Murphy Oil Corp. said Thursday that it is getting out of the refinery business to focus on exploration and U.S. retail, selling its refineries.
The El Dorado-based company said it plans to sell its three refineries in Meraux, La.; Superior, Wis.; and Milford Haven, Wales, along with its 457 gas stations in the United Kingdom, in the first quarter of next year.
Exploration and retail sales in the U.S. already make up the bulk of the company’s business, analysts said Thursday. Murphy has over 1,000 retail locations in the U.S., including those at Wal-Mart stores, according to its 2009 annual report.
“Murphy’s Upstream and U.S. Retail businesses have demonstrated marked growth and financial performance over the last several years,” David Wood, the company’s president and chief executive officer, said in a news release. “By exiting the refining business, we can fully focus our attention and resources on continuing that growth, developing a premier international upstream business and a top quartile U.S. retail franchise.”
Murphy is engaged in oil exploration all over the world. It has operations off the coasts of Africa and Malaysia, and in the Gulf of Mexico. It has also begun drilling in onshore natural gas formations in Canada and Texas.
The company’s refining operations lost $29.7 million in the first quarter of 2010, down from a gain of $10.8 million in the 2009 first quarter. The three refineries have a combined capacity of 190,000 barrels of oil a day. The company is not a major player in refining, as the United States in 2009 consumed more than 18 million barrels a day of refined liquid fuels.
Company spokesman Mindy West said Murphy Oil would not release an estimated price range for the sales. Goldman Sachs will serve as a financial adviser and will handle the transaction. West said that “from time to time” other companies have expressed interest in the refineries.
Murphy has operated refineries since 1958, when it bought the unit in Superior. In 2006 the company discussed expanding the Wisconsin refinery, but the plans never went anywhere, West said.
It has operated the Meraux refinery since 1961. A holding tank at the site was damaged in 2005 during Hurricane Katrina and oil flowed through a nearby neighborhood. Residents sued, and U.S. District Judge Eldon E. Fallon in New Orleans approved a settlement agreement in January 2007 of $330 million that was covered mostly by the company’s insurance.
Earlier this year, Murphy increased production capacity at its plant in Milford Haven by 27,000 barrels of oil a day. In 2007 the company paid $250 million to purchase the 70 percent of the Milford Haven refinery that it did not already own.
But refining margins for many companies have been low since demand for gasoline and diesel plummeted in 2008.
“Refining was kind of a drag,” said Raymond Deacon, an analyst who covers Murphy for Pritchard Capital Partners LLC. Deacon said he thinks Murphy’s stock price was “undervalued” compared to other similar companies, due in part to its refining business.
“They could sell this, which doesn’t contributemuch earnings, and redeploy it into something that has a higher rate of return,” Deacon said.
Murphy stock rose $1.31, or 2.6 percent, to $51.82 in New York Stock Exchange trading Thursday. The stock has dropped 4.4 percent this year.
Pavel Molchanov, an analyst at Raymond James Inc., a financial advisory firm, noted that the difficulties refiners face could also make the sale more challenging.
“The flip side is selling refineries in this environment is not going to be very easy. I’m sure Murphy will be able to make a sale, but the valuation it’s likely to get for those refineries is clearly going to be affected by the difficult industrywide refining environment,” Molchanov said.
But, he continued, “I think it’s a decision that makes sense.”
Both analysts said Murphy might use the cash it generates from the sale to pay down debt or increase its investments in international exploration and in shale formations.
Murphy will hold a conference call at 7 a.m. CDT today to discuss the sales.
Front Section, Pages 6 on 07/23/2010