Murphy Oil Corporation -- Moody's confirms Murphy's ratings; negative outlook

New York, November 26, 2012 -- Moody's Investors Service confirmed Murphy Oil Corporation's (Murphy) Baa3 senior unsecured ratings. This concludes the review for downgrade that began on October 17, 2012. The rating outlook is negative.

Moody's current ratings for Murphy Oil Corporation are:

....Senior Unsecured Notes due in 2029, rated Baa3

....Senior Unsecured Notes due in 2022, Rated Baa3

RATINGS RATIONALE

"The ratings confirmation of Murphy's Baa3 rating reflects management's commitment to limit further increases in financial leverage," commented Gretchen French, Moody's Vice President. "However, the rating outlook is negative, reflecting the degree of execution risk in preventing further material increases in debt and the uncertainty associated with the possible divestitures of the company's stake in Syncrude and its assets in the Montney Shale."

Pro forma for an expected $1.5 billion in additional debt to finance a $500 million special dividend, up to a $1 billion share buyback program and capital expenditures, Murphy's debt to production is high for the Baa3 rating at roughly $21,000 barrels of oil equivalent (boe) per day. Moreover, Murphy is undertaking shareholder return initiatives as it faces material cash flow shortfalls due to a heavy capital spending program and the loss of the relatively stable, albeit modest, cash flows from its downstream assets in the US.

While Murphy's high realized margins on most of its production base will help support cash flow generation, the company is still expected to experience a $1 billion cash flow shortfall in 2013. However, management expects to partially fund this gap through the divestiture of its 130,000 barrels per day refinery and 453 retail sites in the UK and from an anticipated dividend from its US downstream assets, once they have been spun off, albeit, the exact proceeds and timing remain uncertain. In addition, the company benefits from carrying significant cash and marketable security balances ($1.3 billion as of September 30, 2012, located almost entirely offshore) and a modest degree of flexibility in its capital spending program.

Murphy's Baa3 rating reflects the company's high realized margins on a production base that is expected to be roughly 200,000 boe/day in 2013. The company has significant production concentration in Malaysia, which accounts for about 46% of total production. However, its remaining production is well diversified across several basins, primarily in North America, including a meaningful position in the Eagle Ford Shale, a five percent stake in Syncrude, Gulf of Mexico deepwater operations, heavy oil production from the Seal field in Alberta and conventional oil production offshore Newfoundland. The company also has mainly undeveloped natural gas shale assets in the Montney area of British Columbia. The company benefits from visibility to its production growth targets over the near term (through 2014), with the lion's share of capital spending expected to be on development projects (particularly in Malaysia and the Eagle Ford Shale) and only a modest amount allocated to international exploration opportunities.

However, Murphy's total proved reserve base ranks among the smallest of its investment grade E&P peers and its asset profile is generally more risky, which limits the company's debt capacity and flexibility within the Baa3 rating. Not only is Murphy exposed to production concentration offshore Malaysia, it also has a relatively short proved developed reserve life (five years), which signals high capital intensity associated with its property base. In addition, a significant amount of capital is needed to ramp up its development projects, especially in the capital intensive Eagle Ford shale play. And there is the need for some additional international exploration success or acquisitions in order to meet longer term (post 2015) growth targets if North American natural gas prices remain weak.

The outlook could be stabilized if Murphy is successful in maintaining debt/average daily production around $20,000/boe.

The ratings could be downgraded if Murphy pursues additional debt financed shareholder initiatives, if leverage on production exceeds $23,000/boe, or if the company experiences a sustained weakening in its proved developed reserve life (below four years) due to asset rationalizations, the rating could be downgraded.

While unlikely over the next 12-18 months, a rating upgrade is possible if Murphy materially increases in size at competitive costs, approaching the company's 2015 production target of 260,000 boe/ day, while maintaining conservative leverage (sustainable debt/production around $15,000/boe).

The principal methodology used in rating Murphy Oil was the Global Independent Exploration and Production Industry Methodology published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Murphy Oil Corporation is headquartered in El Dorado, Arkansas.

REGULATORY DISCLOSURES

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Gretchen French VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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