We reiterate our Neutral recommendation on
Murphy Oil Corporation
(
MUR
) taking into account first quarter 2012 earnings of the company,
which lagged the Zacks Consensus Estimate. This was primarily due
to lower crude oil sales volume and considerably lower North
American natural gas sales price. At present, unimpressive
performance of downstream operations continue to be a major cause
of concern for Murphy.
Like other oil companies, Murphy's businesses operate in
highly-competitive environments. The company faces intense
competition from other oil and gas companies in terms of price and
chances of fuel-switching from oil to alternate energy. These might
adversely affect Murphy's profitability, its ability to grow and
manage its businesses.
Murphy is well positioned with its strong diversified asset base
around the world. The company's strong cash position with $936.6
million as of March 31, 2012 enables it to follow robust
exploration and refining program.
Recently, Murphy made two natural gas discoveries in Malaysia
and Brunei. Along with international expansion, the company is also
strengthening its American operations, which include its recent
entry into the Three Forks zone of Southern Alberta and the Muskwa
oil play in Northern Alberta.
Apart from aggressive exploration and production ("E&P")
activities, Murphy has taken some important steps during this
quarter. The company has curtailed its proposed capital spending in
dry gas areas and plans to reinvest the amount in the oil rich
regions.
Also, Murphy is continuing its efforts to sell its United
Kingdom downstream assets expected to incur losses. The company is
also evaluating the realignment of its E&P and downstream
businesses. We expect that these initiatives will enable Murphy to
improve its financial performance in the long term.
On the negative side, Murphy's ability to generate profits in
the E&P segment depends on its ability to find, develop,
produce and purchase oil and natural gas reserves below the
realized sales price of these products. In order to sustain and
expand its businesses, the company must supplant its existing crude
oil and natural gas reserves with additional reserves.
In addition, volatility in global prices of oil, natural gas and
petroleum products can significantly affect the company's operating
results. An economic slowdown can largely affect the worldwide
demand for energy commodities. This in turn would result in lower
earnings from the company's exploration and production and refining
operations.
Murphy expects second quarter 2012 earnings to be in the range
of $1.35 to $1.60 per share. The Zacks Consensus Estimates for
Murphy's second quarter and full year 2012 earnings are pegged at
$1.38 and $5.65 per share, respectively.
Murphy Oil Corporation currently retains a Zacks #3 Rank
(short-term Hold rating).
Based in El Dorado, Arkansas, Murphy Oil Corporation engages in
the exploration, production, refining and marketing of oil and gas
in the U.S. and U.K. The company competes with
Marathon Oil Corporation
(
MRO
).
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MURPHY OIL (MUR): Free Stock Analysis Report
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