LITTLE ROCK — Murphy Oil Corp. reported an 11 percent fall in third-quarter earnings Wednesday, citing lower profitability in refining operations because of the high cost of oil.
Net income dropped to $199.5 million, or $1.04 per share, beating the average of analysts' expectations, 97 cents. Thomson Financial's survey of 16 analysts ranged from 85 cents to $1.16.
In the third quarter of 2006, the company's income came to $224.1 million, or $1.18 per share, the El Dorado-based company said. That included a $27.2 million cost associated with 2005's hurricane damage, as well as a $17.8 million tax increase on United Kingdom oil and natural gas profits.
Murphy's refining and operations segment generated $73.2 million in profits in the quarter ending Sept. 30, as compared with $128 million in the third quarter of 2006. Lower margins for both refining and retail marketing operations in North America andthe U.K., hurt by rising crude oil prices, caused the drop, according to the company.
However, those same higher crude oil prices caused exploration and production income to rise to $150.8 million in the third quarter, compared with $118.7 million in 2006.
Crude oil averaged $63.96 per barrel, more than $8 higher than the same quarter in 2006.
The company also reported higher oil sales volume and lower maintenance costs for its Terra Nova field equipment. The company produced 87,962 barrels per day of oil and gas liquids, more than the previous year's 79,642 barrels per day.
The increase in volume resulted in part from the start-up of the company's new offshore- Malaysia operations, which produced 9,553 barrels per day during the quarter. However, the first sale there did not occur until October. Also, the Terra Nova field, offshore Newfoundland, was shut down the entire third quarter of last year.
"Our Malaysian team achieved a significant accomplishment during the third quarter by starting up the Kikeh field offshore Sabah," Claiborne Deming, Murphy's president and chief executive officer,said in a prepared statement. "Kikeh was brought online only five years after discovery and at an extremely competitive cost given the run-up in capital costs over recent years."
He said gross production there now comes to 45,000 to 50,000 barrels per day and will continue to ramp up throughout 2008. Production began Aug. 17.
Some unsuccessful Canadian drilling caused exploration costs to go up by $6.5 million from the same quarter last year to $42.5 million. The company's operation expenses also went up by about $2 million this year.
Gene Gillespie, an analyst with Howard Weil Inc., said it was a good quarter, with better than expected earnings. He said the Kikeh field's high production and fast increase was impressive.
And while oil prices have been high, it's a double-edged sword. "It's a plus for the upstream operations and a minus for the downstream," he said.
Light, sweet crude for delivery in December rose $1.83 to $87.10 a barrel Wednesday on the New York Mercantile Exchange.
Higher exploration costs mean an opportunity to find more resources, Gillespie said, but they also expose the company to more risk.
Gillespie said he doesn't discuss company ratings. He does not own any of the company's stock, and, he said, to his knowledge, his firm does no investment banking with Murphy.
The company predicted earnings per share of 75 cents to $1 for the fourth quarter, lower than Thomson Financial's $1.15 prediction.
Gillespie said he thought the company's fourth-quarter estimates were overly conservative, but "this is a volatile business."
Murphy's stock closed Wednesday up $1.37 at $77.05 per share on the New York Stock Exchange. Earnings came out after the market's close.
Business, Pages 29, 34 on 10/25/2007