under the
Corporation and Harris Trust Company Securities Exchange Act of 1934
of New York, as Rights Agent
10.1 1987 Management Incentive Plan as Exhibit 10.2, Page Ex. 10.2-0,
amended February 7, 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 as 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 Only in electronic filing
six months ended June 30, 1998
Exhibits other than those listed above have been omitted since they are either
not required or not applicable.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY UNAUDITED FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998, AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,636
<SECURITIES> 0
<RECEIVABLES> 260,145
<ALLOWANCES> 12,063
<INVENTORY> 139,639
<CURRENT-ASSETS> 468,420
<PP&E> 4,534,742
<DEPRECIATION> 2,830,739
<TOTAL-ASSETS> 2,235,222
<CURRENT-LIABILITIES> 400,438
<BONDS> 268,335
0
0
<COMMON> 48,775
<OTHER-SE> 1,029,893
<TOTAL-LIABILITY-AND-EQUITY> 2,235,222
<SALES> 843,391
<TOTAL-REVENUES> 889,296
<CGS> 751,239
<TOTAL-COSTS> 751,239
<OTHER-EXPENSES> 39,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,784
<INCOME-PRETAX> 61,669
<INCOME-TAX> 23,929
<INCOME-CONTINUING> 37,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,740
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
