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Is Murphy Oil Mulling Further Asset Sales to Boost Portfolio?

Zacks Equity Research
Enterprise Products (EPD) is seeing favorable earnings estimate revision activity and has a positive Zacks Earnings ESP heading into earnings season.

Just a few days after Murphy Oil Corporation MUR announced its intent to divest Malaysian assets, the company is reportedly eyeing to jettison further assets from its Asia-Pacific portfolio. As we know, Murphy Oil’s Malaysian business will be sold to PTT Exploration and Production Public Company Limited (“PTTEP”) in an all-cash transaction worth $2.1 billion. The company intends to use the proceeds from the same to repurchase shares, trim debt and focus on domestic assets.

Post the closure of the deal within second-quarter 2019, the U.S. oil producer will be holding foreign exploration assets in Australia, Brunei and Vietnam. The company is contemplating to offload non-core assets in these regions, in a bid to streamline portfolio and deepen its focus on domestic holdings.

How Prudent is Murphy Oil’s Divestment Plans?

The divestment plans are certainly in sync with the company’s intention to expand operations in oil-rich Eagle Ford Shale and the Gulf of Mexico. With Equinor EQNR and Pioneer Natural Resources PXD mulling the sale of their Eagle Ford acreage, Murphy Oil could well tap this opportunity to bolster its presence in the shale play. The company’s divestment plans are likely to help it in boosting financials and enhancing investor-friendly moves.

However, one thing that’s worth noticing here is the fact that the Malaysian holdings of the firm attributed to revenues and profits of $854.2 million and $269.5 million, respectively. Further, it generated cash flows of $468 million, given modest capex requirement of $140 million. Since the Malaysian assets were a strong free cash flow generator for the company, we remain a little uncertain if Murphy will be able to meet its FCF target of more than $400 million.

The ‘other’ holdings (in Australia, Vietnam and Brunei) resulted in a loss of $37.5 million in 2018 despite shelling out $88 million as capital expenditure. Hence, it seems judicious for the company to shed off these non-core assets, and concentrate on deep-water projects and U.S. onshore opportunities.   

Final Thoughts

We appreciate Murphy Oil’s strategic JV with Petrobras PBR in the GoM late last year, increased focus on the production of more profitable domestic assets and cost-saving initiatives. While we would also like to remain optimistic about Murphy Oil’s divestment plans, whether the decision will actually be fruitful for the Zacks Rank #3 (Hold) company totally depends upon the way it will reinvest the proceeds and the impact of the same in the coming periods. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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