Murphy Oil (MUR)

Q4 2011 Earnings Call

January 26, 2012 1:00 pm ET

Executives

David M. Wood - Chief Executive Officer, President, Director and Member of Executive Committee

Barry Jeffery - Director of Investor Relations

Kevin G. Fitzgerald - Chief Financial Officer and Senior Vice President

Analysts

Evan Calio - Morgan Stanley, Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Unknown Analyst

Mark Gilman - The Benchmark Company, LLC, Research Division

Blake Fernandez - Howard Weil Incorporated, Research Division

Paul Sankey - Deutsche Bank AG, Research Division

Presentation

Operator

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Good afternoon, ladies and gentlemen, and welcome to the Murphy Oil Corporation Fourth Quarter 2011 Earnings Conference Call. Today's call is being recorded. I would now like to turn the call over to David Wood, President and Chief Executive Officer. Please go ahead, sir.

David M. Wood

Thanks, operator. Good afternoon, everyone, and thank you for joining us on our call today. With me are Kevin Fitzgerald, Executive Vice President and Chief Financial Officer; John Eckart, Senior Vice President and Controller; Mindy West, Vice President and Treasurer; Barry Jeffery, Director of Investor Relations; and Tammy Taylor, Assistant Manager, Investor Relations. I will now turn the call over to Barry.

Barry Jeffery

Thank you, David. Welcome, everyone, and thank you for joining us. Today's call will follow our usual format. Kevin will begin by providing a review of fourth quarter 2011 results. David will then follow with an operational update, after which questions will be taken.

Please keep in mind that some of the comments made during this call will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such, no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, see Murphy's 2010 Annual Report on Form 10-K filed with the SEC. Murphy takes no duty to publicly update or revise any forward-looking statements.

I will now turn the call over to Kevin for his comments.

Kevin G. Fitzgerald

Thanks, Barry. For the fourth quarter 2011, we showed a net loss of $113.9 million or $0.59 per diluted share. This compares to net income in the fourth quarter of 2010 of $174.1 million or $0.90 per diluted share. For the full year of 2011, we had net income of $872.7 million or $4.49 per diluted share compared to net income in 2010 of $798.1 million or $4.13 per diluted share.

For continuing operations, in the fourth quarter 2011, we showed a net loss of $113.3 million or $0.59 per diluted share compared to 2010 fourth quarter, where we had net income of $149.5 million or $0.77 per diluted share. For the full year of 2011, income from continuing operations was $740.9 million or $3.81 per diluted share compared to net income from continuing ops in 2010 of $779.6 million or $4.03 per diluted share.

As a reminder, Murphy's 2 U.S. refineries and certain associated marketing assets were sold near the end of the third quarter of 2011. The financial results related to these assets are now presented as discontinued operations.

The fourth quarter full year results of 2011 included a $368.6 million impairment charge for which there was no income tax effect but as a right field offshore of the Republic of the Congo. Poor well performance led to a cut in proved reserves at this field at year end 2011. Excluding the impairment, income for the fourth quarter of 2011 was $254.7 million, $1.31 per diluted share. There were no one-off type items of significance in the fourth quarter of 2010.

Looking at income by segment. In the E&P segment, we had income in the fourth quarter of 2011 of -- loss of $139.9 million versus income in the fourth quarter of 2010 of $154.1 million. The lower earnings in the 2011 quarter were mostly attributable to the previously mentioned impairment of the Azurite field. Fourth quarter 2011 also included higher exploration expenses, but the quarter benefited from higher realized prices for crude oil and Sarawak natural gas.

Crude oil and gas liquids production averaged approximately 108,800 barrels a day in the 2011 quarter compared to about 117,100 barrels per day last year. The decline is primarily a result of lower production from Kikeh in Malaysia and from Azurite. Natural gas volumes were 488 million cubic feet a day in the third quarter of -- fourth quarter 2011 compared to 365 million cubic feet a day in 2010. The increase primarily due to higher production from the Tupper area in Western Canada and from Sarawak, Malaysia.

In our R&M segment, from continuing operations, we showed net income in the fourth quarter of 2011 of $61 million even compared to a net income from continuing operation of $19.8 million in the fourth quarter of 2010. The main drivers of the income increase for the 2011 quarter were stronger retail marketing margins in the U.S. and improved refining and marketing margins in the U.K.

The corporate segment, we showed a net charge of $34.4 million in the fourth quarter of 2011 compared to a net charge of $24.4 million in the fourth quarter of 2010. In 2011, we experienced higher foreign exchange losses and higher net interest expense.

Capital expenditures for 2011 totaled just under $3 billion. Approximately 94% or little over $2.7 billion was spent in the E&P segment; approximately $863 million in exploration, of which about $300 million was in lease acquisitions; and the remainder for development projects, with the Tupper, Kikeh and Eagle Ford Shale projects accounting for over half of the expenditures.

For 2012, our budgeted capital expenditures, which were approved by our board in early December, total $3.5 billion with approximately 94% or $3.3 billion related to the E&P segment. Of that, approximately $3 billion is for development projects. The remainder or about $300 million is to be spent on exploration activities. Our budget assumes WTI pricing of $85 per barrel and Henry Hub pricing of $4.25 per MCF. Dave will elaborate a bit further on CapEx in his comments.

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