Murphy Oil, an oil and gas exploration and production company with an approximate USD4 billion market cap, is considering converting some of its fixed-rate debt to floating. Kevin Fitzgerald, treasurer in El Dorado, Ark., said the company paid down approximately USD200 million of its floating-rate bank debt with a recent fixed-rate USD350 million bond offering, causing its percentage of fixed-rate debt to increase. Murphy Oil's total proportion of fixed-rate debt stands in the mid-70% range, up from the high 60% range prior to the bond deal, Fitzgerald noted, adding that the company is in the process of deciding on its ideal mix of fixed- and floating-rate debt for its USD800 million portfolio.
This would not be the first time Murphy Oil has entered a swap, Fitzgerald said, adding that the decision to do it again would hinge on the average interest rate the company is trying to achieve. "We've done it before, but we've always been burned," he said. "We've always been on the wrong side of it--maybe this time we'll get it right." The company has executed approximately USD100 million in notional swaps previously and used a large U.S. bank as a counterparty, which he would not name.
Fitzgerald said the company has no specific target funding rate. "Our target would be 0%, but we haven't been able to find a bank that would loan us money at that rate," he said, adding that Murphy Oil's strategy is more geared at finding the optimum fixed-to-floating ratio. If it does enter into a swap, the company likely would hedge a total of USD100-200 million, in pieces of USD50 million. Murphy Oil has already started discussions with potential swap counterparties. It has no minimum credit rating, but tends to select counterparties with which it has a relationship.
