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Investing.com -- Moody’s Ratings has revised the outlook of Murphy Oil Corporation (NYSE:MUR) from positive to stable, while also affirming the company’s Ba2 Corporate Family Rating (CFR), Ba2-PD Probability of Default Rating (PDR) and Ba2 senior unsecured notes ratings. The company’s SGL-1 Speculative Grade Liquidity (SGL) rating remains the same.
The adjustment in outlook is due to less debt reduction than initially anticipated, with the company’s production scale staying subdued. Amol Joshi, Moody’s Ratings Vice President - Senior Credit Officer, stated that despite these factors, Murphy’s Ba2 rating is bolstered by its diversified asset base, capacity to generate free cash flow, and flexibility in capital allocation.
The stable outlook is reflective of Murphy’s firm credit metrics and its ability to generate significant free cash flow at mid-cycle commodity prices. However, it’s unlikely that there will be any substantial changes in the company’s production scale and debt balances into 2026, leading to the outlook change.
Murphy’s Ba2 CFR is indicative of its diversified asset base with moderate debt balances and supportive credit metrics. The company’s portfolio includes onshore production from the Eagle Ford shale and Canada, and offshore production primarily from the US Gulf of America. Approximately 55% of its production is liquids.
The company’s capital structure consists mainly of senior unsecured notes and an unsecured revolving credit facility. The facility benefits from upstream guarantees from operating companies, structurally subordinating the senior notes to the claims under the credit facility. Murphy is not expected to maintain significant borrowings under the credit facility. The company’s debt is well-covered by its assets, leading to the assignment of the Ba2 rating on the notes.
Murphy’s SGL-1 Speculative Grade Liquidity Rating reflects its strong liquidity position into 2026, supported by funds from operations, cash balances of $424 million at the end of 2024, and an undrawn $1.35 billion unsecured revolving credit facility. The company is expected to remain in compliance with its financial covenants. The revolving credit facility is due for maturity in October 2029, while the next notes maturity is the $79 million of outstanding senior notes due in December 2027.
Potential upgrades to Murphy’s ratings could occur if the company’s production exceeds 200,000 barrels of oil equivalent per day consistently and debt is reduced to $1 billion, while maintaining a retained cash flow to debt above 40% in a mid-cycle environment and achieving a leveraged full cycle ratio of around 2x. Conversely, the ratings could be downgraded if production volumes decrease significantly, retained cash flow to debt falls below 30%, or the leveraged full cycle ratio drops below 1.25x.
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