DBRS Downgrades Murphy Oil Corporation to BBB from BBB (high), Trend Stable

DBRS has today downgraded the ratings of Murphy Oil Corporation (Murphy or the Company) and the Commercial Paper rating of Murphy Oil Company Ltd. to BBB from BBB (high) and R-2 (middle) from R-2 (high), respectively. The trends for all ratings have been changed to Stable from Negative. The resolution of the Negative trend followed a full assessment of the Company’s financial profile, pro forma the spin-off. The trend change reflects DBRS’s expectation that Murphy will continue to maintain its key credit metrics at reasonable levels that are commensurate with its current rating following the Company’s financial restructuring, which included the $500 million special dividend in December 2012 and share repurchases of up to $1 billion ($500 million completed as of June 30, 2013), and the spin-off of its U.S. downstream operations (Murphy USA Inc.) in August 2013 (the Transactions).

To mitigate the Transactions’ impact on its financial profile, DBRS expects Murphy to maintain adjusted leverage within the low 30% range (estimated at 30.8% as of June 30, 2013, by DBRS) by prudently funding its cash flow shortfalls. The Company prevented further material deterioration of the balance sheet with a dividend from the spun-off entity and the disposal of its U.K. upstream assets. Other key credit metrics, including debt-to-cash flow and interest coverage ratios, are expected to continue to be in line with the current rating category going forward.

The credit quality of Murphy is based on its reasonable size for the current rating category, good growth prospects and internationally diversified portfolio. The Company also benefits from a strong liquidity profile, which provides flexibility. However, the loss of integration after the spin-off increases the Company’s exposure to commodity price volatility. Going forward, DBRS expects Murphy to curtail discretionary capital spending during weak pricing environments to maintain its key credit metrics within its rating range. Should adjusted leverage approach 40%, which could be driven by a weak pricing environment, additional unforeseen material shareholder-friendly transactions and/or significant operational challenges, this higher leverage could result in further negative rating action.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The Commercial Paper rating of Murphy Oil Company Ltd. is guaranteed by Murphy Oil Corporation.

The applicable methodology is Rating Companies in the Oil and Gas Industry, which can be found on our website under Methodologies.