Murphy's Overseas Drilling Update - Analyst BlogFriday, November 23, 2012
Murphy Oil Corporation (MUR) has made two significant announcements about its current international drilling activities. Firstly, the company has stopped and disposed its drilling activities in the Opale Marine - 1 well at the Mer Profonde Nord (“MPN”) Block based in the offshore of Republic of Congo. Other announcement was related to Murphy Oil’s entry into a new block in the offshore of Australia.
Murphy Oil discontinued its operations at the Opale Marine - 1 well due to unproductive performance. As a result of this well closure, the company will bear a cost of $48 million in the fourth quarter of 2012. In addition, Murphy Oil will obtain non-cash charges of $29 million for abandoning its drilling activities and postponing pending outcomes at the Titane Marine - 1 well in the Republic of Congo.
In the third quarter of 2012, the company’s operations in the Republic of Congo had incurred a loss of $4.7 million compared with a loss of $0.7 million in the year-ago quarter. In the present context, we consider this discontinuation of operation as a good step, which will enable Murphy Oil to gradually reduce its level of losses from the activities at the Republic of Congo.
Murphy Oil has entered into a new block in the offshore of Australia and clinched a 20% working interest in the Block WA-408-P at the Browse Basin. The company expects to start its drilling activities from December, 2012, thereby expanding its Australian footprint.
Oil and natural gas exploration and production (“E&P”) companies continuously make attempts to improve their reserve levels and deploy substantial amount of funds for that purpose. In the future, these strong reserve back-ups will enable the companies to maintain their existing market share.
Murphy Oil had a cash balance of $816.7 million as of September 30, 2012. This financial cushion encourages the company to quote fourth-quarter 2012 expected exploration expenses in the range of $60.0 million - $190.0 million and continues with its drilling activities in different geographical territories, primarily in the Southeast Asia and Australia.
Apart from regular drilling, Murphy Oil also follows inorganic growth route to enhance its market position. Few days ago, Murphy Oil entered into an agreement with Shell Canada Energy, a subsidiary of Royal Dutch Shell plc (RDS.A), to purchase interests in lands and take over Shell's assets in the Seal Lake area of Alberta in Canada. Post transaction, the company's acreage position in the area will surpass 331,000 net acres with total production of over 9,000 barrels of oil equivalent per day.
Murphy Oil owns one of the best upstream portfolios among the domestic oil and natural gas companies. Significant progress in offshore drilling activities in Kurdistan and Eagle Ford Shale, natural gas discoveries in Malaysia and Brunei, and first well completion at the Three Forks zone of Southern Alberta might boost the company’s future results.
However, volatile oil prices and uncertainty related to drilling results may challenge Murphy Oil’s forthcoming financial performance.
Murphy Oil Corporation currently has short-term Zacks #3 Rank (Hold rating).
El Dorado, Arkansas-based Murphy Oil Corporation engages in the exploration, production, refining and marketing of oil and gas in the U.S. With a market capitalization of $11.18 billion, the company has 3,176 full time employees.
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