============================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number 1-8590 MURPHY OIL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 71-0361522 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 200 PEACH STREET P. O. BOX 7000, EL DORADO, ARKANSAS 71731-7000 (Address of principal executive offices) (Zip Code) (870) 862-6411 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Number of shares of Common Stock, $1.00 par value, outstanding at June 30, 1997 was 44,877,167. ==============================================================================
PART I - FINANCIAL INFORMATION Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (Thousands of dollars) <TABLE> <CAPTION> (unaudited) June 30, December 31, 1997 1996 --------- ---------- <S> <C> <C> ASSETS Current assets Cash and cash equivalents $ 29,237 109,707 Accounts receivable, less allowance for doubtful accounts of $15,312 in 1997 and $15,267 in 1996 244,009 319,661 Inventories Crude oil and raw materials 40,989 42,811 Finished products 56,312 44,310 Materials and supplies 41,392 44,234 Prepaid expenses 28,290 29,820 Deferred income taxes 17,427 19,626 --------- --------- Total current assets 457,656 610,169 Property, plant, and equipment, at cost less accumulated depreciation, depletion, and amortization of $2,648,700 in 1997 and $2,573,606 in 1996 1,626,815 1,556,830 Deferred charges and other assets 71,089 76,787 --------- --------- $2,155,560 2,243,786 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term obligations $ 15,663 13,635 Accounts payable and accrued liabilities 366,881 503,013 Income taxes 33,577 37,393 --------- --------- Total current liabilities 416,121 554,041 Notes payable and capitalized lease obligations 49,231 20,871 Nonrecourse debt of a subsidiary 180,319 180,957 Deferred income taxes 141,468 127,319 Reserve for dismantlement costs 154,575 152,528 Reserve for major repairs 30,877 29,776 Deferred credits and other liabilities 133,725 150,816 Stockholders' equity Capital stock Cumulative Preferred Stock, par $100, authorized 400,000 shares, none issued - - Common Stock, par $1.00, authorized 80,000,000 shares, issued 48,775,314 shares 48,775 48,775 Capital in excess of par value 509,085 509,008 Retained earnings 579,712 550,699 Currency translation adjustments 14,679 22,573 Unamortized restricted stock awards (1,115) (1,298) Treasury stock, 3,898,147 shares of Common Stock in 1997, 3,912,971 shares in 1996, at cost (101,892) (102,279) --------- --------- Total stockholders' equity 1,049,244 1,027,478 --------- --------- $2,155,560 2,243,786 ========= ========= </TABLE> See Notes to Consolidated Financial Statements, page 4. The Exhibit Index is on page 13. 1
Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Thousands of dollars, except per share amounts) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1997 1996* 1997 1996* ------- ------- ------- ------- <S> <C> <C> <C> <C> REVENUES Sales $ 494,118 482,606 987,607 886,444 Other operating revenues 12,255 14,504 25,938 26,069 Interest, income from equity companies, and other nonoperating revenues 1,351 1,435 2,495 2,974 ------- ------- --------- ------- Total revenues 507,724 498,545 1,016,040 915,487 ------- ------- --------- ------- COSTS AND EXPENSES Crude oil, products, and related operating expenses 376,197 384,640 739,467 689,397 Exploration expenses, including undeveloped lease amortization 23,224 13,190 51,774 24,861 Selling and general expenses 14,726 15,037 29,031 29,531 Depreciation, depletion, and amortization 50,783 44,471 99,508 92,022 Interest expense 3,030 3,132 5,944 6,317 Interest capitalized (3,003) (2,379) (5,899) (4,546) ------- ------- --------- ------- Total costs and expenses 464,957 458,091 919,825 837,582 ------- ------- --------- ------- Income from continuing operations before income taxes 42,767 40,454 96,215 77,905 Federal and state income taxes 10,369 6,477 21,340 15,164 Foreign income taxes 4,842 9,215 16,703 17,653 ------- ------- --------- ------- Income from continuing operations 27,556 24,762 58,172 45,088 DISCONTINUED FARM, TIMBER, AND REAL ESTATE OPERATIONS Income from discontinued operations - 3,310 - 6,998 ------- ------- --------- ------- NET INCOME $ 27,556 28,072 58,172 52,086 ======= ======= ========= ======= Average Common shares outstanding 44,960,634 44,922,887 44,960,606 44,912,798 Income per Common share Continuing operations $ .61 .55 1.29 1.00 Discontinued operations - .07 - .16 ------- ------- --------- ------- Net income $ .61 .62 1.29 1.16 ======= ======= ========= ======= Cash dividends per Common share $ .325 .325 .65 .65 ======= ======= ========= ======= </TABLE> *Restated for discontinued operations. See Notes to Consolidated Financial Statements, page 4. 2
Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Thousands of dollars) <TABLE> <CAPTION> Six Months Ended June 30, ----------------- 1997 1996* ------- ------- <S> <C> <C> OPERATING ACTIVITIES Income from continuing operations $ 58,172 45,088 Adjustments to reconcile above income to net cash provided by operating activities Depreciation, depletion, and amortization 99,508 92,022 Provision for major repairs 11,303 12,588 Expenditures for major repairs and dismantlement costs (10,977) (7,391) Exploratory expenditures charged against income 46,626 20,040 Amortization of undeveloped leases 5,148 4,821 Deferred and noncurrent income taxes 11,574 7,258 Pretax gains from disposition of assets (3,225) (1,292) Other - net 2,690 322 ------- ------- 220,819 173,456 Net (increase) decrease in operating working capital other than cash and cash equivalents (67,905) 10,630 Other adjustments related to continuing operations (9,192) 6,137 ------- ------- Net cash provided by continuing operations 143,722 190,223 Net cash provided by discontinued operations - 8,558 ------- ------- Net cash provided by operating activities 143,722 198,781 ------- ------- INVESTING ACTIVITIES Capital expenditures requiring cash (228,807) (176,698) Proceeds from sale of property, plant, and equipment 5,553 5,475 Other continuing operations - net 191 748 Investing activities of discontinued operations - (5,999) ------- ------- Net cash required by investing activities (223,063) (176,474) ------- ------- FINANCING ACTIVITIES Increase (decrease) in notes payable and capitalized lease obligations 28,360 (2) Increase in nonrecourse debt of a subsidiary 1,390 4,433 Cash dividends paid (29,159) (29,143) ------- ------- Net cash provided (required) by financing activities 591 (24,712) ------- ------- Effect of exchange rate changes on cash and cash equivalents (1,720) 114 ------- ------- Net decrease in cash and cash equivalents (80,470) (2,291) Decrease applicable to discontinued operations - 901 ------- ------- Net decrease in cash and cash equivalents of continuing operations (80,470) (1,390) Cash and cash equivalents of continuing operations at January 1 109,707 60,853 ------- ------- Cash and cash equivalents of continuing operations at June 30 $ 29,237 59,463 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES Cash income taxes paid, net of refunds $ 37,639 16,148 Interest paid, net of amounts capitalized (1,621) 621 *Restated for discontinued operations. </TABLE> See Notes to Consolidated Financial Statements, page 4. 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS These notes are an integral part of the financial statements of Murphy Oil Corporation and Consolidated Subsidiaries (Murphy/the Company) on pages 1 through 3 of this report on Form 10-Q. NOTE A - INTERIM FINANCIAL STATEMENTS The consolidated financial statements of the Company presented herein have not been audited by independent auditors, except for the Consolidated Balance Sheet at December 31, 1996. In the opinion of the Company's management, the unaudited financial statements presented herein include all adjustments (consisting only of normal, recurring accruals) necessary to present fairly the Company's financial position at June 30, 1997, and the results of operations and cash flows for the three-month and six-month periods ended June 30, 1997 and 1996, in conformity with generally accepted accounting principles. Financial statements and notes to consolidated financial statements included in this report on Form 10-Q should be read in conjunction with the Company's 1996 Annual Report on Form 10-K, as certain notes and other pertinent information have been abbreviated in or omitted from this report. Financial results for the six months ended June 30, 1997 are not necessarily indicative of future results. NOTE B - DISCONTINUED OPERATIONS On December 31, 1996, Murphy completed a tax-free spin-off to its stockholders of all common stock of its wholly owned farm, timber, and real estate subsidiary Deltic Farm & Timber Co., Inc. (reincorporated as "Deltic Timber Corporation"). The spin-off resulted in a net charge of $172.6 million to "Retained Earnings" in 1996. As a result of the transaction, activities of the farm, timber, and real estate segment have been accounted for as discontinued operations, with prior periods restated. Selected operating results for these activities, presented as net amounts in the Consolidated Statements of Income for the three-month and six-month periods ended June 30, 1996 were as follows. <TABLE> <CAPTION> ---------------------------------------------------------------------- Periods Ended June 30, 1996 ---------------------------------------------------------------------- Three Six (Millions of dollars, except per share amounts) Months Months ---------------------------------------------------------------------- <S> <C> <C> Revenues. . . . . . . . . . . . . . . . . . . . . $19.8 40.1 Income tax provisions . . . . . . . . . . . . . . 2.1 4.5 Income from discontinued operations . . . . . . . 3.3 7.0 Income from discontinued operations per share . . .07 .16 </TABLE> NOTE C - ENVIRONMENTAL CONTINGENCIES The Company's worldwide operations are subject to numerous laws and regulations intended to protect the environment and/or impose remedial obligations. In addition, the Company is involved in personal injury and property damage claims, allegedly caused by exposure to or by the release or disposal of materials manufactured or used in the Company's operations. The Company operates or has previously operated certain sites or facilities, including refineries, oil and gas fields, service stations, and terminals, for which known or potential obligations for environmental remediation exist. Under the Company's accounting policies, liabilities for environmental obligations are recorded when such obligations are probable and the cost can be reasonably estimated. If there is a range of reasonably estimated costs, the most likely amount will be recorded, or if no amount is most likely, the minimum of the range. Recorded liabilities are reviewed quarterly and adjusted as needed. Actual cash expenditures often occur a number of years following recognition of the liabilities. The Company's reserve for remedial obligations, which is included in "Deferred Credits and Other Liabilities" in the Consolidated Balance Sheets, contains certain amounts that are based on anticipated regulatory approval for proposed remediation of former refinery waste sites. If regulatory authorities require more costly alternatives than the proposed processes, future expenditures could exceed the amount reserved by up to an estimated $3 million. 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.) NOTE C - ENVIRONMENTAL CONTINGENCIES (CONTD.) The Company is currently identified by the U.S. Environmental Protection Agency as a Potentially Responsible Party (PRP) at four Superfund sites and has been assigned responsibility by defendants at another Superfund site. The potential total cost to all parties to perform necessary remedial work at these sites is substantial; however, current information indicates that the Company is a "de minimus" party, with assigned or potentially assigned responsibility of less than two percent at all but one of the sites. At that site, the Company has not determined either its potentially assigned responsibility percentage or its potential total remedial cost. Based on currently available information on one site and the minor percentages involved on the other sites, the Company does not expect that its related remedial costs will be material to its financial condition or its results of operations. Additional information may become known in the future that would alter this assessment, including any requirement to bear a pro rata share of costs attributable to nonparticipating PRPs or indications of additional responsibility by the Company. Although the Company is not aware of any environmental matters that might have a material effect on its financial condition, there is the possibility that expenditures could be required at currently unidentified sites, and new or revised regulatory requirements could necessitate additional expenditures at known sites. Such expenditures could materially affect the results of operations in a future period. The Company believes that certain environmentally related liabilities and prior environmental expenditures are either covered by insurance or will be recovered from other sources. The outcome of potential insurance recoveries is the subject of ongoing litigation, including the appeal of a judgment awarded the Company in 1995. Since no assurance can be given that the judgment will be upheld upon appeal or that recoveries from other sources will occur, the Company has not recognized a benefit for these potential recoveries at June 30, 1997. NOTE D - OTHER CONTINGENCIES The Company's operations and earnings have been and may be affected by various other forms of governmental action both in the U.S. and throughout the world. Examples of such governmental action include, but are by no means limited to: tax increases and retroactive tax claims; restrictions on production; import and export controls; price controls; currency controls; allocation of supplies of crude oil and petroleum products and other goods; expropriation of property; restrictions and preferences affecting issuance of oil and gas or mineral leases; laws and regulations intended for the promotion of safety; and laws and regulations affecting the Company's relationships with employees, suppliers, customers, stockholders, and others. Because governmental actions are often motivated by political considerations, may be taken without full consideration of their consequences, and may be taken in response to actions of other governments, it is not practical to attempt to predict the likelihood of such actions, the form the actions may take, or the effect such actions may have on the Company. In the normal course of its business activities, the Company is required under certain contracts with various governmental authorities and others to provide letters of credit that may be drawn upon if the Company fails to perform under those contracts. At June 30, 1997, the Company had contingent liabilities of $11.8 million on outstanding letters of credit and $16 million under certain financial guarantees. NOTE E - ACCOUNTING POLICIES FOR CERTAIN DERIVATIVE INSTRUMENTS Derivative instruments are used by the Company on a limited basis to manage well-defined risks related to commodity prices, foreign currency exchange rates, and interest rates. The Company accounts for these instruments as hedges. To qualify as hedges, the instruments must reduce the exposure to price, currency, or interest rate risks of assets, liabilities, or anticipated transactions. The Company does not hold any derivatives for trading purposes. 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.) NOTE E - ACCOUNTING POLICIES FOR CERTAIN DERIVATIVE INSTRUMENTS (CONTD.) The Company has a crude oil swap agreement, which matures in the third quarter of 1997, to purchase 500,000 barrels of West Texas Intermediate crude oil at a specified price per barrel and sell the same commodity at the average market price during the maturity period. The agreement, to be settled on a net cash basis, fixes the cost for a portion of the anticipated crude oil feedstock requirements for the Company's U.S. refining operations. The Company records a liability related to a swap agreement if the estimated cost of the anticipated crude oil purchase, including settlement cost of the swap agreement, exceeds the estimated net realizable value of the related finished products. Any such liability would be included in "Deferred Credits and Other Liabilities" in the Consolidated Balance Sheet. The Company records the operating results associated with a swap agreement in "Crude Oil, Products, and Related Operating Expenses" in the Consolidated Statement of Income. The Company also has forward foreign exchange contracts to buy Cdn $56 million, fixing the U.S. dollar costs for certain Canadian dollar denominated nonrecourse debt. The unrealized difference between the contract exchange rates and the actual exchange rate at June 30, 1997 is recognized on the Consolidated Balance Sheet as an adjustment to "Nonrecourse Debt of a Subsidiary" with an offset to "Cumulative Translation Adjustments." When these contracts are settled, any adjustment to the difference previously recorded will be included in the same accounts. At June 30, 1997, the Company had several five-year interest rate swap agreements to pay interest at fixed rates on a total principal of US $70 million and to receive interest at a quarterly U.S. dollar LIBOR rate. These contracts reduce the interest rate risk on certain U.S. dollar denominated nonrecourse debt of a subsidiary. Cash received or paid at the time of each quarterly settlement is accounted for as an adjustment of "Interest Expense" in the Consolidated Statement of Income. NOTE F - NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," effective for periods ending after December 15, 1997. After the effective date, any prior period earnings per share (EPS) data in subsequent reports must be restated to conform to the new standard. For the three-month and six-month periods ended June 30, 1997 and 1996, pro forma diluted EPS as computed under the provisions of SFAS No. 128 would be the same as the EPS reported on the Consolidated Statements of Income for these periods. Pro forma basic EPS would also be the same for the 1996 periods but would be $.01 a share higher than reported for the 1997 periods. The FASB issued SFAS No. 130, "Reporting Comprehensive Income," in June 1997. This statement will require the Company to disclose comprehensive income for all periods reported beginning with the quarter ended March 31, 1998. For the three-month and six-month periods ended June 30, 1997 and 1996, the Company's only item of other comprehensive income as defined by SFAS No. 130 relates to foreign currency translation adjustments. The following table shows the Company's pro forma comprehensive income for these periods. <TABLE> <CAPTION> - ---------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, - ---------------------------------------------------------------------------- (Millions of dollars) 1997 1996 1997 1996 - ---------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net income................................. $27.6 28.1 58.2 52.1 Other comprehensive income - net gain (loss) from foreign currency translation, net of taxes................. 5.0 2.5 (7.9) (.1) - ---------------------------------------------------------------------------- Pro forma comprehensive income $32.6 30.6 50.3 52.0 ============================================================================ </TABLE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.) NOTE G - BUSINESS SEGMENTS (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Three Months Ended June 30, 1997 June 30, 1996* - ---------------------------------------------------------------------------- (Millions of dollars) Revenues Income Revenues Income - ---------------------------------------------------------------------------- <S> <C> <C> <C> <C> Exploration and production** United States ...................... $ 62.3 8.8 58.5 14.5 Canada ............................. 34.0 1.9 40.2 8.4 United Kingdom ..................... 26.2 2.2 28.5 1.3 Ecuador ............................ 7.8 2.7 8.8 3.1 Other international ................ .8 (4.2) 2.2 (.3) - ---------------------------------------------------------------------------- 131.1 11.4 138.2 27.0 - ---------------------------------------------------------------------------- Refining, marketing, and transportation United States ...................... 328.5 13.0 334.2 (.6) United Kingdom ..................... 61.9 1.7 70.6 (.6) Canada ............................. 5.8 1.3 5.8 1.4 - ---------------------------------------------------------------------------- 396.2 16.0 410.6 .2 - ---------------------------------------------------------------------------- 527.3 27.4 548.8 27.2 Intrasegment transfers elimination ... (21.0) - (51.7) - - ---------------------------------------------------------------------------- 506.3 27.4 497.1 27.2 Corporate ............................ 1.4 .2 1.5 (2.4) - ---------------------------------------------------------------------------- Revenues/income from continuing operations .......................... 507.7 27.6 498.6 24.8 Income from discontinued operations .. - - - 3.3 - ---------------------------------------------------------------------------- $ 507.7 27.6 498.6 28.1 ============================================================================ Six Months Ended Six Months Ended June 30, 1997 June 30, 1996* - ---------------------------------------------------------------------------- (Millions of dollars) Revenues Income Revenues Income - ---------------------------------------------------------------------------- Exploration and production** United States ...................... $ 130.6 20.9 122.2 28.3 Canada ............................. 78.5 9.1 75.6 12.7 United Kingdom ..................... 60.2 8.3 61.6 7.3 Ecuador ............................ 16.8 5.3 15.4 4.8 Other international ................ 1.1 (7.2) 5.3 (1.7) - ---------------------------------------------------------------------------- 287.2 36.4 280.1 51.4 - ---------------------------------------------------------------------------- Refining, marketing, and transportation United States ...................... 646.8 18.7 581.2 (3.3) United Kingdom ..................... 119.1 2.1 141.6 (.8) Canada ............................. 12.5 3.0 11.0 2.4 - ---------------------------------------------------------------------------- 778.4 23.8 733.8 (1.7) - ---------------------------------------------------------------------------- 1,065.6 60.2 1,013.9 49.7 Intrasegment transfers elimination ... (52.1) - (101.4) - - ---------------------------------------------------------------------------- 1,013.5 60.2 912.5 49.7 Corporate ............................ 2.5 (2.0) 3.0 (4.6) - ---------------------------------------------------------------------------- Revenues/income from continuing operations .......................... 1,016.0 58.2 915.5 45.1 Income from discontinued operations .. - - - 7.0 - ---------------------------------------------------------------------------- $1,016.0 58.2 915.5 52.1 ============================================================================ *Restated for discontinued operations. **Additional details are presented in the tables on page 11. </TABLE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996 Net income for the second quarter of 1997 was $27.6 million, $.61 a share, and was up 11 percent compared to income from continuing operations in the second quarter a year ago of $24.8 million, $.55 a share. Net income for the second quarter of 1996, including the now independent Deltic Timber Corporation, totaled $28.1 million, $.62 a share. Net cash provided by continuing operations, excluding changes in noncash working capital items, totaled $107.3 million in the second quarter of 1997, up 18 percent from a year ago. The Company's worldwide downstream operations earned $16 million in the current quarter compared to $.2 million a year ago, with U.S. downstream operations producing the best quarterly results since the second quarter of 1990. Earnings from exploration and production operations were $11.4 million, down from $27 million in the second quarter of 1996, as lower crude oil sales prices worldwide, a decline in U.S. natural gas sales prices, and an increase in exploration expenses more than offset a 40-percent increase in U.S. natural gas sales volumes. Exploration and production operations in the U.S. earned $8.8 million compared to $14.5 million in the second quarter of 1996. Operations in Canada earned $1.9 million, down from $8.4 million a year ago, U.K. operations earned $2.2 million compared to $1.3 million, and operations in Ecuador earned $2.7 million compared to $3.1 million in the second quarter of 1996. Other international operations reported a loss of $4.2 million compared to a $.3 million loss a year earlier. The Company's crude oil and condensate sales prices averaged $18.67 a barrel in the U.S. and $18.29 in the U.K., decreases of four percent and nine percent, respectively. In Canada, sales prices averaged $16.99 a barrel for light oil, down 13 percent, and $10.29 for heavy oil, a decrease of 31 percent. The average sales price for Canadian synthetic oil was $19.25 a barrel, down seven percent from a year ago. In Ecuador, sales prices averaged $11.60 a barrel, down 22 percent. Total crude oil and gas liquids production averaged 54,271 barrels a day compared to 54,925 in the second quarter of 1996. U.S. production declined seven percent, with the reduction due to the sale of onshore producing properties in the third quarter of 1996. In Canada, heavy oil production increased eight percent, while light oil production was down 17 percent. The Company's net production of synthetic oil in Canada was essentially unchanged. Production in the U.K. declined seven percent, while production in Ecuador increased 18 percent. Murphy's average natural gas sales price in the U.S. was $2.08 a thousand cubic feet (MCF) in the current quarter compared to $2.36 a year ago. The average natural gas sales price in Canada increased from $1.01 an MCF to $1.12. Sales prices averaged $2.50 an MCF in the U.K. compared to $2.57 a year ago. Total natural gas sales averaged 275 million cubic feet a day compared to 216 million a year ago. Sales of natural gas in the U.S. averaged 221 million cubic feet a day, up from 158 million in the second quarter of 1996. Exploration expenses totaled $23.2 million compared to $13.2 million in 1996 and included $2.5 million for a well in Bohai Bay, China. The tables on page 11 provide additional details of the results of exploration and production operations for the second quarter of each year. Refining, marketing, and transportation operations in the U.S. earned $13 million compared to a loss of $.6 million a year ago, which included a $2.3 million after-tax benefit related to crude oil swap agreements. Refined product sales in the U.S. set a quarterly record at 151,791 barrels a day in the current quarter. Operations in the U.K. earned $1.7 million compared to a $.6 million loss in the second quarter of 1996. Earnings from purchasing, transporting, and reselling crude oil in Canada were $1.3 million in the current quarter compared to $1.4 million in the second quarter of 1996. Refinery crude runs worldwide were 162,727 barrels a day compared to 164,905 in the second quarter of 1996. Worldwide refined product sales were 179,181 barrels a day, up from 178,251 a year ago. Corporate functions reflected earnings of $.2 million in the current quarter compared to a loss of $2.4 million in the second quarter of 1996. In addition, the Company's net income for the 1996 quarter included earnings of $3.3 million, $.07 a share, from the discontinued farm, timber, and real estate operations of Deltic Timber Corporation. 8
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.) SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 For the first six months of 1997, net income totaled $58.2 million, $1.29 a share, which compares to income from continuing operations of $45.1 million, $1.00 a share, for the first half of 1996. Net income for the six months ended June 30, 1996 totaled $52.1 million, $1.16 a share, including income from the operations of Deltic Timber Corporation. The 29-percent increase in income from continuing operations was primarily due to the Company's worldwide downstream operations, which earned $23.8 million in the first six months of 1997 compared to a loss of $1.7 million in the same period last year. Earnings from exploration and production operations decreased $15 million mainly because the effects of higher exploration expenses, lower U.S. natural gas sales prices, and lower crude oil production more than offset higher U.S. natural gas sales volumes. Earnings from exploration and production for the six months ended June 30, 1997 were $36.4 million, down from $51.4 million in 1996. Operations in the U.S. earned $20.9 million for the first half of 1997 compared to $28.3 million in the prior period, and Canadian operations earned $9.1 million compared to $12.7 million in 1996. Increased earnings from the prior year occurred in the U.K., up $1 million to $8.3 million, and in Ecuador, up $.5 million to $5.3 million. Other international operations recorded losses of $7.2 million in the first six months of 1997 and $1.7 million in the 1996 period; the unfavorable results were primarily due to higher exploration expenses. The Company's crude oil and condensate sales prices averaged $20.09 a barrel in the U.S., up seven percent, and $19.43 in the U.K., down two percent. In Canada, sales prices averaged $18.52 a barrel for light oil, essentially unchanged from last year; $11.75 for heavy oil, down 11 percent; and $20.68 for synthetic oil, up six percent. The average crude oil sales price in Ecuador was $12.57 a barrel, down 14 percent. Crude oil and gas liquids production for the first half of 1997 averaged 54,672 barrels a day compared to 54,917 during the same period of 1996. Ecuadoran crude oil production was up 30 percent to 7,490 barrels a day, and Canadian heavy oil production increased 15 percent to 10,443. U.S. crude oil and gas liquids production of 11,248 barrels a day was down 15 percent primarily due to the sale of onshore producing properties. In other areas, crude oil and gas liquids production averaged 4,037 barrels a day for Canadian light oil, down 17 percent; 8,247 for Canadian synthetic crude, unchanged from last year; and 13,207 in the U.K., down four percent. Natural gas sales prices for the first six months of 1997 averaged $2.39 an MCF in the U.S., down eight percent; $1.45 in Canada, up 39 percent; and $2.73 in the U.K., up five percent. Total natural gas sales averaged 260 million cubic feet a day in 1997 compared to 232 million in 1996. Sales of natural gas in the U.S. averaged 201 million cubic feet a day, up 24 percent. In other areas, average natural gas sales volumes decreased slightly in Canada and were down six percent in the U.K. Natural gas production in Spain ceased at the end of 1996. Exploration expenses totaled $51.8 million for the six months ended June 30, 1997 compared to $24.9 million a year ago. Exploration expenses were down in the U.K., but were up in the U.S., Canada, and other international areas. The tables on page 11 provide additional details of the results of exploration and production operations for the first half of each year. Refining, marketing, and transportation operations in the U.S. benefited from improved margins and earned $18.7 million in the first six months of 1997 compared to a loss of $3.3 million for the same period last year. The U.S. results included after-tax benefits of $4.1 million in 1997 and $2.3 million in 1996 related to crude oil swap agreements. Operations in the U.K. earned $2.1 million in the first half of 1997 compared to a loss of $.8 million in the prior year. Earnings from purchasing, transporting, and reselling crude oil in Canada were $3 million in the current year compared to $2.4 million a year ago. Refinery crude runs worldwide were 157,199 barrels a day compared to 152,311 a year ago. Worldwide petroleum product sales were 169,478 barrels a day, up from 163,293 in 1996. Financial results from corporate functions reflected a loss of $2 million in the first half of 1997 compared to a loss of $4.6 million a year ago. In addition, the Company's net income for the six months ended June 30, 1996 included earnings of $7 million, $.16 a share, from the discontinued farm, timber, and real estate segment. 9
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTD.) FINANCIAL CONDITION Cash provided by continuing operations was $143.7 million for the first six months of 1997 compared to $190.2 million for the same period in 1996. Changes in operating working capital other than cash and cash equivalents required cash of $67.9 million for the first six months of 1997 but provided cash of $10.6 million for the 1996 period. Cash provided by operating activities was reduced by expenditures for refinery turnarounds and abandonment of oil and gas properties totaling $11 million in the current year and $7.4 million in 1996. Predominant uses of cash in both years were for capital expenditures (which, including amounts expensed, are summarized in the following table) and payment of dividends. <TABLE> <CAPTION> ----------------------------------------------------------------------- Six Months Ended June 30, ----------------------------------------------------------------------- (Millions of dollars) 1997 1996 ----------------------------------------------------------------------- <S> <C> <C> Exploration and production.......................... $213.9 159.5 Refining, marketing, and transportation............. 14.4 16.7 Corporate........................................... .5 .5 ----------------------------------------------------------------------- $228.8 176.7 ======================================================================= </TABLE> Working capital at June 30, 1997 was $41.5 million, down $14.6 million from December 31, 1996. This level of working capital does not fully reflect the Company's liquidity position, because the lower historical costs assigned to inventories under LIFO accounting were $90.8 million below current costs at June 30, 1997. At June 30, 1997, long-term nonrecourse debt of a subsidiary was $180.3 million, down slightly from December 31, 1996 due to changes in foreign currency exchange rates. Notes payable and capitalized lease obligations of $49.2 million were up $28.3 million due to additional borrowing for certain oil and gas development projects. A summary of capital employed at June 30, 1997 and December 31, 1996 follows. <TABLE> <CAPTION> -------------------------------------------------------------------------- June 30, 1997 December 31, 1996 -------------------------------------------------------------------------- (Millions of dollars) Amount % Amount % -------------------------------------------------------------------------- <S> <C> <C> <C> <C> Notes payable and capitalized lease obligations......................... $ 49.2 4 20.9 2 Nonrecourse debt of a subsidiary..... 180.3 14 180.9 15 Stockholders' equity................. 1,049.2 82 1,027.5 83 -------------------------------------------------------------------------- $ 1,278.7 100 1,229.3 100 ========================================================================== </TABLE> 10
<TABLE> <CAPTION> - ---------------------------------------------------------------------------- United Synthetic United King- Ecua- Oil - (Millions of dollars) States Canada dom dor Other Canada Total - ---------------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30, 1997 <S> <C> <C> <C> <C> <C> <C> <C> Oil and gas sales and operating revenues $ 62.3 20.2 26.2 7.8 .8 13.8 131.1 Production costs 11.4 9.6 9.4 2.1 - 8.3 40.8 Depreciation, depletion, and amortization 20.2 7.2 10.4 2.7 - 1.4 41.9 Exploration expenses Dry hole costs 8.8 .3 .6 - 2.5 - 12.2 Geological and geophysical costs 2.9 2.5 .1 - .9 - 6.4 Other costs .6 .1 .5 - .9 - 2.1 - ---------------------------------------------------------------------------- 12.3 2.9 1.2 - 4.3 - 20.7 Undeveloped lease amortization 1.6 .9 - - - - 2.5 - ---------------------------------------------------------------------------- Total exploration expenses 13.9 3.8 1.2 - 4.3 - 23.2 - ---------------------------------------------------------------------------- Selling and general expenses 3.5 1.3 .3 .1 .5 - 5.7 Income tax provisions (benefits) 4.5 (.9) 2.7 .2 .2 1.4 8.1 - ---------------------------------------------------------------------------- Results of operations (excluding corporate overhead and interest) $ 8.8 (.8) 2.2 2.7 (4.2) 2.7 11.4 ============================================================================ THREE MONTHS ENDED JUNE 30, 1996 Oil and gas sales and operating revenues $ 58.5 25.4 28.5 8.8 2.2 14.8 138.2 Production costs 12.4 7.0 7.9 3.0 .4 9.1 39.8 Depreciation, depletion, and amortization 15.2 6.0 9.8 2.4 1.2 1.3 35.9 Exploration expenses Dry hole costs 3.2 .1 3.7 - - - 7.0 Geological and geophysical costs .9 .3 .9 - (.2) - 1.9 Other costs .7 .2 .5 - .6 - 2.0 - ---------------------------------------------------------------------------- 4.8 .6 5.1 - .4 - 10.9 Undeveloped lease amortization 1.6 .7 - - - - 2.3 - ---------------------------------------------------------------------------- Total exploration expenses 6.4 1.3 5.1 - .4 - 13.2 - ---------------------------------------------------------------------------- Selling and general expenses 3.4 1.3 .7 - .4 - 5.8 Income tax provisions 6.6 4.2 3.7 .3 .1 1.6 16.5 - ---------------------------------------------------------------------------- Results of operations (excluding corporate overhead and interest) $ 14.5 5.6 1.3 3.1 (.3) 2.8 27.0 ============================================================================ SIX MONTHS ENDED JUNE 30, 1997 Oil and gas sales and operating revenues $130.6 47.7 60.2 16.8 1.1 30.8 287.2 Production costs 21.7 18.2 18.1 5.6 - 18.1 81.7 Depreciation, depletion, and amortization 37.2 14.5 21.6 5.4 - 3.0 81.7 Exploration expenses Dry hole costs 23.6 2.5 .6 - 2.5 - 29.2 Geological and geophysical costs 5.5 4.6 .2 - 2.8 - 13.1 Other costs 1.1 .3 1.1 - 1.9 - 4.4 - ---------------------------------------------------------------------------- 30.2 7.4 1.9 - 7.2 - 46.7 Undeveloped lease amortization 3.4 1.7 - - - - 5.1 - ---------------------------------------------------------------------------- Total exploration expenses 33.6 9.1 1.9 - 7.2 - 51.8 - ---------------------------------------------------------------------------- Selling and general expenses 6.6 2.6 1.1 .2 .9 - 11.4 Income tax provisions 10.6 .3 9.2 .3 .2 3.6 24.2 - ---------------------------------------------------------------------------- Results of operations (excluding corporate overhead and interest) $ 20.9 3.0 8.3 5.3 (7.2) 6.1 36.4 ============================================================================ SIX MONTHS ENDED JUNE 30, 1996 Oil and gas sales and operating revenues $122.2 46.3 61.6 15.4 5.3 29.3 280.1 Production costs 25.8 14.1 16.6 5.7 .6 19.1 81.9 Depreciation, depletion, and amortization 32.0 12.0 21.0 4.3 3.1 2.7 75.1 Exploration expenses Dry hole costs 5.2 .7 3.7 - - - 9.6 Geological and geophysical costs 3.4 1.3 1.1 - .6 - 6.4 Other costs 1.4 .3 .8 - 1.6 - 4.1 - ---------------------------------------------------------------------------- 10.0 2.3 5.6 - 2.2 - 20.1 Undeveloped lease amortization 3.4 1.4 - - - - 4.8 - ---------------------------------------------------------------------------- Total exploration expenses 13.4 3.7 5.6 - 2.2 - 24.9 - ---------------------------------------------------------------------------- Selling and general expenses 6.6 2.6 1.5 .1 .6 - 11.4 Income tax provisions 16.1 5.9 9.6 .5 .5 2.8 35.4 - ---------------------------------------------------------------------------- Results of operations (excluding corporate overhead and interest) $ 28.3 8.0 7.3 4.8 (1.7) 4.7 51.4 ============================================================================ </TABLE> 11
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and its subsidiaries are engaged in a number of other legal proceedings, all of which the Company considers routine and incidental to its business and none of which is material as defined by the rules and regulations of the U.S. Securities and Exchange Commission. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of security holders on May 14, 1997, the directors proposed by management were elected with a tabulation of shares as shown below. <TABLE> <CAPTION> For Withheld ---------- -------- <S> <C> <C> B. R. R. Butler 41,476,564 124,724 George S. Dembroski 41,475,532 125,756 Claiborne P. Deming 41,477,061 124,227 H. Rodes Hart 41,476,895 124,393 Vester T. Hughes Jr. 41,476,064 125,224 C. H. Murphy Jr. 41,474,474 126,814 Michael W. Murphy 41,477,061 124,227 R. Madison Murphy 41,477,061 124,227 William C. Nolan Jr. 41,476,806 124,482 Caroline G. Theus 41,477,041 124,247 Lorne C. Webster 41,476,461 124,827 </TABLE> In other matters, the security holders approved amendments to the 1992 Stock Incentive Plan as described in the Proxy Statement by a vote of 40,826,700 shares in favor, 337,396 shares against, and 437,192 shares not voted and approved the Employee Stock Purchase Plan as described in the Proxy Statement by a vote of 41,249,182 shares in favor, 259,950 shares against, and 92,156 shares not voted. In addition, the earlier appointment of KPMG Peat Marwick LLP by the Board of Directors as independent auditors for 1997 was ratified with 41,230,525 shares voted in favor, 66,013 shares voted in opposition, and 304,750 shares not voted. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The Exhibit Index on page 13 of this Form 10-Q report lists the exhibits that are hereby filed or incorporated by reference. (b) No reports on Form 8-K have been filed for the quarter covered by this report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MURPHY OIL CORPORATION (Registrant) By /s/ Ronald W. Herman -------------------- Ronald W. Herman, Controller (Chief Accounting Officer and Duly Authorized Officer) August 8, 1997 (Date) 12
EXHIBIT INDEX Exhibit Page Number or No. Incorporation by Reference to - ------- ----------------------------- 3.1 Certificate of Incorporation of Exhibit 3.1, Page Ex. 3.1-1, Murphy Oil Corporation as of of Murphy's Annual Report on September 25, 1986 Form 10-K for the year ended December 31, 1996 3.2 Bylaws of Murphy Oil Corporation Exhibit 3.3, Page Ex. 3.3-1, at October 4, 1995 of Murphy's Annual Report on Form 10-K for the year ended December 31, 1995 4 Instruments Defining the Rights of Security Holders. Murphy is party to several long-term debt instruments, none of which authorizes securities that exceed 10 percent of the total assets of Murphy and its subsidiaries on a consolidated basis. Pursuant to Regulation S-K, item 601(b), paragraph 4(iii)(A), Murphy agrees to furnish a copy of each such instrument to the Securities and Exchange Commission upon request. 4.1 Rights Agreement dated as of December Exhibit 4.1, Page Ex. 4.1-0, 6, 1989 between Murphy Oil Corporation of Murphy's Annual Report on and Harris Trust Company of New York, Form 10-K for the year ended as Rights Agent December 31, 1994 10.1 1987 Management Incentive Plan (adopted Exhibit 10.2, Page Ex. 10.2-0, May 13, 1987, amended February 7, 1990 of Murphy's Annual Report on retroactive to February 3, 1988) Form 10-K for the year ended December 31, 1994 10.2 1992 Stock Incentive Plan amended Exhibit 10.2 filed herewith May 14, 1997 10.3 Employee Stock Purchase Plan Exhibit 99.01 of Murphy's Form S-8 Registration Statement under the Securities Act of 1933 dated May 19, 1997 27 Financial Data Schedule for the six Included only in electronic months ended June 30, 1997 filing Exhibits other than those listed above have been omitted since they either are not required or are not applicable. 13