New Projects In Vietnam And Cote d'Ivoire Will Expand Future Production Capacity

Key Takeaways

• Initiating and progressing large-scale projects in Vietnam and Cote d'Ivoire could enhance future reserves and production capacity.
  
• Expansion of share repurchase and production improves shareholder returns and suggests a focus on increasing earnings per share and margins.
  
• Exploration risks and operational downtime, combined with natural gas price volatility and regulatory challenges, could impact Murphy Oil's production, revenue, and financial health.

Catalysts

Operates as an oil and gas exploration and production company in the United States, Canada, and internationally.

• Initiated construction of the Lac Da Vang production platform in Vietnam, with plans to achieve first oil by late 2026, potentially boosting future revenues.
  
• Expanded share repurchase program with a strategy to allocate a minimum of 50% of adjusted free cash flow to shareholder returns, indicating a focus on enhancing earnings per share.
  
• Anticipated increase in Eagle Ford Shale production in early 2025 driven by new well completions and optimized processes, which could improve revenues and margins.
  
• Expectation of improved oil production from onshore and offshore projects, suggesting higher future earnings and potentially better net margins.
  
• Progress in Vietnam and Cote d'Ivoire exploration projects, which could result in new reserves and production capacity, positively impacting future revenues.

Murphy Oil Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Murphy Oil's revenue will grow by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.9% today to 15.1% in 3 years time.
• Analysts expect earnings to reach $518.0 million (and earnings per share of $3.51) by about December 2027, up from $476.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.8x on those 2027 earnings, up from 9.0x today. This future PE is greater than the current PE for the US Oil and Gas industry at 10.9x.
• Analysts expect the number of shares outstanding to grow by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.02%, as per the Simply Wall St company report.

Murphy Oil Future Earnings Per Share Growth

Risks

• Murphy Oil's exploration efforts in new regions, like Vietnam and Cote d'Ivoire, carry execution risks and uncertainty regarding commercial viability, which could impact future revenue and earnings if results are not as expected.
  
• The company faces significant operational downtime, particularly with non-operated assets such as Terra Nova, which could negatively affect production volumes and revenue targets.
  
• The volatility in natural gas prices, especially in the Canadian markets like AECO, poses a risk to the company's profitability and can impact future net margins.
  
• Murphy's strategy of allocating over 100% of free cash flow to shareholder returns, while beneficial in some respects, could limit investments in debt reduction or unforeseen operational needs, impacting financial health.
  
• The regulatory environment in key operational areas, especially the Gulf of Mexico, can impose uncertainties and potential delays in project execution, affecting production forecasts and financial performance.

Valuation

• The analysts have a consensus price target of $41.29 for Murphy Oil based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $57.0, and the most bearish reporting a price target of just $34.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.4 billion, earnings will come to $518.0 million, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 8.0%.
• Given the current share price of $29.28, the analyst's price target of $41.29 is 29.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.