Murphy Oil Corporation MUR recently announced a deduction of 50% on the quarterly dividend payment to 12.5 cents per share. The current annualized dividend amount is 50 cents. The new dividend will be payable on Jun 1, to stockholders of record as of May 18.
Along with the dividend deduction, the company lowered its 2020 capital expenditure view again to the new midpoint of $780 million. Earlier this month, the company had already cut planned 2020 spending by nearly 35% from the mid-point of the original guidance of $1.4-$1.5 billion to counter challenges stemming from decline in commodity prices.
The company’s cost-saving initiatives also include reduction on executives’ salaries and cash retainers of corporate directors. The afore-mentioned steps are essential for the company to maintain the financial flexibility amid ongoing volatility in the commodity price market.
Importance of the Budget Cut
Due to the alarming spread of coronavirus, the global economy is encountering new challenges with each passing day. COVID-19 is now spreading like wildfire in the United States. The outbreak of the virus has impacted the demand for crude oil. Per a U.S. Energy Information Administration (“EIA”) release, crude oil prices have fallen significantly since the beginning of 2020. Prices of crude oil have dropped 65.3% year to date period to $21.19 per barrel.
Moreover, Russia and Saudi Arabia — the major producers of crude apart from the United States — have decided to produce more crude volumes. This could further lower the price of the commodity from the current level. Other than Murphy Oil, there are companies like Devon Energy Corporation DVN and Occidental Petroleum OXY also lowered capital expenditures twice in the recent past to preserve liquidity.
The current situation is alarming as lockdown in major countries across the globe is leading to negligible manufacturing and commercial activities. People are staying back at home to fight the virus, restricted movement of transport are lowering demand for oil and there are hardly any positive indications regarding upward revision in demand. With the decision of lowering expenditures, Murphy Oil has taken an important step to strengthen its financial position. This will enable the company to sustain in the long term. WPX Energy WPX also lowered its 2020 capital expenditures to preserve liquidity amid falling oil prices.
The $2-trillion U.S. economic stimulus package does not have any special provision for the struggling U.S oil and gas companies. If the crude oil prices continue to remain at the low for a longer period of time, it will adversely impact operation and oil and gas companies with high debt levels will find it difficult to clear debts.
Zacks Rank & Price Performance
The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The stock has plunged 79.9% in the past year compared with 72.6% decline of the industry it belongs to.
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Murphy Oil Corporation (MUR) : Free Stock Analysis Report
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