DBRS Comments on Murphy Oil’s Planned Downstream Asset Sales

DBRS notes that Murphy Oil Corporation (Murphy or the Company) has announced that it has commenced a process whereby it intends to sell all downstream refining and all U.K. marketing assets (the Held for Resale Assets), with the proceeds to be re-invested over time in its higher return upstream exploration and production (E&P) and U.S. retail and wholesale segments (the Retained Assets). The Company expects the transaction to be completed in Q1 2011. DBRS estimates that the contribution from the Held for Resale assets has been modest in recent years, accounting for about 6% of cash flow in 2008 and 2009 given difficult industry conditions, with a poor medium term industry outlook. The Retained Assets generate stronger returns and growth opportunities than the Held for Resale Assets.

DBRS believes that the re-deployment of asset sale proceeds into the higher return Retained Assets would be modestly positive from a business risk perspective, supporting the A (low) Senior Unsecured Notes rating of Murphy and the R-1 (low) Commercial Paper rating of Murphy Oil Company Ltd., which is based on the guarantee of Murphy.

The Held for Resale assets include the Company’s three refineries (two in the United States and one in the United Kingdom, each of which recently completed major turnarounds) with total refining capacity of 290,000 barrels per day (b/d) and its U.K. retail and wholesale operations. Following completion of the sale process, Murphy’s remaining refining and marketing (R&M) assets would include most of its U.S. retail and wholesale operations and an ethanol production facility located in Hankinson, North Dakota, the combination of which would continue to provide some diversification from the Company’s E&P segment.

Note:
All figures are in U.S. dollars unless otherwise noted.

The rating for Murphy Oil Company Ltd. is based on the guarantee of Murphy Oil Corporation.

The applicable methodology is Rating Oil & Gas Companies, which can be found on the DBRS website under Methodologies.

This is a Corporate (Energy) rating.