Murphy Oil, Petrobras in Gulf of Mexico joint venture

The U.S. oil company Murphy Oil has said it will form a joint venture company with Petrobras America, a U.S. subsidiary of the Brazilian oil company Petrobras.

BW Pioneer FPSO photo
BW Pioneer is used to produce oil from Petrobras’ Chinook field. Image by BW Offshore

The two companies have signed a definitive agreement to create a joint company comprised of all of Murphy’s and Petrobras’ Gulf of Mexico assets. Murphy will be overseeing the operations.

The joint venture company will be owned 80 percent by Murphy and 20 percent by Petrobras.

Murphy said the transaction would add around 41,000 net barrels of oil equivalent per day to Murphy’s Gulf of Mexico production, of which 97 percent is oil.

The JV will have an estimated average production of approximately 75 thousand barrels of oil equivalent per day in the fourth quarter of 2018, and will, according to Petrobras, comprise the following assets:

Deepwater fields: Cascade, Chinook, St. Malo, Lucius and Hadrian North, Cottonwood, Hadrian South, Dalmatian, Front Runner, Clipper, Habanero, Kodiak, Medusa, and Thunder Hawk.

Shallow water fields: South Marsh Island 280, Garden Banks 200/201 and Tahoe.

The transaction does not cover exploration blocks from the two companies, with the exception of Petrobras’s blocks that hold deep exploration rights.

Murphy will pay cash consideration of $900 million to Petrobras, subject to normal closing adjustments. Additionally, Petrobras will earn an additional contingent consideration up to $150 million if certain price and production thresholds are exceeded beginning in 2019 through 2025.

Also, Murphy will carry $50 million of Petrobras’ costs in the St. Malo Field if certain enhanced oil recovery projects are undertaken. Upon closing, Murphy expects to fund the transaction through a combination of cash-on-hand and the company’s senior credit facility.

Murphy President and Chief Executive Officer Roger W. Jenkins stated, “We are very pleased to partner with Petrobras, a global leader in deepwater developments, in our new Gulf of Mexico joint venture. We believe the combined strengths of Petrobras and Murphy will yield significant long-term value for both companies. The addition of high quality, oil-weighted assets, such as the St. Malo Field, complements our existing Gulf of Mexico portfolio. We expect the production from this joint venture to generate meaningful incremental free cash flow that provides us with options for future capital allocation.”