On Sep 24, we issued an updated research report on Murphy Oil Corporation (MUR). The company’s stable financial position, systematic investments in exploration and production (E&P) activities and strategic asset divestments are expected to boost its future performance. In addition, effective share repurchase program and regular payment of dividends are commendable. However, commodity price volatility and strict drilling regulations could act as growth deterrents.
This Zacks Rank #3 (Hold) stock’s second-quarter 2014 earnings missed the Zacks Consensus Estimate and decreased year over year primarily due to higher exploration and depreciation expenses and an increase in extraction costs in Malaysia. Though revenues missed the mark, it has increased year over year mainly on the back of an improvement in revenues from E&P activities.
Murphy Oil maintains a favorable cash position backed by a stable cash generation capacity. The company had cash and cash equivalents of around $0.66 billion as of Jun 30, 2014 and operating cash flow of roughly $0.72 billion during the second quarter of 2014. A healthy financial profile allows Murphy Oil to maintain its strategic capital spending program.
In the second quarter, Murphy Oil invested $0.97 billion in E&P activities and is primarily focused on its operations based in the U.S., Canada and Malaysia. The company holds a strong asset base in the Gulf of Mexico and is currently concentrating in Australia. In 2014, the company plans to invest around $3.8 billion. Positive outcomes from the company’s E&P program will help maintain a stable reserve replacement ratio.
Besides, Murphy Oil is currently streamlining its operations though asset divestments. The company has already spun off its U.S. retail marketing division and sold its UK-based oil and gas assets. In addition, Murphy Oil is on track with the sale of its UK refining and marketing business. These initiatives will enable the company to utilize the proceeds on the profitable growth ventures and focus on upstream activities.
In addition to utilizing funds in several ventures, Murphy Oil shares profit with its shareholders in terms of share repurchases and regular dividend payments. This helps the company to attract more investors on its stock.
On the down side, prices of Murphy Oil’s primary products – oil, natural gas and refined products – are often quite volatile. An economic slowdown can impact the demand for energy commodities globally, resulting in a decline of commodity prices. Volatility in commodity prices will affect the company’s cash inflows significantly.
Key Picks from the Sector
Some better-ranked stocks in the sector include WPX Energy, Inc. (WPX), Halcon Resources Corp. (HK) and World Point Terminals, LP (WPT). WPX Energy carries a Zacks Rank #1 (Strong Buy), while Halcon Resources and World Point Terminals hold a Zacks Rank #2 (Buy).
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