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Murphy Oil dives into deepwater Gulf of Mexico with US$1.6bn LLOG deal

Murphy Oil Exploration is poised to buy several deepwater Gulf of Mexico assets from LLOG Exploration for a total of US$1.625 billion, split into a US$1.375 billion cash payment and US$250 million in contingent payments. Most of the interest in the acquired assets are owned by LLOG Bluewater ("Bluewater"), a joint venture between LLOG Exploration (LLOG) and Blackstone.

Imran Khan, Senior Research Manager, US Gulf of Mexico Upstream Oil and Gas, said: "The transaction is part of Murphy’s aggressive plan to expand its footprint in the Gulf of Mexico.

"The company has a large war chest after disposing of over US$2 billion in Malaysian assets earlier this year. Murphy also acquired a majority of Petrobras’s Gulf of Mexico portfolio last year, on top of starting a robust exploration and appraisal campaign. With this transaction, Murphy becomes the eighth-highest producer in the Gulf of Mexico. Only a year ago, they were number 20."

He added: "For LLOG, what is old is new again. It monetises most of the LLOG Bluewater joint venture and allows the company to get back to what it does best: explore. Part of the proceeds will go to paying down debt, but the cash infusion will allow the company to focus on exploring and bolstering the pipeline of new projects.

"We estimate the remaining post-tax value of acquired assets to be around US$2.3 billion (NPV10), reflecting that Murphy received a 30% discount. The price paid per flowing barrel for this transaction is around US$36,000 which is in the low range of the recent transactions.

"The Gulf of Mexico remains a buyer's market with the valuation of recent deals trading at 20-30% lower than our estimates.

"We forecast a big year for M&A in the Gulf of Mexico, and the momentum is starting to pick up. This is the second billion-dollar transaction within the last two weeks. We expect more to come as buyers are attracted to short payback periods, while sellers shed fringe assets and some private equity players look to harvest their old investments."

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