EUR 850.00 For Business Accounts Only

Morningstar | Murphy Anticipates Petrobras Deal Closing in 4Q, Adding 41 Mboe/d to Its Output

Murphy delivered average volumes of 169 mboe/d in the third quarter, which was 10% higher year over year and above the high end of guidance (due to outperformance in the Tupper Montney and Sarawak areas in Canada and Malaysia, respectively). Realized prices nudged higher on a weighted-average basis, with very strong Eagle Ford prices offsetting widening differentials in Canada and Malaysia. On the cost side lease operating expenses fell to a 2018 low of $8.6/boe, but total unit costs ticked up slightly due to rising overhead. On balance the firm’s financial results were in line with Street estimates, with adjusted EBITDA and adjusted earnings per share coming in at $400 million and $0.35, respectively (consensus estimates were $391 million and $0.35). Our fair value estimate is unchanged.

Despite the positive production surprise, full-year guidance was unchanged at 169.5 mboe/d at the midpoint (due to a series of one-off outages anticipated during the fourth quarter, including hurricane-related shut-ins in the Gulf of Mexico, flooding in the Eagle Ford, delayed maintenance in Canada, and unspecified mechanical issues in Malaysia, which have already been resolved according to management). But as this guidance does not include the anticipating fourth-quarter closing of the previously announced Gulf of Mexico joint venture with Petrobras, actual volumes will be significantly higher.

Under the terms of the deal Murphy and Petrobras will each contribute all of their Gulf of Mexico producing assets, and the latter will also add in its exploration rights in the province. Murphy will operate the venture with an 80% ownership stake and in return will pay Petrobras an upfront payment of $900 million (with the potential for contingency payments depending on the revenue performance of its St Malo and Lucius assets). This will increase Murphy’s net production by 41 mboe/d, and its Gulf oil mix will rise from 83% to 91%. We consider this transaction fairly priced.