=================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-8590
MURPHY OIL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 71-0361522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 PEACH STREET
P. O. Box 7000, EL DORADO, ARKANSAS 71731-7000
(Address of principal executive offices) (Zip Code)
(870) 862-6411
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ]No
Number of shares of Common Stock, $1.00 par value, outstanding at
March 31, 2000, was 45,012,217.
=================================================================
<PAGE>
PART I FINANCIAL INFORMATION
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
2000 1999
--------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 54,246 34,132
Accounts receivable, less allowance for
doubtful accounts of $8,506 in 2000 and
$8,298 in 1999 352,100 357,472
Inventories
Crude oil and blend stocks 56,887 61,853
Finished products 79,846 50,572
Materials and supplies 41,552 39,218
Prepaid expenses 35,504 28,145
Deferred income taxes 22,054 21,720
--------- ---------
Total current assets 642,189 593,112
Property, plant and equipment, at cost less
accumulated depreciation, depletion and
amortization of $3,045,355 in 2000 and
$3,007,578 in 1999 1,810,447 1,782,741
Deferred charges and other assets 67,624 69,655
--------- ---------
Total assets $ 2,520,260 2,445,508
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 71 71
Accounts payable and accrued liabilities 491,958 449,269
Income taxes 43,176 38,295
--------- ---------
Total current liabilities 535,205 487,635
Notes payable 248,546 248,569
Nonrecourse debt of a subsidiary 144,323 144,595
Deferred income taxes 156,698 154,109
Reserve for dismantlement costs 158,714 158,377
Reserve for major repairs 23,078 22,099
Deferred credits and other liabilities 168,369 172,952
Stockholders' equity
Cumulative Preferred Stock, par $100,
authorized 400,000 shares, none issued - -
Common Stock, par $1.00, authorized 80,000,000
shares, issued 48,775,314 shares 48,775 48,775
Capital in excess of par value 512,953 512,488
Retained earnings 633,635 601,956
Accumulated other comprehensive loss - foreign
currency translation (9,630) (4,984)
Unamortized restricted stock awards (2,042) (2,328)
Treasury stock, 3,763,097 shares of Common
Stock in 2000, 3,777,319 shares in 1999,
at cost (98,364) (98,735)
--------- ---------
Total stockholders' equity 1,085,327 1,057,172
--------- ---------
Total liabilities and
stockholders' equity $ 2,520,260 2,445,508
========= =========
</TABLE>
See Notes to Consolidated Financial Statements, page 4.
The Exhibit Index is on page 12.
1
<PAGE>
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
2000 1999
------- -------
<S> <C> <C>
REVENUES
Crude oil and natural gas sales $ 145,414 84,063
Petroleum product sales 569,431 205,147
Other operating revenues 12,612 13,669
Interest and other nonoperating revenues 1,209 1,387
------- -------
Total revenues 728,666 304,266
------- -------
COSTS AND EXPENSES
Crude oil, products and related
operating expenses 534,581 220,015
Exploration expenses, including undeveloped
lease amortization 47,858 26,339
Selling and general expenses 17,860 16,526
Depreciation, depletion and amortization 52,849 46,595
Provision for reduction in force - 1,513
Interest expense 6,793 5,616
Interest capitalized (3,198) (1,145)
------- -------
Total costs and expenses 656,743 315,459
------- -------
Income (loss) before income taxes 71,923 (11,193)
Federal and state income tax expense (benefit) (4,775) (3,006)
Foreign income tax expense (benefit) 29,265 (1,489)
------- -------
NET INCOME (LOSS) $ 47,433 (6,698)
======= =======
Net income (loss) per Common share - basic $ 1.05 (.15)
======= =======
Net income (loss) per Common share - diluted $ 1.05 (.15)
======= =======
Cash dividends per Common share $ .35 .35
======= =======
Average Common shares outstanding - basic 45,009,089 44,955,013
Average Common shares outstanding - diluted 45,159,265 44,955,013
</TABLE>
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
2000 1999
------- -------
<S> <C> <C>
Net income (loss) $ 47,433 (6,698)
Other comprehensive loss - net loss from
foreign currency translation (4,646) (2,228)
------ ------
COMPREHENSIVE INCOME (LOSS) $ 42,787 (8,926)
====== ======
</TABLE>
See Notes to Consolidated Financial Statements, page 4.
2
<PAGE>
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income(loss) $ 47,433 (6,698)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation, depletion and amortization 52,849 46,595
Provisions for major repairs 5,593 2,416
Expenditures for major repairs and dismantlement
costs (5,654) (28,316)
Exploratory expenditures charged against income 44,863 23,720
Amortization of undeveloped leases 2,995 2,619
Deferred and noncurrent income tax charges 3,852 7,820
Pretax gains from disposition of assets (541) (61)
Other - net 495 3,311
------- -------
151,885 51,406
Net (increase) decrease in operating working
capital other than cash and cash equivalents 18,607 (57,362)
Other adjustments related to operating activities (1,912) (3,471)
------- -------
Net cash provided (required) by operating
activities 168,580 (9,427)
------- -------
INVESTING ACTIVITIES
Capital expenditures requiring cash (135,842) (94,165)
Proceeds from sale of property, plant and equipment 4,360 984
Other investing activities - net (10) (593)
------- -------
Net cash required by investing activities (131,492) (93,774)
------- -------
FINANCING ACTIVITIES
Increase (decrease) in notes payable (23) 111,382
Decrease in nonrecourse debt of a subsidiary (272) (4,888)
Cash dividends paid (15,754) (15,734)
Other financing activities - net 163 226
------- -------
Net cash provided (required) by
financing activities (15,886) 90,986
------- -------
Effect of exchange rate changes on cash and
cash equivalents (1,088) (544)
------- -------
Net increase (decrease) in cash and cash equivalents 20,114 (12,759)
Cash and cash equivalents at January 1 34,132 28,271
------- -------
Cash and cash equivalents at March 31 $ 54,246 15,512
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Cash income taxes paid (refunded) $ 14,220 (3,821)
Interest paid, net of amounts capitalized (649) 3,004
</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, 1999. In the opinion of Murphy's management,
the unaudited financial statements presented herein include all accruals
necessary to present fairly the Company's financial position at March 31,
2000, and the results of operations and cash flows for the three-month
periods ended March 31, 2000 and 1999, in conformity with generally
accepted accounting principles.
Financial statements and notes to consolidated financial statements
included in this Form 10-Q report should be read in conjunction with the
Company's 1999 Form 10-K report, as certain notes and other pertinent
information have been abbreviated or omitted in this report. Financial
results for the three months ended March 31, 2000 are not necessarily
indicative of future results.
NOTE B - ENVIRONMENTAL CONTINGENCIES
The Company's operations are subject to numerous laws and regulations
intended to protect the environment and/or impose remedial obligations.
The Company is also involved in personal injury and property damage claims,
allegedly caused by exposure to or by the release or disposal of materials
manufactured or used in the Company's operations. The Company operates or
has previously operated certain sites and facilities, including refineries,
oil and gas fields, gasoline stations, and terminals, for which known or
potential obligations for environmental remediation exist.
Under the Company's accounting policies, an environmental liability is
recorded when an obligation is probable and the cost can be reasonably
estimated. If there is a range of reasonably estimated costs, the most
likely amount will be recorded, or if no amount is most likely, the minimum
of the range is used. Recorded liabilities are reviewed quarterly. Actual
cash expenditures often occur one or more years after a liability is
recognized.
The Company's reserve for remedial obligations, which is included in
"Deferred Credits and Other Liabilities" in the Consolidated Balance
Sheets, contains certain amounts that are based on anticipated regulatory
approval for proposed remediation of former refinery waste sites. If
regulatory authorities require more costly alternatives than the proposed
processes, future expenditures could exceed the amount reserved by up to an
estimated $3 million.
The Company has received notices from the U.S. Environmental Protection
Agency (EPA) that it is currently considered a Potentially Responsible
Party (PRP) at three Superfund sites and has also been assigned
responsibility by defendants at another Superfund site. The potential
total cost to all parties to perform necessary remedial work at these sites
may be substantial. Based on currently available information, the Company
has reason to believe that it is a "de minimus" party as to ultimate
responsibility at the four sites. The Company does not expect that its
related remedial costs will be material to its financial condition or its
results of operations, and it has not provided a reserve for remedial costs
on Superfund sites. Additional information may become known in the future
that would alter this assessment, including any requirement to bear a pro
rata share of costs attributable to nonparticipating PRPs or indications of
additional responsibility by the Company.
Following a 1998 compliance inspection of the Superior, Wisconsin refinery,
the EPA gave the Company notices of violation of environmental laws.
Although the penalty amounts were not listed, the statutes involved provide
for rates of up to $27,500 per day of violation. The EPA has referred the
matter to the U.S. Department of Justice for enforcement. 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. This item has
been referred to the Wisconsin Department of Justice for enforcement. The
Company believes it has valid defenses to these allegations and plans
vigorous defenses. While the enforcement actions are in their preliminary
stages and no assurance can be given, the Company does not believe that
these or other known environmental matters will have a material adverse
effect on its financial condition. There is the possibility that
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
NOTE B - ENVIRONMENTAL CONTINGENCIES (CONTD.)
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 future recoveries
from other sources will occur, the Company has not recognized a benefit for
likely recoveries at March 31, 2000.
NOTE C - OTHER CONTINGENCIES
The Company's operations and earnings have been and may be affected by
various other forms of governmental action both in the United States and
throughout the world. Examples of such governmental action include, but
are by no means limited to: tax increases and retroactive tax claims;
import and export controls; price controls; currency controls; allocation
of supplies of crude oil and petroleum products and other goods;
expropriation of property; restrictions and preferences affecting the
issuance of oil and gas or mineral leases; restrictions on drilling and/or
production; laws and regulations intended for the promotion of safety;
governmental support for other forms of energy; and laws and regulations
affecting the Company's relationships with employees, suppliers, customers,
stockholders and others. Because governmental actions are often motivated
by political considerations, may be taken without full consideration of
their consequences, and may be taken in response to actions of other
governments, it is not practical to attempt to predict the likelihood of
such actions, the form the actions may take or the effect such actions may
have on the Company.
The Company and its subsidiaries are engaged in a number of legal
proceedings, all of which the Company considers routine and incidental to
its business and none of which is considered material. In the normal
course of its business, the Company is required under certain contracts
with various governmental authorities and others to provide letters of
credit that may be drawn upon if the Company fails to perform under those
contracts. At March 31, 2000, the Company had contingent liabilities of
$52.9 million on outstanding letters of credit and $68.4 million under
certain financial guarantees.
NOTE D - DERIVATIVE INSTRUMENTS
The Company uses derivative instruments on a limited basis to manage
certain risks related to interest rates, foreign currency exchange rates
and commodity prices. Instruments that reduce the exposure of assets,
liabilities or anticipated transactions to interest rate, currency or price
risks are accounted for as hedges. Gains or losses on derivatives that
cease to qualify as hedges are recognized in income or expense. The use of
derivative instruments for risk management is covered by operating policies
and is closely monitored by the Company's senior management. The Company
does not hold any derivatives for trading purposes, and it does not use
derivatives with leveraged or complex features. Derivative instruments
are traded either with creditworthy major financial institutions or over
national exchanges.
Murphy uses interest rate swap agreements to convert certain variable rate
long-term debt to fixed rates. Under the accrual/settlement method of
accounting, the Company records the net amount to be received or paid under
the swap agreements as part of "Interest Expense" in the Consolidated
Statements of Income. If the Company should terminate an interest rate
swap prior to maturity, any cash paid or received as settlement would be
deferred and recognized as an adjustment to "Interest Expense" over the
shorter of the remaining life of the debt or the remaining contractual life
of the swap.
The Company periodically uses crude oil swap agreements to reduce a portion
of the financial exposure of its U.S. refineries to crude oil price
movements. Unrealized gains or losses on such swap contracts are generally
deferred and recognized in connection with the associated crude oil
purchase. If conditions indicate that the market price of finished
products would not allow for recovery of the costs of the finished
products, including any unrealized loss on the crude oil swap, a liability
will be provided for the nonrecoverable portion of the unrealized swap
loss. The Company records the pretax contract results in "Crude Oil,
Products and Related Operating Expenses" in the Consolidated Statements of
Income.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
NOTE D - DERIVATIVE INSTRUMENTS (CONTD.)
The Company periodically uses natural gas swap agreements to reduce a
portion of the financial exposure of its Meraux, Louisiana refinery to
fluctuations in the price of future natural gas fuel purchases. Unrealized
gains or losses on such swap contracts are deferred and recognized in
connection with the associated fuel purchases. The Company records the
pretax contract results in "Crude Oil, Products and Related Operating
Expenses" in the Consolidated Statements of Income.
NOTE E - EARNINGS PER SHARE
Net income (loss) was used as the numerator in computing both basic and
diluted income (loss) per Common share for the three months ended March 31,
2000 and 1999. The following table reconciles the weighted-average shares
outstanding used for these computations.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Reconciliation of Shares Outstanding Three Months Ended
March 31,
-------------------------------------------------------------------
(Weighted-average shares) 2000 1999
-------------------------------------------------------------------
<S> <C> <C>
Basic method . . . . . . . . . . . . . . . 45,009,089 44,955,013
Dilutive stock options . . . . . . . . . . 150,176 -
-------------------------------------------------------------------
Diluted method 45,159,265 44,955,013
===================================================================
</TABLE>
The computations of earnings per share in the Consolidated Statements of
Income did not consider outstanding options at the end of the periods of
543,000 shares in 2000 and 1,371,839 shares in 1999 because the effects of
these options would have improved the Company's earnings per share.
Average exercise prices per share of the options not used were $58.59 and
$45.69, respectively.
NOTE F - PROVISION FOR REDUCTION IN FORCE
In early 1999, the Company offered enhanced voluntary retirement benefits
to eligible exploration, production and administrative employees in its New
Orleans and Calgary offices and severed certain other employees at these
locations. The voluntary retirements and severances reduced the Company's
work force by 31 employees, and a "Provision for Reduction in Force" of
$1.5 million was recorded in the Consolidated Statement of Income for the
three months ended March 31, 1999. The provision included additional
deferred benefit plan expense of $1 million and severance and other costs
of $.5 million, the latter of which was essentially all paid during 1999.
NOTE G - BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Three Mos. Ended March 31, 2000
Total Assets -------------------------------
at March 31, External Interseg. Income
(Millions of dollars) 2000 Revenues Revenues (Loss)
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exploration and production*
United States $ 397.7 36.9 18.5 (6.1)
Canada 764.4 50.2 29.8 25.4
United Kingdom 285.2 46.0 11.6 22.4
Ecuador 62.4 13.6 - 9.1
Other 11.0 .7 - (1.5)
- --------------------------------------------------------------------------
Total 1,520.7 147.4 59.9 49.3
- --------------------------------------------------------------------------
Refining, marketing and
transportation
United States 567.4 474.6 .7 (1.6)
United Kingdom 204.6 98.7 - 4.9
Canada 92.6 6.8 .1 1.5
- --------------------------------------------------------------------------
Total 864.6 580.1 .8 4.8
- --------------------------------------------------------------------------
Total operating segments 2,385.3 727.5 60.7 54.1
Corporate and other 135.0 1.2 - (6.7)
- --------------------------------------------------------------------------
Total consolidated $ 2,520.3 728.7 60.7 47.4
==========================================================================
Three Mos. Ended March 31, 1999
-------------------------------
External Interseg. Income
(Millions of dollars) Revenues Revenues (Loss)
- --------------------------------------------------------------------------
Exploration and production*
United States $ 32.9 7.4 (4.7)
Canada 26.7 8.3 .2
United Kingdom 23.1 - 1.5
Ecuador 4.7 - 1.0
Other .6 - (1.2)
- --------------------------------------------------------------------------
Total 88.0 15.7 (3.2)
- --------------------------------------------------------------------------
Refining, marketing and
transportation
United States 162.6 1.0 -
United Kingdom 45.9 - 1.3
Canada 6.4 .1 1.6
- --------------------------------------------------------------------------
Total 214.9 1.1 2.9
- --------------------------------------------------------------------------
Total operating segments 302.9 16.8 (.3)
Corporate and other 1.4 - (6.4)
- --------------------------------------------------------------------------
Total consolidated $ 304.3 16.8 (6.7)
==========================================================================
*Additional details about results of operations are presented in the tables
on page 10.
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Murphy's net income in the first quarter of 2000 totaled $47.4 million,
$1.05 a share, compared to a loss before special items of $5.7 million,
$.13 a share, in the first quarter a year ago. The net loss in the first
quarter of 1999 totaled $6.7 million, $.15 a share, and included an
after-tax charge of $1 million, $.02 a share, for a reduction in force.
Significantly higher crude oil and gas liquids sales prices in the current
quarter led to earnings of $49.3 million for the Company's exploration and
production operations, which lost $3.2 million in the first quarter of
1999. This earnings improvement occurred despite the effect of unusually
high exploration expenses in the current period, primarily caused by three
significant dry holes in the Gulf of Mexico that collectively reduced net
income by $21.6 million. Improved results also occurred in Murphy's
refining, marketing and transportation operations, which generated earnings
of $4.8 million in the first quarter of 2000, an increase of $1.9 million
from the same period in 1999.
Exploration and production operations in the United States reported a loss
of $6.1 million compared to a loss of $4.7 million in the first quarter of
1999. Operations in Canada earned $25.4 million compared to $.2 million a
year ago, and U.K. operations earned $22.4 million in the current quarter,
up from $1.5 million. Operations in Ecuador earned $9.1 million in the
first quarter of 2000 compared to $1 million a year ago. Other
international operations reported a loss of $1.5 million compared to
a $1.2 million loss a year earlier. The Company's crude oil and condensate
prices averaged $25.29 a barrel in the current quarter, an increase of 139%
from the average of $10.57 in the similar period in 1999. Crude oil and
condensate prices averaged $28.88 a barrel in the United States and $26.67
in the United Kingdom, increases of 147% and 144%, respectively. In
Canada, sales prices averaged $26.38 a barrel for light oil, up 133%;
$19.71 for heavy oil, up 139%; $25.43 for oil from the offshore Hibernia
field, up 105%; and $28.30 for synthetic oil, up 124%. The average sales
price in Ecuador almost tripled to $21.11 a barrel. Total crude oil and
gas liquids production averaged 67,247 barrels a day in the first three
months of 2000 compared to 63,555 barrels a day a year earlier. The 6%
increase was primarily due an increase of 5,531 barrels a day or 139% at
the Hibernia field. Crude oil production also increased 2,255 barrels a
day or 11% in the United Kingdom, but decreased 2,725 or 25% for Canadian
synthetic oil and 865 or 10% in the United States. Natural gas sales
prices in the United States averaged $2.55 a thousand cubic feet (MCF) in
the current quarter, up 39% compared to $1.84 a year ago. Natural gas
sales prices in Canada averaged $2.06 an MCF, an increase of 33%. Total
natural gas sales averaged 229 million cubic feet a day compared to 251
million a year ago. The decrease in sales volume was primarily due to
lower production from maturing fields in the Gulf of Mexico. Sales of
natural gas in the United States averaged 154 million cubic feet a day,
down from 177 million in the first quarter of 1999. Canadian natural gas
sales averaged 55 million cubic feet a day in the current quarter, up 2%.
Exploration expenses totaled $47.9 million in the current quarter compared
to $26.3 million a year ago; the increase was mainly due to the
aforementioned U.S. dry holes. The tables on page 10 provide additional
details of the results of exploration and production operations for the
first quarter of each year.
Refining, marketing and transportation operations in the United States lost
$1.6 million during the first quarter of 2000 compared to breaking even a
year ago; U.S. margins on sales of refined products were under pressure
throughout most of the current quarter. Operations in the United Kingdom
earned $4.9 million in the current quarter compared to $1.3 million in the
first quarter of 1999. Earnings from purchasing, transporting and
reselling crude oil in Canada were $1.5 million in the current quarter
compared to $1.6 million in the first quarter of 1999. Refinery crude runs
were 161,966 barrels a day in the first quarter of 2000 compared to 91,213
in 1999, and refined product sales were 166,934 barrels a day in 2000, up
from 117,398 a year ago. Crude runs and product sales in 1999 were both
adversely affected by a plant-wide turnaround at the Company's Meraux,
Louisiana refinery.
Corporate activities, which include interest income and expense and
overhead not allocated to operating functions, reflected a loss of $6.7
million in the current quarter compared to a loss of $5.4 million before
special items in the first quarter of 1999.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
FINANCIAL CONDITION
Net cash provided by operating activities was $168.6 million for the first
three months of 2000 compared to $9.4 million of cash required during the
same period in 1999. Changes in operating working capital other than cash
and cash equivalents provided cash of $18.6 million in the first quarter of
2000, while requiring cash of $57.4 million in the 1999 period. Cash from
operating activities was reduced by expenditures for refinery turnarounds
and abandonment of oil and gas properties totaling $5.7 million in the
current quarter compared to $28.3 million, including $26.1 million for the
Meraux refinery turnaround, in the 1999 quarter.
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, which totaled $15.8 million in 2000 and $15.7 million in
1999.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Capital Expenditures Three Months Ended March 31,
-------------------------------------------------------------------
(Millions of dollars) 2000 1999
-------------------------------------------------------------------
<S> <C> <C>
Exploration and production . . . . . . . . . $ 114.6 81.4
Refining, marketing and transportation . . . 20.3 12.5
Corporate and other . . . . . . . . . . . . .9 .3
-------------------------------------------------------------------
$ 135.8 94.2
===================================================================
</TABLE>
Working capital at March 31, 2000 was $107 million, up $1.5 million from
December 31, 1999. This level of working capital does not fully reflect
the Company's liquidity position, because the lower historical costs
assigned to inventories under last-in first-out accounting were $134.2
million below current costs at March 31, 2000.
At March 31, 2000, notes payable of $248.6 million were unchanged from
December 31, 1999. Long-term nonrecourse debt of a subsidiary was $144.3
million, down slightly from December 31, 1999 due to changes in foreign
currency exchange rates. A summary of capital employed at March 31, 2000
and December 31, 1999 follows.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Capital Employed March 31, 2000 Dec. 31, 1999
-------------------------------------------------------------------
(Millions of dollars) Amount % Amount %
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notes payable . . . . . . . . $ 248.6 17 248.6 17
Nonrecourse debt of a
subsidiary . . . . . . . . . 144.3 10 144.6 10
Stockholders' equity . . . . 1,085.3 73 1,057.2 73
-------------------------------------------------------------------
$ 1,478.2 100 1,450.4 100
===================================================================
</TABLE>
NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities," in 1998. This statement establishes accounting
and reporting standards for derivative instruments and hedging activities.
Effective January 1, 2001, Murphy must recognize the fair value of all
derivative instruments as either assets or liabilities in its Consolidated
Balance Sheet. A derivative instrument meeting certain conditions may be
designated as a hedge of a specific exposure; accounting for changes in a
derivative's fair value will depend on the intended use of the derivative
and the resulting designation. Any transition adjustments resulting from
adopting this statement will be reported in either net income or other
comprehensive income, as appropriate, as the cumulative effect of a change
in accounting principle. As described under Note D on page 5 of this Form
10-Q report, the Company makes limited use of derivative instruments to
hedge specific market risks. The Company has not yet determined the
effects that SFAS No. 133 will have on its future consolidated financial
statements or the amount of the cumulative adjustment that will be made
upon adopting this new standard.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.)
FORWARD-LOOKING STATEMENTS
This Form 10-Q report contains statements of the Company's expectations,
intentions, plans and beliefs that are forward-looking and are dependent on
certain events, risks and uncertainties that may be outside of the
Company's control. These forward-looking statements are made in reliance
upon the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Actual results and developments could differ materially from
those expressed or implied by such statements due to a number of factors
including those described in the context of such forward-looking statements
as well as those contained in the Company's January 15, 1997 Form 8-K
report on file with the U.S. Securities and Exchange Commission.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks associated with interest rates,
foreign currency exchange rates, and prices of crude oil, natural gas and
petroleum products. As described in Note D on page 5 of this Form 10-Q
report, Murphy makes limited use of derivative financial and commodity
instruments to manage certain risks associated with existing or anticipated
transactions.
At March 31, 2000, the Company had interest rate swap agreements with
notional amounts totaling $100 million that were designed to convert a
similar amount of variable-rate debt to fixed rates. These swaps mature in
2002 and 2004. The swaps require the Company to pay an average interest
rate of 6.46% over their composite lives, and at March 31, 2000, the
interest rate to be received by the Company averaged 6.08%. The variable
interest rate received by the Company under each swap contract is repriced
quarterly. The Company considers these swaps to be a hedge against
potentially higher future interest rates. The estimated fair value of
these interest rate swaps was a gain of $1 million at March 31, 2000.
At March 31, 2000, the Company's long-term debt included $112 million with
variable interest rates and $74.9 million denominated in Canadian dollars.
Based on debt outstanding at March 31, 2000, a 10% increase in variable
interest rates would not change the Company's interest expense for the next
12 months after a $.6 million favorable effect resulting from lower net
settlement payments under the aforementioned interest rate swaps. A 10%
increase in the exchange rate of the Canadian dollar vs. the U.S. dollar
would increase interest expense over the next 12 months by $.3 million on
debt denominated in Canadian dollars.
At March 31, 2000, the Company was a party to crude oil swap agreements for
a total notional volume of 2.3 million barrels that reduced a portion of
the financial exposure of Murphy's U.S. refineries to crude oil price
movements in 2001 and 2002. Under each swap agreement, Murphy pays a fixed
crude oil price and receives the average of the near-month NYMEX West Texas
Intermediate crude oil prices during the agreement's contractual maturity
period. In April 2000, Murphy settled contracts for 1.7 million barrels,
receiving cash of $5.8 million from the counterparties, and entered into
counter contracts to offset the remaining swap agreements, locking in a
future net cash settlement of $1.7 million. These settlement gains will be
deferred and recognized as a reduction of costs of crude oil purchases in
2001 and 2002.
At March 31, 2000, 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 March 31,
2000, the estimated fair value of these agreements was a gain of $.9
million; a 10% fluctuation in the average NYMEX Henry Hub price of natural
gas would have changed the estimated fair value of these swaps by $1.4
million.
9
<PAGE>
<TABLE>
<CAPTION>
OIL AND GAS OPERATING RESULTS (UNAUDITED)
- --------------------------------------------------------------------------
United Synthetic
United King- Ecua- Oil -
Millions of dollars) States Canada dom dor Other Canada Total
- --------------------------------------------------------------------------
<s > <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
MARCH 31, 2000
Oil and gas sales and
other operating
revenues . . . . . . . $ 55.4 58.6 57.6 13.6 .7 21.4 207.3
Production costs 8.8 10.7 7.8 2.5 - 8.3 38.1
Depreciation, depletion
and amortization . . . 14.1 12.7 12.0 2.0 .1 1.8 42.7
Exploration expenses
Dry hole costs . . . 33.7 2.9 - - - - 36.6
Geological and
geophysical costs. . 3.5 2.6 .1 - .3 - 6.5
Other costs . . . . . .3 .2 .2 - 1.1 - 1.8
- --------------------------------------------------------------------------
37.5 5.7 .3 - 1.4 - 44.9
Undeveloped lease
amortization . . . . 1.8 1.2 - - - - 3.0
- --------------------------------------------------------------------------
Total exploration
expenses 39.3 6.9 .3 - 1.4 - 47.9
- --------------------------------------------------------------------------
Selling and general
expenses . . . . . . . 3.0 1.3 .8 - .6 - 5.7
Income tax expenses
(benefits) . . . . . . (3.7) 9.0 14.3 - .1 3.9 23.6
- --------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ (6.1) 18.0 22.4 9.1 (1.5) 7.4 49.3
==========================================================================
THREE MONTHS ENDED
MARCH 31, 1999
Oil and gas sales and
other operating
revenues . . . . . . . $ 40.3 22.5 23.1 4.7 .6 12.5 103.7
Production costs . . . 9.6 8.7 9.6 1.6 - 8.7 38.2
Depreciation, depletion
and amortization . . . 15.7 8.9 11.0 2.1 - 1.7 39.4
Exploration expenses
Dry hole costs . . . 13.0 2.0 - - - - 15.0
Geological and
geophysical costs. . 3.5 2.5 .3 - .7 - 7.0
Other costs . . . . . .4 .2 .3 - .7 - 1.6
- --------------------------------------------------------------------------
16.9 4.7 .6 - 1.4 - 23.6
Undeveloped lease
amortization . . . . 1.8 .9 - - - - 2.7
- --------------------------------------------------------------------------
Total exploration
expenses 18.7 5.6 .6 - 1.4 - 26.3
- --------------------------------------------------------------------------
Selling and general
expenses . . . . . . . 4.1 1.5 .8 - .3 - 6.7
Income tax expenses
(benefits) . . . . . . (3.1) (1.0) (.4) - .1 .7 (3.7)
- --------------------------------------------------------------------------
Results of operations
(excluding corporate
overhead and interest) $ (4.7) (1.2) 1.5 1.0 (1.2) 1.4 (3.2)
==========================================================================
</TABLE>
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Following a 1998 compliance inspection of the Superior, Wisconsin refinery,
the EPA gave the Company notices of violation of environmental laws.
Although the penalty amounts were not listed, the statutes involved provide
for rates of up to $27,500 per day of violation. The EPA has referred the
matter to the U.S. Department of Justice for enforcement. 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. This item has
been referred to the Wisconsin Department of Justice for enforcement.
Penalties for these alleged state and federal violations could exceed
$100,000. The Company believes it has valid defenses to these alleged
violations and plans vigorous defenses. While the enforcement actions are
in their preliminary stages 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 its financial condition.
Murphy and its subsidiaries are engaged in a number of other legal
proceedings, all of which Murphy considers routine and incidental to its
business and none of which is expected to have a material adverse effect on
the Company's financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibit Index on page 12 of this Form 10-Q report lists the
exhibits that are hereby filed or incorporated by reference.
(b) No reports on Form 8-K were filed for the quarter ended March 31,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MURPHY OIL CORPORATION
(Registrant)
By /s/ JOHN W. ECKART
----------------------------------
John W. Eckart, Controller
(Chief Accounting Officer and Duly
Authorized Officer)
May 3, 2000
(Date)
11
<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 3.2 of Murphy's Form
as amended December 1, 1999 10-K report for the year ended
December 31, 1999
4 Instruments Defining the Rights
of Security Holders. Murphy is
party to several long-term debt
instruments in addition to the
ones in Exhibits 4.1 and 4.2,
none of which authorizes securities
exceeding 10% of the total
consolidated assets of Murphy and
its subsidiaries. Pursuant to
Regulation S-K, item 601(b),
paragraph 4(iii)(A), Murphy agrees
to furnish a copy of each such
instrument to the Securities and
Exchange Commission upon request.
4.1 Credit Agreement among Murphy Exhibit 4.1 of Murphy Form
Oil Corporation and certain 10-K report for the year ended
subsidiaries and the Chase December 31, 1997
Manhattan Bank et al as of
November 13, 1997
4.2 Form of Indenture and Form of Exhibits 4.1 and 4.2 of
Supplemental Indenture Murphy's Form 8-K report filed
between Murphy Oil Corporation April 29, 1999 under the
and SunTrust Bank, Nashville, Securities Exchange Act of
N.A., as Trustee 1934
4.3 Rights Agreement dated as of Exhibit 4.3 of Murphy's Form
December 6, 1989 between 10-K report for the year ended
Murphy Oil Corporation and December 31, 1999
Harris Trust Company of
New York, as Rights Agent
4.4 Amendment No. 1 dated as of Exhibit 3 of Murphy's Form
April 6, 1998 to Rights 8-A/A, Amendment No. 1, filed
Agreement dated as of April 14, 1998 under the
December 6, 1989 between Securities Exchange Act of
Murphy Oil Corporation and 1934
Harris Trust Company of
New York, as Rights Agent
4.5 Amendment No. 2 dated as of Exhibit 4 of Murphy's Form
April 15, 1999 to Rights 8-A/A, Amendment No. 2, filed
Agreement dated as of April 19, 1999 under the
December 6, 1989 between Securities Exchange Act of
Murphy Oil Corporation and 1934
Harris Trust Company of
New York, as Rights Agent
10.1 1987 Management Incentive Plan Exhibit 10.1 of Murphy's Form
as amended February 7,1990 10-K report for the year ended
retroactive to February 3, 1988 December 31, 1999
10.2 1992 Stock Incentive Plan as Exhibit 10.2 of Murphy's Form
amended May 14, 1997 10-Q report for the quarterly
period ended June 30, 1997
10.3 Employee Stock Purchase Plan 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 Filed herewith in electronic
the three months ended filing
March 31, 2000
Exhibits other than those listed above have been omitted since they either
are not required or are not applicable.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY UNAUDITED FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000, AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS THEN ENDED OF MURPHY OIL
CORPORATION AND CONSOLIDATED SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 54,246
<SECURITIES> 0
<RECEIVABLES> 360,606
<ALLOWANCES> 8,506
<INVENTORY> 178,285
<CURRENT-ASSETS> 642,189
<PP&E> 4,855,802
<DEPRECIATION> 3,045,355
<TOTAL-ASSETS> 2,520,260
<CURRENT-LIABILITIES> 535,205
<BONDS> 392,869
0
0
<COMMON> 48,775
<OTHER-SE> 1,036,552
<TOTAL-LIABILITY-AND-EQUITY> 2,520,260
<SALES> 714,845
<TOTAL-REVENUES> 728,666
<CGS> 587,430
<TOTAL-COSTS> 587,430
<OTHER-EXPENSES> 47,858
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,595
<INCOME-PRETAX> 71,923
<INCOME-TAX> 24,490
<INCOME-CONTINUING> 47,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,433
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.05
</TABLE>
