We reiterate our Neutral recommendation on
Murphy Oil Corporation
). The company's second-quarter 2012 earnings surpassed the Zacks
Consensus Estimate while revenue missed our projection. In
second-quarter 2012, decline in exploration expenses and interest
costs, and rise in exploration and production segment revenue acted
as positive catalysts. However, increase in operating costs,
selling and general expenses, and depreciation charges negatively
impacted the company's quarterly result.
We know that Murphy's businesses operate in highly-competitive
environment. The company faces strong competition from state-owned
foreign oil and gas companies, major integrated oil companies, and
independent oil and natural gas producers. We believe this could
adversely affect the company's profitability, ability to grow, and
managing of its businesses.
Looking on the positive side, Murphy owns one of the best upstream
affluence themes among its domestic and international peers. Though
Murphy's asset base clearly has a sizable refining footprint, we
believe its future growth will also be driven by robust exploration
program. The company's exploration line up has provided it with a
good production profile, which translates into a solid future
earnings growth opportunity.
In addition, Murphy expects its full-year 2012 capital spending
level to increase due to the sanction of the Dalmatian development
in the Gulf of Mexico, chances of no contract outs in the Eagle
Ford Shale and drilling of its Titane Marine well ("MPN") prospect
at the offshore Republic of the Congo, and a steady lease
acquisition program. We believe these activities will play an
important role in boosting the company's forthcoming operational
On the flip side, prices of Murphy's primary products are often
quite volatile. An economic slowdown can largely affect the
worldwide demand for energy commodities, resulting in reduced
prices for oil, natural gas and refined products. The volatility in
commodity prices can significantly affect the company's operating
Murphy expects its third-quarter 2012 earnings to be in the range
of 90 cents - $1.15 per share, taking into account earnings from
downstream businesses of approximately $45 million.
As per the Zacks Consensus Estimate, Murphy's third-quarter and
full-year 2012 earnings per share will be in the range of $1.04 and
Murphy Oil Corporation currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating.
El Dorado, Arkansas-based Murphy Oil Corporation engages in the
exploration, production, refining and marketing of oil and gas in
the U.S. and U.K. One of the company's peers is
Occidental Petroleum Corporation
MURPHY OIL (MUR): Free Stock Analysis Report
OCCIDENTAL PET (OXY): Free Stock Analysis
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