Pumps oil and gas from deepwater Gulf of Mexico reservoirs and continuously drills shale wells in South Texas to keep production from falling.
What stands out
- Pays out more in dividends than it earns
At a glance
Pumps oil and gas from deepwater Gulf of Mexico reservoirs and continuously drills shale wells in South Texas to keep production from falling.
Murphy Oil drills for oil in the deepwater Gulf of Mexico and continuously drills horizontal wells in the Eagle Ford shale onshore Texas. In the Gulf, small satellite reservoirs that would be too costly to develop on their own are connected by subsea pipelines back to existing production hubs on the seabed, so every barrel from those satellites depends entirely on the hub staying intact — a single hurricane that knocks out a hub simultaneously shuts in every field tied to it, with no alternative route for the oil to travel. Onshore in the Eagle Ford, shale wells decline steeply from the day they are first produced, which means Murphy must keep drilling new wells continuously just to hold output flat, because pausing the drill program is not a delay but an immediate production decline. Both sides of the business carry fixed obligations to the Bureau of Ocean Energy Management — minimum work commitments and lease rental payments that run on a set schedule regardless of oil prices — so capital must keep flowing into both programs even when prices fall, because missing those commitments forfeits the very leases that make the hub-and-satellite system worth anything.
How does this company make money?
The company sells oil at WTI crude prices, adjusted for the cost of moving it to the Gulf Coast, and sells natural gas at Henry Hub prices per thousand cubic feet. Deepwater revenue comes in through monthly cargo liftings from offshore facilities. Eagle Ford revenue flows in continuously through pipelines. Both streams move directly with commodity prices — when WTI or Henry Hub fall, revenue falls by the same proportion.
What makes this company hard to replace?
Long-term natural gas supply contracts with Texas utilities come with dedicated pipeline capacity and delivery schedules that require 12 to 18 months of notice before a replacement can be arranged. On the oil side, if deepwater production is disrupted, refineries that process Eagle Ford crude would need to reconfigure their equipment to handle different crude grades — that is not a quick or cheap adjustment.
What limits this company?
The Bureau of Ocean Energy Management controls how often deepwater lease blocks are offered for sale and how fast drilling permits move through approval. Capital must be spent on those lease obligations on a fixed schedule — miss the work commitments and the lease is gone, along with the hub-and-satellite system built around it. There is no way to pause and wait for better oil prices.
What does this company depend on?
The company cannot operate without Bureau of Ocean Energy Management deepwater drilling permits, drillship capacity from offshore drilling contractors, Eagle Ford shale acreage leases in South Texas, subsea production equipment built to survive Gulf of Mexico hurricanes, and hydraulic fracturing services and proppant supply to complete its shale wells.
Who depends on this company?
Phillips 66 refineries in Texas receive Eagle Ford crude through pipeline connections and would face feedstock shortages if that supply stopped. Natural gas utilities serving Texas markets rely on Eagle Ford gas, and a drop in supply would force them to bring in higher-cost gas from elsewhere. Offshore service vessel operators in Louisiana depend on active deepwater drilling programs for their own workload — a slowdown here cuts directly into their business.
How does this company scale?
Deepwater engineering skills and subsea know-how can be applied to new Gulf of Mexico lease blocks once the team has them. But getting those blocks is hard: the Bureau of Ocean Energy Management holds lease sales infrequently, and major integrated oil companies with far larger budgets compete for the same acreage.
What external forces can significantly affect this company?
Federal offshore leasing policy can slow or stop new Gulf of Mexico activity through changed environmental review rules or outright lease sale suspensions. Hurricanes in the Gulf regularly force production shut-ins and require evacuating offshore workers, with no way to avoid that exposure. Energy sector reforms in Mexico have drawn some deepwater drilling contractors into Mexican waters, tightening the pool of drillships available for U.S. Gulf operations.
Where is this company structurally vulnerable?
If the federal government suspended Gulf of Mexico lease sales or imposed a drilling moratorium, no new reservoirs could be tied into the existing hub. The hub and all the infrastructure around it would sit idle, and the mechanism that makes small deepwater reservoirs worth developing would simply stop working.
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