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IB Equity ResearchSeptember 16, 2013

MURPHY USA, INC.

Thesis Overview

Murphy USA, Inc. ("Murphy", MUSA or the "Company") is a leading convenience

store/gas station operation in the Southern and Midwest US (5% market share in their

geographic area). Murphy is directly intertwined with Wal-Mart as the vast majority of

Murphy gas stations are located directly adjacent to a Wal-Mart. Similar to Wal-Mart with

respect to pricing, Murphy is a price leader compares to most gas stations and compensates by

driving significantly more volume than comparable stores.

In 2012, the Company derived 78.3% of revenue from fuel sales, 11.3% of sales from

merchandise (primarily tobacco products), and the remaining 10.3% are fuel excise taxes

(direct pass-through to the govt. at no margin).

Spun out from $11.5 billion market cap E&P Murphy Oil, Murphy USA began trading

August 29th, 2013 and is priced at 6.8x TTM EBITDA and 9.5x TTM EPS. Current pricing isbelow both a conservatively estimated DCF value of ~$60 per share (see page 13 herein) as

well as estimated replacement value of $2.6 billion (~$42 per share as shown on page 16) for

tangible asset value (i.e. no attributed value to the Wal-Mart relationship).

The following attributes make Murphy USA an attractive long-term investment at current

prices:

Low Operating Cost Model: Murphy is a low cost operator focused on volume versusin-store sales. This strategy is evident with Murphy's cash break even at a 6.6 cent

margin per gallon of gasoline and the average size of Murphy's stores, which are

significantly smaller than that of their peers (280 ft2 - 1,200 ft2) and require on average

~$25K per year in maintenance capex. Additionally, the Company is able to source fuel

at attractive prices compared with their competitors as Murphy has access to terminals

and has a shipper status on pipelines.

Leading Market Position: Murphy is one of the largest C-Store operators with anestimated ~5% market share by volume in their geographic markets. Market share helps

with scale as the Company can purchase merchandise in bigger quantities versus the

mom and pop c-store operator (62.9% of total C-Stores according to the NACS) and

source fuel efficiently, as smaller operators generally have to utilize third party distributors.

Spin-Off from Larger Parent Should Lead to Mispricing: The spinoff of Murphy is bound to create mispricing given thatthe current parent is situated within the S&P 500. Forced selling has created an opportunity with the business trading below

its conservatively estimated replacement value.

Solid Financial Profile: The Company is modestly levered at close with 1.8x Debt to LTM EBITDA and EBITDA/Interestcoverage of 9.5x. The Company has consistently maintained profitability, with EBITDA growing from $127.0MM to

$360.0MM from 2009 to LTM 2013. Additionally, the Company generates solid returns on invested capital for low

margined business, in excess of 15%.

Attractive Valuation: At the current price of ~$39 per share, MUSA trades below its conservatively estimated C-Storereplacement value (excluding valuable midstream assets and two ethanol facilities) of $2.15MM per unit ($41 per share)

and roughly two turns below that of its competitors, which equates to a base case target price of ~$58 or 52% upside at

current prices.

Stock Rating BU

Catalyst Category Spin-Off & Val

Price Target $60.

Price (9/16/13): $40.00

Upside: 50%+

Ticker: MUSA

Exchange: NYSE

Industry: Gasoline Retail /

Convenience Store

Trading Stats ($USD millions)

Market Cap: $1,850

Enterprise Value: $2,500

Price / Book: 1.8x

PEG Ratio: 1.2x

Dividend Yield: 0%

Price / 2013E EPS: 9.5x

Price / 2014E EPS: 9.0x

EV / 2013E EBITDA: 6.8x

EV / 2014E EBITDA: 6.2x

Source: Company filings, CapitalIQ

Price Performance

52 Week range:

$36.12 - $40

Analyst Details

IB Username: Seth_Bauberkso

Employer: Private Hedge Fund

Job Title: Portfolio Manager

Analyst Disclosure

MUSA Position Held: Yes


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Growth Opportunities: The Company has significant growth opportunities, as it recently entered into an agreement withWal-Mart to build an additional 200 stores near/or on Wal-Mart locations.

The Company is dramatically undervalued given its modest valuation, spin-off dynamics, solid market share in a fragmented

market, and economic moat as a low cost provider of commodity products. At current prices, the Company offers conservative

upside potential of 30%+ and upside as high as 60%+.

Company Overview

Murphy is a low-price, high volume fuel retailer selling who also sells convenience merchandise through low cost kiosks. The

business was recently spun off from Murphy Oil and primarily generates its revenues by marketing retail motor fuel products and

convenience merchandise through a large chain of 1,179 (as of June 30, 2013) retail stations - all of which are in close proximity

to Wal-Mart stores. The Company's retail stations are located in 23 Southern and Midwestern states. 1,018 stations are branded

Murphy USA and 161 are standalone Murphy Express locations and the Company is transitioning the Murphy Express locations

to unified branding of Murphy USA. The Company owns roughly 90% of its real estate this allows the company to be a low

cost provider of commodity gasoline to retail consumers (MUSA doesnt compete with trucking fuel programs).

The Company owns midstream assets including product distribution terminals, pipeline positions, and two ethanol refineries

which are being marketed for sale. MUSAs midstream assets are only 6% of total assets and just 2% when ethanol plants are

sold)

Fuel Sales ($14.9 billion 2012 revenue)

Note: Murphy has both a wholesale business selling to Murphy USA retail gas stations, non-Murphy branded gas stations such as

Pilot & Travel Centers of America, local farm depots etc. as well as a retail network of 1,179 retail locations at 6/30/13 selling

fuel and convenience store items to the general public. Citing competitive rational, the Company declines to break out its

wholesale and retail business to equity investors. As such, this write-up will address the wholesale and retail business together.

MUSA is a low cost retailer defined by price paid by consumer. The Company aims for high volume/low operating costs. Gross

fuel margins are lower than its peers; however this is offset by increased volume and lower operating expenses versus its peers.

According to the NACS, Murphy operates at 56% of the average industry operating costs.

Petroleum

(Net ofExcise)78.3%

Fuel Excise

Sales (directpass through)

10.3%

Merchandise

11.3%

Murphy USA 2012 Revenue Breakdown

Petroleum

(Net ofExcise)68.1%

Fuel ExciseSales (direct

pass through)0.0%

Merchandise

31.9%

Murphy 2012 Gross Profit Breakdown


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Although Murphy is a low cost provider, as shown in the above chart, the Company focuses on providing the lowest cost fuel in

local geographies (store managers check local pricing 2-3x per day). On certain occasions (such as Super Bowl weekend), MUSA

will occasionally raise price with other local station increasing to match in order to capture additional margin.

Murphy USA Quarterly Retail Fuel Margin

MUSA is able to source fuel at lower prices than competitors due to:

Proprietary terminal access: 8.8% of 2012 fuel volume was sourced via proprietary terminals Shipper status on the Colonial pipeline system The Company is not restricted to selling branded fuel versus its competition. 45% of 2012 fuel was contracted from outside of Murphys wholesale business.

Additionally, MUSA can utilize its wholesale arm to distribute fuel and capture greater margins when retail pricing is not

optimal. For example, if retail pricing is priced at a 1 cent profit, the Company can sometimes locate a wholesale customer (truck

stops, small farms, distributors, etc.) and lock in a 3 cent profit.


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Merchandise Sales ($14.9 billion 2012 revenue)

Given their physical proximity to Wal-Mart, Murphy pursues a strategy of offering SKUs that complement Wal- Marts as

opposed to directly competing on beverages etc. While primarily tobacco products (see below chart), Murphy is beginning to

expand into larger convenience stores with higher margin & broader SKUs.

Murphy's retail convenience stores are in two formats, a 280 ft2 kiosk (77% of locations) and a 1,200 ft2 store footprint (23% ofcurrent locations). Going forward, Management plans on rolling out primarily the 1,200 ft2 units given the more attractive

margins & return profile.

Ethanol ($644.4MM Revenues / $84.0MM Operating Loss FY 2012)

Note: The ethanol business is in the process of being sold and should be disposed of by YE 2013.

Murphy operates two ethanol production facilities, located in Hankinson, North Dakota and Hereford, Texas. The Hankinson

plant, which was acquired in 2009 for ~$92MM, currently is rated at 132MM gallons of ethanol per year. The Hereford plant

(acquired in 2010 for ~$40MM with operations beginning in 2011) and is rated at 105MM gallons of ethanol per year. The

Company sells ethanol for blending with gasoline and distilled dried grains.

The primary input in the production process for ethanol is corn. Corn prices have been volatile in the past years in 2012 corn

prices rose primarily due to drought conditions in the Midwest U.S which in turn compressed margins for ethanol production

operations and led to segment operating losses.

Monthly

Sales

($000s)

Gross

Margin

Gross

Profit ($s)

Monthly

Sales

Gross

Margin

Gross

Profit ($s)

Monthly

Sales

Gross

Margin

Gross

Profit ($s)

Monthly

Sales

Gross

Margin

Gross

Profit ($s)

208 ft2

Stores 104 10.8% 11.2 7 30.9% 2.2 5 62.0% 3.1 116 14.2% 16.5

1,200 ft2

Stores 110 10.8% 11.9 27 30.9% 8.3 14 62.0% 8.7 151 19.1% 28.9

Total

Murphy USA Non-Fuel Sales & Margins by Store Format

Tobacco Beverages Other Merchandise

% of

Total

Sales

% of

Gross

Profit

% of

Total

Sales

% of

Gross

Profit

% of

Total

Sales

% of

Total

Sales

208 ft2

Stores 90% 68% 6% 13% 4% 19%

1,200 ft2

Stores 73% 41% 18% 29% 9% 30%

2012 Average Non-Fuel

Gross Profit Per Month

($000s)

2012 Non-Fuel

Gross Margins

15.5%

19

22

12.8%

Tobacco Beverages Other Merch.Murphy USA Convenience Store Sales & Profit By Product (%)

208 ft2

Stores

1,200 ft2

Stores

Murphy USA Convenience Store Comparision by Product

Average Store

Cost ($000s)

1,850

~$200

Gas Station Cost

($000s)

1,200

1,200

Convenience

Store Cost($000s)

650

9002,100

Estimated Yearly

EBITDA

~$160


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Importantly, the Company has essentially viewed these assets as non-core. Murphy is actively looking into a potential sale of the

two refineries when market conditions are optimal. The ethanol assets could sell for at least $130.0MM, which is in line with the

historical purchase price. Further, the excess cash generated from a sale could be used to fund future growth capex (~$400

million expected over the next 3+ years).

Differentiation: Murphy differentiates itself from its competitors primarily through: Small format offerings leading to higher sales per ft2 (average footprint for comps is 3,000 ft2): MUSA sells roughly

9x the merchandise per years per ft2 compared to comps ($4,744 vs. $547).

Volume focused sales model: MUSAs monthly fuel gallons sold per store per month is 277K which is more than 2xthe industry average of 124 fuel gallons per store per month. The reason is that MUSAs locations adjacent to a Wal -Mart (including many Wal-Mart Supercenters).

Low operating costs: MUSA operates at 3/4th industry average cost (typically $30K per month operating cost per storecompared to ~$40K for comps). Murphy achieves this by running stores with only 1 or 2 employees at any one time,using one distributor (McLane) for 80% of their non-gas SKUs, and maintaining smaller stores which require lessmaintenance.

Highly scalable business model which is relatively inexpensive to build out.

Growth Drivers: Murphy plans to continue its long term growth strategy by:

Building 200 new stores adjacent to Wal-Mart Super Centers. Funding will be from FCF and potentially an increase inrevolving credit or ethanol asset sales.

Rolling out 1,200 ft2 stores going forward which should increase both sales per store and gross profit per store due toincreased volumes of high margin beverage & other non-tobacco products.

Increased midstream participation, which lowers fuel sourcing costs for the retail business as the Company has shipperstatus on the Colony pipeline and currently owns seven terminals.

Dispose of non-core assets such as the ethanol facilities & the non-core Tampa terminal.

Spin Off Rationale

Strategic management focus: Management is aligned with the results of their unit, which was previously a smallerportion of Murphy. Entrepreneurial juices should be released with the transaction.

Appropriately capitalized and solid access to capital: With the transaction, MUSA is conservatively levered at 1.8xDebt to EBITDA, with the ability to take on additional debt capacity or lever its massive real estate portfolio for areturn of capital or other growth opportunities.

Pursue growth opportunities: With its own board of directors and capital structure, Murphy USA will be able to pursuea growth and capital strategy that makes sense for its own business, not Murphy Oil.

Unlock value: Convenience store comps trade at 5.0x 9.0x EBITDA vs. current Murphy Oil multiple of 3.9x 2013EEBITDA (32% -111% premium).

Executive Management

Mr. Andrew Clyde will serve as President and CEO of Murphy USA. Mr. Clyde previously was employed at Booz & Companyin its global energy practice. He joined the firm in 1993 and was elected partner in 2000 holding leadership roles as NorthAmerican Energy Practice Leader and Dallas office Managing Partner and serving on the firms board nominating committee.The CEO will hold stock worth roughly 5x his annual salary.


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Mindy K. West serves as CFO and Treasurer of Murphy. Ms. West joined Murphy Oil in 1996 and has held positions inAccounting, Employee Benefits, Planning and Investor Relations. In 2007, she was promoted to Vice President & Treasurer forMurphy Oil.

MUSA's board is aligned with shareholders as they collectively hold ~6% of the outstanding stock. Additionally, since the spin-off, management and a couple board members purchased ~$150K - $200K worth of shares each.

Real Estate

Murphy owns 90% of its retail locations, which enables the Company to have lower operating costs versus its peers (eliminationof rental expense). The Company paid $9.4MM FY2012 to lease roughly ~10% of its store base and other assets.

A back of the envelope calculation with ~50% of the stores leased equates to "normalized" rent expense and TTM 2013 EBITDAof ~$47MM/$322MM (1.9% margin), respectively. Further, the ownership of real estate allows for the Management to haveflexible financing options going forward (i.e. sales-leaseback or ABL financing). The excess cash from a potential transactioninvolving real estate could be used to finance growth capex or return cash to shareholders

Historical Financials

Revenue Trends

FY2012 vs. FY2011

Marketing segment total revenuesincreased by $239.0MM FY2012 to$19.0B compared to the FY2011 amountof $18.8B. Total fuel sales volumes perstation averaged 277,001 gallons permonth in 2012, down 0.3% from the prioryear amounts. Within operating revenues,merchandise sales increased $28.8MMFY2012, up 1.4% compared to FY2011.

The ethanol segment total revenues totaled$644.3MM FY2012 compared to$561.5MM FY2011. Revenues increaseddue to an uptick in volume. However, profitability was materially affected as ethanol prices decreased and corn prices (the input)increased due to the Mid-West drought, which led to a write-down in the segment and a $54.8MM loss. In the TTM periodFY2013, the Company achieved profitability in the segment as pricing has normalized.

Also, it is important to note that FY2011 EBITDA was materially higher than the following years as the Company disposed of itsrefining operations, which led to a $118.7MM positive impact on the Company. Murphy Oil disposed of its refinery segments,which was a part of its roadmap in order to transform into a pure-play E&P company. Additionally, from prior Managementcalls, Murphy Oil's executive team believed they could receive greater consideration selling the assets versus spinning them off.

Gross Margin Analysis

Gallons sold per store month 306,646 277,715 277,001

year-over-year change NA -9.4% -0.3%

Retail Fuel Margin per Gallon 0.114 0.156 0.129

year-over-year change NA 36.8% -17.3%

Monthly Fuel Margin ($000s) 35.0 43.3 35.7

Revenue 2010 2011 2012

Gross Petroleum Sales 13,377.8 16,586.8 16,855.0

Petroleum Excise Taxes 1,885.5 1,831.6 1,962.7

Net Petroleum Sales 11,492.3 14,755.3 14,892.3

year-over-year change NA NA NA

Ethanol Sales 235.0 571.1 656.1

year-over-year change NA NA NA

Total Fuel Sales 11,727.3 15,326.3 15,548.4

year-over-year change 30.7% 1.4%

Merchandise Sales (Inc Other) 1,978.3 2,125.1 2,156.1

year-over-year change 7.4% 1.5%Total Revenues (Inc. Excise Taxes) 15,591.1 19,283.0 19,667.1

year-over-year change 23.7% 2.0%


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At first glance, Murphy's gross margins drastically lag those of its peers. However going past "first level thinking", Murphy'sstrategy is solely focused on value pricing, supported by high volumes and ultra low operating expenses. The Company makes upthe lack of margin through excess volume which translates into higher gross profit dollars and EBITDA. Moreover, Murphy'smargins are in line with its other high gasoline volume focused retailer, TravelCenters of America.

Murphy's peers tend to focus less on fuel volumes and more on c-store foot traffic, which translate into higher gross profitmargins, offset by higher operating expenses. Additionally, the mix of merchandise (especially non-tobacco merchandise) to

Yearly Fuel Gross Profit ($MMs) 2010 2011 2012

Retail 419.5 519.9 428.8

Wholesales 139.4 229.9 211.1

Total Fuel Gross Profit 558.8 749.8 639.9

Gross Profit ($MMs) 2010 2011 2012

Fuel and Ethanol 558.8 749.8 639.9

year-over-year change 34.2% -14.7%

Merchandise 261.1 273.2 300.4

Total Gross Profit 819.9 1,023.1 940.3

year-over-year change 24.8% -8.1%

MUSA 6.0% MUSA 5.8% MUSA 5.6%MUSA 5.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

FY2009 FY2010 FY2011 FY2012 LTM 2013

Total Gross Profit Margins By Year

MUSA CASY ATD CST PNTRY SUSS TA

FY2009 FY2010 FY2011 FY2012 LTM 2013

MUSA 6.0% 5.8% 5.6% 5.8%

CASY 17.0% 18.9% 17.1% 15.5% 16.3%

CST 13.7% 12.5% 10.3% 10.2% 9.8%

ATD 15.5% 14.8% 12.9% 13.0% 12.8%

PNTRY 16.4% 13.7% 11.8% 11.1% 11.0%

TA 6.0% 5.3% 4.6% 4.8% 4.9%

SUSS 12.9% 12.0% 10.2% 10.0% 10.0%

Gross Profit Margins


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gasoline tends to dramatically impact the margin profile of a business. Importantly, MUSA has managed to maintain steady grossmargins over a volatile gasoline pricing environment, with a max drawdown of 40 bps, compared to its c-store focused peers,who have had margin swings in excess of 100 bps at certain times.

Fuel gross profit margins tend to be low throughout the industry, with 50 bps margin swings a norm for operators. Although alow cost operator, MUSA's fuel margins are generally in line with its competition, who tend to focus less on volume and more onc-store traffic. Murphy's ability to keep margins in line, while being a low cost provider is primarily due to the Company'swholesale arm and midstream assets. MUSA focuses on (1) volume (please see the volume comparison chart in the appendix),(2) value pricing and (3) low OpEx, which allows the Company to handle external gasoline pricing fluctuations.

Murphy's wholesale segment offers the Company flexibility in maintaining margins. It acts as (1) a proprietary sourcingmechanism and (2) a wholesale profit division, for which the Company can utilize to gain a greater per gallon margin spreadwhen retail pricing is unfavorable.

Merchandise margins tend to be the highest gross profit contributor for many operators in the space. Murphy's merchandisemargins lag those of its peers as over 80% of Murphy's merchandise sales come from tobacco products, which carry lowermargins than dispensed fountain drinks and other snacks. Going forward, Murphy's merchandise margins will start to come inline with its peers as the Company builds out the 1,200 ft2 format stores (23% of the current footprint), which carry a widerselection of higher margined products.

FY2012 vs. FY2011

Fuel margins decreased in FY2012 to an average of $0.129 per gallon, compared to $0.156 per gallon in FY2011, a decrease of$0.027 per gallon or 17.3%. The lower fuel margins were caused by increased wholesale gasoline prices which were not fully

recovered through higher prices to customers at the pump. Offsetting the decline in fuel margins, merchandise margins inFY2012 were 13.5% of merchandise sales compared to 12.8% in FY2011, an increase of 5.5%.

FY2009 FY2010 FY2011 FY2012 LTM 2013

MUSA 4.18% 4.37% 3.64% 4.24%

CASY 4.81% 5.61% 5.30% 4.45% 4.45%

CST 5.50% 5.11% 4.09% 4.50% 3.17%

ATD 5.26% 4.67% 5.26% 3.85%

PNTRY 4.88% 4.84% 4.04% 3.26% 3.20%

TA 6.32% 5.40% 4.73% 5.11% 5.22%

SUSS 6.55% 6.81% 6.71% 6.21% 5.99%

Fuel Gross Profit Margins

MUSA 4.18%

4.37%

3.64%

MUSA4.24%

3.0%

4.0%

5.0%

6.0%

7.0%

FY2009 FY2010 FY2011 FY2012 LTM 2013

Fuel Gross Profi t Margins By Year


FY2009 FY2010 FY2011 FY2012 LTM 2013

MUSA 13.1% 12.8% 13.5% 13.3%

CASY 40.6% 41.3% 39.9% 40.0% 40.9%

CST 28.1% 28.3% 28.7% 29.7% 29.7%

ATD 33.1% 33.0% 33.1% 32.0%

PNTRY 35.4% 33.8% 33.9% 33.7% 33.2%

TA 57.7% 57.8% 56.9% 55.5% 55.0%SUSS 33.3% 33.6% 33.7% 33.9% 33.8%

Merchandise Gross Profit Margins

MUSA 13.1% MUSA 12.8% MUSA 13.5% MUSA 13.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

FY2009 FY2010 FY2011 FY2012 LTM 2013

Merchandise Gross Pr ofit Margins By Year



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Capitalization

Murphy is well-capitalized at the spin-off with arelatively unlevered balance sheet with Debt/EBITDAat 1.8x. The Company's unlevered balance sheet alongwith its portfolio of owned real estate (90%), Murphyhas multiple levers to pull to fuel further growth orreturn capital to shareholders.

Capital Expenditures

*Corporate capex is related to the spin-off/ one time infrastructure costs.

CapEx within the marketing segment (c-stores) primarily entails the acquisition of land and build out of stores. MaintenanceCapEx is fairly low within the segment, primarily deployed to upgrade existing sites (i.e. update pumps, etc.). The Company'sother capex is dedicated to its ethanol and terminal segments, which are primarily growth related initiatives. Overall, the

Company's maintenance capex requirements are low (averaging ~$27K per store per year) allowing for a high EBITDA/OCFconversion.

The Company expects to spend $204MM on capital expenditures FY2013. Roughly $201MM is slated for the Company's retailsegment, with $31MM slated for maintenance capex and $170MM for new retail locations/growth capex. The remaining $3million is slated for the Company's ethanol facilities.

Capital Expenditures 2010 2011 2012 1H 2013

Fuel & Convenience Stores

Company Stores 147.3 48.6 72.9 77.0

Terminals 0.0 3.0 0.0 1.2

"Sustaining Capital" 29.5 25.9 30.3 10.1

Total Fuel & Convenience Stores 176.9 77.5 103.2 88.3

EthanolProjects 3.0 22.1 0.0 0.9

"Sustaining Capital" 1.8 0.6 8.4 0.3

Total Ethanol 4.8 22.7 8.4 1.2

Corporate 0.0 0.0 0.0 5.7

Total CapEx 181.7 100.2 111.6 95.3


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Market Overview

Industry

The gas station/C-store industry has enjoyed a strong performance over the past five years. According to IBISWorld, industry

revenue has increased at a 0.8% CAGR to $466.9 billion over the period, with 2.2% growth expected in 2013. The world price of

crude oil is the main driver of the industrys revenue growth. Gasoline makes up the lions share of revenue, and pump prices are

driven by the ebbs and flows of world oil demand. To maximize profitability, though, industry operators are increasingly relying

on convenience store sales. Over the next five years, revenue is forecast to increase at a CAGR 2.0% to $514.4B.

Oil refiners and E&P companies have divested their retail brands given the multiple discount between pure-play E&P firms and

shareholder pressure. Thus an increasingly fragmented market place - net positive for Murphy as the Company has scale over its

competitors along with a platform for new stores (Wal-Mart relationship).

Competition

Concentration in the Gas Stations with Convenience Stores industry is very low. Industry concentration has decreased over the

past five years as more prominent companies in the industry divested gas stations to concentrate on more profitable locations.

The recession prompted many oil companies to concentrate on more profitable operations. Scale is important in the industry as it

allows for greater bargaining power for merchandise and ability to acquire large amounts of fuel at better terms than a small

operation.

Miles Driven

According to the Department of Transportation,

miles driven have declined 2.8% from the last

peak due to the Great Recession and higher fuel

costs. In August 2012, the U.S. Dept. of

Transportation and the EPA finalized the

corporate average fuel economy (CAFE) for

cars and light-duty trucks. The new rule

requires an average fuel economy of 54.5 mpg

for 2025 model year vehicles. This is a stringent

increase from President Barack Obamas 2012

2016 standard, which increases the CAFE

average to 35.5 mpg by 2016, up from thecurrent CAFE average of 29 mpg.

While total miles will may decline, MUSA

should retain or grow market share on a per

store basis and can reasonably expected to

growth both revenue and profit but increasing embedded store base at attractive rates on capital deployed.


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Porters 5 Forces

Risk Severity Mitigant

Threat of New

Entrants

High The industry is highly fragmented. Murphy has ~5% market share, which gives itscale and purchasing power versus and industry which is dominated by smalleroperators.

Threat of Substitute

Products

Low There is no current a mass substitute for gasoline in the US. The Company offers a wide arrange of merchandise products in their kiosks/stores

(i.e. tobacco products, etc.)

Electrical car networks present a potential future opportunity for the Company butthis is unlikely to impact MUSA in the next 5 years.

Bargaining Power of

Suppliers

Low Gasoline prices are typically set by the market, additionally the Company hasshipper status and mid-stream terminal positions allowing for attractive

purchasing.

Bargaining Power of

Customers

Low Pricing is set by demand/the market. Margins are typically lower for gasoline,hence customers do not have a large say in pricing (they can however, just notdrive).

Greater fuel efficiency will be a net positive for the industry as drivers areexpected to drive more.

Rivalry High Rivalry is high, however Murphy has an advantage over its competitors throughthe co-locations with Wal-Mart, purchasing scale and lower break-even costscompared with other C-Stores.

The Wal-Mart relationship enables Murphy to reach a captive audience (Wal-Martshoppers). Additionally, customers tend to be destination customers who get theirgroceries and fill up on the same trip.

Comparable Firms

Merchandise margins tend to be lower for MUSA as the Company's store size restricts the amount of convenience items the

Company can carry. Additionally, MUSA's small format stores focus on tobacco products (~89% of sales), which tend to be

lower margin, high volume products. Going forward, MUSA's gross margins should normalize in line with its peers as the

Company continues to build out its 1,200 ft2 stores, which carry a wider variety of merchandise and have the high margin

dispensed drink fountains.

LTM For Period Ended 6/30/2013 6/30/2013 7/31/2013 6/30/2013 6/30/2013 6/30/2013 6/27/2013 7/21/2013

Murphy

USA Inc.

CST Brands,

Inc.

Casey's

General

Susser

HoldingsPhillips 66

TravelCenters

of America

The Pantry,

Inc.

Alimentation

Couche-Tard

Ticker MUSA CST CASY SUSS PSX TA PTRY ATD.B

Revenue 17,399 10,990 6,901 5,937 158,160 7,935 7,075 38,432

Gross Margins 5.8% 9.8% 16.5% 10.0% 13.4% 4.9% 11.4% 12.8%

EBITDA 360 361 358 165 6,000 87 207 1,420

EBITDA Margins 2.1% 3.3% 5.2% 2.8% 3.8% 1.1% 2.9% 3.7%

Cash Flows From Ops 327.3 515.0 318.0 78.6 6,404.0 65.8 109.6 1,363.5

Capex as a % Sales 0.9% 1.8% 4.4% 3.5% 1.3% 2.6% 1.0% 1.5%

FCF 164.7 315.0 12.0 (127.5) 4,413.0 (139.2) 39.4 796.7

Dividend Yield 0.0% 0.0% 1.0% 0.0% 2.2% 0.0% 0.0% 0.6%

Market Cap (today) 1,850 2,262 2,643 1,071 35,116 242 276 11,371


12/19


Murphy's peers tend to have higher merchandise margins as they operate larger format stores away from a leading price retailer

such as Wal-M, which allows for the sale of high margin prepared food products among other items. However, these large format

stores have their drawbacks as they require greater capex build out and higher operating costs.


13/19


Scenario Valuation Analysis

Base Case

The base case portrays a realistic expectation of Murphy's performance going forward. Below are the assumptions used in the

base case scenario: 2103 revenue is projected to be up nearly 5% based on 70 new stores. After 2013, sales are expected going forward at

~2.5% per annum primarily through the addition of 45 new stores per year and no volume changes per store.

Gross margin is expected to be 5.50% in perpetuity. EBITDA margin is expected to be maintained at 1.9%, which is in line with the Company's three year average which

experienced some volatility in fuel margins.

Cash taxes are expected to be 35%. No dividends or share repurchases considered

Projected Operating Metrics 12/31/10 12/31/11 12/31/12 2013E 2014E 2015E 2016E 2017E

Number of New Stores 51 29 37 70 45 45 45 45

Total Stores (Year End) 1,099 1,128 1,165 1,235 1,280 1,325 1,370 1,415

Sales Growth N/A 23.7% 2.0% 4.7% 2.5% 2.4% 2.3% 2.2%

Gross Margin 5.99% 5.81% 5.25% 5.50% 5.50% 5.50% 5.50% 5.50%

EBITDA Margin 2.1% 2.3% 1.6% 1.9% 1.9% 1.9% 1.9% 1.9%

Capital Expenditures 222 101 112 200 137 139 140 141

Free Cash Flow to the Firm 40,543 40,908 41,274 41,275 41,276 41,277 41,278 41,279

EBIT(1-t) 145 206 119 194 201 204 193 182

+ NCC 61 70 78 85 85 90 116 141

- WC (59) 28 (90) (3) (3) (3) (3)

- CapEx (222) (101) (112) (200) (137) (139) (140) (141)

Free Cash Flow to the Firm 283 230 162 375 225 232 259 286

Earnings Per Share 3.1 4.4 1.8 4.2 4.3 4.4 4.1 3.9

WACC 10.0% EBITDA in Terminal Year 422 EPS in 2014 $4.29

Terminal FCFF Growth Rate 2.5% Exit Multiple 8.0x Earnings Multiple 15.0x

Terminal Value 3,906 Terminal Value 3,375

NPV of Terminal Value 2,425 NPV of Terminal Value 2,096

NPV of 2013-2017 FCFF 1,056 NPV of 2013-2017 FCFF 1,056

Enterpr ise Value (as calculated) 3,481 Enterpr ise Value (as calculated) 3,151

Less: Net Debt at 06-30-13 (606) Less: Net Debt at 06-30-13 (606)

Equity Value 2,875 Equity Value 2,545

Diluted Shares 47 Diluted Shares 47

Equity Value Per Share $61.5 Equity Value Per Share $54.5 Equity Value Per Share $64.4

Average of Each Method $60.1 per share

Base Case Valuation

Perpetuity Growth Method EBITDA Multiple Method EPS Method


14/19


Upside Case

The upside case portrays a strong five-year forecast for the Company, when compared with the base case forecasts. Below are

the assumptions used in the upside case scenario:

2103 revenue is projected to be up nearly 5% based on 70 new stores. After 2013, sales are expected to grow at ~2.9%to 2.5% per annum primarily through the addition of 50 new stores per year and no volume changes per store.

Gross margin forecasted to remain at 5.70% which is in-line with many prior years. EBITDA margin expected to total 2.1%, which is slightly above the three year average yet highly achievable. Cash taxes rate of 35.0%. No dividends or share repurchases considered (very conservative)




Sales Growth N/A 23.7% 2.0% 4.7% 2.9% 2.7% 2.6% 2.5%

Gross Margin 5.99% 5.81% 5.25% 5.70% 5.70% 5.70% 5.70% 5.70%EBITDA Margin 2.1% 2.3% 1.6% 2.1% 2.1% 2.1% 2.1% 2.1%


Free Cash Flow to the Firm 40,543 40,908 41,274

EBIT(1-t) 145 206 119 232 237 242 229 217

+ NCC 61 70 78 80 85 90 122 153

- WC (59) 28 (90) (3) (3) (3) (3)

- CapEx (222) (101) (112) (200) (149) (150) (152) (153)

Free Cash Flow to the Firm 283 230 162 370 237 243 276 309


WACC 10.0% EBITDA in Terminal Year 486 EPS in 2014 $5.1




NPV of 2012 -2016 FCFF 1,096 NPV of 2012 -2016 FCFF 1,096







Upside Case Valuation



15/19


Stress Case

The stress case portrays an scenario in which Murphy does not deliver on its current objectives. Below are the assumptions used

in the stress case scenario:

2103 revenue is projected to be up nearly 5% based on 70 new stores. After 2013, sales are expected to grow at 1.1%per annum primarily through the addition of 50 new stores per year and no volume changes per store.

Gross margin forecasted at 5.25% for 2013 then decline to 4.75% in 2014 (based on increased supply costs), 5.0% in2015, and normalize at 5.50% thereafter.

Cash tax rate of 35.0%. No dividends or share repurchases considered




Sales Growth N/A 23.7% 2.0% 4.0% 1.1% 1.1% 1.1% 1.0%

Gross Margin 5.99% 5.81% 5.25% 5.25% 4.75% 5.00% 5.50% 5.50%

EBITDA Margin 2.1% 2.3% 1.6% 1.6% 1.1% 1.4% 1.9% 1.9%


Free Cash Flow to the Firm 40,543 40,908 41,274 41,275 41,276 41,277 41,278 41,279

EBIT(1-t) 145 206 119 141 80 108 170 171

+ NCC 61 70 78 80 85 90 92 95

- WC (59) 28 (1) (2) 0 1 (0)

- CapEx (222) (101) (112) (200) (93) (93) (94) (95)

Free Cash Flow to the Firm (161) (89) (7) 281 179 183 186 190


WACC 10.0% EBITDA in Terminal Year 358 Avg. EPS 2014 and 2015 $2.01




NPV of 2012 -2016 FCFF 786 NPV of 2012 -2016 FCFF 786







Stress Case Valuation



16/19


Intrinsic Valuation

Free Cash Flow to the Firm (FCFF) is one method used to determine the intrinsic value for all three cases. The Companys

terminal value was calculating using both the perpetuity growth and EBITDA exit multiple methods.

Replacement Cost Valuation

Importantly, the estimated replacement value does not ascribe any additional value to the Company's midstream assets or ethanolrefineries (one refinery was purchased for ~92.0MM).

Case ProbabilityIntrinsic

ValueWACC

Terminal

Growth Rate

Ending EV

Multiple

Ending EPS

Multiple

Upside Case 15.0% 73.6 10% 3.5% 9.0x 15.0x

Base Case 55.0% 60.1 10% 2.5% 8.0x 15.0x

Stress Case 30.0% 30.2 10% 1.5% 6.0x 12.0x

Murphy USA Inc. Intrinsic Value 53.2

Equity Discount to Intrinsic Value 13.7 Equity Upside 35%

Murphy USA Inc. Intrinsic Value Calculation

Store TypeStores at

6/30/13

Cost per Store

($MMs)Replacement Cost

Existing 208 ft2

Stores 908 2.0 1,816

Existing 1,200 ft2

Stores (and other) 271 2.3 624

Retail Gasoline Replacement Cost 2,439

Ethanol Facilities (Net Book Value) 83

Pipeline and Terminal Facilities (Net 35

Net Working Capital 50

Total Replacement Cost ($MMs) 2,608

Per Share Replacement Value

Less: Net Debt 607 Current Price

Equity Value 2,002 $39.4

Number of Shares Outstanding (MMs) 47.0 Implied Discount

Per Share Value $42.6 8%

MUSA 6/30/13 Replacement Cost


17/19


Relative Valuation

A relative valuation analysis was completed using peers within the convenience retail industry. There are five comparable,publicly-traded companies in the U.S. and Canada, whose primary or sole business involves operating independent conveniencestores: Susser Holdings Corporation, Casey's General Stores, Alimentation Couche-Tard, The Pantry, Inc, TravelCenters ofAmerica, and CST Brands, Inc. (another recent spin off).

All of the companies represent solid peers for the Company besides for The Pantry, Inc., which is a relatively small operator thathas struggled, due to its smaller scale and high degree of financial leverage. Importantly, the average EV/EBITDA for the sectortrades at roughly 8.8x.

Owners Earnings

Catalysts to Value Realization

Catalyst Description

ShareBuybacks/Dividends

Murphy trades at a materially discount (~30%) to its conservatively estimated base casevaluation of $48 per share. At current prices, buybacks will be accretive to intrinsic value.

Murphy will be able to lever its balance sheet by at least one turn, which would allow for theCompany to repurchase roughly ~21% of its capitalization. MUSA at 1.8x EV / EBITDA isless leveraged than comps with are leveraged from 2.2x (Caseys) to 4.6x (Pantry).

For the next two years, Murphy will not be allowed to return capital given its tax-free spinoff

Murphy Comparable Firms

Company Name Sells Fuel? Market Cap EV Revenue EBITDA EV/EBITDA EV/Revenue

Alimentation Couche-Tard Inc. Yes 10,152 13,019 35,543 1,342 9.9x 0.4x

Casey's General Stores, Inc. Yes 2,522 3,209 6,655 326 9.8x 0.5xCST Brands, Inc. Yes 2,245 2,885 10,990 361 8.0x 0.3x

Susser Holdings Corporation Yes 982 1,565 5,938 165 9.5x 0.3x

TravelCenters of America Yes 242 301 7,936 87 3.5x 0.0x

The Pantry, Inc. Yes 264 1,168 7,075 207 5.7x 0.2x

Mean 7.7x 0.3x

Median 8.8x 0.3x

Murphy USA Yes 1,858.8 2,465.2 19,363.0 359.5 6.9x 0.1x

Amounts in 000s

$ in MMs 2010 2011 2012 LTM 2013*

Adj. EBITDA $293 $409 $286 $360

Less: Maintenance CapEx $31 $26 $39 $42

Less: Cash Taxes $13 $43 $13 $13Less: Cash Interest $4 $0 $0 $38

Owner's Earnings 244 339 233 267

Per Share $5.22 $7.25 $4.99 $5.71

*LTM 2013 cash taxes estimated, in line with prior y ear. LTM 2013 includes p ro-forma interest expense.

7.9x

6.9xPrice / Est. LTM Owner's Earnings

Price/ FY2012 OE

Murphy USA Owner's Earnings


18/19


status. However, after the two year lock up, it is highly probable the Company will return cashto shareholders, especially given the Murphy family's preference for dividends (holdcollectively over 6% of the common stock).

Growth StrategyExecution

MUSA's Management recently signed an agreement with Wal-Mart to build 200 locations overthe next couple years, which should be accretive to owner's earnings and intrinsic value in thelong run.

At an average cost of $2.15 million per store, this will cost ~$430 million which will befinanced over 3 years and financed primarily by operating cash flow, along with the possibilityfor asset sales and potential bank financing/ABL revolver availability if needed.

Attractive Valuation MUSA currently trades at 8.0x FY2012 Owner's Earnings and 7.0x LTM 2013 Owner'sEarnings.

Murphy also trades below its conservatively estimated replacement value, estimated at $41 pershare and below its publicly traded peers at 6.5x EBITDA (8.6x peer average).

Coverage/Inclusion into

Mid Cap funds

As sell-side analysts initiate coverage, the Company will be presented to a wide range ofinvestors, specifically mid-cap focused funds.

Risks & Mitigants

Risk Impact Mitigant

Reliance on Wal-Mart for Co-Locations andDiscount Program

Could Potentially

Stunt Future

Growth/

Opportunities

Murphy has a long-term relationship of over ten years with Wal-Mart,further bolstered by an agreement between both companies and a discount

program for Wal-Mart shoppers.

The Company owns roughly 90% of its real estate, often pads near a Wal-Mart supercenter.

MUSA has purchased 908 of its locations from Wal-Mart and currently hasa signed agreement with Wal-Mart to purchase & build out 200+ morelocations.

New Build Program Potential Squeeze

on Future CF and

Capital Structure

Risk.

Management has suggested that they have looked at alternative options fortheir ethanol facilities, which could potentially fund an aggressive new

build program.

The Company's cost per new store is fairly low at $2.1MM, and can easilybe funded through the Company's FCF and revolver.

Volatility in Gasoline

Prices

Revenue and

Margin Decline

Murphy is a low cost operator & requires only 6.6 cents of gasoline marginfor cash breakeven.

MUSA has successfully operated in a wide variety of pricing environmentskeeping EBITDA positive in tough markets.

TobaccoMerchandise

Revenue and Gross

Margin Decline

Although tobacco consists of 10.8% of merchandise gross profit, webelieve a combination of steady demand and Murphy's lower price pointsoffset this risk.


19/19


Conclusion

Murphy USA has a sustainable moat as the low cost provider of a necessary commodity (gasoline). Yet MUSAs equity priceimplies a ~50% increase to conservatively calculated intrinsic value.

Managements plan to grow intrinsic value is to grow 200 stores over three year financed solely from FCF is reasonable both

operationally and financially. The Company has separable assets including their wholly owned ethanol facilities and midstreamassets, which could be utilized in resource conversion activities that would increase the upside.

Further, management is well aligned with shareholders (board holds ~6% of the Company and the CEO is targeted to hold sharesworth 5x salary). Given the potential future store growth, which should add at minimum $40MM in incremental EBITDA peryear and clean underutilized balance sheet (at least one turn or ~360MM of excess debt capacity), the shares could be worth asmuch as $60+ as the Company continues to grow its EBITDA through new stores and return capital to shareholders once its twoyear restriction is lifted.

While not a great business due to gross margin fluctuations, Murphy is a good business at a very fair price. Buy Murphy USAat current prices to realize a 50%+ gain in 12 to 24 months.

Appendix

EBITDA Bridge

$ in MMs 12/31/09 12/31/10 12/31/11 12/31/12 6/30/13

EBITDA Calculation

Net Income $65,180 $157,441 $324,020 $83,568 $129,734

Taxes 28,647 85,029 132,284 62,172 89,041

Interest 38 3,725 516 333 (437)

Depr & Amort 55,738 60,698 69,550 76,622 78,255

Impairments - - - 60,988 60,988

Other (21,871) (14,191) (117,818) 1,893 2,012

Total EBITDA $127,732 $292,702 $408,552 $285,576 $359,593

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