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Murphy Oil exits Malaysia

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Oilfield Technology,

Murphy Oil Corp. announced today that a subsidiary has signed a sale and purchase agreement to divest the fully issued share capital of its two primary Malaysian subsidiaries, Murphy Sabah Oil Co., Ltd. and Murphy Sarawak Oil Co., Ltd., to a subsidiary of PTT Exploration and Production Public Company Ltd (PTTEP).

PTTEP will pay Murphy US$2.127 billion in an all-cash transaction, payable upon closing and subject to customary closing adjustments, plus up to a US$100 million bonus payment contingent upon certain future exploratory drilling results prior to October 2020.

The transaction has an effective economic valuation date of 1 January 2019, with the closing expected to occur by the end of 2Q19. Closing of the transaction is subject to customary conditions precedent including, among other things, necessary regulatory approvals. Under the terms of the transaction, Murphy will exit the country of Malaysia.

The year-end 2018 proved reserves (1P) net to Murphy were 816 million boe of which 16% or 129 million boe were attributable to Malaysia. Of the 129 million boe of proved reserves, 70 million boe are characterised as proved undeveloped. The proved reserves are comprised of 468 billion ft3 of natural gas and 51 million barrels of liquids. Total production net to Murphy in 2018 for the properties to be divested was over 48 000 boe/d, comprised of 62% liquids.

Proceeds from the transaction

Murphy intends to allocate the proceeds from the transaction to advance its strategic priorities. This includes returning cash to shareholders through share repurchases and strengthening the company’s balance sheet by reducing debt.

Murphy’s Board of Directors has approved a new US$500 million share repurchase programme, expiring on 31 December 2020, of which approximately US$300 million is planned to be executed in the first tranche, with the remaining US$200 million expected in the second tranche. In addition, the company intends to use a portion of the proceeds to pay down approximately US$750 million of outstanding debt, with US$325 million allocated to pay off Murphy’s senior credit facility to a zero balance and US$425 million targeted to the repurchase or redemption of outstanding senior notes.

The company plans to continue its current oil-weighted strategy in both the Eagle Ford Shale and the Gulf of Mexico, while maintaining its focused exploration plan. To this end, US$750 million of the remaining proceeds will remain on the balance sheet earmarked for US oil-weighted opportunities through potential acquisitions and/or the funding of both deep water projects and US onshore opportunities. The company will continue to employ a measured, disciplined approach to capital allocation that is aimed at generating the greatest value for Murphy’s shareholders.

Murphy expects to record a book gain on the sale between US$0.9 billion to US$1.0 billion, and plans to repatriate essentially all of the cash proceeds to the US.

“After 20 years of successful operations in Malaysia, I am pleased to announce this all-cash transaction benefiting our shareholders by fully monetising our proved and probable reserves. The tactical repositioning of Murphy allows us to simplify our business and focus on our core assets in the Western Hemisphere. The transaction will provide us with greater financial flexibility and allow us to continue returning cash to our shareholders through share repurchases,” commented Roger W. Jenkins, President and CEO. “We would like to congratulate PTTEP on their purchase and we will support them in a smooth business transition over the coming months. I would like to thank our long-term partners in Malaysia, PETRONAS, PETRONAS Carigali and Pertamina. Most importantly, I would like to thank our committed Malaysian staff for their hard work and endless dedication to our company and we look forward to their successful transition to PTTEP,” Jenkins added.

New 2019 plan

The new 2019 annual plan reflects the company’s ongoing commitment to the goal of aligning spending within cash flows, while simultaneously returning cash to shareholders. The company’s previously announced annual production guidance was 202 to 210 million boe/d, of which 46 to 48 million boe/d was attributable to Malaysia. Murphy’s previously announced capital plan for 2019 was expected to be in the range of US$1.25 to US$1.45 billion, of which US$106 million was attributable to Malaysia.

Beginning with the 1Q19 earnings release, the Malaysian operations will be reported as a “discontinued operation” and classified as “held for sale” for financial reporting purposes.

Multi-year plan

The company is well-positioned for long-term value creation. Following the Malaysia divestiture, US$500 million share repurchase authorisation and US$750 million debt reduction, the company believes it can generate over US$1.2 billion of free cash flow, before dividend payments between 2019 to 2023, when applying a US$55 per barrel WTI flat price. Over the same time frame, it plans to generate approximately an 8% compound annual growth rate from its three core producing assets in US onshore, Canada onshore, and North America offshore.

“Our strategy of delivering moderate production growth over the next few years while generating free cash flow above our planned dividend levels continues when applying conservative oil prices even following the risk-free monetisation of our Malaysia assets. We will continue with our plans of investing in our high margin, oil-weighted Western Hemisphere opportunities, especially the Eagle Ford Shale and the Gulf of Mexico while maintaining our focused low-cost exploration program,” Jenkins added.

Bank of America Merrill Lynch served as advisor to Murphy on the transaction and Tudor, Pickering, Holt & Co. served as financial advisor to Murphy. Gibson, Dunn & Crutcher LLP acted as legal counsel to Murphy.

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