Murphy Oil: profit up 58-fold, yet the stock fell 8.9% — the market is looking at free cash flow

On 4 November Murphy Oil Corporation reported third-quarter 2026 results: revenue of $849.2 million (+16.8% year on year), EBITDA of $527.9 million (+32.5%), and net income of $171.1 million against a $3.0 million loss a year earlier. Free cash flow was only $48.2 million on capital spending of $422.2 million, and the stock lost 8.9% on the release day. At an EV/EBITDA of 3.8 versus its own three-year average of 4.4 the share is cheaper than its history, but the portal's model implies minus 32% to fair value — a neutral verdict.

Key takeaways

— Revenue rose 16.8%, but growth decelerated from 35.3% a quarter earlier

— The 62.2% EBITDA margin rose from 54.8% off a low operating base last year

— Net income of $171.1 million versus a $3.0 million loss a year earlier — a low-base effect

— Free cash flow of $48.2 million on $422.2 million of capex — cash is going into construction

— Net debt of $1.8 billion and 0.94x EBITDA — moderate leverage

— The $0.35 per-share dividend yields 3.8%

— EV/EBITDA of 3.8 is below its own three-year average of 4.4

Attractiveness

Key figures, USD bn

Revenue rose 16.8%, but growth decelerated from 35.3% a quarter earlier

Third-quarter 2026 revenue was $849.2 million, 16.8% more than a year earlier. That is a marked deceleration from the second quarter, when growth reached 35.3%: revenue was $926.3 million then and $849.2 million now.

The US segment did the heavy lifting: US revenue was $681.7 million against $613.7 million a year earlier, while Canada rose to $169.5 million from $108.0 million. Production, however, fell to 186.5 thousand barrels of oil equivalent per day from 200.4 thousand a year earlier, so prices, not volumes, carried revenue.

The average US offshore oil price rose to $89.38 per barrel from $67.00, and Canadian offshore to $108.21 from $69.42. The company raised full-year production guidance to 176,000–178,000 barrels per day, 6,000 above the midpoint of the previous range.

The 62.2% EBITDA margin rose from 54.8% off a low operating base last year

Third-quarter EBITDA was $527.9 million, 32.5% more than a year earlier, and the margin rose to 62.2% from 54.8%. The margin gain came primarily from lower costs: lease operating expenses fell to $149.2 million from $184.4 million, and transportation costs to $47.0 million from $48.1 million.

A year earlier the base included a $115.0 million asset impairment that weighed on operating profit. There is no such impairment now, and operating profit was $256.5 million against $5.8 million a year earlier — the comparison against that base flatters the visible growth.

Exploration expenses rose to $33.1 million from $32.5 million, and selling and general expenses to $40.5 million from $30.9 million. Part of the operating cost saving was thus eaten by higher corporate costs.

Net income of $171.1 million versus a $3.0 million loss a year earlier — a low-base effect

Net income attributable to Murphy shareholders was $171.1 million, or $1.17 per diluted share, against a $3.0 million loss a year earlier. The net margin rose to 20.2% from minus 0.4%.

There are one-off items inside the profit: the company's adjusted net income was $158.4 million, or $1.08 per share, so adjustments account for about $12.7 million. The main one is an $11.8 million tax benefit on foreign investments.

Pre-tax income was $235.1 million and the tax charge $39.4 million. Profit was weighed on by $24.2 million of net interest expense, little changed from $24.7 million a year earlier.

Free cash flow of $48.2 million on $422.2 million of capex — cash is going into construction

Operating cash flow was $540.5 million against $339.4 million a year earlier, but capital spending rose to $422.2 million from $186.9 million. As a result free cash flow shrank to $48.2 million from $218.8 million a year earlier, and adjusted free cash flow went to minus $8.4 million.

The capex increase is development-driven: in the third quarter the company achieved first oil at the Lac Da Vang project in Vietnam and brought on the Chinook #8 well in the Gulf of America. For the nine months, capex was $1,363.2 million against $840.6 million a year earlier.

The company reaffirmed full-year capex guidance of $1.5–1.6 billion, so spending stays high in the fourth quarter. It is the weak free cash flow, not profit, that explains the 8.9% drop in the share on the release day.

Net debt of $1.8 billion and 0.94x EBITDA — moderate leverage

Net debt at 30 September 2026 was $1.8 billion against $1.9 billion at 30 June 2026 and $1.9 billion at 30 September 2025. The ratio of net debt to trailing-twelve-month EBITDA is 0.94, meaning debt is below annual EBITDA.

Total debt is $1.63 billion, of which $1.54 billion is long-term notes with an average maturity of 8.4 years and an average coupon of 6.3%. The $80 million quarterly increase reflects recognition of the finance lease for the Lac Da Vang floating storage vessel in Vietnam through 2039.

Liquidity is about $2.50 billion: an undrawn $2.00 billion credit facility and about $500 million of cash. With $24.2 million of quarterly interest expense, debt service does not pressure profit.

The $0.35 per-share dividend yields 3.8%

For the third quarter of 2026 the company paid $50.2 million of dividends, or $0.35 per share. For the nine months, payments were $150.5 million, or $1.05 per share, against $0.975 a year earlier.

At the pre-release share price of $39.46, the trailing-twelve-month dividend yield is 3.8%. Payments are covered by operating cash flow of $540.5 million, but with free cash flow of $48.2 million the dividend is funded mainly from working capital and borrowings.

The company did not repurchase shares in the third quarter, retaining $550 million under its authorised buyback programme. If capex stays at $1.5–1.6 billion, the dividend will compete with construction for cash, and its growth is in question.

EV/EBITDA of 3.8 is below its own three-year average of 4.4

The trailing-twelve-month EV/EBITDA multiple is 3.8 against its own three-year average of 4.4, 14% below its history. On this multiple the share is cheaper than it has typically been over the past three years.

The trailing-twelve-month P/E is 11.0, market capitalisation is $5,155 million, and trailing-twelve-month net income is $468.2 million. Return on equity is 12.9%.

The portal's model, repricing EBITDA at current commodity prices at the target EV/EBITDA, implies minus 32% to fair value. Even at a cheap multiple relative to history, the market is pricing in the risk of lower oil prices and weak free cash flow.

Valuation on the latest reported figures

Bottom line

What was genuinely strong in the report was everything tied to oil prices and cost reduction: revenue rose 16.8%, EBITDA 32.5%, the margin climbed to 62.2%, and net income reached $171.1 million. But the comparison is against a base that included a $115.0 million impairment, and free cash flow shrank to $48.2 million because of $422.2 million of capex. The real question for a holder is whether the company can fund both the dividend and construction at an oil price below today's. The 3.8 multiple against a 4.4 history says the market is already pricing that risk, but the portal's model implies minus 32%, so the verdict is neutral.