Murphy USA Innovates in Face of Possible Spinoff

by Luke Jones  on Monday, Jul. 9, 2012 12:00 am  

Howard O. Gibson, dean of the School of Business and director of entrepreneurship at Arkansas Baptist College, fills up at the Murphy Oil gas station at 4448 E. McCain Blvd. in North Little Rock. (photo by Michael Pirnique)

In the wake of the sudden departure last month of Murphy Oil Corp.'s CEO David Wood, the future of the company's highly successful and evolving Murphy USA arm has been thrown into question.

Non-retail business for Murphy has been flat lately. Saying that the company's exploration sector has been spotty was "putting it kindly," said Fadel Gheit, a managing director and senior analyst at Oppenheimer & Co. Inc. in New York City.

The company has also been hurting over its failure to divest the last segment of its refinery business in Milford Haven, Wales.

"In the absence of an acceptable offer we are evaluating the potential conversion of the facility into a storage terminal," Wood was quoted in the June 3 issue of The Sunday Times of London.

Murphy's U.K. refinery business has been losing money for years. In 2011 the company lost $33.3 million in that market. Murphy posted an overall loss of $113 million on $6.8 billion in revenue for its fourth-quarter 2011 due to drooping production and oil recovery. Its first-quarter 2012 results were better, but Gheit said the company was nevertheless in a volatile position.

"They have been missing a lot lately," Gheit said, "more than shareholders can take."

Other analysts that cover Murphy were contacted but didn't calls by press time.

When the fourth-quarter loss was announced in January, Wood also said Murphy was considering spinning off Murphy USA, the wholly owned retail subsidiary that has piggybacked on Wal-Mart locations.

Murphy USA generates almost half of Murphy's total revenue and sells 2.6 percent of the country's total retail gasoline. Gheit said it's been one of Murphy's most successful ventures.

"It's generated free cash for many years," he said. "It's a very stable, very predictable business. It's very strategically positioned geographically."

The retail platform's strength is in a sale model similar to Wal-Mart's, where the profits come from an extremely high volume of product sold at a low margin. Gheit said this model has worked well. Since the kiosks are typically paired with Wal-Mart Supercenters, they gain widespread recognition with very little effort.

"It's very competitive," he said. "They have a captive audience. They don't have to do too much advertising. The concept is very, very good."



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