Murphy Oil CEO Discusses Q4 2010 Results - Earnings Call Transcript

Murphy Oil Corporation ( MUR)

Q4 2010 Earnings Call

January 27, 2011 1:00 pm ET

Executives

David Wood - President and CEO

Kevin Fitzgerald - SVP and CFO

John Eckart - VP and Controller

Mindy West - VP and Treasurer

Barry Jeffery - Director of IR

Craig Bonsall - Supervisor of IR

Analysts

Evan Calio - Morgan Stanley

Paul Cheng - Barclays Capital

Arjun Murti - Goldman Sachs

Mark Gilman - The Benchmark Company

Blake Fernandez - Howard Weil

Ray Deacon - Pritchard Capital

Pavel Molchanov - Raymond James

Mary Welge - OPIS

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Murphy Oil Corporation fourth quarter 2010 earnings announcement. I would now like to turn the conference over to Mr. David Wood, President and Chief Executive Officer.

David Wood

Good afternoon, everyone, and thank you for joining us on our call today. With me are Kevin Fitzgerald, Senior Vice President and Chief Financial Officer; John Eckart, Vice President and Controller; Mindy West, Vice President and Treasurer; Barry Jeffery, Director of Investor Relations; and Craig Bonsall, Supervisor of 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 2010 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 2009 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 Fitzgerald

Thanks, Barry. Net income for the fourth quarter of 2010 was $174.1 million or $0.90 per diluted share. This compares to net income in the fourth quarter of '09 of $318.8 million or $1.65 per diluted share. For the full year of 2010, net income was $798.1 million or $4.13 per diluted share compared to net income in 2009 of $837.6 million or $4.35 per diluted share.

There were no one-off type items of real significance in the fourth quarter of 2010. However, the 2009 fourth quarter did have a couple of them, which included $185.3 million after-tax benefit that included after-tax interest income of $27 million from the recovery of royalties paid on certain deepwater, oil and gas fields in the Gulf of Mexico. The interest income from that was included in our Corporate segment with the remaining $158.3 million included in our E&P segment.

The '09 quarter also included a $31.3 million after-tax charge associated with the reduction of our working interest in the Terra Nova field, offshore Eastern Canada, due to the redetermination process. Excluding these two items, income for the fourth quarter of 2009 would have been $164.8 million, slightly below our fourth quarter 2010 results.

Looking at net income by segment, E&P segment income in the fourth quarter of 2010 was $154.1 million compared to $339.1 million in the fourth quarter of '09. Without those special items mentioned just a bit earlier, the income in the fourth quarter of '09 would have been $212.1 million. The lower earnings in 2010 quarter were mostly attributable to the previously mentioned recovery at deepwater Gulf of Mexico royalties in the prior year. The 2010 also included higher exploration expenses. Again, '09 quarter was adversely affected by the Terra Nova redetermination charge.

Crude oil and gas liquids production from continuing operations averaged approximately 117,100 barrels per day in the 2010 quarter compared to the 138,300 barrels per day in '09, the decline primarily a result of lower production from Kikeh in Malaysia.

Natural gas volumes were 365 million cubic feet a day in the '10 quarter compared to 306 million cubic feet a day in '09. This increase was primarily due to higher production from Sarawak, Malaysia, and from the Tupper area in Western Canada.

In the downstream segment, we had net income in the fourth quarter of 2010 of $44.4 million. This compared to a net loss in the fourth of '09 of $4.1 million. The main drivers here for the income increase were stronger refining and retail marketing margins in the U.S.

In the corporate segment in the fourth quarter of 2010, we had a net charge of $24.4 million compared to a net charge in '09 of $15.5 million. In 2010, we experienced lower foreign exchange losses and lower net interest expense, but the '09 quarter also included the $27 million of after-tax interest benefit from the royalty recovery related to the Gulf of Mexico leases.

Capital expenditures for 2010 totaled just under $2.5 billion. Approximately 83% or a little over $2 billion was spent in the E&P segment, about $700 million in exploration, of which about $240 million was in lease acquisitions, the remainder for development projects with Tupper, Kikeh and Sarawak gas projects accounting for over half of the development expenditures.

For 2011, our budgeted capital expenditures, which were approved by our Board in early December, totaled $2.2 billion, approximately 88% of which or just under $2 billion slated for the E&P segment, about $1.5 million for the development projects, the remainder or about $500 million to be spent on exploration activities.

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