Murphy Oil Corp. has formed a pact with a unit of Brazil’s PetrÃ³leo Brasileiro SA, aka Petrobras, to build a substantial outpost in the U.S. Gulf of Mexico (GOM).
The joint venture (JV) between Murphy Exploration & Production Co. USA and Petrobras America Inc. (PAI) would include all of their producing GOM assets and be majority owned (80%) and operated by Murphy.
The transaction excludes exploration blocks from both companies, except for PAI blocks holding deep exploration rights.
Among other things, PAI is contributing its 25% stake in the Chevron Corp.-led St. Malo development in the Lower Tertiary Trend, considered one of the most promising discoveries in U.S. deepwater
“We believe the combined strengths of Petrobras and Murphy will yield significant long-term value for both companies,” Murphy CEO Roger W. Jenkins said. “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 terms of the JV, Murphy agreed to pay $900 million to PAI, as well as contingent payments of up to $150 million if certain price and production thresholds are exceeded from 2019-2025. In addition, Murphy would carry $50 million of PAI costs in the St. Malo Field if some enhanced oil recovery projects are undertaken.
The jewel of the deal is St. Malo, discovered by Chevron in 2003 in Walker Ridge. The field’s discovery preceded Chevron’s Jack discovery one year later, about 25 miles away. Chevron eight years ago sanctioned the dual Jack-St. Malo development, and the dual-field facility ramped up in 2014 in about 7,000 feet (2,100 meters) of water, 280 miles south of New Orleans.
The JV would combine Murphy’s seven GOM fields, four of which it operates: Medusa (60%) and Thunder Hawk (62.5%) in Mississippi Canyon (MC), Front Runner (62.5%) in Green Canyon and Dalmation (70%) in DeSoto Canyon. It also has stakes in Habanero in Garden Banks (33.75%), Kodiak in MC (29.1%) and Tahoe in Viosca Knoll (30%).
Last year Murphy’s GOM net output accounted for nearly one-quarter of total U.S. production, with 12,400 b/d of oil and 12 MMcf/d of natural gas. In addition, Murphy has another 150-plus leases in the GOM.
The deepwater GOM is Murphy’s bread and butter, but it also works in the Eagle Ford Shale, Canada’s Kaybob Duvernay and Montney formations, and in Southeast Asia.
Petrobras, which has worked in the U.S. GOM since 1987 when it acquired eight blocks, made its name in the offshore with pioneering floating, production, storage and offloading (FPSO) vessels.
In early 2012 Petrobras began producing from the deepwater Cascade-Chinook area of Walker Ridge, which is connected to the BW Pioneer, its first FPSO vessel to produce oil and gas in U.S. deepwater. The vessel platform is capable of processing 80,000 b/d of oil and 500,000 cubic meters/d of gas; it also can store 500,000 bbl of oil.
The Cascade prospect was discovered in 2002 by Petrobras, Devon Energy Corp. and BHP Billiton. Four years later Devon, Chevron and a predecessor company of Equinor SA completed the deepest extended drill stem test in history on the Jack No. 2 well in Walker Ridge Block 758.
In addition to its FPSO technology, Petrobras also has introduced to the U.S. GOM oil transportation via shuttle tankers and self-sustainable submerged pumps and risers, i.e. submarine outflow lines.
The JV with Petrobras would add about 41,000 boe/d net to Murphy’s GOM production, 97% weighted to oil, with total GOM output anticipated to be 60,000 boe/d net post closing. Expected lease operating expenses are pegged at $10-12/boe.
Murphy also expects to add 60 million boe of proven reserves and with probable reserves, a total of about 86 million boe. Corporate oil-weighted production is set to increase by around 9% to 61%.
A portion of Murphy’s incremental free cash flow from the JV is to be directed to the Eagle Ford. Murphy expects to fund the transaction, set to close by year’s end, through a combination of cash-on-hand and its senior credit facility.
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