Murphy Oil Corporation announced that its wholly owned subsidiary, Murphy Exploration & Production Company – USA, has entered into a definitive agreement to acquire deepwater Gulf of Mexico assets from LLOG Exploration Offshore and LLOG Bluewater Holdings. The accretive, cash flow providing Gulf of Mexico assets currently produce approximately 38,000 BOED and are expected to add approximately 66 million BOE of proven reserves and 122 million BOE of proven and probable reserves. The transaction will have an effective date of 1 January 2019 and is expected to close in Q2, subject to normal closing adjustments.
Murphy will pay a cash consideration of $1.375 billion. Additional contingent consideration payments are based on the following:
- Up to $200 million in the event that revenue from certain properties exceeds certain contractual thresholds between 2019 and 2022; and
- $50 million following first oil from certain development projects.
The acquisition will be funded by a combination of cash on hand and availability under the company’s $1.6 billion revolving credit facility. Total outstanding borrowings under the revolving credit facility, including the current balance of $325 million, are expected to be fully repaid immediately following the closing of the previously announced $2.127 billion divestiture of Murphy’s Malaysian assets. The company still intends to execute the previously announced $500 million share repurchase program, expiring on December 31, 2020, of which $300 million is planned in the first tranche, with the remaining $200 million expected in the second tranche. The previously announced $750 million debt repayment has been revised to only include the $325 million that was drawn on the revolving credit facility as the company will no longer plan to repurchase or redeem outstanding senior notes at this time.
The acquired assets will be fully owned by Murphy and not part of MP Gulf of Mexico, the entity which currently owns all of Murphy’s producing Gulf of Mexico assets. Transaction highlights include the following:
- Adds approximately 32,000 to 35,000 net BOED on an annualized basis for full year 2019 to Murphy’s Gulf of Mexico production, comprised of approximately 60% oil;
- Total Murphy Gulf of Mexico full year annualized 2019 production is anticipated to be approximately 85,000 net BOED, excluding non-controlling interest;
- Increases deepwater offshore footprint with the addition of 26 Gulf of Mexico blocks containing seven producing fields, four development projects with future startups, in the Mississippi Canyon and Green Canyon areas;
- Expands operated production throughout the Gulf of Mexico to 66% of daily production, an increase from the current 49%, excluding non-controlling interest;
- Lease operating expense for acquired assets of approximately $10-12/BOE; and
- Adds approximately 66 million BOE of proven reserves and 122 million BOE of proven and probable reserves, of which 72% is oil.
“The transaction is part of Murphy’s aggressive plan to expand its footprint in the Gulf of Mexico,” Imran Khan, Senior Research Manager, US Gulf of Mexico Upstream Oil and Gas for Wood Mackenzie, said.
“The company has a large war chest after disposing of over $2 billion in Malaysian assets earlier this year. Murphy also acquired a majority of Petrobras’s Gulf of Mexico portfolio last year, on top of starting a robust exploration and appraisal campaign. With this transaction, Murphy becomes the eighth-highest producer in the Gulf of Mexico. Only a year ago, they were number 20,” Mr Khan added.
“For LLOG, what is old is new again. It monetizes most of the LLOG Bluewater joint venture and allows the company to get back to what it does best: explore. Part of the proceeds will go to paying down debt, but the cash infusion will allow the company to focus on exploring and bolstering the pipeline of new projects,” Mr Khan said.
“We estimate the remaining post-tax value of acquired assets to be around $2.3 billion, reflecting that Murphy received a 30% discount. The price paid per flowing barrel for this transaction is around $36,000 which is in the low range of the recent transactions.”
“The Gulf of Mexico remains a buyer’s market with the valuation of recent deals trading at 20-30% lower than our estimates.”
“We forecast a big year for M&A in the Gulf of Mexico, and the momentum is starting to pick up. This is the second billion-dollar transaction within the last two weeks. We expect more to come as buyers are attracted to short payback periods, while sellers shed fringe assets and some private equity players look to harvest their old investments,” Mr Khan concluded.