MUR – Base Case CDS 138bps, Base Case iCDS 155bps, Negative Case iCDS 271bps, 2028 6.375% Bond YTW of 6.477%, iYTW of 6.012%, Ba2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

September 22, 2023

  • Cash bond markets are slightly overstating MUR’s credit risk with a YTW of 6.477% relative to an Intrinsic YTW of 6.012%, while CDS markets are accurately stating credit risk, with a CDS of 138bps relative to an Intrinsic CDS of 155bps. Furthermore, Moody’s is overstating MUR’s fundamental credit risk with its speculative Ba2 credit rating four notches below Valens’ IG4+ (Baa1) credit rating.
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. MUR’s compensation metrics should generally drive management to focus on improving margins and asset utilization, which could lead to Uniform ROA expansion and increased cash flows available for obligations going forward. Additionally, management members are material owners of MUR equity relative to their average annual compensation, indicating they are well-aligned with shareholders for long-term value creation.
  • Earnings Call Forensics™ of MUR’s Q2 2023 (08/03/2023) earnings call highlights management sentiment was positive when talking about forecasted production. Management is confident that for next quarter they will see production of 188,000 to 196,000 barrels equivalent per day. That said, management sentiment was negative when talking about business goals and forecasts, international initiatives, and well performance. Management may be overstating the improvement in their carbon emissions intensity and may lack confidence in their ability to invest 40% of operating cash flow by 2025 into debt reduction and high-return investment opportunities. In addition, management may be concerned with the progression of the OSO well, growing industry cost pressures and may lack confidence in their ability to maintain flat production levels out of their Eagle Ford business and the progression of their capital allocation framework.

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