MURPHY OIL CORP (MUR) stock intrinsic value fair value estimate & owner earnings analysis

Murphy Oil is an independent oil and gas producer. In 2025 it produced about 189 thousand barrels of oil equivalent a day, mainly from offshore Gulf of America fields (including the operated Cascade and Chinook fields; its Gulf results include MP GOM, a joint venture in which an outside partner owns 20%), the Eagle Ford Shale in South Texas, and gas and liquids in Canada (Tupper Montney, Kaybob Duvernay). Proved reserves ended 2025 at 730 million barrels of oil equivalent, about 10.6 years of current output. Over 2022-2025 the company replaced roughly 105% of what it produced (98%, 134%, 84% and 101% in the four years) while spending about $0.9-1.1 billion a year, and reserves ended 2025 at 730 million versus 717 million four years earlier. That repeated record, funded from its own cash flow, is the main evidence we credit, and it is why we assume output is maintained rather than allowed to run off. How we measured earnings. We started from cash from operations, removed swings in working capital, deducted stock compensation, and deducted all capital spending including purchases of producing properties, because an oil producer must keep replacing the barrels it sells. Only a small slice of spending is treated as growth, and we measured that by changes in production volume rather than revenue, since oil revenue moves with price rather than with the size of the business. Non-cash write-downs (a $115 million one in 2025) do not affect this measure. On that basis owner earnings per share were: 2020 $(0.55), 2021 $3.58, 2022 $7.05, 2023 $5.75, 2024 $4.64, 2025 $1.83. We left out 2018 and 2019 because they were distorted by purchases of producing properties ($0.8 billion and $1.2 billion) and the exit from Malaysia; 2020-2025 is the business as it now exists and includes both the 2020 collapse and the 2022 spike. For valuation we add back the interest paid to lenders, giving the cash the business makes before its lenders are paid: $0.70, $4.65, $8.00, $6.44, $5.16 and $2.44 per share for 2020-2025 (median $4.91). The outside partner's 20% share of MP GOM is subtracted as a claim in each case rather than deducted from earnings (its cash distributions were $183.0 million in 2022, $118.6 million in 2024 and $63.8 million in 2025). Where the level is set. Cash earnings before interest fell from $5.16 to $2.44 per share in 2025 (about 53%). The fall came from price and spending, not volume: offshore U.S. oil realized $65.69 a barrel versus $76.36 in 2024, capital spending rose about $140 million, and production grew 2.4%. Revenue then weakened into year-end ($613 million in the fourth quarter versus a $672 million quarterly average), and net income was $22 million, $(3) million and $12 million in the last three quarters of 2025 versus $128 million, $139 million and $50 million a year earlier. Those quarters tell us the six-year median of $4.91 is lifted by higher-priced years that have since reversed, so we do not build the base case on it. The base case starts at $2.40 per share, 2% below 2025. That is a milder change than the 53% fall just seen, so we name the reasons: the 2025 step-down is already fully in the numbers, and the Lac Da Vang field in Vietnam (approved, under development, $127.5 million of approved spending remaining, first oil planned in 2026) starts to offset natural decline. A rebound in oil prices is not credited anywhere. For information only: the company's second-quarter 2026 report showed earnings rebounding with prices, but it also raised 2026 capital spending guidance to $1.5-1.6 billion and guided 2026 production, excluding the partner's share, to 167-175 thousand barrels a day. Those are company statements rather than filings, so we did not use them in the arithmetic. Debt and the partner. At the end of 2025 the company owed $1,284.8 million of notes, $100.0 million on its credit line and $12.7 million of finance leases, against $377.2 million of cash: net debt of about $1,020 million, or $7.10 per share on about 143.7 million diluted shares. After year-end it sold $500 million of 6.50% notes due 2034, used $227.5 million to redeem its 2027 and 2028 notes, and extended its credit line (now $2.0 billion) to 2031, so the next note maturity is $117.6 million in May 2029 and interest is roughly $100 million a year. The cost of this debt is close to 6%, so we made no adjustment. What each case assumes (cash earnings before interest per share, each year). Base ($15.36): $2.40 a year for ten years, with output held about level at current reserves and spending near current levels, then fading 10% a year because proven replacement is evidenced for only about four to five years, not for decades. The business is worth about $25.20 per share (about $3.6 billion); it owes $7.10 of net debt and about $2.74 to the MP GOM partner (about $80 million a year for six years), leaving $15.36. Bear ($1.92): the weakness seen at the end of 2025 ($1.30 and $1.20 in the first two years), then a repeat of the 2020 shutdown in years three and four. In 2020 revenue fell 38% to $1.75 billion, property additions were cut about 39%, and cash earnings before interest still fell to $0.70 per share, about equal to the roughly $0.68 a share of interest the company will now pay. We assume that again, then a recovery only to $1.30 followed by 5% a year of decline as reserves are replaced at the 84% seen in 2024, and a 15% annual fade after year ten. The business is worth about $10.22 per share (about $1.47 billion); it owes $7.10 of net debt and $1.20 to the partner, leaving $1.92. Nothing matures until 2029 and the credit line runs to 2031, so we do not assume a forced restructuring, but in the trough years owners receive almost nothing and the dividend could not be supported. Bull ($31.77): the company's own levers work. Lac Da Vang starts on schedule, the approved Gulf of America programme ($245 million, mostly Cascade and Chinook field and exploration work) is carried out, and production grows at the 2.5% a year pace of 2022-2025, a period when spending stayed roughly flat ($1.1 billion in 2022, $1.05 billion in 2025). We assume this lifts cash earnings from $2.60 in the first year to $4.20 by year five (about $1.80 a share above the base case), where they hold, with an 8% annual fade afterwards. The business is worth about $42.76 per share (about $6.1 billion); it owes $7.10 and $3.89 to the partner, leaving $31.77. Not included in any case: higher oil prices, the Vietnam discoveries still being appraised (Pink Camel, Golden Sea Lion), the Cello and Banjo discoveries in Mississippi Canyon 385 announced after year-end, further Côte d'Ivoire exploration (two wells there were dry), and any acquisitions, because none of these is contracted or has been done yet. Testing the case. We challenged the assumption that output can be maintained. Reserves were replaced at only 84% in 2024 and 3.4 million barrels of Eagle Ford reserves were divested in 2025, so replacement is not guaranteed; that is why the bear case lets reserves shrink. We also tested spending: if the company must spend about $1.3 billion a year without adding barrels, base cash earnings fall to roughly $0.65 a share and the shares would be worth nothing after debt and the partner. That risk is real given the 2026 spending guidance, and it is the main reason the margin-of-safety price is low. Margin-of-safety price: $6.00. We are not very sure of the earnings level: in six years the business produced anywhere from $0.70 to $8.00 of cash earnings a share depending on prices, and the shares are a leveraged claim on that swing, with about $1.4 billion of borrowings and a partner entitled to 20% of the joint venture's cash. The worst plausible outcome, a 2020-style collapse followed by under-replacement of reserves, would leave shares worth about $2 today and the dividend cut; the debt structure would survive it (no maturity until 2029, a $2.0 billion credit line to 2031, mostly long fixed-rate notes), but the equity would be shrunk, not wiped out. If we are wrong about the two things we are most likely to be wrong about, spending and oil prices, the shares could be worth nothing (spending at $1.3 billion with no added barrels) or about $43 (a return to the $5.16 earned in 2024). The price assumes about a five-year holding period. Over that period the business pays: the dividend is now $1.40 a year, and in the base case owners' cash after interest and the partner's share is about $1.16 a share a year, about $5.80 over five years, nearly the entire price, while the business itself would still be valued at about $12.60 a share after five years. From $6.00 that base case implies well above 20% a year; the 2020-style outcome would leave roughly $1 of the $6, which is why the margin-of-safety price is not higher, since a higher price would leave no cushion for the spending and price risks most likely to go against the estimate. The previous published figures were built on a different basis and are not comparable.