(MUR) Murphy Oil Beats Expectations

Murphy Oil Corporation (MUR) engaging in the exploration, production, refining and marketing of oil and gas in the U.S. and the U.K announced third-quarter 2011 income from continuing operations of $1.73 per share, surpassing the Zacks Consensus Estimate of $1.17. Results shot up 69.6% from $1.02 earned in the year ago quarter.

Higher sales prices for crude oil production, stronger U.S. retail gasoline station profits and favorable impacts from transactions denominated in foreign currencies enabled the company to present a better  show in the quarter.

Including income of $70.4 million or 36 cents per share from sale of Superior and Meraux refineries, the company reported a net income of $406.1 million or $2.09 per share compared with $202.8 million or $1.05  in the year ago quarter.

Total Revenue

Murphy’s total revenue for third-quarter 2011 grew 39% to $7.2 billion from $5.2 billion reported in the year-ago period. The company experienced a year-over-year growth in both the Exploration and Production and Refining and Marketing segments.

The overall top-line growth was driven primarily by robust performance from Refining and Marketing, which grew 41.9% year over year.

Reported quarter revenue was higher than the Zacks Consensus Estimate of $6.8 billion.

Segment Details

Exploration and Production: The third quarter 2011 revenue from this division was $1.07 billion, up 20.8% from $0.89 billion in the year-ago quarter.

Refining and Marketing: Reported quarter revenue from this division grew by 41.9% to $6.18 billion from $4.36 billion in the year-ago quarter. The results were boosted by strong contribution from U.S. Refining & Marketing operations and better performance from its U.K. operations.

Corporate: In the third quarter 2011, revenues from Corporate activities were $29.8 million versus negative $8.9 million in the year-earlier period.

Quarterly Highlights

Murphy’s total worldwide production in the most recent quarter was 174,801 barrels of oil equivalents per day (boe/d), down 3.8% year over year. The reduction in total output was primarily due to lower crude oil production, whereas natural gas volume grew over the prior-year period.

The decline in crude oil production in the third quarter 2011 was due to lower volumes produced at the Kikeh field and offshore Malaysia.

Natural gas sales volumes spurred 26.3% year over year due to higher natural gas production offshore Sarawak, Malaysia and in the Tupper area in Western Canada.

Murphy’s worldwide crude oil and condensate sales price averaged $94.36 per barrel for the third quarter of 2011 compared with $65.06 per barrel in the third quarter of 2010, reflecting an increase of 45%. North American natural gas sales prices decreased 22 cents per thousand cubic feet (MCF) in the quarter to $4.26 per MCF.

Natural gas produced offshore Sarawak Malaysia was sold at an average of $6.76 per MCF in the third quarter 2011, up from $5.20 per MCF in the third quarter 2010.

Exploration expenses during the quarter increased by 38.2% to $85.7 million from $62.0 million recorded in the third quarter 2010. The increase in expenses was due to higher dry hole and 3D seismic acquired on Block CA-2, offshore Brunei, besides other geophysical costs on the Central Dohuk and Baranan licenses in the Kurdistan Region of Iraq.

Interest expenses of the company at the end of the quarter were $17.3 million versus $12.7 million a year ago. The increase was attributable to higher average borrowing levels and lower amounts of interest capitalized to oil and natural gas development projects.

Financial Update

Total cash and cash equivalents as of September 30, 2011, were $1.28 billion, higher than $0.46 billion as of September 30, 2010.

Long-term debts of the company as of September 30, 2011, were $974.5 million versus $939.4 million as of December 31, 2010.

Total capital expenditure during the third quarter 2011 was $687.1 million, up 4% from $660.7 million in the third quarter 2010.

2011 Guidance

Murphy estimates total production in the fourth quarter 2011 to average 198,000 boe/d and sales volumes to clock 193,000 boe/d.

Murphy expects the full-year average production to be 218,000 boe/d.

Murphy expects fourth quarter 2011 earnings in the range of $1.35 to $1.70 per share. This earnings projection takes into account the downstream contribution of approximately $40 million, and total exploration expense within a broad range of $75 million to $150 million.

Peer Comparison

BP Plc (BP), which competes with Murphy Oil, reported third-quarter 2011 $1.67 per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items.

Results were below the Zacks Consensus Estimate of $1.68 and lower than the year-earlier adjusted profit level of $1.74. The underperformance resulted from lower production volumes, primarily in the Gulf of Mexico (GoM) region as well as associated costs related to rig standby in the region.

Zacks Rank

We retain our Neutral recommendation on Murphy Oil Corporation. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

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