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Murphy Oil to Sell Malaysian Assets to Focus on Domestic Oil

Zacks Equity Research

Murphy Oil Corporation MUR announced that its subsidiary has entered into an agreement to sell two of its Malaysian assets in an all-cash transaction worth $2.127 billion. The assets will be sold to PTT Exploration and Production Public Company Limited (“PTTEP”). In addition to the purchase price, PTTEP will also pay $100 million in a bonus payment contingent upon certain future exploratory drilling results prior to October 2020.

Subject to required approval from different agencies, this transaction is expected to close in the second quarter of 2019.

Usage of Net Proceeds

Murphy Oil intends to utilize the proceeds through share buyback, repayment of debts and investment, in order to expand its operation in oil-focused domestic assets. Murphy Oil plans to invest $750 million of the proceeds to expand its operation in oil-rich Eagle Ford Shale and the Gulf of Mexico. The company might opt for acquisitions or fund both deep-water projects and U.S. onshore opportunities.     

Murphy Oil’s Board of Directors approved a new $500-million share repurchase program that will expire on Dec 31, 2020, of which approximately $300 million is planned to be executed in the first tranche, with the remaining $200 million expected in the second tranche.    

In addition, $750 million will be utilized to strengthen its balance sheet by reducing outstanding debt. The company will utilize $325 million to pay off its senior credit facility to a zero balance and $425 million targeted to the repurchase or redemption of outstanding senior notes.    

Focus on Domestic Assets

The U.S. Energy Information Administration (“EIA”) estimates that in 2018, about 10.9 million barrels per day of crude oil were produced  from oil resources in the United States.  Courtesy of the shale boom and U.S. oil and gas producers’ increasing focus on producing more domestic assets, we expect oil production volumes to increase from the 2018 level, going forward.

Murphy Oil is not the only U.S. oil and gas company that is hiving off foreign assets to develop its domestic assets. U.S. oil and gas companies like Marathon Oil Corporation MRO also decided to sell U.K. North Sea assets to strengthen its domestic production assets. Devon Energy Corporation DVN is also undertaking initiatives to sell its Canadian oil sand assets to focus on low-cost domestic oil assets.                                    

Price Movement

Shares of Murphy Oil have outperformed its industry in the past 12 months.

Zacks Rank & Another Key Pick

Currently, Murphy Oil has a Zacks Rank #2 (Buy). Another top-ranked stock from the same industry is Antero Resources Corporation AR, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Antero Resources’ long-term earnings growth is pegged at 20% and the company surpassed fourth-quarter earnings estimates by 21.05%

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