Murphy Oil’s Refineries on Sale – Analyst Blog

Murphy Oil Corporation (MUR) has received an approval from its board of directors to sell its three refineries at Superior, Wisconsin; Meraux, Louisiana and Milford Haven, Wales as well as its retail system in the United Kingdom. The three refineries have a combined capacity of 280,000 barrels per day. The company expects the sale to complete in the first quarter of 2011.

Murphy Oil’s midstream and downstream businesses suffered losses in the past two quarters. The Refining and Marketing operations of the company incurred a loss of $29.7 million in first-quarter 2010 compared with a profit of $10.8 million in the first quarter of 2009. Murphy Oil suffered weaker refining margins and downtime for refinery makeovers in the U.S. and U.K during the quarter, leading to the dismal results.

The Meraux refinery was shut down for six weeks in first-quarter 2010 while the Milford Haven refinery was closed during March 2010 owing to repair and maintenance work. Operational disruption at its refineries is nothing new. The Meraux, Louisiana refinery was severely damaged by flooding and high winds caused by Hurricane Katrina in August 2005, resulting in the plant being shut down for repairs for about nine months.

The strategic move by Murphy Oil to exit its refining business will allow it to focus on its more profitable upstream business. Profit at its Exploration and Production segment increased four fold to a total of $247.0 million in the fist-quarter 2010 compared with $50.3 million in the first quarter of 2009, driven by higher realized sales prices for crude oil and natural gas, higher natural gas sales volumes and lower exploration expenses.

During the first quarter conference call, Murphy Oil provided earnings per share guidance in the range of $1.15 to $1.25 for full year 2010. The Zacks Consensus Estimate for the second quarter of 2010 is $1.22 per share. The Zacks Consensus Estimates for fiscal 2010 and 2011 are respectively, $4.66 per share and $6.25 per share.

Based in El Dorado, Arkansas, Murphy Oil Corporation engages in the exploration, production, refining and marketing of oil and gas in the United States and the United Kingdom.

Murphy Oil possesses an excellent exploration and production profile. Its solid cash flow generation capability and cash balance support development projects. The company’s plans to exit loss-making businesses in order to focus solely on its more profitable businesses will augment results.

On the flip side, the company operates in a competitive environment and its future prospects could be affected if it does not successfully replace the crude oil and natural gas it produces with additional reserves. We maintain a “Neutral” recommendation on Murphy Oil with the quantitative Zacks # 3 Rank (Hold) indicating no clear directional pressure on the shares over the near term.