It was 2 a.m., and Claiborne P. Deming, CEO of Murphy Oil Corp., was wide awake.
Deming normally sleeps like a baby, but Murphy Exploration and Production Co., a division of the Murphy Oil Corp., had sunk $60 million into three Malaysian deepwater holes in search of oil. The first two holes, drilled at a cost of $20 million each, were dry.
In August 2002, three days into the third well, things weren’t looking good, Deming said.
Employees are instructed to report bad news or mistakes quickly so the 48-year-old president and chief executive officer can start working on a solution as quickly as possible.
Four hours later, as Deming was stepping out of the shower, the phone rang. “That’s it,” Deming thought, preparing himself to hear that the third hole was a bust, too.
Instead, an employee from the company’s New Orleans office excitedly reported that he was watching the exact “moment of discovery” photographed by a camera on the drill and transmitted via the Internet.
Despite using the best technology possible before starting the drill, the company had still gambled big — and won. In fact, it was one of Murphy Oil’s largest discoveries, and its potential is still unknown, Deming said.
“The greater the risk, the greater the reward. It was a delicious discovery,” Deming said in an interview a year and a half later.
Big Business
In 2001, the $5.5 billion company earned a spot on Forbes magazine’s “400 Best Big Companies” list, and for the last two years it has been among the Fortune 500. Business Week has listed Murphy Oil as one of the “World’s Most Valuable Companies.”
Why would such a company be headquartered in El Dorado, population 21,500 and shrinking? The answer — the simple one, anyway — is that’s where C.H. Murphy Sr. found oil.
Murphy Oil is by far the largest company headquartered in El Dorado — and one of the largest headquartered in Arkansas. But of its 5,000 employees, only 275 are employed at the corporate offices. It’s barely among the 10 largest employers in Union County. There are almost that many working for Murphy in Kuala Lumpur.
Obviously, Murphy Oil no longer needs to be in El Dorado — or even in Arkansas — just because that’s where the oil is. Yet here it is.
“We have a deep commitment to the region,” Deming said. “Being in Arkansas isn’t a disadvantage.”
Arkansans have strong work ethics and are honest, and the company benefits from those qualities, he said. Deming said the company could — and would — relocate if that became necessary to create value for its shareholders — including the extended Murphy family.
However, he said, “I don’t foresee that happening.” With instant communication systems like e-mail, “a company can be located anywhere.”
Tap Roots
The company’s roots go back to a lumber and banking business in southern Arkansas and northern Louisiana. The petroleum division began in 1907, when the first oil production facility was established in Louisiana’s Caddo Field, Deming said.
Murphy, the company founder and Deming’s grandfather, was a shrewd and intelligent man “who had the talent to find and partner with bright individuals,” Deming said.
After oil was discovered in Union County, the commodity became an increasingly important part of Murphy’s overall business. However, the oil division remained subordinate to timber operations and banking until the mid-1930s.
After World War II, C.H. Murphy Jr., Deming’s uncle, joined the family business and would eventually oversee the incorporation of Murphy Corp. in 1950. It was reincorporated in Delaware 14 years later under the name of Murphy Oil Corp.
In the 1980s, oil prices plummeted from $30 a barrel to about $15, and Murphy was faced with hard times and harder decisions, Deming said. The company’s infrastructure was based on the higher prices, so it “went into survival mode.” Despite having few debts, Murphy Oil ultimately laid off employees and sold off its contract oil-drilling business, Deming said.
Deming joined the family business as a staff attorney after finishing law school at Tulane University in New Orleans in 1979. He would eventually serve as executive vice president and chief operating officer.
Thanks to the steady hand and forward thinking of former CEO Jack McNutt, Deming took control of a “very focused” corporation in 1994.
“My job was, ‘How can we grow the company?’” Deming said.
Four Divisions
Murphy Oil Corp.’s four divisions are in the middle of the action.
Murphy Exploration & Production Co. — “Murphy Expro” — is engaged on a global scale in crude oil and natural gas exploration and production through two principal subsidiaries: Murphy Expro-USA, headquartered in New Orleans, and Murphy Expro-International of Houston, Deming said.
Five years ago, Murphy opened an office in Kuala Lumpur to oversee its exploration and production activities in Malaysia.
“It now has 200 employees,” Deming said.
Murphy Oil USA Inc. — MOUSA — is engaged in refining, marketing and transporting petroleum products within the continental United States. It is headquartered in Murphy’s corporate offices at El Dorado.
MOUSA’s downstream operations include a 125,000 barrel-a-day refinery in Meraux, La., which produces refined petroleum products for distribution in the Gulf Coast market, and a 35,000 barrel-a-day refinery in Superior, Wis., which serves the upper Midwest. Operations in the United Kingdom are centered on a 108,000 barrel-a-day refinery in Milford Haven, Wales, in which Murphy owns a 30 percent interest.
Murphy Oil Co. Ltd., headquartered in Calgary, Alberta, is engaged in crude oil and natural gas exploration and production, the extraction and sale of synthetic crude oil and the marketing of petroleum products in Canada.
Murphy Eastern Oil Co. provides technical and professional services to Murphy Oil Corp.’s subsidiaries engaged in crude oil and natural gas exploration and production in the Eastern Hemisphere and the refining, marketing and transporting of petroleum products in the United Kingdom under the Murco Petroleum Ltd. brand.
Fill ’er Up
In the United States, Murphy products are marketed under the name Spur and the increasingly familiar Murphy USA brand.
A division of MOUSA, Murphy USA Marketing Co. operates retail gasoline stations in 21 states under the Murphy USA brand — primarily in the parking lots of Supercenters operated by another Arkansas icon, Wal-Mart Stores Inc. of Bentonville.
The idea came from the United Kingdom, where big-box retailers were selling gasoline in the parking lots. Murphy decided this concept could work in conjunction with America’s largest retailer.
“Because the stores generate a lot of traffic, our stations have potential customers,” Deming said.
The business plan makes perfect sense and is a perfect fit with the Wal-Mart low-price strategy. The stripped-down gas operations — kiosk, pumps and covering — and the high volume of motorists steering into the parking lot have given the company a competitive edge.
Another competitive edge is the complete absence of a “middle man.” Deming described the venture as “very successful.” The numbers suggest that is an understatement: A pilot station opened in 1996, and now there are 620 Murphy Oil stations operating in the Southeast and upper Midwest regions. The company has announced plans to add another 100 sites per year.
And their partnership is spreading internationally. A Murphy Oil Co. Ltd. subsidiary markets products at select Canadian Wal-Mart stores under the Murphy Canada brand.
By the Numbers
For the full year 2002, the company’s global production averaged 125,000 barrels of oil equivalent a day, which reflected an increase of almost 10 percent over 2001 levels and continued Murphy’s trend of achieving higher production levels annually for the past three years. Fueling the increase was the startup of production at the Eastern Canadian Terra Nova offshore field and the peaking natural gas production rates at the Ladyfern field in western Canada.
The growth trend continued in 2003, as two new fields in the deepwater of the Gulf of Mexico, Medusa and Habanero, came on-stream and production in Malaysia began.
“We’re proud of the accomplishments of 2003,” Deming said. The new Gulf operations combined with the established Front Runner field are expected to push Murphy’s production to 160,000 barrels a day.
In 2003, Murphy had net income of $294.2 million compared with $111.5 million in 2002. That gain was the result of improvement in earnings from its exploration and production business, primarily due to higher oil and natural gas sales prices and higher oil sales volumes.
Total revenue for the year was $5.3 billion, compared with $4 billion in 2002.
Crude oil and gas liquids production for the first nine months of 2003 averaged a company record of 90,529 barrels per day, up 10 percent over 2002. Crude oil and condensate prices averaged $25.69 per barrel in the 2003, a 1 percent increase over 2002. North American natural gas sold for an average of $4.38 per MCF in 2003, up from 18 percent over 2002.
The improved current-year result was based on stronger margins in both North America and the United Kingdom, and corporate after-tax costs were $13.8 million in 2003 compared with costs of $23.6 million in 2002.
Deming said he believes Murphy Oil must be on the leading edge of exploration — but not so far out in front that it can’t recoup its costs and make a profit.
The company is extracting bitumen in northern Alberta and then processing it, Deming said. At this point, Murphy can’t take on the larger corporations. Deming said, “They’ll mow us down.”
But if those companies aren’t taking advantage of a moneymaking situation or a government is intimidated and reluctant to do business with a company that has greater assets than Murphy does, Deming said, “We’re glad to step in.”
After 10 years in the driver’s seat, Deming said, “This is the best time to be in business.”
