Murphy Oil cuts losses in Canada, sells stake in oil sands joint venture for $746 million

by Wesley Brown ([email protected]) 457 views 

Murphy Oil Corp. announced after the close of market Wednesday that its Canadian subsidiary will sell its Syncrude Canada operation to Suncor Energy Inc. for $746 million, subject to closing adjustments.

The sale will allow Murphy to divest its 5%, non-operated stake in Syncrude, a joint venture company located in Alberta, Canada, that produced an averaged 15,600 barrels of oil equivalent per day in first quarter 2016.

“We are pleased to announce this transaction with a strategic buyer as we continue with the repositioning of our portfolio. Syncrude has been an integral piece of our production and reserve base for over 22 years. During that time we have increased our overall resource base significantly and we continue to narrow our scope as an independent oil and natural gas company,” said Murphy President and CEO Roger Jenkins. “In recent years we have balanced our offshore business by strategically entering into the onshore unconventional space in North America. The sale of Syncrude will further place our focus in North America on our unconventional assets while simultaneously strengthening the financial flexibility of our balance sheet.”

Syncrude, one of the world’s largest producers of synthetic heavy crude from Canada’s oil sands, is a joint venture project that includes Suncor, Murphy Oil, China’s Sinopec and host of other smaller Canadian oil companies.

Once the deal closes, Suncor’s stake in Syncrude will increase from 48.74% to 53.74%, giving the Calvary oil company the majority interest in the joint venture. Suncor officials said the deal is expected to close in the second quarter, subject to closing conditions, including regulatory approval under the Canadian Competition Act.

For Murphy, the sale of Syncrude allows to El Dorado oil giant to continue to pay down debt, increase cash flow and continue to strengthen its balance sheet in the wake of depressed international crude oil and natural gas prices. Earlier this year, the El Dorado oil company slashed its 2016 capital expenditures to only $580 million, 73.5% lower than the $2.19 billion spent in 2015.

Murphy officials have said 45% of the capital spend will be allocated toward offshore drilling and exploration, 41% toward the Eagle Ford Shale and 14% for capital investments in the company’s Canada operations. Company officials said the current capital program for 2016 “remains under review for additional downward revisions should lower commodity prices persist.”

Still, Murphy’s Canadian operations – which includes oil plays in Northern Alberta, offshore oil operations in Newfoundland and natural gas extraction in British Columbia – have seen a large share of the spending and job cuts. Earlier this month, Murphy announced “significant” across-the-board job cuts in all of its operations, including the company’s office in Calgary, according to a news articles by Bloomberg and The Canadian Broadcasting Corp.

In addition, Murphy also announced plans in late January to divest its natural gas processing and sales pipeline assets in northeastern British Columbia to Enbridge G&P Limited Partnership. The cash deal upon closing was worth about $538 million in Canadian dollars, which is about $382 million in U.S. currency.

Murphy, which posted a loss of $587 million in the fourth quarter, is expected to releases its first quarter earnings report on May 5, after the close of market. Wall Street expects the Arkansas oil company to report a loss of 74 cents per share on revenue of only $445 million, according to a survey of analyst by Thomson Reuters.

Murphy has scheduled its annual meeting on May 11 in El Dorado, where several items involved executive compensation for the company’s executive team is on the agenda. In a recent proxy filing, the Arkansas oil giant revealed that it has frozen the base salaries of Jenkins, company president and CEO; Walter Compton, executive vice president and general counsel; and Kelli Hammock, senior vice president of administration.

In mid-day trading today, Murphy’s shares (NYSE: MUR) were up more than 3%, and trading at $37.40. During the past 52 weeks the share price has ranged from a $49.30 high to a $14.30 low.