Murphy Oil Corp. has formed a joint venture with Brazil’s multi-national oil conglomerate to develop a deepwater Gulf of Mexico project that is expected to bolster the Arkansas oil company’s crude oil production to over 100,000 barrels per day in the region.
Murphy Exploration & Production Company – USA, the Houston-based subsidiary of the El Dorado-based oil company, entered into the joint venture agreement with Petrobras America Inc. (PAI) on Oct. 11. Murphy will own an 80% stake in the jointly held company, and PAI will assume the remaining 20% interest with Murphy overseeing the project.
“We are very pleased to partner with Petrobras, a global leader in deep water developments, in our new Gulf of Mexico joint venture. We believe the combined strengths of Petrobras and Murphy will yield significant long-term value for both companies,” said Murphy CEO Roger Jenkins. “The addition of high quality, oil-weighted assets, such as the St. Malo Field, complements our existing Gulf of Mexico portfolio. We expect the production from this joint venture to generate meaningful incremental free cash flow that provides us with options for future capital allocation.”
Under the terms of the deal, Murphy will pay cash consideration of $900 million to PAI, subject to normal closing adjustments. PAI will earn an additional contingent consideration up to $150 million if certain price and production thresholds are exceeded beginning in 2019 through 2025. Also, Murphy will carry $50 million of PAI costs in the St. Malo Field if certain enhanced oil recovery projects are undertaken.
The deal with Rio de Janeiro-based Petrobras, which is a semi-public integrated oil conglomerate that is partly owned by the Brazilian government, represents Murphy’s largest investment and commitment to exploration in the Gulf of Mexico in nearly three years. In early 2016, the Arkansas oil company canceled a deepwater rig contract in the region and laid off 150 employees when oil prices plunged below $30 a barrel in early 2016.
According to Murphy officials, the Gulf of Mexico development with its Brazilian partner is expected to add 41,000 net barrels of oil equivalent per day to the El Dorado’s oil explorer current 60,000 per day production levels. Over the course of the development’s entire shelf life, Murphy said it expects to see approximately 60 million barrels of proven reserves.
In Monday’s volatile trading session on the New York Mercantile Exchange, West Texas Intermediate crude futures were up 55 cents at $71.89. International brent crude was up 83 cents at $81.26 on London’s ICE Exchange after Saudi Arabian officials warned the Trump administration that oil prices could spike to $100 or even quadruple that if the U.S. imposes sanctions on the oil-rich country over the disappearance of Washington Post journalist Jamal Khashoggi.