DBRS Places Murphy Oil Corporation Under Review with Negative Implications

DBRS has today placed the ratings of Murphy Oil Corporation (Murphy or the Company), including the Commercial Paper of Murphy Oil Company Ltd., Under Review with Negative Implications. The rating action is largely driven by DBRS’s concern over the perceived change in financial management of the Company indicated by the actions detailed below.

Murphy today announced that its Board of Directors has approved a special dividend (~$500 million payable on December 3, 2012) and a share repurchase plan of up to $1 billion (the timing and amount of share repurchases is uncertain at the current time), as well as approval to proceed with the spinoff of its U.S. downstream retail operations (Murphy Oil USA, Inc., which includes 1,152 Company-owned and -operated service stations). Murphy also reaffirmed the plan to divest the UK downstream operations and stated that it is continuing to review possible options with respect to other assets. DBRS expects these changes to have a negative effect on the Company’s credit risk profile.

DBRS will continue to monitor the transactions for further details, and expects that any significant increase in leverage will likely lead to a one-notch downgrade of the Issuer Rating and Senior Unsecured Notes to BBB (high) and the Commercial Paper of Murphy Oil Company Ltd. to R-2 (high).

DBRS notes the following, with respect to the developments noted above:

(1) Business Risk Profile - Negative

Based on its preliminary review, DBRS views the spinoff of U.S. retailing operations as negative with respect to Murphy’s business risk profile. Upon completion of the spinoff and following the eventual divestiture of the UK downstream operations, the loss of diversification provided by Murphy’s downstream operations would result in sole reliance on Upstream activities. This loss of diversification is expected to increase the Company’s exposure to volatility in commodity prices, potentially impacting earnings and cash flow. The spinoff is expected to be finalized in 2013.

(2) Financial Risk Profile - Negative

DBRS expects the Company to largely fund the approved special dividend and share repurchases with incremental debt, which represents a shift from Murphy’s historically very conservative financial management strategy. In the past, DBRS has indicated that Murphy’s current ratings are largely predicated on its maintenance of a very strong financial profile. As a result, the expected increase in leverage would lead Murphy’s credit risk profile to deteriorate to a level no longer consistent with the current ratings.

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

The Commercial Paper rating of Murphy Oil Company Ltd. is guaranteed by Murphy Oil Corporation.

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