Murphy Oil Corp. on Tuesday (April 23) announced that it is broadening its North American energy portfolio with a key $1.4 billion deepwater acquisition in the Gulf Mexico only weeks after the Arkansas oil explorer’s surprise exit from offshore Malaysia.
Under terms of the deal, Murphy Exploration & Production Company USA has entered into a definitive agreement to acquire deep water Gulf of Mexico assets from LLOG Exploration Offshore LLC and LLOG Bluewater Holdings LLC. Those two privately-held partnerships are part of Covington, La.-based LLOG Exploration Company LLC, one of the nation’s largest exploration and production companies with a long history in the Gulf of Mexico.
El Dorado-based Murphy Oil said it will pay a cash consideration of $1.375 billion to LLOG, along with possible additional payments of $250 million and $50 million, respectively, based upon certain assets exceeding contractual thresholds between 2019 and 2022 and after the first oil is produced from selected projects. The Arkansas oil company said the “accretive, cash flow providing” assets produce about 38,000 barrels of oil equivalent per day (Boepd) and will add approximately 66 million barrels of oil equivalent to the company’s North American portfolio.
“This immediately accretive transaction continues to strengthen our Gulf of Mexico portfolio by adding quality assets at a very attractive price. We expect these newly acquired assets to generate meaningful cash flow over the next several years that will provide us with additional flexibility for future capital allocation,” said Murphy Oil President and CEO Roger Jenkins. “Since selling our refining business and successfully spinning-out our retail gasoline business over five years ago, we have implemented significant strategic changes in revamping Murphy’s portfolio.”
The deal comes one month after Murphy’s two primary Malaysian subsidiaries, Murphy Sabah Oil Company Ltd. and Murphy Sarawak Oil Company Ltd., announced a deal to divest the company’s deepwater play in the Southeast Asian country to a subsidiary of Bangkok, Thailand-based PTT Exploration and Production Public Company Limited.
PTEP 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. Murphy said the Gulf of Mexico deal will be funded by a combination of cash on hand and availability under the company’s revolving credit line.
Today, Murphy said that it has $1.6 billion of outstanding borrowings under the revolving credit facility, including the current balance of $325 million. That credit line is expected to be fully repaid immediately following the closing of the previously announced $2.13 billion divestiture of Murphy’s Malaysian assets, which is also expected to close at the end of the second quarter.
Murphy also said it still intends to execute the previously announced $500 million stock buyback program, expiring on Dec. 31, 2020, of which $300 million is planned in the first tranche and the remaining $200 million is expected in the second tranche. The previously announced $750 million debt repayment has been revised to only include the $325 million already drawn from the credit facility, officials said.
The acquired assets will be fully owned by Murphy and not part of MP Gulf of Mexico LLC, the company’s joint venture with Petrobras America Inc. that owns the company’s other producing assets in the deepwater basin largely surrounded by Mexico and the Gulf Coast states of Texas, Louisiana, Mississippi, Alabama and Florida.
In February, Jenkins reshuffled Murphy’s executive bench after the head of the company’s global exploration and production operations stepped down.
Since then, Jenkins said the Arkansas oil company has specifically spent the past few months looking to increase Murphy’s “deepwater, oil-weighted, tax advantaged, Gulf of Mexico assets,” while streamlining the company’s operations and balance sheet by divesting its 20-year old Malaysian portfolio at “at a very attractive price.”
“What I am most proud of is that through these transactions we have created significant shareholder value,” said Jenkins. “As a result, we have increased our ability to generate meaningfully more cash flow in our long term plan as Murphy is now positioned to grow oil production with an overall compound annual growth rate of seven to nine percent, all while maintaining our compelling dividend, repurchasing our stock, and decreasing our debt levels.”
Scotia Capital (USA) Inc. and Baker Botts L.L.P. are serving as advisors to Murphy on the deal. Barclays is serving as exclusive financial advisor and Jones Walker LLP, Gieger, Laborde, & Laperouse, LLC and Kirkland & Ellis LLP are serving as legal advisors to LLOG on the transaction.
Ahead of today’s closing bell, Murphy shares were up nearly 2%, or 55 cents at $29.18 on the New York Stock Exchange.