Murphy Oil's an Attractive Acquisition Candidate

Presently, International Oil Companies (IOCs) and National Oil Companies (NOCs) are not committing a budget for exploration and development projects, as their short term considerations supersede any longer term rationale. Inevitably, in about 5 years, both IOCs and NOCs will look into ways to replenish declining supplies, but it is improbable that their solutions will suffice. Oil is essential to everything we do, and currently, worldwide, companies are moving into increasingly technically challenging environments. As per a top executive at Exxon, the future of oil is in deep waters. Access to resources typically includes companies drilling in waters up to 3,300 feet, and some have drilled up to 9,800 feet. As per “The Oil Factor” by Stephen Leeb, oil is not coming back and once you burn it, you lose it. The combination of a world becoming fast industrialized and an increasing world population insures that supplies will not meet demand, and so it is necessary to look to the future to see how our energy sources will be used to maximize supply.

China has become very active in searching the globe for oil and gas, and acquiring companies to feed its hunger for energy. China is desperate for oil as more Chinese own cars and heat their homes, in addition to a simultaneous huge amount of infrastructure building to accommodate the growing population’s need for housing and increasing traffic. All this leads us to Murphy Oil.

Murphy (MUR) is a relatively small company with 189 million shares outstanding, a P/E ratio of 21, and based on a forward year P/E of 18 and an EPS growth rate next year of 35.8%, a very attractive projected earnings growth [PEG] of 0.5. Currently comparing Murphy’s 2nd quarter 2006 to 2nd quarter 2007, the quarterly earnings growth year over year was 16% (that’s in comparison to Exxon Mobil Corp., and BP PLC whose earnings growth rates are -1%, and -3%, respectively. Murphy’s worldwide locations include but are not limited to Mississippi, Canyon Green, Canyon Garden Banks, Viosca, Lloyd Ridge, deepwater Gulf of Mexico, Louisiana, and Alaska, in the U.S., offshore Newfoundland in Canada, Atlantic Margin west of the Shetland Islands in the United Kingdom, North Sea, Ecuador, Malaysia, and offshore blocks in the Republic of the Congo. Murphy’s operations of the coast of Thailand have great possibilities. Out of Murphy’s two segments of business, Exploration and Production (E&P) and Refining and Marketing (R&M), R&M shone during the second quarter of 2007. Compared to a net loss of $11.1 million in the second quarter of 2006, R& M segment produced $124.2 million during the second quarter of 2007. The E&P segment experienced lower sales in oil and gas, partially offset by higher pricing, producing $149 million in 2nd quarter net income, falling short of the $251 million in the same quarter last year. Murphy is presently giving a 4th quarter production guidance of 52 million cubic feet/day in gas and 84,400 barrels/day in oil. Murphy’s 3rd quarter 2007 guidance of a range of $0.80 to $0.92/share was beaten by actual results, as income was close to $200 million, yielding earnings per diluted share of $1.04.

Looking to the future, companies like NACCO and Headwaters stand to benefit from clean diesel technologies, and the process of liquefying coal, and the companies to benefit from the mass production of clean diesel engines are Cummings and Borg Warner. Murphy as a small company with many worldwide strategic locations is a prime takeover target either by a Chinese company or a larger oil and gas company here in the United States.

Disclosure: Author is long MUR.

Comments

[SmartPickr:]

MUR is crap. Stay away from this loser company.

2007 Dec 07 01:06 AM

[Yael Pipano:]

One person's crap is always another's treasure, that's why there's always a loser for every winner in the stock market.

2007 Dec 10 05:13 AM

[Yael Pipano:]

Today's Reuters Article: "The issue with resources now is just how competitive it is globally," said Colin Banfield, Lehman Brothers' head of M&A in Asia ex-Japan. "There's a clear strategic interest and desire to buy that type of asset." But price and availability are problems as many buyers are chasing few sellers. Lehman's Banfield said Chinese oil firms were cautious.

"If you look at the oil and gas side, I think every asset that is available right now gets shown to an Indian, a Chinese or a Russian buyer, and there's fierce competition. I think the Chinese oil companies are being very careful to make sure they don't overpay for those assets."

2007 Dec 12 12:34 PM

[TRI OIL CAT:]

Murphy is a sweet company! I live in a town that Murphy has a refinery in Superior, Wisconsin.The company refines 35K barrels a day. Murphy is in the local paper every week with stories of expansion to 5 or 6 times what it is today.Smartpickr my 850 shares I purchased at $45.89 less then a year ago look great at over $82 today.I will be thinking of you when I sell 850 shares tomm. Good Day. It will be for me tomm!!!!!!!!!!

2007 Dec 26 10:36 PM

[Yael Pipano:]

My shares quadrupled (400%) since I purchased, but I'm going to be greedy and hold onto them (see why below). This is a portion of an article I read today, from seeking alpha, quoting Byron Wein (I copied short bio on him for you readers out there): " My view is that people underestimate the seriousness of the energy situation. We are only finding oil at a rate equivalent to replacing the oil production that erodes every year as a result of the existing wells getting tired.

In addition to that, China and India are consuming less than two barrels of oil per person per year while we consume 26 barrels, Western Europe consumers 13 to 15 barrels, Japan, Korea the same amount. As China and India increase their consumption, even if the two and a half billion people there only increase their consumption a quarter of a barrel of oil per year, there's no way the world can meet that demand. So I think the price of oil is going a lot higher."
Byron Wein's updated bio a/o 9/27/07: Westport’s Pequot Capital Management, Inc., today announced that Byron R. Wien, managing director and senior investment strategist at Morgan Stanley, will join the firm Dec. 1 as chief investment strategist.

Wien will work closely with Arthur J. Samberg, Pequot chairman and CEO, and the firm’s investment team to develop global macro-investment strategies, an announcement said. He Mr. will work out of Pequot’s New York office.

Wien is a seasoned strategist who brings over 40 years of experience in the global financial markets. Prior to joining Morgan Stanley in 1985, he was a portfolio manager for 20 years, primarily at Weiss, Peck and Greer, where Samberg was also a partner.

2008 Jan 29 05:08 PM

[Yael Pipano:]

from Borg Warners 4Q'07 conference call:
On the diesel front, diesel usage is increasing in every major markets around the world. BorgWarner and other industry experts expect strong diesel growth to continue for the foreseeable future, including diesels in North America with expected growth from 16 million units in 2007 to 20 million units in 2013.

As a global leader in turbocharger and glow plug technology, we are a major beneficiary of diesel penetration, because every diesel engine has at least one turbocharger, plus some form of glow plug technology.

2008 Feb 16 02:48 PM

[Yael Pipano:]

how's this for being right: since I wrote this article, MUR's price went from $70 to $80/share. Still a long way to go though..

2008 Feb 29 07:57 PM

[Yael Pipano:]

up to $92.7 now, made $23/shr since early Dec'07, that's almost a 30% return not counting dividents, not bad! (just showing off when some luck comes my way).

2008 Apr 16 09:50 PM

[Yael Pipano:]

Need I say more?: MUR-Net income in the first quarter of 2008 was $409 million or $2.14 per diluted share. That compares to the net income in the first quarter of 2007 of $110.6 million or $0.58 per diluted share.
The 2008 quarter was favorably impacted by higher crude oil sales prices and volumes, partially offset by much tighter margins in the downstream part of the business. The 2008 quarter included an almost $40 million gain or approximately $0.20 a share related to the sale of all the Berkana Energy shares that we held in Canada.

2008 Jun 07 09:43 PM