- Murphy Oil reported a first-quarter 2020 loss of $2.71 per share. The company generated total revenues of $1,003.73 million (which includes $400.67 million in gain on crude contracts).
- Production in K Boep/d was a total of 185.6 Boep/d in 1Q'20.
- Murphy cut the dividend by 50% this quarter or $0.50 per share annually.
- I recommend trading short term an estimated 50% of your long-term holding due to extreme volatility in oil prices as we have experienced again recently.
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The Arkansas-based Murphy Oil Corp. (NYSE:MUR) recently released its first quarter of 2020 results. Despite posting a loss, the results top analysts' estimates. However, it was a challenging quarter with the COVID-19 pandemic and the crash in oil prices.
The big issue that the company will have to confront in 2020 is the weakness in oil prices even if we have experienced a rebound lately. The market seems to focus on production, and after the recent OPEC+ cut, decided that oil was too cheap. However, the real situation is not at the supply level, in my opinion, but at the demand level.
The world economy's engine has come to a halt, and while it is not showing yet on paper, we are about to get a nasty surprise soon. Yes, cutting supplies is helpful, but it doesn't mean that the problem has vanished like the market seems to think. The issue is that not only is demand not here, but this situation will continue probably for months.
How can this simple logic be disregarded and how can so many investors continue to believe the worst is over? It has not started yet.
The market has its logic, and it is based on "momentum." When the time is ripe, the market is focusing on what could push all of us to buy or sell, no matter what. When the machine has been set in motion, then nothing can stop it until it runs out of fuel.
Call it euphoria or despair. It is what the market is made of. Trying to put a "logical logic" in this collective behavior is futile. The same could be applied to "justice" as well. The best is to acknowledge it and adopt a strategy to profit from it instead of being a victim.
Thus, you must apply an adequate strategy to respond to the volatility. The investment thesis has not changed. I recommend trading short term an estimated 50% of your long-term holding due to extreme fluctuations in oil prices as we have experienced again recently.
One weakness about Murphy Oil is that it is relying on the US shale quite heavily, and right now, it is a concerning issue. Look at the detail of the revenue for the first quarter:
Murphy Oil Corp. exhibited an excellent presentation of its production numbers:
Besides, the company owns a few prospects.
- Offshore Brazil, with the Sergipe-Alagoas Basin project (5 blocks) where the company owns 20% WI, and recently the Potiguar Basin (3 blocks) with 30% WI.
- And Offshore Vietnam with the Cuu Long Basin (2 blocks) with 40% WI OP.
Murphy Oil - Financial Table 1Q'20 - The Raw Numbers
|Total Revenues and others in $ Million||503.64|| |
|Net Income in $ Million||103.38||40.18||92.27||1,089.00||-71.72||-416.10|
|EBITDA $ Million||414.85||313.97||435.31||552.03||291.84||-248.17|
|EPS diluted in $/share||0.59||0.23||0.54||6.76||-0.47||-2.71|
|Operating cash flow in $ Million||-579.3||464.14||191.28||572.16||335.30||392.66|
|CapEx in $ Million|| |
|Free Cash Flow in $ Million||-816||70||-1,286||221||1||17|
|Total Cash $ Billion||0.39||0.29||0.33||0.33||0.31||0.41|
|Long-Term Debt in $ Billion||3.38||3.11||4.19||2.78||2.80||2.97|
|Dividend per share in $||0.25||0.25||0.25||0.25||0.25||0.125|
|Shares outstanding (diluted) in Million||174.31||174.49||169.27||160.98||154.92||153.31|
|Oil Equivalent Production in K Boe/d||181.3||191.8||196.2||195.1||193.9||185.8|
|Eagle Ford Crude oil price ($/b)||63.14||57.36||63.72||56.45||57.18||49.46 (46.66 global oil)|
Sources: Murphy oil release and Morningstar.
Note: Revenues and others, include gain/loss on crude contract and gain on sale of assets.
Trends And Charts: Revenues, Earnings Details, Free Cash Flow, Debt, And Oil & Gas Production
1 - Total Revenues and other were $1,003.7 million in 1Q'20
Murphy Oil reported a first-quarter 2020 loss of $2.71 per share. The company generated total revenues of $1,003.73 million (which includes $400.67 million in gain on crude contracts). In the press release:
"Received $42 million of cash crude oil hedge settlements for the quarter and recorded a $358 million non-cash mark-to-market gain on crude oil contracts."
The first-quarter 2020 adjusted loss was $0.46 per share. Murphy Oil recorded a $968 million non-cash impairment charge due to low commodity prices in the first quarter of 2020.
Roger Jenkins, President, and Chief Executive Officer, said in the conference call:
"Murphy had a strong first quarter with total average production of 186,000 barrels equivalents per day, consisting of 66% liquids and a near-even distribution between our onshore and offshore assets. We spent a total of $365 million of CapEx in the quarter. This accounts for approximately 50% of our revised full year budget with a new midpoint of $740 million, representing a further $40 million decrease following our latest April 1 announcement on CapEx."
In the first quarter, Murphy Oil's total costs and expenses were $1,558.25 million, up significantly from $545.98 million in the prior-year quarter.
2 - Free Cash Flow was $17 million in 1Q'20
Note: The generic free cash flow as cash from operating activities minus CapEx.
Free cash flow (according to Morningstar) was a profit this quarter of $17 million and a loss of $924 million yearly ("TTM"). The company is not generating enough free cash flow to support a dividend. Despite cutting the dividend by 50%, the company is still paying more than it can afford.
After the cut of 50% announced this quarter, the dividend payout still represents $77 million annually, which is even higher than the FCF annually.
3 - Production in K Boep/d was a total of 185.6 Boep/d in 1Q'20
The company produced 185,767 barrels of oil equivalent per day (boep/d) in the first quarter, with 66% of liquids.
Production Per Region.
Below is how it is spread between oil, NGL, and natural gas.
Murphy Oil is active in the Eagle Ford Basin.
Production was 42K Boep/d for 1Q'20, slightly down sequentially (89% liquid).
Current hedging position:
4 - Net Debt under control
Debt is now ~$2.56 billion as of March 31, 2020 (please see presentation below). The company's goal is to maintain a total debt/EBITDAX below 2.0x.
David Looney said in the conference call:
"The company continues to maintain strong liquidity with $1.8 billion available as of March 31, including just over $400 million of cash and equivalents. Further, our first debt maturity isn't until June 2022 and is only approximately $260 million, providing us with flexibility to appropriately manage the company through this commodity price cycle."
Source: MUR Presentation
Conclusion And Technical analysis
Murphy Oil Corp. is another oil producer that is struggling with extraordinary volatility that is not going to vanish anytime soon. I believe management is responsible, and the decision to cut the dividend payout by 50% and reduce CapEx demonstrates it.
The recent rally is just a dead cat bounce, in my opinion. OPEC+ has done an excellent job to stabilize the situation, but they are not magicians, and the sad reality is about to come back with a vengeance.
I recommend using this period of temporary euphoria to sell and profit and wait patiently for the next rout.
Technical Analysis (short term)
MUR experienced a resistance breakout of its ascending wedge pattern in early June and retested its new resistance at $17.80 before starting a retracement that probably will continue until the stock reaches the new support around $14.40, which was the old resistance of the precedent pattern.
The short-term strategy is to sell at least about 40% of your position immediately, assuming a profit, at above $17. Then, wait for the stock to retrace at or below $15 to start accumulating again, depending on oil prices eventually.
If oil prices continue to weaken and drop to the low $30s, then it is likely that MUR will drop and retest its 50MA below $11, at which point buying for the long term could make sense.
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This article was written by
I am a former test & measurement doctor engineer (geodetic metrology). I was interested in quantum metrology for a while.
I live mostly in Sweden with my loving wife.
I have also managed an old and broad private family Portfolio successfully -- now officially retired but still active -- and trade personally a medium-size portfolio for over 40 years.
“Logic will get you from A to B. Imagination will take you everywhere.” Einstein.
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