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Business North - The Daily Briefing - Business Newspaper Online
Murphy Oil exiting refining business
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7/23/2010 by Ron Brochu |
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Murphy Oil Corp. (NYSE: MUR) is selling its refineries, including its Superior operation, to focus on more-lucrative segments of the petroleum business.
Douglas County officials have expressed concern about the decision and how it might affect more than 150 persons who work at the facility, along with numerous local contractors who serve the facility on a regular basis.
The news is surprising because Murphy, just three years ago, was considering a $6.2 billion expansion of the Superior plant. The firm went so far as to purchase surrounding houses and begin the environmental permitting process.
Murphy's board of directors announced the decision Thursday, saying it includes the Superior refinery and ones in Meraux, La., and Milford Haven, Wales, along with retail operations in the United Kingdom.
“It came as a surprise to everybody,” including local Murphy executives, said State Rep. Nick Milroy, D-Superior, who credited the corporation for its philanthropic contributions to the area.
The collective book value of the refineries is $1.2 billion. Preferably, all plants will be sold to a single buyer, President and CEO David Wood said in a Friday morning conference call.
“Any time a major change involving one of our largest employers is announced it raises concerns.” Doug Finn, chair of the Douglas County Board, said in a morning announcement. “We are in the information-gathering stage right now to determine what the impact ... will be on Superior and on Douglas County as a whole."
It's a tough market for small refineries, said State Sen. Bob Jauch, D-Poplar. Murphy's Superior plant refines 35,000 barrels of oil daily versus 125,000 in Meraux.
"Several small refineries have closed in this country during the last two years," Jauch said in a telephone interview from Indonesia, where he is traveling. "The important thing is that we don't panic. Let's remember that Murphy has made this small refinery profitable" because of its strategic location along Canadian supply pipelines and by offering products such as asphalt.
Milroy said the Superior staff is very talented, which makes the plant highly efficient. And the next owner, he added, might have deeper pockets than Murphy and may fund some or all of the tabled expansion plans.
Company officials anticipate a transaction will be complete in the first quarter of 2011.
"We had a number of firms that expressed interest in our refining business before the process began," Wood said, which suggests a quick sale is likely.
Murphy's refining and marketing arm produced earnings of $92.2 million in 2009, $227.9 million in 2008 and $230.4 million in 2007. Capital expenditures in the refining sector, however, have been high, according to Murphy's 2009 annual report. The firm spent $206 million in 2009, $142 million in 2008 and $330 million in 2007 on CapEx projects.
In a news release, Wood said Murphy’s petroleum wells and U.S. retail gas station sales have demonstrated marked growth and financial performance during the last several years. By exiting the refining business, Murphy will focus on continuing growth in the exploration, production and retail sectors.
As a result of the 2005 Katrina hurricane, Murphy incurred repair costs of about $146 million in excess of its insurance coverage at the Mereaux refinery, which is located near New Orleans. It also faces significant costs to meet EPA regulations at its U.S. refinieries. For instance in May, Murphy completed work a on a $50 million project to reduce sulfur content of diesel fuel produced in Superior. The project was needed strictly to meet EPA requirements and did not enhance earnings.
"A lot of thought went into this (decision). We feel our timing is about right...and the assets will be attractive to people," Wood said.
The plant has been a major engine for Superior's economy since it was constructed in 1950, said Andy Lisak, Douglas County Administrator and former director of the Development Association.
“Murphy Oil has been a very good corporate citizen,” Lisak said of the Arkansas-based firm, which purchased the Superior refinery in 1956.
“Although we are sad to hear of the company’s decision to sell the Superior refinery, we will do whatever we can to assist Murphy in finding a buyer.” Finn said. “Whoever purchases the refinery will inherent a skilled and dedicated workforce in a community that has been very supportive of business.”
"...we will keep in very close contact with the company regarding future plans," Jauch and Milroy said in a joint news release. "We are prepared to assure any prospective buyer of our ongoing support for the workers and the quality product that is produced at this refinery. The refinery has a highly skilled and productive workforce currently in place and their continued success is our top priority."
Goldman, Sachs & Co. is advising Murphy on the sale.
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