Murphy Oil: A Good Bet In a Weak Oil Pricing Environment

Author's Avatar
May 13, 2015

Murphy Oil (MUR, Financial) is effectively optimizing its portfolio of assets, selling off non-core assets, improving operational efficiency and reducing its operational costs. Also, it is reducing its capital expenditure aggressively. For instance, its capital expenditure was reduced 31% to $613 million in the first-quarter 2015 from the same period a year ago. These effective measures will enable the company remain competitive in not so friendly oil price atmosphere.

Moreover, improvements in these components will lead to better cash flow position from its diversified assets across the world. Also, these short-term pains should provide the company with an opportunity to enhance its business, while returning cash to its shareholders in the future.

These efforts have enabled Murphy to increase its production, despite the unplanned downtimes related to its Syncrude and Block K associated gas. Murphy Oil produced on an average 221,550 barrels of oil equivalent per day. This is slightly better than its guidance of 221,000 barrels of oil equivalent per day for the first-quarter 2015. However, the higher production at the Eagle Ford shale and its new Sarawak projects helped the company to exceed its production guidance.

Optimizing the asset portfolio

Murphy Oil is marching well with its optimization efforts. At one hand it is selling off its non-core assets that have lower returns and at the other side it is progressively developing those assets that has higher rate of return. These efforts will assist the company to improve its balance sheet and pay off its rising debt of $2.59 billion.

Meanwhile, the company has completed initial phase of development drilling at its South Acis oil field and Belum gas field. It has seen better output here with better rate of return. Also, it is moving on with its Medusa expansion project. It has drilled two wells and completed one well that will enhance its production this year. Further, it has added an exploration block in the Vulcan Sub-Basin offshore Australia and a deepwater block offshore Sarawak, Malaysia. Moreover, Murphy delivered 45 new wells at the Eagle Ford Shale that are expected to come online in the current quarter.

These improvements at the operational front should help the company to deliver better top and bottom lines performance for the year.

The company expects its production to average approximately 59,000 barrels of oil equivalent per day in the second-quarter 2015. However, its annual production of 57,000 boepd for fiscal 2015 remains flat with its production in 2014. But, it continues to build resources. Its EFS resources had proved and net recoverable resources of 750 million barrels of oil equivalent at the end of fiscal 2014. The company plans to explore these resources with the progress in the oil prices that should lead to better margins in the coming years.

Conclusion

Murphy Oil remains a solid bet for investment. It is making progress on operational front with better efficiency. The analysts expect its earnings to grow 75% by the end of next year. Moreover, it has profit and operating profit margins of 14.95% and 15.64% respectively for the past twelve months. This is quite reasonable and better highlights its financial performance, despite the slowdown in the oil prices. It has current ratio of 1.19, which is adequate considering its cash and debt position. Its balance sheet carries total cash of $981.00 million. It has operating cash flow of $2.86 billion.