MURPHY OIL CORPORATION ANNUAL REPORT 2020
Leaning Into
Challenges with Sustainable Solutions
46280murD1R1.indd 1-4 3/12/21 2:57 PM Executing in 2020
SOLIDIFYING THE COMPANY TO REMAIN COMPETITIVE
1 2 3 4 5 Established flatter Reduced risk and Sanctioned low-risk Supported Gulf of Achieved G&A cost production profile ot underpinned cash Tupper Montney Mexico projects that reductions through maximize free cash flows by employing development provide significant free significant company- flow and achieve debt opportunistic cash flow generation and wide reorganization reduction in an oil hedging strategy low emission intensity price recovery
LEANING INTO CHALLENGES
ENSURING OPERATING IN LONG-TERM RESILIENCE MULTIPLE BASINS
1 2 1 2 Reduced CAPEX and Maintained $311 MM Portfolio diversification Eagle Ford Shale cost structure while of cash and cash across both federal and operations located on right-sizing dividend equivalents, with total private lands provides private land and offer liquidity of $1.7 BN at flexibility and enhanced significant upside in year-end 2020 low-carbon footprint an oil price recovery
3 4 3 4 Allocated capital to Mitigated covenant risk Improved operations in Operations supported by maximize long-term free on secured revolver Tupper Montney and deep inventory of Gulf of cash flow while covering Kaybob Duvernay assets Mexico and international longstanding dividend to allow for significant exploration opportunities free cash flow upside
46280murD1R1.indd 1-4 3/12/21 2:57 PM Dear Fellow Stockholder, Last year I wrote to you about our portfolio transformation, which resulted in a streamlined asset base with a focused approach for moving forward. While 2020 went against all expectations, I can confidently say that those earlier decisions left us well-positioned for the future. This concept of ‘future’ is central to our vision – to be an industry leader who continues to positively 2020 Production by Area impact lives and remains focused on navigating the ongoing energy transition. The historical steps MBOEPD we’ve taken to transform the company, as well as our continued keen attention to our strategy in 2020, have prepared and protected the company to remain sustainable for many years to come. For example, our company has an advantaged low-carbon footprint, with deepwater offshore 22% production having the least emissions intensity in the entire global exploration and production business. Our global portfolio has the added flexibility of being on both federal and private lands, and is further advantaged by our unique offshore exploration position. We have been able to 164 46% execute our business while maintaining a top-tier safety and environmental performance record. MBOEPD Some Thoughts on 2020 One of our primary objectives is to maintain operations and production while protecting the health 32% and safety of our employees, contractors and the communities in which we work. Our team has done a tremendous job leaning into the challenges that 2020 presented, remaining flexible throughout the year while creating solutions to continue working in unique conditions during the COVID-19 pandemic. Offshore: 74,600 MBOEPD
Early in the year, shortly after the pandemic started, we implemented strict testing protocol for our Onshore Canada: 52,700 MBOEPD field operations, which I’m proud to say has been effective in achieving a very low infection rate, leading US Onshore: 36,300 MBOEPD to zero pandemic-related downtime. Our office staff adheres to strong protocol, as well as work-from- home practices, thereby keeping them and their families safe. In addition, we have been able to maintain construction on schedule throughout the pandemic for our King’s Quay floating production system being fabricated in South Korea, which is expected to be in-service mid-2022 in the Gulf of Mexico. Overall, we produced 164 thousand barrels of oil equivalent per day in 2020. Our offshore production which accounts for 46 percent of the total, was impacted by an active hurricane season in the Gulf of Mexico, while our more stable onshore assets account for approximately 54 percent of production. “ Our company has Our capital spending for the year totaled approximately $712 million, excluding King’s Quay floating an advantaged production system spending as it is a midstream asset held for sale. low-carbon footprint, Solidifying the Company to Remain Competitive Along with the impacts of COVID-19 in 2020, the energy industry experienced a sharp decline in oil with deepwater offshore prices due to a combination of OPEC decisions and the steep drop in demand. This led us to reevaluate our capital plan for the year, along with undertaking a complete review of our organizational structure production having the and dividend policy, in order to protect the company for the future and remain competitive. least emissions intensity We made the gut-wrenching decision to close two offices, including our legacy headquarters in El Dorado, Arkansas, and establish our new corporate headquarters in Houston, Texas. Overall, our total in the entire global G&A expenses were 40 percent lower in 2020 than 2019 as a result of the office closures, a 30 percent exploration and headcount reduction through a reorganization of the company, and reductions to compensation for corporate executives and directors. We reworked contracts, drilling schedules and processes to further production business.” decrease costs, which resulted in a low per-unit operating cost despite fewer production volumes. Today, we have a more streamlined team in a centralized location and are aligned on a focused production profile with lower growth going forward, allowing free cash flow to be allocated toward lowering our debt levels. We were also forced to cut our quarterly dividend in half, from $0.25 to $0.125 per share. However, we remain shareholder-focused, as we have paid out more than $800 million in dividends, and $1.3 billion when including share repurchases, since 2016. This equates to an average 15 percent and 25 percent, respectively of cash flow from operations returned to shareholders over the five-year period. While extremely difficult decisions were made last year, I am proud of our team for helping protect Murphy for the long term.
Ensuring Long-Term Resilience Our long-term resilience is supported in part by reducing our financial risk and underpinning cash flow through an ongoing strategic hedging strategy. The risk is further mitigated through preserving our liquidity position, comprised of cash and equivalents, as well as availability under our senior unsecured revolver, and a capital program that is designed to generate free cash flow in excess of the dividend. I am excited that we sanctioned the low-cost Tupper Montney development, which will generate free cash flow from additional production volumes with low subsurface risk while being the lowest greenhouse gas emissions intensity asset in our portfolio. With our streamlined budget and low oil growth strategy, our Eagle Ford Shale and Kaybob Duvernay production is designed to remain flat over the next several years to build more free cash flow in an oil price recovery scenario. Our Khaleesi, Mormont and Samurai projects in the Gulf of Mexico continue to progress on schedule, with first oil scheduled to flow into the King’s Quay floating production system in mid-2022. Also,
46280murD1R1.indd 5-8 3/12/21 2:57 PM Murphy’s participation in the Gulf of Mexico lease sale in November 2020 added both standalone and near-field deepwater exploration opportunities. We are also focused on being resilient through protecting our people. We have advanced our diversity, equity and inclusion programs and practices both within the company and our communities, and we maintain community engagement through our support of the United Way and El Dorado Promise, along with many other employee-driven campaigns. “We remain steadfast in Focusing on Long-Term Sustainability Our 2020 Sustainability Report features expanded disclosures and key metrics, taking into consideration maintaining our diverse, various third-party environmental, social and governance reporting standards and ratings, including low-carbon intensity, the Sustainability Accounting Standards Board (SASB), International Petroleum Industry Environmental Conservation Association (IPIECA) and the Global Reporting Initiative (GRI). Further, our climate change multi-basin portfolio strategy section aligns with the Task Force on Climate-Related Financial Disclosures (TCFD). We also that will set us apart reported significantly more SASB performance metrics this year compared to our inaugural 2019 report. We understand the impact our operations have on the environment and communities, and as a result, as we remain mindful we have established a goal of reducing greenhouse gas emissions intensity by 15 to 20 percent in 2030 of the energy transition from our 2019 level. Our team has improved its recycled water management processes through the construction of a produced water handling system in the Tupper Montney. We have also achieved ahead, where oil and year-over-year flaring reductions in our North American onshore assets by implementing alternative natural gas takeaway installations, compressor upgrades and engineering controls. These efforts gas will continue to be will continue into 2021 as we stay focused on reducing our physical impact. required for many years.” We acknowledge operations have an effect on the communities in which we work, and we continually strive to leave a positive impact where we operate. In conjunction with our work among First Nation and Indigenous communities, we have developed an Indigenous Rights Policy. In 2020, we also published our long-standing Anti-Bribery and Corruption Policy which, among other things, reaffirms our commitment to respect people, safety, the environment and the law.
Operating in Multiple Basins 2020 Reserves by Area In addition to our North American onshore and Gulf of Mexico producing assets, we continue to MMBOE advance our exploration prospects, currently at various stages of maturation, across multiple basins and countries. This portfolio diversification provides additional flexibility for our capital program and is supported by a deep inventory of opportunities, primarily in the Gulf of Mexico, offshore 23% Mexico and Brazil. We continue to hold a sizeable reserve base with nearly 700 million barrels of oil equivalent. We saw a net decline in proved reserves in 2020 from 2019 due to lower future capital, resulting in a flattening 697 of oil production, and from the impact of lower average oil prices, which was in part offset by the MMBOE 53% sanctioning of the Tupper Montney development. However, our total onshore proved and probable 24% reserves remained the same from 2019. Overall, we maintained 57 percent proved developed reserves with a reserve life of more than 11 years.
Remaining Committed to Benefitting All Stakeholders
While 2020 was an extremely difficult year, it showcased the resiliency of the team here at Murphy. Onshore Canada: 370 MMBOE We remained focused on our strategy of generating free cash flow and supporting a quarterly dividend US Onshore: 167 MMBOE while preserving onshore production, executing significant Gulf of Mexico projects and expanding our Offshore: 160 MMBOE potential company-making exploration positions. Further, we’ve worked internally to deepen our focus on generating long-term solutions for our operations and reducing their impact on the environment. We remain steadfast in maintaining our diverse, low-carbon intensity, multi-basin portfolio that will set us apart as we remain mindful of the energy transition ahead, where oil and gas will continue to be required for many years.
Acknowledging Deep Appreciation Note: Unless otherwise noted, the production, I am deeply appreciative of all the hard work over the years from our El Dorado and Calgary staff, reserves and financial metrics discussed in and their effort in helping to build Murphy into the company it is today. I also would like to thank our this Shareholder Letter and accompanying employees for leaning into the challenge of the new, flatter organizational structure and stepping information exclude the noncontrolling interest in MP Gulf of Mexico, LLC (MP GOM), into expanded roles during the everchanging year. Our Board of Directors has tapped into our legacy thereby representing only the amounts and provided exceptional counsel in overseeing the execution of our strategy. We extend a special attributable to Murphy. thank you to Val Mirosh, who will be retiring from the board in May. He has provided outstanding leadership since 2011 on midstream and health, safety, environmental and corporate responsibility matters. On behalf of the Board of Directors and employees, we wish him all the best. Lastly, thank you to our stockholders for remaining supportive of Murphy Oil Corporation as we embrace new opportunities.
Roger W. Jenkins President and Chief Executive Officer
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