DBRS Confirms Murphy Oil at A (low) and R-1 (low)

DBRS has today confirmed the ratings on the Senior Unsecured Notes of Murphy Oil Corporation (Murphy or the Company) at A (low) and the Commercial Paper (CP) of Murphy Oil Company Ltd. at R-1 (low); the CP rating is based on the guarantee of Murphy. The trends for both ratings are Stable.

The rating confirmations reflect DBRS’s expectation that Murphy will maintain its very strong credit metrics (adjusted net debt-to-capital ratio of 6% and adjusted net debt-to-cash flow ratio of 0.18 times in 2011) and liquidity position ($1.046 billion of cash and short-term investments and $1.5 billion of fully available committed bank facilities compared with $600 million of balance sheet debt at year-end 2011) during a period of rising capital expenditures related to medium-term exploration and production (E&P) growth, as well as following the potential separation of its remaining refining and marketing (R&M) operations in order to become a pure E&P company.

Murphy has provided upstream production guidance of 200,000 barrels of oil equivalent per day (boe/d) for 2012, up 11% from 2011 volumes, primarily due to higher production at the Kikeh field in Malaysia and the Eagle Ford Shale area in the United States and ramp-up of production in the Seal heavy oil area in western Canada. Future growth is expected through further development in Malaysia and North America. The significant decline in North American natural gas prices in Q1 2012, if sustained through the medium term, would make the Company’s 300,000 boe/d production target in 2015 very challenging to achieve from the existing portfolio.

Murphy has made progress in improving its below-average reserve replacement metrics, including three-year average conventional reserve replacement costs of $21.41/boe from 2009 to 2011 ($26.61/boe in 2008-2010), net proved conventional reserve life index (RLI) of 6.7 years and net proved developed conventional RLI of 3.9 years in 2011 (5.2 and 3.6, respectively, in 2010) and conventional reserve replacement of 230% in 2011 (126% in 2010). However, sustained low natural gas prices in 2012 could have a negative impact on reserve replacement metrics at year-end 2012.

Notes:
The rating of Murphy Oil Company Ltd. is based on Murphy Oil Corporation guarantee. The CP program is currently inactive.

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

The applicable methodology is Rating Oil and Gas Companies, which can be found on our website under Methodologies.