To keep its focus -- and capital -- on a U.S. portfolio concentrated in the Gulf of Mexico (GOM) and the Eagle Ford Shale, Murphy Oil Corp. on Thursday said it is exiting Malaysia in a deal worth more than $2 billion.
The primary Malaysian subsidiaries, Murphy Sabah Oil Co. Ltd. and Murphy Sarawak Oil Co. Ltd., are being sold for $2.127 billion in cash to a subsidiary of Thailand’s state-owned PTT Exploration and Production Public Co. Ltd., aka PTTEP. PTTEP also agreed to pay up to a $100 million bonus payment contingent on future exploratory drilling results delivered before October 2020.
Murphy expects to record a book gain on the sale of $900 million to $1 billion, with all of the proceeds repatriated to the United States. Plans are to earmark $750 million of the proceeds to the Eagle Ford and deepwater prospects.
“The tactical repositioning of Murphy allows us to simplify our business and focus on our core assets in the Western Hemisphere,” CEO Roger W. Jenkins said. The transaction, set to be completed by the end of June, “will provide us with greater financial flexibility and allow us to continue returning cash to our shareholders through share repurchases.”
Murphy’s year-end 2018 net proved reserves totaled 816 million boe, of which 16% were attributed to the Malaysian portfolio. Total net production in 2018 for the properties to be divested was more than 48,000 boe/d.
The company’s previously announced annual production guidance was 202,000-210,000 boe/d, which included 46,000-48,000 boe/d for Malaysia. The previously announced capital plan for 2019 was expected to be $1.25-1.45 billion, with $106 million budgeted for Malaysia.
Once the sale is completed and Murphy has reduced its debt, management expects to generate more than $1.2 billion of free cash flow, before dividend payments from 2019 to 2023, using a $55/bbl West Texas Intermediate oil price. Over the same time period, the company expects to generate an 8% compound annual growth rate from its three core producing assets in U.S. onshore, Canada onshore and offshore.
In addition to its Eagle Ford portfolio, Murphy has substantial assets in Canada’s Kaybob Duvernay and Montney formations. Last year, Murphy also expanded its already substantial U.S. GOM portfolio by forming a pact with a unit of Brazil’s Petróleo Brasileiro SA, aka Petrobras.
“Our strategy of delivering moderate production growth over the next few years, while generating free cash flow above our planned dividend levels, continues when applying conservative oil prices even following the risk-free monetization of our Malaysia assets,” Jenkins said. “We will continue with our plans of investing in our high margin, oil-weighted Western Hemisphere opportunities, especially the Eagle Ford Shale and the Gulf of Mexico, while maintaining our focused low-cost exploration program.”
Bank of America Merrill Lynch served as Murphy’s adviser, and Tudor, Pickering, Holt & Co. served as financial adviser. Gibson, Dunn & Crutcher LLP acted as legal counsel.