Murphy USA: The Spin-off

Being ready for Day One is the No. 1 priority for Arkansas’ newest publicly traded company, Murphy USA.

The spin-off of the El Dorado-based oil and gas parent company, Murphy Oil Corp., Murphy USA opened for trading on Tuesday, September 3 on the New York Stock Exchange under the trading symbol “MUSA” with the stock beginning at $37.30 per share.

Murphy Oil shareholders received one share of MUSA common stock for every four shares of Murphy Oil common stock held at the close of business on the record date of August 21, 2013.

The company already has its management team and board of directors in place, so it was ready for business on its first day as a standalone firm.

“Being prepared for Day One is key,” Murphy USA CEO Andrew Clyde tells Talk Business Arkansas. With Murphy USA operating in many ways as an independent division within Murphy Oil, Clyde expects few, if any, glitches. Because the spin-off date was initially fluid, he said his team hit a July 1 deadline to have all of the accounting, finance, IT and human resources components in place. Contracts have been altered to segregate the two companies at the right time.

He’s been hitting the road to meet with investors, analysts and potential shareholders in the third quarter of 2013. His presentation is made easier by the fact that he’s selling an existing enterprise that has been the baby of the family business.

“Not only has the earnings been tangled up and hidden inside Murphy Oil Corp, but the story has been a little lost as well,” he said. “It just doesn’t get the attention on the earnings call and at the analysts’ meeting, and rightly so, it’s a smaller portion of the business. As a standalone business, it is the story.”

BY THE NUMBERS
The new company, which will keep its headquarters in Murphy Oil’s El Dorado corporate complex, already has a major U.S. footprint.

As of June 30, 2013, there were 1,179 retail outlets in 23 states with plans to top 1,200 by year’s end. The business also owns midstream assets, including product distribution terminals and pipeline positions.

Murphy USA accounts for roughly 47% of Murphy Oil’s current revenues, which topped $28.6 billion in 2012. Projections for 2013 indicate that Murphy USA will easily clear $19 billion in sales of fuel, merchandise and other transactions.

The new public company, with more than 7,600 employees, handles more than 1.6 million transactions daily and cleared $83.5 million in net income last year.

About 77% of the company’s retail locations are 208 square foot kiosks that handle 1.6 million transactions daily. Murphy USA is experimenting with larger 1,200 square foot formats, but its strength is in the smaller size, many of which can be found on Wal-Mart properties across the south and midwest.

That “strategic and complimentary” relationship with Wal-Mart is one of five major pillars that Clyde is counting on to come out of the gates fast with the new publicly traded company. Murphy USA has embarked on a 200-store expansion with Wal-Mart over the next three years.

“When you’re sitting in front of the world’s largest retailer, you’re drawing a lot of traffic,” Clyde says. “It’s great real estate and it’s a great consumer base because they are looking for low price and great values everyday.”

Low-cost gasoline and low-cost overhead are two more crucial components to driving shareholder value for Clyde. He notes that price-conscious shoppers – like the ones visiting Wal-Mart – are Murphy USA’s target customers.

Price is the overwhelming number one reason a customer chooses a gas station, Murphy USA’s research shows. In presentations to analysts, Clyde highlights a slide that shows price and promotion account for 81% of the decision-making driving fuel purchases. Convenience is also an important factor.

Murphy USA’s efficiency in building sites – $1.5 to $2 million per location – and the associated labor that comes with such an efficient operation is another crucial piece to its profitability puzzle. In its smaller 208 square foot formats, payroll may only include five employees.

“We think everyday about if we are doing something to add complexity to our business because we know if we add complexity, we’re going to add costs,” Clyde said.

He also asserts that the company’s safety, security and environmental record is “sterling” and its maturity in the fuel supply chain, thanks to Murphy Oil’s history, gives the new spin-off advantages to maintain low costs that will translate into lower prices for consumers.

“I think the story for investors is pretty straightforward,” Clyde says. “We have some distinctive strength and strategies. We have a strong earnings base, we have growth ahead of us, and we have a conservative capital structure. Those things make a really compelling story.”

Editor’s note: Clyde, who grew up in El Dorado, will be the focus of our September/October magazine issue of Talk Business Arkansas along with new Murphy Oil Corp. CEO Roger Jenkins.