Murphy Oil Corporation

Murphy Oil saw its earnings nearly triple from a year ago as income from its exploration segment soared and more than made up for the decline in refining. The company has surprised on estimates 4 consecutive quarters by an average of 18.74%. Murphy Oil has a forward P/E of only 7.52.

Company Description

Murphy Oil Corporation (MUR - Snapshot Report) is a gas exploration and production (E&P) company headquartered in El Dorado, Arkansas with refining and marketing operations in the United States and the United Kingdom.

The company, a Zacks #1 Rank (Strong Buy), has exploration properties in the United States, Canada, the UK, Malaysia and Ecuador.

Additionally, MUR deals in crude transportation, trading operations and natural gas in Canada and the United States. Operations include 1,000 retail gasoline stations in 20 U.S. states, predominantly in the parking lots of Wal-Mart Supercenters (WMT - Snapshot Report).

MUR also owns a network of 12 terminals which provides fuel to retail stations throughout 23 states.

Murphy Oil Surprised on Second Quarter Estimates by 33.33%

On July 30, Murphy Oil reported second quarter earnings and beat Wall Street estimates by 33.33%, or 73 cents per share. Net income was $627 million, or $3.27 per share, compared to $250.3 million, or $1.32 per share, in the year ago period. Excluding after-tax costs, the company earned $2.92 per share. Analysts expected $2.19 per share.

The company's big gains were in the exploration and production segment. Income jumped 291% to $585 million, including a gain of $67.9 million from the sale of the Lloydminster properties in Canada, from $149.3 million in the second quarter of 2007.

Murphy Oil, as expected, cashed in on the higher crude oil prices but sales volumes also rose. Sales volume averaged 110,366 barrels per day in the second quarter of 2008 compared to 83,629 barrels per day in 2007.

A large part of the increase was due to the production of the Kikeh field, offshore in Malaysia, which didn't start production until the third quarter of 2007. Average crude prices nearly doubled to $110.14 per barrel from $57.19 per barrel a year ago.

Natural gas volumes actually decreased from a year ago to 55 million cubic feet per day from 57 million cubic feet per day, but MUR saw gains because of higher natural gas prices. Natural gas prices averaged $11.70 per thousand cubic feet (MCF) compared to $8.02 per MCF in the year ago period.

Due to the tightening of the crack spread, income from the refining division dropped sharply to $77.3 million from $124.2 million in the second quarter of 2007. The decline was the most severe in North America, where it fell to $5 million from $107.2 million in the same period a year ago. The UK saw an increase to $72.3 million from $17 million due to the Dec 2007 acquisition of a 70% interest in the Milford Haven, Wales refinery.

MUR Issues Outlook for the Third Quarter

Murphy Oil gave production and earnings per share forecasts for the third quarter. The company expects total production volumes to average 128,000 barrels of oil equivalent per day, but sales volumes are projected to average 117,000.

MUR forecasts earnings per share in the range of $2.80 to $3.10. It expects refining and marketing to contribute $50 to $65 million. Exploration expenses should range from $55 million to $110 million.

Value Fundamentals

Murphy Oil is cheap, trading at only 7.52x forward earnings. Its price-to-book is 2.51. The company has a stellar five year average return on equity (ROE) of 18.86%. MUR also pays a dividend, with a current yield of 0.90%.