Murphy Oil Corporation (NYSE:MUR) is an oil and natural gas company that produces, refines and markets petroleum products. The company owns and operates oil and natural gas wells in North America, the North Sea, Ecuador, Malaysia and the Congo, and runs 3 refineries.
All but two of Murphy USA's retail gasoline stations are located in front of Wal-Mart Stores (WMT), though the company has decided to increase its independence by purchasing the land underneath its stations. Both the partnership with Wal-Mart and the spike in oil prices have caused the company's revenues to increase substantially over the last few years. Murphy is susceptible to extreme weather events; following Hurricane Katrina in 2005, the company's margins fell as a result of damage to its Gulf Coast refineries. MUR competes with companies like Valero Energy (VLO), Petro-Canada (PCZ), and Marathon Oil (MRO).
Murphy Oil recorded revenues of $18,423.8 million during 2007, an increase of 29% over 2006, while operating income for the company increased 21%, to total $1,246.6 million in 2007. The increases in revenue and operating income were the result of higher oil prices, more refining capacity and an increase in the profitability of the company's marketing segment.
The refining and marketing branch of the company earned its highest net profits in 2007, with an increase of $95.1 million from 2006, because of larger profit margins in the US caused by the Meraux, Louisiana, refinery becoming fully operational, as well as lower repair costs following Hurricane Katrina. Murphy's U.S. refineries had profit margins that averaged $4.28 per barrel in 2007, $3.48 in 2006 and $2.96 in 2005; again, the differences were a result of Hurricane Katrina and subsequent refinery repairs.
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Sales from its US and UK gasoline stations represented 48.8% of the company’s revenues in 2007, 51.7% in 2006 and 44.6% in 2005. The company is planning to expand its number of retail gasoline stations, expecting the revenue from this business segment to grow. During 2007 the company withdrew from the less profitable Canadian retail market, closing its eight gas stations in the country.
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All but 2 of Murphy USA's 976 stations are located in front of Wal-Mart supercenters in the south and midwest. This partnership benefits both Murphy USA, with an increased customer base, and Wal-Mart, with the additional service the stations provide its customers. Murphy, like Wal-Mart, advertises competitive prices and uses promotions to encourage customers to purchase both gasoline and retail products from their stores. While the promotions and competitive prices lower the stations' margins, the increased business brought in by the practice results in an overall increase in operating profit. Despite the partnership, Murphy found that it was in its best interest to end the rental agreement it had with Wal-Mart and began to purchase the land beneath its stations. Owning the land under the stores releases Murphy from its rental agreement and eliminates the need for extensions or future rental negotiations. As of February 2008, the company had acquired 730 of these sites, and plans to purchase more in the future.
Murphy Oil Corporation's revenues were $4.1 billion higher in 2007 than in 2006 mostly due to higher sales volumes and prices for gasoline, and higher crude oil prices. The company’s average realized sales price per barrel of oil was $62.05 in 2007, up 20% from the 2006 average of $51.62 per barrel. In the U.S., the Company’s average realized price was slightly higher at $65.57 per barrel, up 14% from 2006. Based on 2007 sales volumes, the company calculated that each $1.00 per barrel and $0.10 per MCF fluctuation in prices would have changed revenue from exploration and production operations by $19.8 million and $1.4 million, respectively.
Murphy’s refining and marketing operations generated its highest earnings to date in 2007. This segment of the company earned $205.7 million in 2007, after earning $110.6 million in 2006 and $131.6 million in 2005. The decline in earnings after 2005, and the 86% revenue increase in 2007 was primarily due to higher repair costs and lower crude oil volumes at the company's Louisiana refinery 2006. In late August 2005, the Meraux refinery in Louisiana was damaged by severe flooding and high winds from Hurricane Katrina and was shut down for repairs until mid-2006. Total Hurricane Katrina expenses, after taxes, for refining and marketing operations were $1.9 million in 2007, $67.1 million in 2006 and $28.7 million in 2005; the sharp drop in 2007 spending means the company is essentially over the effects of the hurricane.
Murphy's U.S. drilling and production segment has lower production in the past few years, especially its largest U.S. reserve, the Medusa field, in the Gulf of Mexico. The company expects production from this field to fall from an average of about 7,000 barrels and 7 MMCF per day in 2007 to an average of 4,900 barrels of oil and 4 MMCF of natural gas in 2008. With oil prices at record highs, it has become more profitable for Murphy to explore in more expensive, riskier drilling areas. The acquisition of the rights to explore the one million acre section of Browse Basin off the northwest coast of Australia is an attempt by the company to obtain new reserves and expand the company's operations into a new region. Foreign government, however, pose their own risks to the company. In 2007, for example, the company's international operations were hampered by the government of Ecuador. In October 2007, the government of Ecuador passed a law that increased its share of excess revenue (all sales above a set base price) from 50% to 99%, cutting into Murphy's operating profits in Ecuador and making operations in the area less lucrative.
Whether it’s because of the desire for energy independence, the rising price of oil, or fears of climate change, public opinion has turned away from petroleum, and is driving government policy changes that encourage the adoption of alternative fuels. Environmentalists have been calling for a shift to renewable energy for years, and though the river of change is running slow, it is running deep. The Energy Independence and Security Act of 2007 is the first step towards a grander series of changes. By forcing automakers to achieve 35 mpg by 2020 and setting a Renewable Fuel Standard of 36 billion gallons of biofuels in 2022, the Act has potential to get the ball rolling to greatly reduce American dependence on hydrocarbons.
Already, 26 states across the country have adopted Renewable Energy Standards to increase the share of renewables in their energy mixes, while both Democratic candidates for President have pledged to reduce carbon emissions 80%, to below 1990 levels by 2050. While the Republican candidate isn't so tough on climate action, he still supports a strong cap-and-trade system. In emerging markets like China and India, the drive for economic growth supersedes environmental concerns, but Murphy accounts for 1% of the crude oil refined in the U.S. and over 2% of U.S. retail sales, so a changing American environmental and energy legislation landscape would hamper its business without the development of some effective carbon sequestration technology.
In 2007, Murphy owned approximately 1.0% of the crude oil refining capacity in the United States between its refineries in Louisian and Wisconsin, and its Murphy USA gas stations accounted for approximately 2.2% of the U.S. retail gasoline market based on overall sales MUR is often overshadowed by its larger competitors in the US markets ChevronTexaco (CVX), BP (BP), and Exxon Mobil (XOM), which had a combined revenue of over $900 billion dollars in 2007.
|2007 Company Stats.||Revenue||Operating Income||Oil (bbl/d)||Natural Gas (mmCf/d)||Retail Stations||Refinery Throughput (bbl/d)|
|Delek US Holdings (DK)||$4.1 billion||$156 million||-||-||497||56,163|
|Valero Energy (VLO) ||$95.3 billion||$6.9 billion||-||-||1385||3,105,000|
|Petro-Canada (PCZ)||$21.3 billion||$4.9 billion||297,100||728||1300||339,650|
|Marathon Oil (MRO)||$65.2 billion||$6.6 billion||197,000||925||1636||1,016,000|
|Tesoro Petroleum (TSO)||$21.9 billion||$967 million||-||-||911||658,000|
|Murphy Oil (MUR)||$18.4 billion||$1.2 billion||91,522||61||1135||286,000|