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Murphy Oil: Mid-Sized in a Cost Intensive Business

By    |   Wednesday, 16 May 2012 03:02 PM

Murphy Oil (MUR) is a mid-sized oil company with a problem: It's active in shale gas exploration in the United States, but natural gas prices have plummeted on oversupply. Meanwhile, its size in terms of reserves, analysts say, make it less flexible in a cost-intensive industry.

Murphy is a oil and gas exploration and production company with retail and wholesale gasoline marketing operations in the United States and refining and marketing operations in the United Kingdom.

Murphy’s exploration and production business explores for and produces crude oil, natural gas and natural gas liquids worldwide, with a headquarters office Houston, Texas. Murphy’s worldwide crude oil, condensate and natural gas liquids production in 2011 averaged 103,160 barrels per day, a decrease of 19 percent compared to 2010, largely due to lower production at the Kikeh field, offshore of Malaysia, the company reports.

Worldwide sales volume of natural gas averaged 457 million cubic feet (MMCF) per day in 2011, up 28 percent from 2010 levels, primarily attributable to increased natural gas production in the Montney area of Western Canada and at fields offshore of Malaysia.

Total worldwide 2011 production on a barrel of oil equivalent basis (6,000 cubic feet of natural gas equals one barrel of oil) was 179,388 barrels per day, a decrease of 4 percent compared to 2010. Total production in 2012 is currently expected to average about 200,000 barrels of oil equivalent per day.

The company has acquired rights to significant acreage in South Texas in the Eagle Ford Shale unconventional oil and gas play, management reported in a recent filing.

Separately, “we have been evaluating the potential to separate our U.S. downstream business into a separate publicly traded company,” management reported. “For the three months ended March 31, 2012, our U.S. downstream business generated $4.26 billion in revenues and incurred an after-tax loss of $7.2 million, and for the year ended Dec. 31, 2011, it generated $17.5 billion in revenues and earned $223.6 million in income from continuing operations.”

Murphy Oil has a market cap of $9.05 billion in a sector, oil, gas and consumable fuels, where the average company size is $45.48 billion. Its trailing 12-month P/E ratio is 11.46 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.83, compared to 0.88 for the sector.

Its projected earnings per share growth for the coming year is 9.70 percent, compared to a sector average of 13.77 percent.


Analysts are nearly unanimously neutral on Murphy Oil. RBC Capital Markets rates the stock at outperform.

“Our risk assessment reflects our view of MUR's moderate financial policies and integrated operations in a volatile, cyclical and capital-intensive segment of the energy industry,” S&P analysts wrote in a recent report on the stock.

“We believe its low reserve-to-production ratio limits its operating flexibility, increasing dependence on long-term projects.”

Murphy Oil next reports on July 25.

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Wednesday, 16 May 2012 03:02 PM
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