DBRS Confirms Murphy Oil Corporation at BBB, Stable

DBRS has today confirmed the Issuer Rating and the Senior Unsecured Notes rating of Murphy Oil Corporation (Murphy or the Company) at BBB and the Commercial Paper of Murphy Oil Company Ltd. at R-2 (middle). The trend on all ratings is Stable. The confirmations reflect DBRS’s expectation that Murphy will continue to maintain its reasonable size for the current rating, while keeping its key credit metrics within the BBB rating category. DBRS recognizes that Murphy has a recent history of material shareholder-friendly transactions, including its debt-funded financial restructuring, the spinoff of its U.S. downstream operations and the recently announced $500 million share repurchase program; however, DBRS notes that Murphy remains committed to maintaining an investment-grade credit risk profile. DBRS will continue to monitor Murphy for any material changes in its business and financial risk profile going forward. Should Murphy’s credit risk profile deteriorate to a level that is no longer in line with its BBB rating, this could result in a negative rating action.

On August 6, 2014, Murphy announced a new share repurchase program of up to $500 million over the next year. Although Murphy’s share repurchases to date ($1.125 billion) and aggressive capex plan ($3.8 billion budgeted for 2014) have led to a significant increase in debt levels, Murphy’s current key credit metrics remain supportive of its BBB rating. The Company’s financial profile has been supported by relatively strong operating cash flow, given the current crude oil and natural gas liquids pricing environment and the Company’s production growth. However, DBRS notes that Murphy has limited flexibility to further increase its leverage. Going forward, DBRS expects Murphy to fund the new share repurchase program and expected free cash flow deficits in a prudent manner, including proceeds from the sale of its U.K. downstream assets, cash on hand, some incremental debt and/or additional asset divestitures. Any material increase in leverage that results in key credit metrics that are no longer commensurate with the BBB rating could lead to a negative rating action.

Murphy’s business risk profile is currently in line with the BBB rating, underpinned by its reasonable size (207,329 barrels of oil equivalent per day), diversified portfolio (59% of production is in North America versus 41% in Malaysia) and good growth prospects. Murphy’s business risk profile also factors in the lack of vertical integration as a pure exploration and production company, which increases Murphy’s exposure to commodity pricing volatility, its below-average reserve replacement costs and exposure to high-cost growth projects.

Notes:
The rating of Murphy Oil Company Ltd. is based on Murphy Oil Corporation’s guarantee.

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

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.

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

The applicable methodologies are Rating Companies in the Oil and Gas Industry (July 2013), DBRS Criteria: Guarantees and Other Forms of Explicit Support (July 2013) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (February 2014), which can be found on our website under Methodologies.