Murphy Oil (NYSE:MUR) is one of a dwindling number of integrated oil and gas companies left in the United States and still operates a refining and marketing operation here and in Europe.

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Struggling
Murphy Oil is struggling to make this business profitable and reported a net loss of $4.2 million in the refining and marketing segment in the first quarter of 2012. The company has been rationalizing this business over the past two years and has started to divest underperforming assets in this business.

Divestitures
The company sold its two refineries in the U.S. in the third quarter of 2011 and is looking for a buyer of its downstream operations in the United Kingdom. It sold the 125,000 barrel per day refinery in Meraux, Louisiana to Valero (NYSE:VLO) for $585 million, and the 45,000 barrel per day refinery in Superior, Wisconsin, for $442 million to Calumet Specialty Products Partners (Nasdaq:CLMT). The acquirers also received substantial inventories of oil associated with both refineries.

SEE: Oil And Gas Industry Primer

U.S. Retail
Murphy Oil entered the marketing business in 1996 and operates more than 1,100 retail marketing outlets in 23 states. The company is growing this business and plans to have 1,175 outlets by the end of 2012. It sells merchandise as well as gasoline at these locations. In 2011, reported merchandise sales was $2.2 billion, up 10% from 2010. The growth came from increased sales of cigarettes, beverages and beer.

The company is closely associated with Wal-Mart (NYSE:WMT) in this business and has hundreds of its outlets located in Wal-Mart Supercenters across its footprint. It is planning to leverage this part of its footprint with larger size locations to increase sales.

It reported EBITDA of $363 million from its U.S. Retail operations in 2011, up sharply from $156 million in 2006. The average store in its network generated EBITDA of $333,000 in 2011.

SEE: What Determines Oil Prices?

Competitors
Murphy Oil competes against large national chains owned by some of the largest oil and gas companies in the U.S. The company also goes up against smaller companies that operate only in the retail segment.

Susser Holdings Corporation (Nasdaq:SUSS) has 541 retail locations spread across several states in the Southwestern region of the U.S. The company expects to open between 25 and 30 stores in 2012 and generates approximately two thirds of its gross profit from the sale of non-fuel items at these locations.

Casey's General Store (Nasdaq:CASY) is also involved in retail marketing in the U.S. and has 1,686 locations as of Jan. 31, 2012. The company's goal is to increase its store base by 4 to 6% annually.

SEE: A Guide To Investing In Oil Markets

The Bottom Line
Murphy Oil is correctly rationalizing its non-upstream businesses and has embarked on a series of divestitures of non-core assets here. The company plans to grow its U.S. retail marketing business due to the high returns generated here.

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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