Murphy Oil Co. Ltd. (MOCL), the Canadian subsidiary of Murphy Oil Corp., has agreed to acquire operated and nonoperated working interest of production, acreage, infrastructure, and facilities in the Kaybob Duvernay area and liquids-rich Montney area in Alberta from Athabasca Oil Corp. for $475 million (Can.). The two firms are forming a joint venture to develop the areas.
Murphy will pay $250 million in cash at closing and the remaining $225 million in the form of a carry for a period of up to 5 years. The deal is expected to close late in the first quarter, with an effective date of Jan. 1.
The Kaybob Duvernay and liquids-rich Montney hold recoverable resources of 200-350 million boe net.
In the Kaybob Duvernay area, Murphy will take 70% working interest in 230,000 gross acres, of which 200,000 are currently prospective, and associated midstream infrastructure. The area has current gross production of 6,900 boe/d, with 58% liquids, and an additional 247,000 acres gross of overlying conventional Montney rights.
In the Montney area, Murphy will take 30% nonoperated working interest in 60,000 gross acres, of which 21,000 are currently prospective, and associated midstream infrastructure. Current gross production is 900 boe/d, with 44% liquids.
Montney midstream divestiture
Separately, Enbridge G&P LP, a subsidiary of Enbridge Inc., has agreed to acquire Montney natural gas midstream assets in the Tupper and Tupper West areas of northeastern British Columbia from MOCL for $538 million (Can.).
The deal includes existing infrastructure capable of processing up to 320 MMcfd. Enbridge will own and operate gas processing plants and sales pipeline assets that include a 20-year arrangement, customary fee structure, and an opportunity for plant expansion ensuring flexibility for both parties.
Located 35 km southwest of Dawson Creek, BC, the Tupper Main and Tupper West plants are adjacent to Enbridge's existing Sexsmith gathering system and close to the Alliance pipeline, which is 50% owned by Enbridge Income Fund.
Tupper Main was placed into service in late 2008 and has a licensed capacity of 110 MMcfd. Tupper West went into service in early 2011 and has a licensed capacity of 210 MMcfd (OGJ Online, Feb. 24, 2011). The assets include 53 km of high-pressure pipelines.
The deal is expected to close following regulatory approval early in the second quarter.
Murphy’s rationale
Murphy says it is directing a portion of the Canadian dollar proceeds from the Montney midstream divestiture toward the joint venture with Athabasca in the Kaybob Duvernay and Montney.
“Complementing our existing unconventional business in the Eagle Ford shale and Montney, this strategic transaction exposes Murphy to a leading position in the active Kaybob Duvernay lands, while expanding our current Montney focus area into the liquids-rich portion of the play,” said Roger W. Jenkins, Murphy president and chief executive officer.
“This transaction secures a sizable position that has significant running room with an active and well-positioned partner,” Jenkins said. “In addition, recent offset well performance in the area suggests that the type curves are materially improving and that peers, including Athabasca, are achieving significant downward movement in well costs and enhancing returns in the plays.
“We believe that Murphy, operating 900 plus wells in North American unconventional plays, can improve on this trend of lower well costs and higher well performance,” Jenkins said. “The terms of the deal allow for flexibility in capital spending and significant value creation with an oil and natural gas price recovery.”
