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Murphy Oil (MUR) Gains on GOM Joint Venture With Petrobras

Zacks

Shares of Murphy Oil Corporation MUR moved up nearly 11.6% yesterday, courtesy of its decision to make a joint venture in the Gulf of Mexico (‘GOM”) with Petrobras PBR. The strategic venture is aimed to develop the resource-rich region of GOM, which includes Gulf of Mexico producing assets from Murphy Oil and Petrobras’ subsidiary Petrobras America Inc. (“PAI”).

The company will own 80% of the joint venture and PAI will possess the remaining 20%. It will pay $900 million for this venture and expects to fund it through its cash-on-hand and senior credit facility.



How Murphy Expects to Benefit?

This deal will boost Murphy Oil’s total production from the GOM area to 60,000 net barrels of oil equivalent per day (boe/d), through the addition of 41,000 net boe/d to its Gulf of Mexico production, of which 97% is oil.

In addition, the deal will further increase the share of oil in Murphy Oil’s total production mix by nine percentage point to 61%. The deal is in sync with the company’s goal to develop high-margin assets.

Oil Price Rebounds, Production Increases

With oil price making a steady recovery from historic lows, Murphy Oil has decided to return to its offshore exploration in GOM and other international regions. Murphy Oil, the operator of GOM Samurai appraisal, has partnered with BHP Billiton Limited BHP to develop the region.

The company expects its 2018 total production in the range of 168.5-170.5 thousand barrels of oil equivalent (Mboe/d), up from 2017 levels of 164 Mboe/d. The recovery of oil prices has a significant role to play in the regard, with the operators finding confidence to explore and develop new areas.

Murphy Oil expects to spend $1,179 million in 2018, up from $975.7 million in 2017. The company possesses one of the best upstream portfolios among the domestic oil and natural gas integrated companies and independent E&P group. The planned expenditure will help the company to further develop its high-quality holdings.

Zacks Rank & A Key Pick

Murphy Oil currently has a Zacks Rank #5 (Strong Sell). A better-ranked stock from the same industry is Penn Virginia Corporation PVAC, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Penn Virginia Corporation delivered an average positive earnings surprise of 14.96% in the last four quarters. Its earnings estimates for 2018 and 2019 have moved up 4.4% and 6.9%, respectively, over the past 60 days.

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