MUR – Traded CDS 481bps, Base Case iCDS 144bps, Negative Case iCDS 263bps, 2027 5.875% Bond YTW of 7.628%, iYTW of 4.458%, Ba2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
July 18, 2022
- Credit markets are grossly overstating MUR’s credit risk with a YTW of 7.628% and a CDS of 481bps relative to an Intrinsic YTW of 4.458% and an Intrinsic CDS of 144bps. Furthermore, Moody’s is overstating the company’s fundamental credit risk, with its speculative Ba2 credit rating four notches lower than Valens’ IG4+ (Baa1) credit rating.
- Incentive Dictate Behavior™ analysis highlights positive signals for creditors. MUR’s compensation framework incentivizes management to improve all three value drivers: sales, margins, and asset utilization, which should drive Uniform ROA improvement and lead to increased cash flows available for servicing obligations going forward. In addition, most of the members of management are material holders of MUR equity relative to their annual compensation, indicating they may be more well-aligned with shareholders for long-term value creation.
- Earnings Call Forensics™ of MUR’s Q1 2022 (5/4/2022) earnings call highlights that management generated an excitement marker when saying they achieved first oil at the King’s Quay production system ahead of schedule and on budget. Moreover, they are confident they discovered significant volume in the Samurai well, that the Cutthroat well encountered very thick, high-quality reservoirs, and that they hit the high end of their guidance range in terms of barrel equivalents per day. Lastly, management is confident they continue to target an investment grade corporate credit rating and that AECO pricing can remain elevated throughout the quarter.
