Another One Bites the Dust
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Murphy Oil ) plans to separate into two independent public companies through a spin off of its downstream subsidiary as this exploration and production company seeks to create shareholder value. The company may be following the correct long term strategy or succumbing to short term pressure from a large shareholder.
Murphy Oil gave the usual rationale for the restructuring, including greater strategic focus by management and more efficient resource allocation and capital deployment efficiency. The company also believes that the creation of two separate companies would enable more transparency by the market when valuing the two businesses.
Murphy Oil was also under pressure by various shareholders, including Third Point LLC, a hedge fund known for agitating for change at companies in its portfolio. This activist fund advocated the spin off just announced by the company and also wants Murphy Oil to sell its Canadian natural gas assets and its stake in an oil sands project in Alberta.
Murphy Oil USA
The new downstream company will be called Murphy Oil USA and will own a collection of assets in the United States including a chain of retail gas stations, product distribution terminals and ethanol plants. The downstream assets in the United Kingdom will not be included in the spin off and Murphy Oil will continue to try to divest these operations.
Murphy Oil USA’s store base includes 1,145 retail gas stations in 23 states, located mostly in the South and Midwest. The vast majority of these units are located in Wal-Mart parking lots, giving the company an advantage over competitors.
Murphy Oil will retain its global exploration and production operations, which include assets in the United States, Canada, Malaysia and other areas. One of the company’s premier assets is in the Eagle Ford Shale, where Murphy Oil has built up a 201,800 net acre position. The company is operating ten rigs here and plans to drill 150 wells in 2012.
Murphy Oil also has an extensive exploration inventory with prospects in Malaysia, Congo, Australia, Iraq, Brunei and the Gulf of Mexico. The company’s 2012 exploration program comprises 13 wells drilled across its portfolio.
Murphy Oil reported 534 million barrels of oil equivalent (BOE) of proved reserves at the end of 2011, with 65% of these reserves composed of oil. Sixty seven percent of the proved reserves are developed, while the balance is in the proved undeveloped (PUD) category.
Murphy Oil will pay out $500 million to shareholders through a special dividend of $2.50 per share. The company’s regular dividend payout is $0.3125 per share, or $1.25 on an annualized basis. Murphy Oil also approved a share repurchase program with an authorization up to $1 billion.
Other Spin Offs
There have been several similar spin-offs in the energy sector over the last two years and since these actions are taken in the name of shareholder value, it would seem proper to determine if these managements have succeeded in achieving their goals.
Conoco Phillips (NYSE: COP) separated its downstream assets through a spin off on April 30, and created Phillips 66 ). Marathon Oil ) conducted a spin off on July 30, 2011, with Marathon Petroleum Corporation ) as the new public company holding its downstream business. The performance of these four stocks relative to the market is displayed below:
Murphy Oil is the latest energy company to seek shareholder value through a restructuring with the company announcing a plan to shed its downstream subsidiary through a spin off in 2013. This type of restructuring has a mixed track record and may not be the salvation that investors are looking for.
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