On Nov 14, we issued an updated research report on Murphy Oil Corporation (MUR). Weak crude oil prices remain our major concern. In addition, chances of lower crude oil consumption during the winter might challenge the company’s future performance. Apart from these, uncertain drilling results and intense competition in the market might deter growth.
This Zacks Rank #3 (Hold) stock’s adjusted earnings per share and revenues in third-quarter 2014 surpassed the Zacks Consensus Estimate. However, the bottom line decreased from the prior-year level primarily due to an increase in depreciation and lease operating expenses.
The oil supply glut primarily due to higher production in the U.S. is an important cause of the weakened prices of crude oil. Murphy Oil generates a significant portion of its revenues from the sale of crude oil. So, if this situation prevails, the company’s future performance will be impacted adversely.
The U.S. Energy Information Administration (EIA) has projected that consumption of heating oil, natural gas, electricity and propane during winter this year will decrease due to warmer temperatures. Lesser expenditure on these commodities will affect Murphy Oil’s top line.
Murphy Oil’s capability to make profits from exploration and production (E&P) activities primarily depends on how effectively it discovers, develops, produces and purchases oil and natural gas reserves at competitive costs. Disappointment on this front will result in slow growth for the company.
However, systematic investments in different E&P ventures and steady asset divestment plans are expected to help Murphy Oil counter these deterrents.
Key Picks from the Sector
Some better-ranked stocks in the same sector include Sandridge Mississippian Trust II (SDR), MPLX LP (MPLX) and Oiltanking Partners, L.P. (OILT). Sandridge Mississippian carries a Zacks Rank #1 (Strong Buy), while MPLX and Oiltanking Partners hold a Zacks Rank #2 (Buy).
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