Brown on Business
May 18-24, 2020
By Wesley Brown
wesley@dailydata.com
Murphy Oil ceremonial move to Texas not unexpected; ends storied run in Arkansas
Murphy Oil Corp.’s announcement on May 6 that it was moving its operations to Houston, while difficult and shocking to some, was not unexpected and largely ceremonial.
Murphy’s transition to a pure play independent North American oil and gas driller and producer has been in the works for years since the last downturn nearly forced the El Dorado oil company that was founded by Charles (C.H.) Murphy Jr. into bankruptcy.
Although it was first incorporated as Murphy Corp. in 1950 in Louisiana, the El Dorado company’s roots go back to a lumber and banking business in South Arkansas as far back as the turn of the 20th century in 1907 when the first oil production was established in the Caddo Field in North Louisiana.
One of Arkansas’ first homegrown publicly traded companies, Murphy Corp., later went public in 1956 on the now defunct American Stock Exchange to fund the elder Murphy’s strategic vision to become an integrated global oil company.
In 1961, Murphy began its long-held listing on the New York Stock Exchange under the symbol MUR with 3.8 million shares outstanding and 5,700 stockholders. Later that year, Murphy purchased the Ingram Oil refinery at Meraux, La., bulking up its downstream business that included another refinery in Superior, Wisc., and a chain of nearly 330 Spur gas stations acquired during an earlier deal.
After changing its name to Murphy Oil Corp. in 1964, the Arkansas integrated oil giant rapidly grew its oil production operations by focusing on deep-water plays in the Gulf of Mexico, offshore in Nova Scotia, Canada, and the North Sea region of the United Kingdom. As one of nation’s few integrated oil companies with the likes of iconic American brands Exxon, Mobil, Chevron, Amoco, Argo and Phillips, Murphy strategically grew its oil production business to point of entering the Fortune 100 a decade ago when crude oil prices topped $100 a barrel.
During its run as an integrated oil company, the Arkansas oil giant also slowly grew its downstream and retail business by purchasing a large stake in a huge crude refinery Wales and adding new Spur gas station locations across the South before selling them off in the early 1990s.
But Murphy fortunes changed in the gasoline retail business in 1996 when the company began partnering with Walmart to build Murphy USA stations in the parking lots of their supercenter stores. That same year, Murphy spun off its timberland and real estate business into a new publicly traded company called Deltic Farm & Timber. Deltic was purchased by Potlatch Corp. of Seattle in February 2018 in an all-stock deal valued at $3.3 billion.
With current Murphy Oil Chairman Claiborne Deming Jr. at the helm at the company’s CEO in 1999, Murphy quietly acquired three offshore blocks in offshore Malaysia as the company sought to boost oil production as crude prices began lifting off historic lows a year later. That same year, the elder Murphy was inducted in the first Arkansas Business Hall of Fame class with Sam Walton, Jackson T. Stephens and William Dillard Sr.
In 2002, Murphy’s Malaysian subsidiary announced the discovery of oil and natural gas at the company’s first deep water project in the deep-water play known as Kikeh. At the time, Deming called the project the “most meaningful discovery in the (Murphy’s) history.”
After several more than a decade of strong growth that saw crude oil prices swell to more than $100 a barrel, Murphy hit a rough snag with the sudden exit of former CEO David Wood in 2012 following several faraway deep-water drilling projects that came up dry.
In 2013, with crude oil prices still in the tank, Murphy split off its former marketing and retail operations into another separate publicly traded company in El Dorado now known as Murphy USA. Still benefitting from its close relationship with Walmart, Murphy USA’s market capitalization soon eclipsed its former parent as oil prices continued to weigh down on profits.
A few years later, following another 50% slide in oil prices, the El Dorado independent began to sell-off its refining as part of cost-cutting measures that included laying off 100 positions from its global workforce of more than 1,500 employees. Once oil prices dropped to around $30 a barrel in early 2016, Murphy implemented even deeper job cuts and general and administrative expenses of 20%.
After several years of steep losses, Murphy made a surprise announcement in March 2019 that it would exit deep-water Malaysia after nearly two decades. The company has plans to invest the $2.2 billion from the sale to grow its domestic operations in the Gulf of Mexico and the fast-growing oils-rich Eagle Shale play in West Texas.
As late as 2019, Murphy’s transition to a pureplay oil and gas driller seemed to be going well after the company reported decent profits in late 2019. However, that progress came to a sudden halt in March after Murphy slashed its capital budget by 35% to $950 million as the COVID-19 began spreading globally, creating a glut in crude inventories that dropped oil futures below $20 a barrel.
Citing that “extraordinary drop” as oil prices fell into negative territory last month, Murphy made headlines in Arkansas after announcing plans to shutter its legacy headquarters in El Dorado, home to about 80 employees. The company is also closing its longstanding office in Calgary, Alberta in Canada, home to 110 employees.
All those positions will be consolidated at Murphy’s new headquarters at an existing office location in Houston. The closure of the Arkansas offices by the third quarter also includes additional cuts of $200 million in capital spending, slicing the company’s quarterly dividend in half, and reducing CEO and executive pay by as much as 35%.
“We simply do not have a choice and came to this decision only after exhausting all other cost saving measures,” Deming said in the statement. “The El Dorado office closure is particularly painful and difficult, because the company was founded here by C. H. Murphy, Jr. and has been an integral and important part of the community for many years.”
As a side note, Murphy said it will continue to fund the El Dorado Promise scholarship program, which has paid the tuition of every college-bound graduate in El Dorado Public School District since 2007 up to the highest amount charged by an Arkansas public college or university. Attempting to put positive note Murphy family’s business and philanthropic to the state, Gov. Asa Hutchinson and Arkansas House Speaker Matthew Shepherd of El Dorado praised the company for its storied history in South Arkansas.
“Murphy Oil Corporation has been a staple of my hometown for decades and I’m saddened to hear that El Dorado will no longer be its home,” Shepherd.
The reality of this sad story is that Murphy’s headquarters in El Dorado has been shrinking for more than a decade. In 2006, Murphy first consolidated its exploration and production operations in Houston after shutting down office in New Orleans.
Following the split off of Murphy USA and its 600 employees In 2013, the company’s Exploration & Production Co. moved more than 500 employees into the new 14-story “Murphy Building” in the fast-growing suburb of Katy, located in the Woodlands–Sugar Land in the Houston metropolitan area. Today, Murphy occupies nine floors, or more than 200,000 square feet of space in the 320,000 total square feet office complex.
While Arkansas has been home to Murphy Oil on the map, Houston has served as the de facto global headquarters of the independent oil company for years now. Most remaining Murphy employees will soon be heading to Houston soon where the company has been digging Texas roots for years now.
