Murphy Oil Corporation, has made and announcement confirming that Murphy Exploration & Production Company – USA, its wholly owned subsidiary, has signed a definitive agreement with Petrobras America Inc (PAI) to form a new joint venture company. The joint venture with PAI, a Petrobras PBR subsidiary, will involve combining Murphy and PAI’s Gulf of Mexico producing assets.
Further from the announcement, Murphy would be overseeing the new company operations and the transaction, having October 1 this year as the effective date, is expected to be completed by 2018 end. Both companies would be contributing all of their existing producing assets in Gulf of Mexico towards the joint venture, in which Murphy will own 80 percent stake while PAI would hold the remaining 20%.
Reportedly, the deal does not include exploration blocks from both companies, with the exception being PAI’s blocks that have deep exploration rights. Murphy is slated to pay $900 million as cash consideration to PAI, with the transaction subject to regular closing adjustments. Apart from this, PAI would earn additional contingent consideration of up to $150 million if specific production and price thresholds are surpassed, from 2019 through 2025.
Sources familiar with the matter informed that Murphy will bear $50 million of costs on behalf of PAI in the St. Malo Field, in case certain projects for enhanced oil recovery are undertaken. Murphy expects to utilize a combination of cash on hand and its senior credit facility to fund the transaction upon closing the deal.
Roger W. Jenkins, President and Chief Executive Officer for Murphy, stated that the combined strengths of Murphy and Petrobras will deliver significant value for both companies in the long term. By adding oil-weighted and high quality assets like the St. Malo Field, the company has enhanced its existing portfolio in the Gulf of Mexico, he added.
Jenkins believes the production from this joint venture, which will add nearly 41,000 net barrels of oil equivalent per day to Murphy’s Gulf of Mexico production, could generate increased free cash flow that would allow the company options for allocating capital in the future.