Murphy Oil Concludes Partial Malaysian Asset Divestment - Analyst Blog

Murphy Sabah Oil Co., Ltd. and Murphy Sarawak Oil Co., Ltd., subsidiaries of Murphy Oil Corporation (MUR), have completed the first phase of its Malaysian asset-monetization program. Per the deal, PT Pertamina Malaysia Eksplorasi Produksi, an Indonesian state-owned oil and natural gas organization, has acquired 20% of Murphy Oil's Malaysian oil and gas assets.

Murphy Oil's decision to sell 30% of its interests in several production sharing contracts in Malaysia for $2.0 billion was initially flashed on Sep 30, 2014. The transaction will likely complete in two stages – the first phase of acquiring 20% will be completed in Dec 2014 while the rest is expected to conclude in first-quarter 2015.

Upon approval of the transaction, Murphy Oil will be able to close its alliance with Petroliam Nasional Berhad (PETRONAS), a Malaysian oil and gas company, and instead form an alliance with PT Pertamina. The company will continue its existing Malaysian operations.

Murphy Oil intends to invest the proceeds from this transaction in capital expenditure for strategic acquisitions, debt reduction and share repurchase. The transaction will enable the company to focus on its operations in the Eagle Ford play and the Gulf of Mexico.

According to a U.S. Energy Information Administration report published in Dec 2014, proved reserves for oil in the Eagle Ford play at the end of at Dec 31, 2013 came in at 4,177 million barrels. In addition to oil and natural gas liquids reserves, the Eagle Ford Shale had natural gas reserves of 17.4 trillion cubic feet at 2013-end. Murphy Oil intends to concentrate its resources on the Eagle Ford operations to tap the vast reserves in the region, thereby improving the reserve replacement ratio.

Murphy Oil is currently streamlining its business by divesting non-core assets and focusing on exploration and production projects primarily in the North American region.

The company is simultaneously progressing with the divesture of its Milford Haven refinery and terminal assets in the UK. The company has already sold its UK-based retail gasoline business and oil and gas assets. In Sep 2013, the company had spun off its U.S. downstream subsidiary, which is currently trading on the New York Stock Exchange as Murphy USA Inc. (MUSA).

Strategic asset divestures are becoming increasingly common in the energy sector, particularly among companies which intend to streamline their businesses. In Nov 2014, another oil and gas firm, Occidental Petroleum Corporation (OXY), sold off its 50% interest in BridgeTex Pipeline Company LLC to Plains All American Pipeline, L.P. (PAA) for $1.075 billion.

Positive drilling results and reutilization of funds in profitable ventures will support Murphy Oil's initiatives like share repurchases and dividend hikes, to maximize shareholder value.

Murphy Oil currently has a Zacks Rank #3 (Hold).

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