===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-8590
MURPHY OIL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 71-0361522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 PEACH STREET
P. O. BOX 7000, EL DORADO, ARKANSAS 71731-7000
(Address of principal executive offices) (Zip Code)
(870) 862-6411
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes No
Number of shares of Common Stock, $1.00 par value, outstanding at September
30, 1999, was 44,974,135.
===============================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 43,976 28,271
Accounts receivable, less allowance for
doubtful accounts of $10,901 in 1999
and $11,048 in 1998 317,306 233,906
Inventories
Crude oil and blend stocks 49,407 41,090
Finished products 50,871 49,714
Materials and supplies 39,285 38,973
Prepaid expenses 27,772 32,292
Deferred income taxes 17,931 13,120
--------- ---------
Total current assets 546,548 437,366
Property, plant and equipment, at cost less
accumulated depreciation, depletion and
amortization of $3,084,660 in 1999 and
$2,985,854 in 1998 1,748,088 1,662,362
Deferred charges and other assets 68,088 64,691
--------- ---------
Total assets $ 2,362,724 2,164,419
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 71 5,951
Notes payable - 1,961
Accounts payable and accrued liabilities 421,711 349,887
Income taxes 31,989 22,951
--------- ---------
Total current liabilities 453,771 380,750
Notes payable 283,797 189,705
Nonrecourse debt of a subsidiary 143,378 143,768
Deferred income taxes 144,272 124,543
Reserve for dismantlement costs 158,996 154,686
Reserve for major repairs 17,976 43,519
Deferred credits and other liabilities 152,822 149,215
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 511,316 510,116
Retained earnings 558,226 545,199
Accumulated other comprehensive loss - foreign
currency translation (8,756) (23,520)
Unamortized restricted stock awards (2,491) (2,361)
Treasury stock, 3,801,179 shares of Common
Stock in 1999, 3,824,838 shares in 1998,
at cost (99,358) (99,976)
--------- ---------
Total stockholders' equity 1,007,712 978,233
--------- ---------
Total liabilities and stockholders' equity $ 2,362,724 2,164,419
========= =========
</TABLE>
See Notes to Consolidated Financial Statements, page 4.
The Exhibit Index is on page 16.
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 Nine Months Ended
September 30, September 30,
------------------- ---------------------
1999 1998* 1999 1998*
------- ------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Crude oil and natural gas sales $130,312 80,224 315,048 240,407
Petroleum product sales 485,468 342,011 1,031,290 1,025,219
Other operating revenues 16,612 10,013 38,895 54,174
Interest and other nonoperating
revenues 1,163 1,071 3,079 2,815
------- ------- --------- ---------
Total revenues 633,555 433,319 1,388,312 1,322,615
------- ------- --------- ---------
COSTS AND EXPENSES
Crude oil, products and related
operating expenses 461,117 338,650 1,016,117 992,046
Exploration expenses, including
undeveloped lease amortization 15,438 9,567 55,471 49,527
Selling and general expenses 19,022 15,387 52,450 49,031
Depreciation, depletion and
amortization 52,241 50,914 149,281 148,757
Provision for reduction in force - - 1,513 -
Interest expense 7,553 4,891 20,870 12,861
Interest capitalized (2,328) (1,476) (4,908) (6,662)
------- ------- --------- ---------
Total costs and expenses 553,043 417,933 1,290,794 1,245,560
------- ------- --------- ---------
Income before income taxes 80,512 15,386 97,518 77,055
Federal and state income tax
expense 9,636 3,456 9,750 23,869
Foreign income tax expense 19,665 2,915 27,535 6,431
------- ------- --------- ---------
NET INCOME $ 51,211 9,015 60,233 46,755
======= ======= ========= =========
Net income per Common
share - basic $ 1.14 .20 1.34 1.04
======= ======= ========= =========
Net income per Common
share - diluted $ 1.14 .20 1.34 1.04
======= ======= ========= =========
Cash dividends per Common
share $ .35 .35 1.05 1.05
======= ======= ========= =========
Average Common shares
outstanding - basic 44,971,310 44,964,657 44,963,505 44,954,021
Average Common shares
outstanding - diluted 45,060,127 44,987,581 45,004,176 45,012,976
*Revenues have been reclassified to conform to 1999 presentation.
</TABLE>
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $ 51,211 9,015 60,233 46,755
Other comprehensive
income (loss) - net gain (loss)
from foreign currency translation 13,657 (9,169) 14,764 (17,118)
------ ------ ------ ------
COMPREHENSIVE INCOME (LOSS) $ 64,868 (154) 74,997 29,637
====== ====== ====== ======
</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>
Nine Months Ended
September 30,
------------------
1999 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 60,233 46,755
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 149,281 148,757
Provisions for major repairs 13,697 15,946
Expenditures for major repairs and dismantlement costs (42,706) (20,947)
Exploratory expenditures charged against income 47,208 41,504
Amortization of undeveloped leases 8,263 8,023
Deferred and noncurrent income tax charges 16,429 18,032
Pretax gains from disposition of assets (10,019) (761)
Other - net 12,015 6,534
------- -------
254,401 263,843
Net (increase) decrease in operating working capital
other than cash and cash equivalents (12,615) 19,696
Other adjustments related to operating activities (8,062) (1,779)
------- -------
Net cash provided by operating activities 233,724 281,760
------- -------
INVESTING ACTIVITIES
Capital expenditures requiring cash (284,275) (296,160)
Proceeds from the sale of property, plant and equipment 33,293 4,718
Other investing activities - net (3,986) (201)
------- -------
Net cash required by investing activities (254,968) (291,643)
------- -------
FINANCING ACTIVITIES
Increase in notes payable 92,198 65,322
Decrease in nonrecourse debt of a subsidiary (6,337) (4,127)
Cash dividends paid (47,206) (47,204)
Other financing activities - net (1,887) 520
------- -------
Net cash provided by financing activities 36,768 14,511
------- -------
Effect of exchange rate changes on cash and
cash equivalents 181 (37)
------- -------
Net increase in cash and cash equivalents 15,705 4,591
Cash and cash equivalents at January 1 28,271 24,288
------- -------
Cash and cash equivalents at September 30 $ 43,976 28,879
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Cash income taxes paid (refunded) $ (6,613) 29,248
Interest paid, net of amounts capitalized 8,164 4,204
</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 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, 1998. 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 September 30, 1999, and
the results of operations and cash flows for the three-month and nine-month
periods ended September 30, 1999 and 1998, 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 1998
Form 10-K report, as certain notes and other pertinent information have been
abbreviated or omitted in this report. Financial results for the nine months
ended September 30, 1999 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,
service stations, and terminals, for which known or potential obligations for
environmental remediation exist.
Under the Company's accounting policies, a liability for an environmental
obligation 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.
Following a compliance inspection in 1998, Murphy's Superior, Wisconsin
refinery received notices of violations of the Clean Air Act from the EPA.
Although the penalty amounts were not listed, the statutes involved provide
for rates of up to $27,500 per day of violation. The Superior refinery also
received a Notice of Violation from the Wisconsin Department of Natural
Resources for alleged failure to meet new source performance emission
standards for the sulfur plant at the refinery. The Company believes it has
valid defenses to these allegations and plans vigorous defenses. 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.
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 recoveries from other sources
will occur, the Company has not recognized a benefit for likely recoveries at
September 30, 1999.
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 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; restrictions on
drilling and/or production; import and export controls; price controls;
currency controls; allocation of supplies of crude oil and petroleum products
and other goods; expropriation of property; restrictions and preferences
affecting issuance of oil and gas or mineral leases; laws and regulations
intended for the promotion of safety; 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 September 30, 1999,
the Company had contingent liabilities of $63.4 million on outstanding letters
of credit and $70.9 million under certain financial guarantees.
NOTE D - DERIVATIVE INSTRUMENTS
Murphy 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. Counterparties to derivative instruments
are either creditworthy major financial institutions or 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
pretax operating results associated with crude oil swaps in "Crude Oil,
Products and Related Operating Expenses" in the Consolidated Statements of
Income.
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 certain future natural gas fuel purchases. Unrealized gains or
losses on such swap contracts are deferred until the contracts are settled and
the associated natural gas is purchased. The Company will record the related
contract results in "Crude Oil, Products and Related Operating Expenses" in
the Consolidated Statements of Income.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
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 nine-month periods ended
September 30, 1999 and 1998. Reconciliations of the weighted-average shares
outstanding for these computations are shown in the following table.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Reconciliation of Shares Three Months Ended Nine Months Ended
Outstanding September 30, September 30,
---------------------------------------------------------------------------
(Weighted-average shares) 1999 1998 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic method 44,971,310 44,964,657 44,963,505 44,954,021
Dilutive stock options 88,817 22,924 40,671 58,955
---------------------------------------------------------------------------
Diluted method 45,060,127 44,987,581 45,004,176 45,012,976
===========================================================================
</TABLE>
The following table presents additional information about outstanding options
that were not considered in calculating diluted earnings per share because
the effects of these options would have improved the Company's earnings per
share.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Information About Options Three Months Ended Nine Months Ended
at End of Periods September 30, September 30,
---------------------------------------------------------------------------
1999 1998 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total options outstanding 1,337,279 1,061,289 1,337,279 1,061,289
Options not considered in
diluted calculations 386,750 705,000 1,008,250 705,000
Exercise price per
share - maximum $ 65.49 65.49 65.49 65.49
- minimum $ 50.38 49.75 35.69 49.75
- average $ 56.12 53.25 47.72 53.25
Remaining life in
years - maximum 7.3 9.3 9.3 9.3
- minimum 7.3 8.3 7.3 8.3
- average 7.3 8.8 8.3 8.8
</TABLE>
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. As a result
of this reduction in force, the Company recorded a "Provision for Reduction in
Force" of $1.5 million, $1 million after taxes, in the Consolidated Statement
of Income for the nine months ended September 30, 1999.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
NOTE G - BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
Total Assets -------------------------------------
at Sept. 30, External Interseg. Income
(Millions of dollars) 1999 Revenues Revenues (Loss)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exploration and production*
United States $ 385.3 40.1 14.7 12.4
Canada 691.5 48.0 17.0 16.7
United Kingdom 311.6 32.8 8.1 12.7
Ecuador 59.2 8.7 - 3.8
Other 10.9 .5 - (1.8)
- -----------------------------------------------------------------------------
Total 1,458.5 130.1 39.8 43.8
- -----------------------------------------------------------------------------
Refining, marketing and
transportation
United States 541.2 410.1 1.3 7.9
United Kingdom 181.2 85.6 - 6.7
Canada 73.2 6.5 .4 1.5
- -----------------------------------------------------------------------------
Total 795.6 502.2 1.7 16.1
- -----------------------------------------------------------------------------
Total operating segments 2,254.1 632.3 41.5 59.9
Corporate and other 108.6 1.2 - (8.7)
- -----------------------------------------------------------------------------
Total consolidated $2,362.7 633.5 41.5 51.2
=============================================================================
Three Months Ended September 30, 1998
-------------------------------------
External Interseg. Income
(Millions of dollars) Revenues Revenues (Loss)
- -----------------------------------------------------------------------------
Exploration and production*
United States $ 28.9 6.8 .9
Canada 24.8 10.0 1.7
United Kingdom 23.6 - (.3)
Ecuador 4.1 - .1
Other .7 - (2.7)
- -----------------------------------------------------------------------------
Total 82.1 16.8 (.3)
- -----------------------------------------------------------------------------
Refining, marketing and
transportation
United States 284.0 .9 5.9
United Kingdom 60.8 - 5.4
Canada 5.3 .1 .9
- -----------------------------------------------------------------------------
Total 350.1 1.0 12.2
- -----------------------------------------------------------------------------
Total operating segments 432.2 17.8 11.9
Corporate and other 1.1 - (2.9)
- -----------------------------------------------------------------------------
Total consolidated $ 433.3 17.8 9.0
=============================================================================
Nine Months Ended September 30, 1999
------------------------------------
External Interseg. Income
(Millions of dollars) Revenues Revenues (Loss)
- -----------------------------------------------------------------------------
Exploration and production*
United States $ 109.6 32.6 15.5
Canada 109.6 38.4 25.3
United Kingdom 77.7 14.1 17.6
Ecuador 20.4 - 7.9
Other 1.4 - (5.6)
- -----------------------------------------------------------------------------
Total 318.7 85.1 60.7
- -----------------------------------------------------------------------------
Refining, marketing and
transportation
United States 853.0 3.4 6.5
United Kingdom 193.1 - 10.5
Canada 20.4 .6 5.2
- -----------------------------------------------------------------------------
Total 1,066.5 4.0 22.2
- -----------------------------------------------------------------------------
Total operating segments 1,385.2 89.1 82.9
Corporate and other 3.1 - (22.7)
- -----------------------------------------------------------------------------
Total consolidated $1,388.3 89.1 60.2
=============================================================================
Nine Months Ended September 30, 1998
------------------------------------
External Interseg. Income
(Millions of dollars) Revenues Revenues (Loss)
- -----------------------------------------------------------------------------
Exploration and production*
United States $ 113.7 25.3 15.8
Canada 66.6 31.2 2.0
United Kingdom 69.8 - 1.3
Ecuador 15.9 - 4.1
Other 1.9 - (12.5)
- -----------------------------------------------------------------------------
Total 267.9 56.5 10.7
- -----------------------------------------------------------------------------
Refining, marketing and
transportation
United States 831.4 2.3 27.1
United Kingdom 202.7 - 14.0
Canada 17.8 .1 3.8
- -----------------------------------------------------------------------------
Total 1,051.9 2.4 44.9
- -----------------------------------------------------------------------------
Total operating segments 1,319.8 58.9 55.6
Corporate and other 2.8 - (8.9)
- -----------------------------------------------------------------------------
Total consolidated $1,322.6 58.9 46.7
=============================================================================
*Additional details about results of exploration and production operations,
excluding special items, are presented in the tables on page 14.
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Net income in the third quarter of 1999 totaled $51.2 million, $1.14 a diluted
share, compared to $9 million, $.20 a diluted share, in the third quarter a
year ago. For the current quarter, Murphy's refining, marketing and
transportation operations recorded income from special items of $6.3 million,
$.14 a share, resulting from a gain on the sale of service stations in the
southeastern United States. Cash flow from operating activities, excluding
changes in noncash working capital items, totaled $121.6 million in the third
quarter of 1999 compared to $79.9 million a year ago.
Both net income and income before special items were at record levels in the
current quarter. A 10% increase in crude oil production and a 76% increase in
the average worldwide crude oil sales price were significant contributors to
Murphy's exploration and production operations, which had earnings of $43.8
million in the current quarter compared to a loss of $.3 million in the third
quarter of 1998. Worldwide downstream operations earned $9.8 million before
special items in the current quarter compared to $12.2 million a year ago, as
margins in the United States were under pressure throughout the quarter.
Exploration and production operations in the United States earned $12.4
million compared to $.9 million in the third quarter of 1998. Operations in
Canada earned $16.7 million compared to $1.7 million a year ago, and U.K.
operations earned $12.7 million compared to losing $.3 million. Operations in
Ecuador earned $3.8 million in the third quarter of 1999 compared to $.1
million a year ago. Other international operations reported a loss of $1.8
million compared to a $2.7 million loss a year earlier. The Company's
worldwide crude oil and condensate sales prices averaged $19.40 a barrel in
the current quarter compared to $11.00 a year ago. Crude oil and condensate
sales prices averaged $20.26 a barrel in the United States and $20.90 in the
United Kingdom, increases of 66% and 68%, respectively. In Canada, sales
prices averaged $19.57 a barrel for light oil, up 69% from last year; $15.71
for heavy oil, up 100%; $21.34 for production from the offshore Hibernia
field, up 91%; and $20.86 for synthetic oil, up 53%. The average crude oil
sales price in Ecuador was $14.32 a barrel, up 113%. Total crude oil and gas
liquids production averaged 66,980 barrels a day compared to 60,864 in the
third quarter of 1998. The increase was primarily due to production from new
fields in the United Kingdom and Canada and storm-related downtime last year
in the U.S. Gulf of Mexico. Production increased 3,173 barrels a day or 18%
in the United Kingdom, 1,587 or 30% at Hibernia, 1,719 or 25% in the United
States, and 1,191 or 12% for synthetic oil in Canada. In other areas,
production decreased 13% for Canadian light oil, 8% for Canadian heavy oil and
4% for crude oil in Ecuador. Natural gas sales prices in the United States
averaged $2.55 a thousand cubic feet (MCF) in the current quarter, an increase
of 26%, and $2.06 an MCF in Canada, an increase of 72%. Total natural gas
sales averaged 231 million cubic feet a day in the current quarter compared to
214 million a year ago. Sales of natural gas in the United States averaged
167 million cubic feet a day, up from 154 million in the third quarter of
1998, when storm-related downtime in the Gulf of Mexico reduced production.
Canadian natural gas sales averaged 58 million cubic feet a day in the current
quarter, an increase of 12%. Exploration expenses totaled $15.5 million
compared to $9.5 million in 1998. The tables on page 14 provide additional
details of the results of exploration and production operations for the third
quarter of each year.
Refining, marketing and transportation operations in the United States earned
$1.6 million before special items compared to $5.9 million a year ago.
Operations in the United Kingdom earned $6.7 million compared to $5.4 million
in the third quarter of 1998. Earnings from purchasing, transporting and
reselling crude oil in Canada were $1.5 million in the current quarter
compared to $.9 million a year ago. Murphy's refinery crude runs worldwide
averaged 167,563 barrels a day compared to 162,842 in the third quarter of
1998. Worldwide refined product sales were 179,853 barrels a day compared to
175,506 a year ago.
Corporate functions, which include interest income and expense and corporate
overhead not allocated to operating functions, reflected a loss of $8.7
million in the current quarter compared to a loss of $2.9 million in the third
quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
For the first nine months of 1999, net income totaled $60.2 million, $1.34 a
diluted share, compared to $46.7 million, $1.04 a diluted share, a year ago.
The current nine-month period included an after-tax benefit from special items
of $5.3 million, $.12 a share, while the same period a year ago included an
after-tax benefit of $4.2 million, $.09 a share. Special items in the 1999
period included the gain of $6.3 million, $.14 a share, on the sale of U.S.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
RESULTS OF OPERATIONS (CONTD.)
service stations in the third quarter, partially offset by a charge of $1
million, $.02 a share, for a reduction in force. The 1998 special items were
$2.8 million, $.06 a share, for modification of a natural gas sales contract
in the United Kingdom and $1.4 million, $.03 a share, for partial recovery of
a 1996 loss resulting from modification to a crude oil production contract in
Ecuador.
Year-to-date earnings before special items from exploration and production
operations were up $54.2 million over the prior year, mainly due to increases
in average worldwide crude oil prices and crude oil production, higher natural
gas sales, and improved Canadian natural gas sales prices, partially offset by
lower U.S. natural gas sales prices and increased exploration expenses. Year-
to-date results were unfavorably affected by a $29 million decrease in
earnings before special items for the Company's worldwide downstream
operations and an additional loss of $12.8 million from corporate functions.
Earnings from refining, marketing and transportation activities decreased
primarily because of pressure on product margins in the United States and
lower product sales volumes in the United Kingdom.
Earnings from exploration and production operations for the nine months ended
September 30, 1999 were $60.7 million, up from $6.5 million before special
items in 1998. Significant increases from the prior year occurred in Canada,
which had earnings of $25.3 million compared to $2 million in 1998; in the
United Kingdom, which had earnings of $17.6 million compared to a loss of $1.5
million before special items; and in Ecuador, which had earnings of $7.9
million compared to $2.7 million before special items. Operations in the
United States earned $15.5 million for the 1999 period compared to $15.8
million a year ago, and other international operations recorded losses of $5.6
million in the first nine months of 1999 and $12.5 million in the 1998 period.
The Company's worldwide crude oil and condensate sales prices averaged $14.93
a barrel in 1999 compared to $11.17 a year ago. Crude oil and condensate
sales prices averaged $16.10 a barrel in the United States, up 22%, and $15.86
in the United Kingdom, up 21%. In Canada, sales prices averaged $15.27 a
barrel for light oil, up 25% from last year; $11.62 for heavy oil, up 86%;
$16.77 for Hibernia field production, up 43%; and $16.90 for synthetic oil, up
19%. The average crude oil sales price in Ecuador was $10.49 a barrel, up
46%. Crude oil and gas liquids production for the 1999 period averaged 65,373
barrels a day compared to 56,491 during the first nine months of 1998.
Production of crude oil and gas liquids in the United Kingdom averaged 20,146
barrels a day, up 42%, and crude oil production at Hibernia averaged 5,918
barrels a day, up 74%. In other areas, crude oil and gas liquids production
averaged 11,164 barrels a day for Canadian synthetic oil, up 9%; 8,558 in the
United States, up 10%; 8,874 for Canadian heavy oil, down 7%; 3,536 for
Canadian light oil, down 9%; and 7,177 in Ecuador, down 3%. Total natural gas
sales averaged 243 million cubic feet a day in 1999 compared to 231 million in
1998. Sales of natural gas in the United States averaged 176 million cubic
feet a day, up 2%. In other areas, average natural gas sales volumes in
Canada were 56 million cubic feet a day, up 17%, and 11 million in the United
Kingdom, up 7%. Natural gas sales prices for the first nine months of 1999
averaged $2.16 an MCF in the United States, down 3%; $1.79 in Canada, up 48%;
and $1.65 in the United Kingdom, down 31%. Exploration expenses totaled $55.5
million for the nine months ended September 30, 1999, compared to $49.5
million a year ago. The tables on page 14 provide additional details of the
results of exploration and production operations for the first nine months of
each year.
Refining, marketing and transportation operations in the United States were
affected by lower product margins and earned only $.2 million before special
items in the first nine months of 1999 compared to $27.1 million for the same
period last year. Operations in the United Kingdom were affected by lower
product sales volumes and earned $10.5 million in the 1999 period compared to
$14 million in the prior year. Earnings from purchasing, transporting and
reselling crude oil in Canada were $5.2 million in the current year compared
to $3.8 million a year ago. The Company's refinery crude runs worldwide were
140,312 barrels a day compared to 164,722 a year ago. Worldwide petroleum
product sales averaged 153,869 barrels a day, down from 174,075 in 1998.
Crude runs and product sales were both adversely affected by a scheduled
turnaround at the Company's Meraux, Louisiana refinery in early 1999.
Financial results from corporate functions reflected a loss of $21.7 million
before special items in the first nine months of 1999 compared to a loss of
$8.9 million a year ago. The additional loss was primarily due to higher net
interest expense.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
FINANCIAL CONDITION
Net cash provided by operating activities was $233.7 million for the first
nine months of 1999 compared to $281.8 million for the same period in 1998.
Changes in operating working capital other than cash and cash equivalents
required cash of $12.6 million in the first nine months of 1999, but provided
cash of $19.7 million in the 1998 period. The cash results for operating
activities were reduced by expenditures for refinery turnarounds and
abandonment of oil and gas properties totaling $42.7 million in the current
year and $20.9 million in 1998. Investing activities included $33.3 million
provided by proceeds from the sale of property, plant and equipment in 1999
compared to $4.7 million in the 1998 period. Other predominant uses of cash
in both years were for capital expenditures (which, including amounts
expensed, are summarized in the following table) and for dividends of $47.2
million.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Capital Expenditures Nine Months Ended September 30,
-----------------------------------------------------------------------
(Millions of dollars) 1999 1998
-----------------------------------------------------------------------
<S> <C> <C>
Exploration and production . . . . . . . . . . $216.4 256.8
Refining, marketing and transportation . . . . 66.2 37.6
Corporate and other. . . . . . . . . . . . . . 1.7 1.8
-----------------------------------------------------------------------
$284.3 296.2
=======================================================================
</TABLE>
Working capital at September 30, 1999 was $92.8 million, up $36.2 million from
December 31, 1998. 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 $105.5 million below current costs at
September 30, 1999.
At September 30, 1999, long-term notes payable of $283.8 million were up $94.1
million due to additional borrowing for certain oil and gas development
projects and other capital needs. In May 1999, Murphy issued $250 million of
30-year, 7.05% notes and used the proceeds to retire floating rate debt with
shorter maturities. Long-term nonrecourse debt of a subsidiary was $143.4
million, down slightly from December 31, 1998. A summary of capital employed
at September 30, 1999 and December 31, 1998 follows.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Capital Employed September 30, 1999 December 31, 1998
---------------------------------------------------------------------------
(Millions of dollars) Amount % Amount %
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notes payable. . . . . . . . . . . $ 283.8 20 189.7 14
Nonrecourse debt of a subsidiary . 143.4 10 143.8 11
Stockholders' equity . . . . . . . 1,007.7 70 978.2 75
---------------------------------------------------------------------------
$1,434.9 100 1,311.7 100
===========================================================================
</TABLE>
In July 1999, Murphy sold 60 Company-owned Spur-branded retail stations
located throughout the southeastern United States. The Company received
consideration totaling $31.5 million, which was primarily used to reduce
outstanding debt.
In August 1999, Murphy filed a registration statement, which was declared
effective September 13, 1999 by the U.S. Securities and Exchange Commission
and allows the Company to issue up to $1 billion in common and preferred
stock, debt securities, depositary shares and warrants. Any proceeds from
sales of these securities will be used for general corporate purposes, which
may include working capital, capital expenditures, debt repayment or financing
of possible acquisitions.
NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) 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 a cumulative effect of a change in accounting
principle. As described in 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
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
NEW ACCOUNTING STANDARD (CONTD.)
will have on its future consolidated financial statements or the amount of the
cumulative adjustment that will be made upon adopting this new standard.
YEAR 2000 ISSUES
GENERAL - Year 2000 issues affect all companies and relate to the possibility
that computer programs and embedded computer chips may be unable to accurately
process data with year dates of 2000 and beyond. Murphy has devoted
significant internal and external resources to address Year 2000 compliance,
and the Company's Year 2000 project (Project) is nearing completion. In 1993,
Murphy began a worldwide business systems replacement project using systems
primarily from J.D. Edwards & Company (Edwards) in the United States and the
United Kingdom, PricewaterhouseCoopers LLP (PW*Sequel) in Canada, and for
exploration and production operations, Applied Terravision Systems Inc.
(Artesia) in the United States and EFA Software Services Ltd. (PRISM) in
Canada. Certain U.S. business software systems developed by the Company will
not be replaced with compliant vendor systems by the end of 1999 and have been
remedied to be Year 2000 ready. Remaining hardware, software and facilities
are expected to be made Year 2000 ready through the Project. None of the
Company's other information technology projects are expected to be
significantly delayed due to the implementation of the Project.
PROJECT - The Company has an Enterprise Project Office (EPO) and has used KPMG
LLP to assist with Project management. The Project is primarily being managed
by major operating location. At each location, the Project is divided into
three major components: Computer Hardware, Applications Software, and Process
Control and Instrumentation (Embedded Technology). The Computer Hardware
component consists of computing equipment and systems software other than
Applications Software. Applications Software includes both internally
developed and vendor software systems. Embedded Technology includes the
hardware, software and associated embedded computer chips (other than
computing equipment) that are used in facilities operated by the Company. The
general phases common to all components are: (1) inventorying Year 2000
items, (2) assigning priorities to identified items, (3) assessing the Year
2000 compliance of identified items, (4) repairing or replacing material items
that are determined not to be Year 2000 compliant, (5) evaluating and testing
required material items, and (6) designing and implementing contingency and
business continuation plans as necessary. Material items are those that the
Company believes to have safety, environmental or property damage risks, or
that may adversely affect the Company's ability to process and record revenues
if not properly addressed. The inventorying and priority assessment phases of
the Project were completed during 1998. The other phases of the Project have
been addressed throughout 1998 and 1999 and were nearly complete at October
31, 1999. These phases were performed primarily by employees of the Company,
with assistance from vendors and independent contractors.
A fourth major component of the Project involves the review of third party
suppliers, customers and business partners (Third Parties) and is being
managed for all locations by the EPO. This includes the process of
identifying and prioritizing critical Third Parties and communicating with
them about their plans and progress in addressing the Year 2000 problem.
Evaluations of the most critical Third Parties began in the second quarter of
1998 and will continue throughout 1999. Based on the results of evaluations
and other available information, contingency plans have been developed as
necessary to address potential Year 2000 problems related to critical Third
Parties.
The Company engaged an engineering firm to perform independent evaluations of
the Company's Year 2000 readiness at selected U.S. operating sites during the
second and third quarters of 1999. Although these selected evaluations did
not uncover any significant shortcomings in Year 2000 preparedness, their
findings have been considered at other operating sites.
A Year 2000 compliant version of Edwards has been fully implemented in the
United States, and implementation is essentially complete in the United
Kingdom. The final phases of the Edwards implementation in the United Kingdom
became operational with October 1999 transactions. PW*Sequel, Artesia and
Prism systems are Year 2000 ready. Certain internally developed downstream
accounting, customer invoicing and human resources systems in the United
States were remedied in 1998. Systems at other major facilities operated by
the Company, including those located at U.S. offshore production platforms,
various exploration offices, U.S. refineries and marketing sites, U.K.
marketing sites, and Canadian supply and transportation facilities are also
Year 2000 ready. The operator at the Company's jointly owned U.K. refinery is
directing that location's Year 2000 action plan and has reported that the
project was essentially complete at October 31, 1999.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
YEAR 2000 ISSUES (CONTD.)
Murphy maintains comprehensive disaster recovery plans for significant
worldwide operating facilities. In addition to these plans, the Company has
developed Year 2000 specific contingency plans in operating areas that are
deemed critical. Contingency plans will be monitored throughout the remainder
of 1999, and are likely to include accumulating higher than normal levels of
crude oil, finished products and critical supplies for short-term needs;
addressing potential failures of critical operating and administrative
systems; and identifying alternative providers of services and supplies for
the Company's longer-term needs. The Company will supplement its normal
emergency response teams to assist with Year 2000 transition issues that may
arise, and staffing will be increased at certain locations during the critical
year-end period. Additionally, Murphy is monitoring the state of its
partner's contingency planning at the jointly owned U.K. refinery.
COSTS - The Company's total cost to become Year 2000 compliant is not expected
to be material to its financial position. The most likely estimate of the
cost of the Project is approximately $5 million, including certain costs for
new systems that concurrently provide improved business functionality and Year
2000 compliance. The total cost estimate includes $2 million for the EPO
(including assessment of Third Parties); the remaining costs are for
miscellaneous hardware replacement, noncompliant system renovations and
upgrades, and Embedded Technology issues. It is reasonably possible that
total costs could exceed the most likely estimate by up to $1 million. Funds
for the Project are primarily obtained from internally generated cash flows.
This cost estimate does not include the Company's potential share of Year 2000
costs that may be incurred by partnerships and joint ventures that the Company
does not operate, except for an estimated $.8 million to make Murphy's jointly
owned U.K. refinery Year 2000 compliant.
The total amount expended on the Project through September 30, 1999 was $3.9
million, including $2.3 million in the first nine months of 1999. Of this
amount, $2.3 million has been included in expense, including $.7 million in
the first nine months of 1999, and costs of $1.6 million have been capitalized
as improvements in business functionality beyond Year 2000 compliance. The
remaining cost for the Project is estimated to be approximately $1.1 million.
RISKS - Not correcting material Year 2000 problems could result in
interruptions in, or failures of, certain normal business activities or
operations. It is possible that such failures could materially and adversely
affect the Company's results of operations, liquidity or financial condition
by impeding the Company's ability to produce and deliver crude oil, natural
gas and finished petroleum products, and to invoice and collect related
revenues from customers. Under the Company's most reasonably likely
worst-case scenario, certain operations may be disrupted on a short-term
basis. The Company does not believe such disruptions, if any, will be either
long-term in nature or of major consequence to its operations. The Company
cannot completely eliminate, however, the possibility of significant
disruptions.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from uncertainty about the Year 2000 readiness of critical Third Parties,
the Company is unable to determine at this time whether or not the
consequences of possible Year 2000 failures will materially affect its results
of operations, liquidity or financial condition. The Project is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
issue, and in particular, about the Year 2000 compliance and readiness of the
Company's critical Third Parties. The Company believes that it has taken
reasonable steps to address potentially material Year 2000 failures, and the
possibility of significant interruptions of normal operations has been greatly
reduced.
Readers are cautioned that forward-looking statements contained in this Year
2000 section should be read in conjunction with Murphy's disclosures in the
following paragraph of this Form 10-Q report.
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 on file with the U.S.
Securities and Exchange Commission.
12
<PAGE>
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
risks associated with existing or anticipated transactions.
At September 30, 1999, the Company was a party to interest rate swaps with
notional amounts totaling $100 million that were designed to convert a similar
amount of variable-rate debt to fixed rates. The interest rate 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 September 30, 1999, the
interest rate to be received by the Company averaged 5.35%. 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. At September 30, 1999, the
estimated fair value to settle these interest rate swaps was a cost of $1.2
million.
At September 30, 1999, 34% of the Company's long-term debt had variable
interest rates and 24% was denominated in Canadian dollars. Based on debt
outstanding at September 30, 1999, a 10% increase in variable interest rates
would increase the Company's interest expense over the next 12 months by an
estimated $.3 million after a $.5 million favorable effect of lower net
settlement payments under the aforementioned interest rate swaps. A 10%
increase in the exchange rate of the Canadian dollar versus the U.S. dollar
would increase interest expense over the next 12 months by an estimated $.4
million.
At September 30, 1999, the Company was a party to crude oil swap agreements
for a total notional volume of 2.3 million barrels that reduce a portion of
the financial exposure of Murphy's U.S. refineries to crude oil price
movements. The agreements mature in 2001 and 2002. At termination, the swaps
require Murphy to pay an average crude oil price of $16.76 a barrel and to
receive the average of the near-month NYMEX West Texas Intermediate (WTI)
crude oil prices during the respective contractual maturity periods. At
September 30, 1999, the estimated fair value to settle these crude oil swaps
was a gain of $2.3 million; a 10% fluctuation in the price of WTI crude oil
over the next 12 months would change the estimated fair value of these swaps
by $3.5 million.
At September 30, 1999, Murphy was also a party to natural gas price 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 September 30, 1999, the
estimated fair value of these agreements was a gain of $.5 million; a 10%
fluctuation in the average NYMEX Henry Hub price of natural gas over the next
12 months would change the estimated fair value by $1.4 million.
13
<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
SEPTEMBER 30, 1999
Oil and gas sales and
operating revenues $ 54.8 43.2 40.9 8.7 .5 21.8 169.9
Production costs 8.7 10.6 7.2 3.0 - 8.9 38.4
Depreciation, depletion
and amortization 16.5 11.4 10.4 1.9 - 1.8 42.0
Exploration expenses
Dry hole costs 3.0 1.8 - - - - 4.8
Geological and geophysical
costs 1.2 3.1 .6 - .2 - 5.1
Other costs .6 .3 .2 - 1.7 - 2.8
- -----------------------------------------------------------------------------
4.8 5.2 .8 - 1.9 - 12.7
Undeveloped lease
amortization 1.8 1.0 - - - - 2.8
- -----------------------------------------------------------------------------
Total exploration
expenses 6.6 6.2 .8 - 1.9 - 15.5
- -----------------------------------------------------------------------------
Selling and general expenses 4.1 1.2 .7 - .3 - 6.3
Income tax provisions 6.5 4.5 9.1 - .1 3.7 23.9
- -----------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 12.4 9.3 12.7 3.8 (1.8) 7.4 43.8
=============================================================================
THREE MONTHS ENDED
SEPTEMBER 30, 1998
Oil and gas sales and
operating revenues $ 35.7 22.1 23.6 4.1 .7 12.7 98.9
Production costs 12.3 8.1 9.5 1.6 - 8.8 40.3
Depreciation, depletion
and amortization 15.5 10.3 11.2 2.4 - 1.5 40.9
Exploration expenses
Dry hole costs .4 1.0 - - - - 1.4
Geological and geophysical
costs .1 .7 .2 - 2.7 - 3.7
Other costs .8 .3 .4 - .3 - 1.8
- -----------------------------------------------------------------------------
1.3 2.0 .6 - 3.0 - 6.9
Undeveloped lease
amortization 1.7 .8 .1 - - - 2.6
- -----------------------------------------------------------------------------
Total exploration
expenses 3.0 2.8 .7 - 3.0 - 9.5
- -----------------------------------------------------------------------------
Selling and general expenses 3.8 1.3 1.1 - .3 .1 6.6
Income tax provisions
(benefits) .2 (.5) 1.4 - .1 .7 1.9
- -----------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ .9 .1 (.3) .1 (2.7) 1.6 (.3)
=============================================================================
NINE MONTHS ENDED
SEPTEMBER 30, 1999
Oil and gas sales and
operating revenues $142.2 96.5 91.8 20.4 1.4 51.5 403.8
Production costs 28.2 28.0 24.3 6.4 - 27.0 113.9
Depreciation, depletion
and amortization 48.5 31.0 31.2 6.0 - 5.3 122.0
Exploration expenses
Dry hole costs 16.5 3.8 2.3 - 1.1 - 23.7
Geological and
geophysical costs 7.0 7.3 1.2 - 1.7 - 17.2
Other costs 1.8 .6 .8 - 3.1 - 6.3
- -----------------------------------------------------------------------------
25.3 11.7 4.3 - 5.9 - 47.2
Undeveloped lease
amortization 5.3 3.0 - - - - 8.3
- -----------------------------------------------------------------------------
Total exploration
expenses 30.6 14.7 4.3 - 5.9 - 55.5
- -----------------------------------------------------------------------------
Selling and general expenses 12.0 4.2 2.3 .1 .8 - 19.4
Income tax provisions 7.4 6.1 12.1 - .3 6.4 32.3
- -----------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 15.5 12.5 17.6 7.9 (5.6) 12.8 60.7
=============================================================================
NINE MONTHS ENDED
SEPTEMBER 30, 1998
Oil and gas sales and
operating revenues $139.0 57.6 65.8 14.5 1.9 40.2 319.0
Production costs 32.0 25.8 25.1 5.1 - 25.7 113.7
Depreciation, depletion
and amortization 50.9 26.7 30.1 7.4 - 4.7 119.8
Exploration expenses
Dry hole costs 11.4 4.2 - - 8.3 - 23.9
Geological and geophysical
costs 2.4 3.6 2.8 - 3.7 - 12.5
Other costs 1.7 .6 1.4 - 1.4 - 5.1
- -----------------------------------------------------------------------------
15.5 8.4 4.2 - 13.4 - 41.5
Undeveloped lease
amortization 4.9 3.0 .1 - - - 8.0
- -----------------------------------------------------------------------------
Total exploration
expenses 20.4 11.4 4.3 - 13.4 - 49.5
- -----------------------------------------------------------------------------
Selling and general expenses 11.9 4.5 2.8 .1 1.1 .1 20.5
Income tax provisions
(benefits) 8.0 (6.2) 5.0 (.8) (.1) 3.1 9.0
- -----------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ 15.8 (4.6) (1.5) 2.7 (12.5) 6.6 6.5
=============================================================================
*Excludes special items.
</TABLE>
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Following a 1998 compliance inspection of the Superior, Wisconsin
refinery, the Company received notices of violations of the Clean Air Act
from the U.S. Environmental Protection Agency. Although the penalty
amounts were not listed, the statutes involved provide for rates of up to
$27,500 per day of violation. The Superior refinery also received a
Notice of Violation from the Wisconsin Department of Natural Resources
for alleged failure to meet new source performance emission standards for
the sulfur plant at the refinery. Penalties for these alleged violations
could exceed $100,000. The Company believes it has valid defenses to the
alleged violations and plans vigorous defenses. While the notices of
violation are preliminary in nature and no assurance can be given, the
Company does not believe that the ultimate resolution of these matters
will have a material adverse effect on the financial condition of the
Company.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibit Index on page 16 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 ended
September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MURPHY OIL CORPORATION
(Registrant)
By /s/ Ronald W. Herman
--------------------
Ronald W. Herman, Controller
(Chief Accounting Officer and Duly
Authorized Officer)
November 10, 1999
(Date)
15
<PAGE>
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 ended
September 25, 1986 December 31, 1996
3.2 By-laws of Murphy Oil Corporation Exhibit 3.3 of Murphy's Form
as amended May 12, 1999 10-Q report for the quarterly
period ended June 30, 1999
4 Instruments Defining the Rights of
Security Holders. Murphy is party
to several long-term debt instruments
in addition to the ones below, 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 Oil Exhibit 4.1 of Murphy's Form
Corporation and certain subsidiaries 10-K report for the year ended
and the Chase Manhattan Bank et al as December 31, 1997
of November 13, 1997
4.2 Form of Indenture and Form of Exhibits 4.1 and 4.2 of
Supplemental Indenture between Murphy Murphy's Form 8-K report filed
Oil Corporation and SunTrust Bank, April 29, 1999 under the
Nashville, N.A., as Trustee Securities Exchange Act of
1934
4.3 Rights Agreement dated as of Exhibit 4.1 of Murphy's Form
December 6, 1989 between Murphy Oil 10-K report for the year
Corporation and Harris Trust Company ended December 31, 1994
of New York, as Rights Agent
4.4 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
4.5 Amendment No. 2 dated as of April 15, Exhibit 4 of Murphy's Form
1999 to Rights Agreement dated as of 8-A/A, Amendment No. 2, filed
December 6, 1989 between Murphy Oil April 19, 1999 under the
Corporation and Harris Trust Company Securities Exchange Act of
of New York, as Rights Agent 1934
10.1 1987 Management Incentive Plan as Exhibit 10.2 of Murphy's Form
amended February 7, 1990 retroactive 10-K report for the year ended
to February 3, 1988 December 31, 1994
10.2 1992 Stock Incentive Plan as amended Exhibit 10.2 of Murphy's Form
May 14, 1997 10-Q report 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 nine Filed herewith in electronic
months ended September 30, 1999 filing
Exhibits other than those listed above have been omitted since they are either
not required or not applicable.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY UNAUDITED FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999, AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 43,976
<SECURITIES> 0
<RECEIVABLES> 328,207
<ALLOWANCES> 10,901
<INVENTORY> 139,563
<CURRENT-ASSETS> 546,548
<PP&E> 4,832,748
<DEPRECIATION> 3,084,660
<TOTAL-ASSETS> 2,362,724
<CURRENT-LIABILITIES> 453,771
<BONDS> 427,175
0
0
<COMMON> 48,775
<OTHER-SE> 958,937
<TOTAL-LIABILITY-AND-EQUITY> 2,362,724
<SALES> 1,346,338
<TOTAL-REVENUES> 1,388,312
<CGS> 1,165,398
<TOTAL-COSTS> 1,165,398
<OTHER-EXPENSES> 56,984<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,962
<INCOME-PRETAX> 97,518
<INCOME-TAX> 37,285
<INCOME-CONTINUING> 60,233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,233
<EPS-BASIC> 1.34
<EPS-DILUTED> 1.34
<FN>
<F1>Includes 1,513 provision for reduction in force.
</FN>
</TABLE>
