EUR 850.00 For Business Accounts Only

Morningstar | Murphy Shares Slump Despite Upbeat Earnings

On the second-quarter conference call management was understandably irked at the market response to its earnings release, with shares initially plunging over 8%. We were surprised, too, as the results were generally positive. The firm exceeded the high end of guidance with its production for the period, which averaged 171 mboe/d (2% higher sequentially, and 5% higher year over year). Its financial results were very close to Street estimates, with adjusted EBITDA and adjusted earnings per share coming in at $401 million and $0.36, respectively (consensus estimates were $402 million and $0.37). And after a successful delineation result, the Samurai discovery in the Gulf of Mexico is now thought to contain at least 75 million barrels of oil equivalent. This could open up a new avenue of growth for the company, which has been heavily reliant on its Karnes County Eagle Ford position in the last few years and is starting to run low on inventory there. Finding and development costs at Samurai are expected to come in under $12/boe, making this competitive with (but not better than) shale.

The production beat was attributed to better-than-expected volumes from several fields in the Gulf of Mexico, coupled with strong well performance and limited downtime in the Canada onshore region. As a result, 2018 guidance was raised slightly to 168.5-170.5 mboe/d (1 mboe/d at the midpoint). Management still anticipates being free cash flow neutral over the full year, despite a modest deficit of about $60 million in the first half ($35 million of which was related to repatriation taxes). And the firm still envisions growing its production within cash flows over the next 4 years at a 10%-15% CAGR.

We plan to incorporate these operating and financial results in our model shortly, but after this first look our fair value estimate and no-moat rating remain unchanged.