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Is Murphy Oil Ready for a Fall in Crude and Natural Gas Prices?

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Murphy Oil (MUR) rose 4.02% as of February 24, 2016. During Credit Suisse’s (CS) 21st Annual Energy Summit, Roger Jenkins—the company’s CEO and president—insisted that Murphy Oil’s financials are well positioned for the fall in crude oil and natural gas prices. Murphy Oil operates with a production mix of about 61% in crude oil, 25% in natural gas, 9% in oil-indexed gas, and 5% in natural gas liquids, respectively. Malaysia, the US (QQQ), and Canada (VCN.TO) (EWC) accounted for 31%, 41%, and 28% of the total production if fiscal 2015. In this series, we’ll discuss how the company is adjusting cash by reducing its capital expenditure and selling assets. We’ll also focus on the fundamental and technical valuation of Murphy Oil. We’ll compare it with other upstream companies like ConocoPhillips (COP), Devon Energy (DVN), and others.

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Reduced capital expenditure and sale of assets

Murphy Oil reduced the purpose capital expenditure to $540 million—a reduction of 30% from the guidance in January. In the meantime, the production guidance remains unchanged at 190–195 Mboepd (thousand barrels of oil equivalent per day) for 1Q16 and 180–185 Mboepd for fiscal 2016. Again, what overwhelmed investors was the sale of non-core assets like monetization of Canadian midstream assets by the end of 1Q16. An estimate of $538 million cash proceeds will be received. Out of this, $288 million will be on the balance sheet and $250 million will be allocated to the Duvernay and Liquids-Rich monetary joint venture. The company’s proved reserve stood at 774 million barrels of oil equivalent. The above graph shows the revised 2016 guidance for Murphy Oil.

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