Running Head: A FINANCIAL ANALYSIS OF MURPHY OIL CORPORATION

A Financial Analysis of Murphy Oil Corporation

Tracey A. Loughner
University of North Carolina Wilmington

A FINANCIAL ANALYSIS OF MURPHY OIL CORPORATION

Table of Contents
1. Executive Summary.3
1.1 Company Background ......3
1.2 Industry Volatility..3
1.3 Valuation..................... 3 - 4
2. Company Performance Analysis.4
2.1 Liquidity4
2.1.1 Quick Ratio.4
2.2 Asset Management...4 - 5
2.2.1 Turnover Ratio5
2.3 Leverage5
2.3.1 Debt Ratio...5
2.3.2 Decrease in Assets and PP&E.6
2.4 Profitability6
2.4.1 Gross Profit Margin6
2.4.2 Return on Equity.6
2.4.3 Accounts Receivable.6 - 7
3. Plans going Forward7
4. Analysis...7
4.1 Sales Growth.7
4.2 Downsizing Operations.8
4.3 Common Stock Repurchase..8
5. Conclusion...9
6. References...9
7. Charts10

1. Executive Summary
1.1 Company Background
Murphy Oil Corporation was first incorporated almost 70 years ago but has roots taking it
back to 1907; since then, the corporation has evolved to become a global organization
producing crude oil, natural gas, and natural gas liquids both on and off shore (Murphy
Oil Corp, 2013). As a part of the energy industry, Murphy Oil has experienced the booms
and busts that coincide with a reliance on natural resources. As reserves are depleted and
global markets continuously flux, Murphy Oil Corporation has been forced to adapt

A FINANCIAL ANALYSIS OF MURPHY OIL CORPORATION

continuously. Growth is hard to predict and measure in this type of industry as production
is almost entirely in the hands of natures reserves. In addition to the natural instability,
the oil industry is also heavily influenced by political, economic and environmental
regulation factors.
1.2 Industry Volatility
As the United States strives to become more green and energy efficient, oil companies
have taken some of the biggest financial hits. Competition in the Oil industry has been
intense for several decades, but now oil is also competing against alternative sources of
energy. Murphy Oil Corporation faces an ongoing uphill battle, as it is one of many
American corporations to have been stifled by government taxation and regulation. Due
to this heavy regulation and taxation Murphy Oil strives for growth has been
predominately overseas.
1.3 Valuation
As of January 5th 2015, Murphy Oils stock was priced at $47.80 with earnings per share
at $5.06. To calculate the P/E ratio I divided the $5.06 earnings per share by the stock
price and arrived at 9.45. I would estimate a below average P/E ratio for the company as
they move further into 2015 but would choose to hold the stock. The company has
demonstrated its ability to maintain a sustainable debt ratio through their debt
management. Overall, the company is showing drops in several ratios determining
financial health, but Murphy Oil remains to be a strong corporation that has risen past this
volatility in the long run historically.
2. Company Performance Analysis
2.1 Liquidity
Murphy Oil Company is no longer considered a liquid company; since 2009 the
Company has not maintained a quick ratio over 1.0. The quick ratio measures each dollar
of current assets a company has in comparison to each dollar it has in current liabilities;
the greater the ratio the better, with 1.0 being that the company has $1 in current assets
for every $1 in current liabilities. As of 2014 the Company had a .803 quick ratio; which
rose from .659 in 2013 (See Chart 1) (Compustat, 2016). Over the past decade Murphy
Oil Corp has seen their current liabilities rise approximately 161%, yet there current

A FINANCIAL ANALYSIS OF MURPHY OIL CORPORATION

assets only rose approximately 101% explaining the decline in the companys liquidity.
As of 2014 the average quick ratio for the industry was .94, approximately .137 higher
than Murphy Oils. Yet, when compared to the industry standard Murphy Oils 10-year
quick ratio average has historically been more promising and closer to 1.0 then the
industrys 10-year average.
2. 2 Asset Management
2.2.1 Turnover Ratio
The asset turnover ratio (TATO) measures how efficiently a company can utilize its
assets to generate sales and therefore produce revenue. The higher the ratio the better, as
it tells whether a company can create more sales with fewer assets at their disposal. In
2013 and 2014, Murphy Oils asset turnover ratios hit 10-year lows of .303 and .309.
(Echevarria, 2016). The company is no longer utilizing their assets to their full sales
potential, as they were able to in the past. Most likely do to the companys strained
transition into a pure play exploration and production company in their Milford Haven,
Wales facility. The companys Wales refinery was unable to be sold as desired, and is
now an asset that can no longer be tapped for its full sales and earnings potential.
(Murphy Oil Corp, 2015)
2.3 Leverage
2.3.1 Debt Ratio
Debt management simply measures how a company uses debt to finance its assets.
Murphy Oils debt ratio was .4879 in 2014; meaning that the Company is on the riskier
side since debt ratios of .4 and lower tend to be considered better and less risky. Since
2004, Murphy Oil Corps debt ratio has floated around .5 with 2011 being the only year
in recent history where the Company had a good debt ratio (.38) in terms of riskiness
(See chart 2). With all of this being said, from an investment standpoint, an investor will
not likely be interested in a company with a low or good debt ratio as this can often
mean the company is not financing operations through borrowing therefore there is not as
much opportunity for return to its shareholders. When related to the industry averages,
Murphy Oils debt ratio is not far off from its competitors, which indicates a sustainable
debt level. A sustainable debt level is both necessary and promising to investors; Murphy
Oil Companys future sales will likely meet and exceed their borrowing costs.

A FINANCIAL ANALYSIS OF MURPHY OIL CORPORATION

2.3.2 Decrease in Assets and PP&E
At the end of 2014, both Total Assets and Property Plant & Equipment decreased from
the previous year, predominately due to the 30% Malaysia asset sell-down, which was
done to reduce debt. (Annual report, 2014) Overall, the sell-down contributed greatly to a
nearly 14% net debt decrease from the year prior.
2. 4 Profitability
2.4.1 Gross Profit Margin Percentage
Market analysts consider 25% to be a good mark for an ideal gross profit margin (%), as
it is a measure of the companys ability to efficiently manage their expenses and flow
revenue into the company. The industry average over the past 10 years is 14.236%. While
Murphy Oil Company has increased their gross profit margin nearly 7-fold from 13.204%
in 2012 to 74.368% in 2013 and then 76.624% in 2014. (Echevarria, 2016). Typically
gross profit margin does not fluctuate this significantly meaning unstable prices of oil are
affecting Murphy Oil greatly (See Chart 3).
2.4.2 Return on Equity
Return on equity, the most widely used measure of profitability tells us how effectively
shareholder money is utilized as it gauges the return on net worth for a company. The
ROE for Murphy Oil is 11.995% with the industry at 24.25% for the year 2014. A ROE
of 11.995% is very low compared to the industry average and tells one that less than 12
cents of earnings are generated for each dollar originally invested in the company.
2.4.3 Decrease in Accounts Receivable
There was a $126.6 million decrease in accounts receivable, which was primarily caused
by lower sales prices for oil at year-end 2014 comparative to 2013 and years prior. In
2014, on average, crude oil was priced $87.39 per barrel, the lowest it had been since
2010. (EIA, 2016) Sadly the decrease in accounts receivable only compounded the
financial woes of the previous years abnormally low receivable turnover ratio. Murphy
Oil Corps receivable turnover dropped drastically from 16.796 in 2012 to 3.724 in 2013,
which signifies a failing credit policy within the corporation (Murphy Oil, 2016). Over
the past decade Murphy Oil was able to collect on accounts receivable much sooner as
they averaged a receivable turnover of 15.125.

A FINANCIAL ANALYSIS OF MURPHY OIL CORPORATION

3. Plans Going Forward
Going forward, the company seems to be very bearish as they go into great detail in their
annual report about the many factors adversely affecting them such as; volatile oil prices,
operational hazards, increased regulation, lawsuits, credit risks, foreign currency
conversion rates, etc. The annual report (2015) highlights this bearish outlook stating,
The Company has little or no influence on the sales prices or regional and worldwide
consumer demand for these products.
4. Analysis
4.1 Sales Growth
Overall the company boasts a production increase of 12% in 2014. Also, the annual report
(2015) states that the company set a quarterly production record of 258,868 Barrels of oil
equivalent per day (BOEPD) during the fourth quarter of 2014. But, to their misfortune,
one can see that Murphy Oils sales growth production record and the overall increase in
production did not result in greater profits for the company. Increased profits from the
production did not make it to the bottom line and were most likely absorbed by labor and
material costs, also depreciation

4.2 Downsizing Operations

Murphy Oils bearish standpoint is even more apparent as they draw back on new
products and tread lightly in terms of developing new markets. Murphy Oil Corporation
plainly appears to be downsizing its worldwide operations and scaling back on new
developments. According to the annual report (2015), capital expenditures for exploration
and production continuing operations totaled $3.74 billion in 2014, which is a decrease
from the $3.94 billion spent in 2013 and $4.19 billion in 2012. But, the company has
started-up three new deep-water fields in Siakap North Malaysia, Kakap Malaysia and
Dalmatian in the Gulf of Mexico. Despite the deep-water field startups; in the year 2014
as well as the first quarter of 2015, Murphy Oil sold off 30% of its interests in Malaysia.
Which overall will most likely contribute to a decrease in net production in 2015 as well

A FINANCIAL ANALYSIS OF MURPHY OIL CORPORATION

as in 2016. Murphy Oil has made great strides to downsize but has not reaped any
financial benefits from doing so.
4.4 Common Stock Repurchase
Over fiscal year 2014, the company bought back 6.37 million Common shares at a cost of
$375 million, as opposed to distributing dividends in order to increase earnings per share
and keep shareholders happy (2015).
5. Conclusion
After analysis of the companys financials, annual report, and thorough comparison to the
industry averages I have come to the conclusion that I would hold their stock. Murphy
Oil profits are on the decline and accounts receivable has fallen drastically, but Murphy
Oil has sustained operations through war, economic turmoil, and during the emersion of
green energy. I predict that these economic curtails will continue to keep Murphy Oil on
the decline in the short term and in the future the company will continue to face industry
volatility, but this volatility is not new to Murphy Oil. Murphy Oil is downsizing and
working towards narrowing down operations; they have reduced their net debt and
decreased their net debt their stock will rise again.

6. Citations
Compustat Data Service (2016, February 29)
U.S Energy Information Administrator (EIA) (2016, April 1). Crude Oil Prices. Retrieved
from http://www.eia.gov/petroleum/marketing/monthly/pdf/pmmtab1.pdf
Murphy Oil Corporation (2015, February 11) Annual Report 2014. Retrieved from
http://ir.murphyoilcorp.com/phoenix.zhtml?c=61237&p=irol-reportsAnnual.

A FINANCIAL ANALYSIS OF MURPHY OIL CORPORATION

MarketWatch (2016) Murphy Oil Corp. Retrieved April 26, 2016, from
http://www.marketwatch.com/investing/Stock/MUR/financials
Murphy Oil Corporation (2013). Balanced Global Portfolio. Retrieved March 1, 2016,
from http://www.murphyoilcorp.com/

A FINANCIAL ANALYSIS OF MURPHY OIL CORPORATION

7. Charts
Chart 1- Quick Ratio

Quick Ratio
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2014.0

Murphy Oil

Linear
(Murphy Oil)

Linear
(Murphy Oil)

Industry

Linear
(Industry)

Linear
(Industry)

Chart 2-Debt Ratio

Debt Ratio
0.6

0.52

0.51
0.46 0.45

0.5

0.44 0.42 0.42

0.4

0.49 0.51 0.49

0.38

0.3
0.2
0.1
0
200320042005200620072008200920102011201220132014

Chart 3-GPM

Gross Profit Margin (%)

100
50
0

Murphy Oil
Industry