Nearly two decades after Murphy Oil Corp. discovered oil in deepwater Malaysia, the El Dorado oil company announced a multibillion dollar deal Thursday (March 21) to exit Southeast Asia and focus its operations in North America as U.S. crude prices topped $60 a barrel for the first time since November.
Murphy said it signed a sale and purchase agreement to divest its two primary Malaysian subsidiaries, Murphy Sabah Oil Company Ltd. and Murphy Sarawak Oil Company Ltd., to a subsidiary of Bangkok, Thailand-based PTT Exploration and Production Public Company Limited. PTTEP will pay Murphy $2.13 billion in an all-cash transaction, plus up to a $100 million bonus payment contingent upon certain future exploratory drilling results prior to October 2020.
At the end of fiscal 2018, Murphy’s proven reserves were 816 million barrels of oil equivalent (Mmboe) of which 16% or 129 Mmboe were attributable to Malaysia. Of the 129 Mmboe of proved reserves, 70 Mmboe are characterized as proved undeveloped. The Southeast Asian assets also include 468 billion cubic feet (Bcf) of natural gas and 51 million barrels (Mmbbl) of liquids. Total production net to Murphy in 2018 for the properties to be divested was over 48,000 barrel of oil equivalent per day (Boepd), comprised of 62% liquids.
“After 20 years of successful operations in Malaysia, I am pleased to announce this all-cash transaction benefiting our shareholders by fully monetizing our proved and probable reserves. The tactical repositioning of Murphy allows us to simplify our business and focus on our core assets in the Western Hemisphere,” said Murphy President and CEO Roger Jenkins. “The transaction will provide us with greater financial flexibility and allow us to continue returning cash to our shareholders through share repurchases.”
Murphy said the deal with the Thailand’s national oil company has an effective economic valuation date of Jan. 1, 2019, with the closing expected to occur by the end of the second quarter 2019. Closing of the transaction is subject to customary conditions and necessary regulatory approvals.
Murphy said it plans to continue its oil-weighted strategy in both the Eagle Ford Shale and the Gulf of Mexico, while maintaining its focused exploration plan. To achieve that goal, Murphy said, $750 million of the remaining proceeds will remain on the balance sheet earmarked for U.S. oil-weighted opportunities through potential acquisitions and funding of both deep-water projects and U.S. onshore deals.
Murphy, which split off its downstream retail operations into Murphy USA in September 2013, said it will continue to employ a measured, disciplined approach to capital allocation that is aimed at generating the greatest value for Murphy’s shareholders. Once the PTTEP deal closes, Murphy expects to record a book gain on the sale between $900,000 to $1 billion, and plans to repatriate essentially all of the cash proceeds to the U.S.
In the company’s previously announced annual production guidance, Murphy forecasted 202 to 210 Mboepd, of which 46 to 48 Mboepd was attributable to Malaysia. Murphy’s previously announced capital plan for 2019 was expected to be in the range of $1.25 billion to $1.45 billion, including a capital spend of $106 million in Malaysia.
Along with Malaysia divestiture, the company’s $500 million stock buyback authorization and $750 million debt reduction plan, Murphy said it hopes to generate over $1.2 billion of free cash flow before dividend payments between 2019 to 2023 – based on U.S. benchmark West Texas Intermediate crude at $55 per barrel. Over the same time, Murphy said it plans to generate an 8% compound annual growth rate from its three core producing assets in U.S. onshore, Canada onshore, and North America offshore.
Murphy shares (NYSE: MUR) closed Thursday at $30.97, up 26 cents. During the past 52 weeks the share price has ranged between $36.53 and $21.51.