On Mar 12, we issued an updated research report on
Murphy Oil Corporation
). This oil & gas company is starting to benefit from its
exploration & production activities but at the same is
exposed to intense competition coming in from domestic as well as
foreign oil and gas operators.
Murphy has presently shifted its bias towards exploration and
production activities. As a result it achieved record production
in 2013 with a reserve replacement ratio of 240%. The change in
its long-term focus also drove the company to spin off its U.S.
retail marketing division, Murphy Oil USA, Inc. (Murphy USA).
We note that the success of any exploration & production
biased company depends on its ability to find, develop, produce
and purchase oil and natural gas reserves at competitive costs,
below the realized sales prices of these products. In order to
sustain and expand its business, the company must successfully
replace the crude oil and natural gas it produces with additional
reserves. Failure on this front will lead to a slowdown in the
Murphy's exploration and production activities, spread across
different reserve rich regions, insulate the company from a
decline in production in any particular region. Ongoing
exploration activities in Australia, Cameron, Indonesia,
Malaysia, Brunei, Congo, Vietnam, the Gulf of Mexico and the
Eagle Ford Shale will sustain its production volumes and generate
However, prices of oil and natural gas are extremely volatile.
Since it is difficult to predict the movement of these prices,
the operational results of the company can vary widely and can
even be disruptive.
Murphy Oil, a Zacks Rank #3 (Hold) stock, expects its worldwide
production to average 205,000 barrels of oil equivalents per day
(Boe/d) and sales volumes to likely average 196,000 Boe/d in
first quarter 2014. In addition, management is committed to
increase shareholder value through share buybacks and dividend
payments. In 2013, Murphy paid $235.1 million as cash
dividends to its shareholders.
However, operational hazards associated with exploration and
production activities and possibility of adverse political
developments in countries of operation are possible headwinds.
Key Picks from the Sector
Other companies in the oil and gas sector with a favorable Zacks
Range Resources Corp.
Clayton Williams Energy, Inc.
Diamondback Energy, Inc.
). While Range Resources sports a Zacks Rank #1 (Strong Buy),
both Clayton Williams and Diamondback Energy carry a Zacks Rank
WILLIAMS(C)ENGY (CWEI): Free Stock Analysis
DIAMONDBACK EGY (FANG): Free Stock Analysis
MURPHY OIL (MUR): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis
To read this article on Zacks.com click here.