Investing.com -- S&P Global Ratings has revised its outlook for U.S.-based oil and gas exploration and production company, Murphy Oil Corp (NYSE:MUR)., from stable to negative. The adjustment reflects the expectation that the company’s credit measures will be weaker than previously forecasted, and it will outspend its internally generated cash flow this year. Despite the negative outlook, the ’BB+’ issuer credit rating and the ’BB+’ issue-level rating on its unsecured debt have been affirmed. The ’3’ recovery rating on the unsecured debt remains unchanged.
The negative outlook is based on the potential for a downgrade if Murphy’s funds from operations (FFO) to debt ratio remains well below 60% for a sustained period. Currently, S&P Global Ratings estimates that Murphy’s FFO to debt will be about 45%-50% in 2025, considering lower crude oil prices, higher-than-anticipated shareholder distributions, and a cash-funded acquisition completed in the first quarter. However, the company’s FFO to debt is expected to improve to the 55%-60% range in 2026.
Despite the challenging market environment, Murphy Oil Corp. has reaffirmed its capital spending guidance of $1.135 billion-$1.285 billion as of the end of the first quarter of 2025. This guidance includes the previously announced acquisition of the BW Pioneer floating production, storage, and offloading vessel (FPSO) for $104 million and $1.4 million of non-operated working interests in the Gulf of America.
Murphy’s debt levels have decreased by approximately 57% since 2020, supporting its issuer credit rating. However, the pace of debt reduction slowed in 2024, with only $54 million of debt paid down against an original target of $300 million, resulting in year-end reported debt of $1.28 billion. While the company remains committed to its $1 billion long-term debt target, it has shifted focus towards enhancing shareholder returns, citing weaker stock performance relative to its intrinsic value.
Murphy has increased its allocation of adjusted free cash flow to shareholders from 25% to 50%, while reducing the amount allocated to further debt reduction from 75% to 50%. In 2024, the company returned over $600 million to its shareholders and repurchased $100 million worth of shares through early 2025, while also increasing its dividend by 8% to $1.30 per share on an annualized basis. As of May 5, 2025, Murphy has $550 million remaining under its existing share buyback authorization.
Murphy’s ongoing exploration efforts remain a key part of its long-term growth strategy. The company is actively pursuing high-impact offshore projects across Vietnam, the Gulf of Mexico, and Cote d’Ivoire. Recent discoveries in Vietnam could significantly expand Murphy’s reserves and production over the medium to longer term. The company anticipates achieving first oil in the fourth quarter of 2026 in Vietnam, with net oil production projected at 10,000 boe/d-15,000 boe/d starting in late 2026.
As of the end of the first quarter of 2025, Murphy had approximately $200 million drawn on its $1.35 billion senior unsecured credit facility, along with $393 million of cash and cash equivalents. After a refinancing transaction in 2024, Murphy’s nearest maturity is its $79 million of outstanding 5.875% senior unsecured notes, which mature in December 2027.
S&P Global Ratings could lower its ratings on Murphy if its FFO to debt remains well below 60% on a sustained basis with no clear path for improvement. However, the outlook could be revised to stable if Murphy improves its leverage metrics to sustain an FFO to debt of about 60% and maintains adequate liquidity.
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