Can Cost-Saving Initiatives Drive Murphy Oil's Q4 Earnings?

We expect Murphy Oil Corporation (NYSE:MUR) to beat expectations when it reports fourth-quarter 2017 results after the market closes on Jan 31. Last quarter, the company delivered a positive earnings surprise of 78.57%.

Why a Likely Positive Surprise?

Our proven model shows that Murphy Oil is likely to beat estimates because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates.

Zacks ESP: Murphy Oil has an Earnings ESP of +61.5%.This is a meaningful and leading indicator of a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Murphy Oil carries a Zacks Rank #3. The combination of Murphy Oil’s favorable Zacks Rank and positive ESP makes us reasonably confident of a positive surprise this season.

Conversely, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors to Consider

Murphy Oil’s capital investments and cost-saving initiatives have paved the way for the company's growth. The new onshore low-cost finding in Midland Basin will aid it to further expand onshore operations.

The company expects fourth-quarter 2017 total net production in the range of 170,000-172,000 barrels of oil equivalent per day (BOE/d). Total net sales for fourth-quarter 2017 are anticipated in the range of 160,000-164,000 BOE/d. The company estimates total exploration expenses of $45 million in fourth-quarter 2017.

Crude Oil and natural gas liquids contribute a major portion to the company’s top line in each quarter. The Zacks Consensus Estimate for fourth-quarter net crude oil & condensate produced for the current quarter has increased to 93 thousand barrels of oil equivalent per day (MBOE/d) from 84 MBOE/d, indicating a 10.7% rise sequentially. The Zacks Consensus Estimate for net natural gas liquids produced for the fourth quarter is pegged at 10.77 MBOE/d reflecting an increase of 18% sequentially. The Zacks Consensus Estimate for fourth quarter total revenues is pegged at $587 million, reflecting a 17.9% rise in revenue sequentially.

Murphy Oil’s Tupper Montney asset in Canada is expected to produce 223 million cubic feet of gas per day (MMcfd) in the fourth quarter and drive free cash flow of the company.

Fourth-quarter guidance includes the adverse impact of Gulf of Mexico shut-ins for one week due to Hurricane Nate.

Other Stocks to Consider

Here are a few other players in the same industry that have the right combination of elements to post an earnings beat this quarter.

EOG Resources, Inc. (NYSE:EOG) is expected to report fourth-quarter earnings 2017 on Feb 27. It has an Earnings ESP of +11.8% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

QEP Resources, Inc. (NYSE:QEP) has an Earnings ESP of +135.9% and a Zacks Rank #2. It is slated to report fourth-quarter 2017 earnings on Feb 21.

Denbury Resources Inc. (NYSE:DNR) has an Earnings ESP of +36.4% and a Zacks Rank #2. It is scheduled to report fourth-quarter 2017 earnings on Feb 22.

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