Hess vs. Murphy Oil: Which Should You Pick for Income and Growth?

Hess and Murphy Oil are two oil behemoths with similar growth strategies, but which is the better play for investors looking for both income and growth?

May 3, 2014 at 8:00AM

Hess (NYSE:HES) and Murphy Oil (NYSE:MUR) are two well-run E&P, or exploration and production, companies with high-quality assets. Hess is the larger of the two, but Murphy is catching up, and excluding one-off items, Murphy's EPS have nearly doubled during the past four years.

So, which company is the better pick for investors looking for both income and growth?

As Hess and Murphy are both E&P companies, as a starting point, it would make sense to take a look at the production outlook for these two E&P plays for the next few years.

Hess' management is targeting to grow oil production at a compound annual rate of 5% to 8% through 2017. Most of this production is expected to be liquids as 80% of Hess' reserves are liquids based.

Further, 80% of the company's total reserves are liquids. Murphy is also a leader in terms of liquids reserves, although not to the same extent as Hess: 72% of Murphy's reserves are liquids.

However, Murphy is targeting five-year production growth of 6% to 7% through 2019. This growth rate is, to some extent de-risked as management believes that it can drive most of this output growth from existing assets.

Nevertheless, Murphy is not just relying on output from its existing fields, the company is also bringing new projects on-stream, and if these new projects come online without a hitch Murphy expects production will expand around 9% per annum through 2019 -- faster than Hess' targeted growth.

Still, Hess' cash margin per barrel of oil produced stands at $49 per barrel of oil equivalent; Murphy in comparison is only reporting a margin of $41.1 per BOE.

Using these numbers then, Hess looks to be the more attractive opportunity, although only just.

North American
Within North America, the Bakken in particular, Murphy looks to be making much faster progress than Hess. Indeed Hess is currently struggling to drag its Bakken properties into profit, and positive cash flow is expected in the region during 2015.

Murphy meanwhile reported a cash margin per BOE produced from the Bakken during 2013 of $74 and has increased regional production 215% per annum compounded during the past five years.

Murphy's other claim to fame is the fact that the company's project execution is industry-leading as the company has been reporting discovery to first production project execution times 50% faster on average than the wider industry.

Shareholder returns
Unfortunately, one area where Murphy is lagging Hess is cash returns to investors, although that is likely to change in the near future.

Hess recently ramped up its dividend to shareholders by 150% to $1 per share per annum, up from $0.40 during 2012/2013. In addition, Hess has authorized a $4 billion share repurchase plan funded by restructuring activities.

Murphy meanwhile has only increased its dividend by around 15% per annum since 2004, which is still a decent growth rate and, at current prices, Murphy actually offers a larger dividend yield than Hess. Nevertheless, Murphy only has a $1 billion buyback in place, around 10% of the company's market cap, compared to Hess' buyback, which is equal to around 14% of the company's market cap.

However, things could change in Murphy's favor as the company's management is predicting free cash flow of $2.5 billion to $5 billion per annum by 2019.

Now, as Murphy only has a market cap of $11 billion at present, free cash flow of $5 billion per annum would be a sizable boost for the company, and hefty dividend payouts or share repurchase plans are likely to follow.

Foolish round-up
Choosing between Hess and Murphy is tough as they are both great companies with plenty of potential for growth. That being said, Murphy's projected free cash flow figures cannot be ignored. Indeed, a free cash flow of $5 billion per annum by 2019 would be a game changer and implies that investors are likely to receive hefty cash returns as a result.

So all in all, for the Foolish long-term investor, Murphy looks to be the better choice.

OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!


Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers