Mikaila Adams
Editor-News
Murphy Oil Corp. has agreed to acquire from LLOG Exploration Offshore LLC and LLOG Bluewater Holdings LLC–a joint venture between LLOG Exploration and Blackstone– assets in 26 Gulf of Mexico blocks containing seven producing fields and four development projects with future start-ups in the Mississippi Canyon and Green Canyon areas for $1.625 billion consisting of a cash payment of $1.375 billion plus $250 million in contingent payments.
Murphy Exploration & Production Co. USA signed a definitive agreement for the deepwater assets, to be owned by Murphy and not part of MP Gulf of Mexico LOC, the entity which currently owns Murphy’s producing Gulf of Mexico assets. Adding 32,000-35,000 net boe/d on an annualized basis for full year 2019 to Murphy’s Gulf of Mexico production (60% oil), Murphy expects the company’s total Gulf of Mexico full year annualized 2019 production to be 85,000 net boe/d, excluding non-controlling interest. The deal expands operated production throughout the Gulf of Mexico to 66% of daily production from the current 49%, excluding non-controlling interest. Lease operating expense for the acquired assets is expected to be $10-$12/boe.
Since selling its refining business and spinning-out its retail gasoline business, said Roger W. Jenkins, Murphy president and chief executive officer in a press statement, the company has “implemented significant strategic changes in revamping Murphy’s portfolio,” specifically increasing its deepwater, oil-weighted, tax advantaged, Gulf of Mexico assets, adding that the company is positioned to “grow oil production with an overall compound annual growth rate of seven to nine percent.”
Commenting in a press note on Murphy’s plan to expand its footprint in the Gulf of Mexico, Imran Khan, Wood Mackenzie senior research manager, US Gulf of Mexico upstream oil and gas, said: “The company has a large war chest after disposing of over US$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.”
For LLOG, Khan said, the deal “monetizes most of the LLOG Bluewater joint venture and allows the company to get back to what it does best: explore.” LLOG will use a portion of the proceeds to pay down debt, “but the cash infusion will allow the company to focus on exploring and bolstering the pipeline of new projects,” he said.
GoM a buyer’s market
Calculating a price of $36,000 per flowing barrel for the deal, Khan said Murphy acquired the assets “in the low range” of recent transactions, noting that the Gulf of Mexico “remains a buyer’s market with the valuation of recent deals trading at 20-30% lower than our estimates.”
Continuing, Kahn said: “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.”
The contingent consideration payments are broken down into two parts: up to $200 million if revenue from certain properties exceeds certain contractual thresholds between 2019 and 2022, and $50 million following first oil from certain development projects.
Murphy will use a combination of cash on hand and availability under its $1.6 billion revolving credit facility to fund the deal. Total outstanding borrowings under the revolving credit facility, including the current balance of $325 million, are expected to be repaid following closing of the company’s $2.127 billion divestiture of Malaysian assets (OGJ Online, Mar. 21, 2019).
Subject to closing adjustments, the deal will have an effective date of Jan. 1 and is expected to close in this year’s second quarter.
