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Murphy Oil Corporation (MUR - Analyst Report) has entered into an agreement with Shell Canada Energy to purchase, for an undisclosed amount, interests in lands and take over as operator Shell's assets in the Seal Lake area of Alberta, Canada.
Shell Canada Energy is the subsidiary of Royal Dutch Shell plc (RDS.A - Analyst Report) and is one of Canada's largest integrated oil companies.
The deal covers approximately 148,531 net acres, associated plant and equipment, production in the order of 2,200 barrels of oil equivalent per day and an estimated 14.0 million barrels of oil equivalent of proved and probable reserves.
Upon completion of the transaction, the company's acreage position in the area will supersede 331,000 net acres with total production over 9,000 barrels of oil equivalent per day.
We remind investors that Murphy’s businesses operate in a 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 management of its businesses.
On the positive side however, 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 in the near-term its 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.
Recently, Murphy has reported mixed results in the third quarter of 2012. The company missed our earnings projection, but beat the revenue estimates on the back of higher sales from the exploration and production segment. These were negatively impacted by lower North American natural gas sales prices.
Murphy Oil Corporation presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
El Dorado, Arkansas-based Murphy Oil Corporation engages in the exploration, production, refining and marketing of oil and gas in the U.S. With a market capitalization of $11.66 billion, the company has 3,176 full time employees.