Murphy Oil Corp. said Tuesday (Oct. 16) it will spin off its downstream subsidiary, Murphy Oil USA, into an independent and separately traded company making the El Dorado-based firm a pure-play exploration and production company.

As part of the transaction, Murphy Oil will pay a special dividend of $2.50 per share for a total dividend of approximately $500 million and a share buyback program of up to $1 billion of the company’s shares of common stock. The deal, which is subject to customary regulatory and shareholder scrutiny, is expected to finalize in 2013.

Murphy also reaffirmed its plan to divest its U.K. downstream operations and stated that it is continuing to review possible options with respect to selected assets.

TWO-FOR-ONE
Murphy Oil’s plan will create two publicly traded companies — its oil and gas exploration and production group (commonly referred to as upstream operations) and its marketing and retail operations (commonly referred to as downstream operations).

The company said it could gain several advantages from the spin-off, including:

  • Each business would focus on its strategic priorities with financial targets that best fit its own market and opportunities
  • Each business would be able to allocate resources and deploy capital in a manner consistent with its priorities
  • Investors, both current and prospective, would be able to value the two businesses based on their respective financial characteristics and make investment decisions based on those characteristics.

The downstream operation will be called Murphy USA and will become a retail marketer of petroleum products and convenience merchandise through its large chain of retail gasoline stations. Additionally, Murphy USA’s assets will include seven product distribution terminals and two ethanol production facilities in North Dakota and Texas.

Murphy Oil will become an independent exploration and production company with principal activities focused in the United States, Canada and Malaysia.

The company’s United Kingdom downstream operations, which Murphy is trying to sell, will remain with Murphy until the assets are fully divested.

The spin-off of Murphy USA is expected to be finalized in 2013.

SPECIAL DIVIDEND AND SHARE BUYBACK
Murphy Oil’s board of directors approved a special dividend of $2.50 per share for a total dividend of approximately $500 million. The dividend is payable on December 3, 2012 to holders of record as of November 16, 2012.

This is in addition to the dividend of $0.3125 per share previously announced and also payable on December 3, 2012 to holders of record on November 16, 2012, according to a company release.

Furthermore, the Board of Directors has authorized a share repurchase program of up to $1 billion of the company’s shares of common stock.

“Today’s announcements are consistent with our commitment to creating value for shareholders,” commented Claiborne Deming, Chairman of the Board of Murphy.

With regard to the spin-off, he added: “Separating these two businesses will allow each to unlock its own potential for growth. We have built two strong but distinct businesses. Murphy will be a pure-play exploration and production company with strong returns and attractive investment opportunities, while Murphy USA will be a leading retailer with over 1,100 retail gasoline outlets. Given its existing positioning in the market, I am confident that Murphy USA will continue to grow the business and drive shareholder value.”

Murphy Oil stock (NYSE: MUR) was up more than 5% in early morning trading to more than $62 a share.