Murphy Oil Corporation (MUR) announced its plan to spin off its U.S. downstream subsidiary, Murphy Oil USA, Inc. ("Murphy USA"), to an independent entity. The company has already received required approvals from its board of directors, but closure of this deal will be subject to several other customary nods. This transaction is expected to be settled in 2013.
Per the transaction, Murphy USA will trade in the exchange separately. The Board of Directors of Murphy Oil has approved to distribute a special dividend per share of $2.50, a total of around $500 million, to its shareholders and intends to distribute shares of Murphy USA on pro-rata basis to every Murphy Oil stockholders. This new dividend is in addition to the existing dividend of roughly 31 cents per share and will be payable on December 3, 2012.
Post transaction, Murphy USA will continue to operate as a low-price and high volume fuel seller, having important strategic relationships and skilled management professionals. It will get seven product distribution terminals and two ethanol production capacities in North Dakota and Texas. Its business will deal with retail petroleum products marketing and convenience merchandise through a large chain of retail gasoline stations.
On the other hand, Murphy Oil will become an independent exploration and production company. It will be mainly operating in the United States, Canada and Malaysia. The company will continue its exploration program and offshore development projects in its North America onshore operations, primarily in the Eagle Ford Shale and Seal areas.
The resilience of Murphy Oil's balance sheet is clearly evident as the company in addition to shelling out dividends has also announced a share repurchase program to boost shareholder value. The Board of Directors approved a share repurchase program of up to $1 billion of the company's shares. Murphy Oil intends to exercise open market purchases, negotiated block purchases and accelerated share repurchases for its share buyback program.
As of June 30, 2012, Murphy Oil had cash and cash equivalents of about $671.6 million and net cash provided by operating activities of $1,347.1 million in the first six months of 2012. We believe strong financial position will help the company to manage its present restructuring burden.
This spin off will enable both the companies to assign resources and redeploy existing capital as per their own market conditions and priorities. We believe this transaction will enable both the companies to concentrate on their own strategic preferences as well as identify own capability for their future growth.
Post restructuring, we believe that both the companies will focus on achieving reasonable revenue, optimize cost structure, and maintain robust margins and strong liquidity position in the future.
El Dorado, Arkansas-based Murphy Oil Corporation engages in the exploration, production, refining and marketing of oil and gas in the U.S. and U.K. One of the company's peers is Occidental Petroleum Corporation (OXY). Murphy Oil Corporation currently has short-term Zacks #3 Rank (Hold rating).