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We reiterate our Neutral recommendation on Murphy Oil Corporation (MUR - Analyst Report). 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 performance.

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 results.

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 $5.37, respectively.

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 (OXY - Analyst Report).

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