Murphy Oil Management Discusses Q2 2012 Results - Earnings Call Transcript

Murphy Oil (MUR)

Q2 2012 Earnings Call

August 02, 2012 1:00 pm ET

Executives

Steven A. Cossé - Chief Executive Officer, President, Director and Member of Environmental, Health & Safety Committee

Barry Jeffery - Director of Investor Relations

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

Roger W. Jenkins - Chief Operating Officer, Executive Vice President of Exploration & Production and President of Murphy Exploration & Production Company

Mindy K. West - Vice President and Treasurer

Analysts

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

Evan Calio - Morgan Stanley, Research Division

Guy A. Baber - Simmons & Company International, Research Division

Paul Sankey - Deutsche Bank AG, Research Division

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

Paul Y. Cheng - Barclays Capital, Research Division

Blake Fernandez - Howard Weil Incorporated, Research Division

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Raymond J. Deacon - Pritchard Capital Partners, LLC, Research Division

Raymond J. Deacon - Brean Murray, Carret & Co., LLC, Research Division

Mark Caruso

Presentation

Operator

Good afternoon, and welcome to the Murphy Oil Corporation Second Quarter 2012 Earnings Conference Call. Today's event is being recorded. I'll turn the conference over to Mr. Steven Cossé, President and Chief Executive Officer.

Steven A. Cossé

Good afternoon, everyone and thank you for joining us in our conference call today. With me here in El Dorado are Roger Jenkins, our Executive Vice President and Chief Operating officer; Kevin Fitzgerald, our Executive Vice President and Chief Financial Officer; John Eckart, who's our Senior VP and Controller; Mindy West, who's our Vice President and Treasurer; Barry Jeffery, Director of our Investor Relations; and Tammy Taylor, who's the Manager of Investor Relations. And Barry, you got some statement to make?

Barry Jeffery

Thank you, Steve. Welcome, everyone. Today's call will follow our usual format. Kevin will begin by providing a review of second quarter 2012 results. Steve and Roger 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 obtained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, see Murphy's 2011 annual report on Form 10-K filed with the SEC. Murphy takes no duty to publicly update or revise any of forward-looking statements. I'll now turn the call over to Kevin for his comments.

Kevin G. Fitzgerald

Thanks, Barry. Net income for the second quarter of 2012 was $295.4 million or $1.52 per diluted share. This compares to net income in the second quarter of 2011 of $311.6 million or $1.60 per diluted share. For the 6 months ending June 30, 2012, our net income was $585.5 million or $3.01 per diluted share compared to net income for the same period in 2011 of $580.5 million or $2.98 per diluted share.

There were no unusual items of significance in the 2012 quarter or for the 2012 6-month period. However, the 2011 quarter did include $31.6 million, $0.16 per diluted share of income from discontinued operations related to the two U.S. refineries and associated marketing assets that were sold at the end of the third quarter of 2011. 2011 year-to-date results included income from the same discontinued operations of $62 million or $0.32 per diluted share and an after-tax gain of $13.1 million, $0.07 per diluted share from the sale of natural gas storage assets in Spain.

Looking at income by segment. In the E&P segments, net income for the second quarter of 2012 was $230.1 million compared to net income in the second quarter of 2011 of $243.3 million. Lower E&P earnings for the 2012 quarter were primarily due to lower crude oil and North American natural gas price realizations. Crude oil and gas liquids production for the current quarter was approximately 104,000 barrels per day as compared to approximately 94,200 barrels per day in the corresponding 2011 quarter. The increase is mostly attributable to production at Kikeh and in the Eagle Ford Shale area of South Texas. Natural gas sales volumes averaged 507 million cubic feet per day in the second quarter of 2012 compared to 457 million cubic feet per day in the second quarter of last year. This increase was attributable to higher production at the Tupper West areas in British Columbia.

In the downstream segment, we have net income from continuing operations in the second quarter of 2012 of $80.5 million compared to net income from continuing operations in the second quarter of last year of $60.1 million. The increase in the 2012 quarter was primarily attributable to operations in the U.K. where we experienced improved refining and retail margins. In the corporate segment, second quarter 2012 saw a net charge of $15.2 million compared to a net charge in the second quarter of last year of $23.4 million. The lower charges related to favorable impacts on transactions denominated in foreign currencies and to a higher proportion of financing costs being capitalized to ongoing oil development projects offshore in Malaysia.

Capital expenditures for 2012 are currently estimated at $4.1 billion. The increase over what was projected at the time of our annual meeting is mostly attributable to the sanction of the Dalmatian development in the Gulf of Mexico, no farm-outs of any our acreage in the Eagle Ford Shale or the drilling of our MPN prospect offshore in Republic of the Congo and an active lease acquisition program.

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