The Obama administration's admirable goal to create a more self-reliant, energy-independent nation and the impact of efforts to first limit, then eliminate global warming from fossil fuels opens the door to alternative energy source development.But, as Saudi Arabia reminds us, and the world, barring a breakthrough technology, fossil fuels will remain a major energy source for at least the next thirty to fifty years. In other words, the reign of oil has merely paused, not ended, which is why it's prudent to review Murphy Oil Corporation (NYSE: MUR).
In general, analysts expect a substantial 25-40% increase in MUR's oil/gas production in 2009, aided by Western Canada and Malaysian projects.
Further, MUR's organic reserve replacement rate is estimated at an adequate 105%, and the aforementioned Malaysian projects adds significant new revenue opportunities on to a business model largely driven by deepwater Gulf of Mexico operations. The company has 271 million barrels of proved oil equivalent reserves. The First Call FY 2009/FY 2010 EPS estimates for MUR are $2.26 to $4.36.
The risks? A delayed recovery by the U.S. economy would invariably continue oil's sluggish price period and weigh on MUR's results, but with the above production estimates, and a p/e of 6, the risk/return is favorable.
Stock Analysis: Murphy Oil is a moderate-risk stock. Consider buying a 25% position in MUR now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your MUR position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $27.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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