Just a few days after Murphy Oil Corporation (NYSE:MUR) announced its intent to divest Malaysian assets, the company is reportedly eyeing to jettison further assets from its Asia-Pacific portfolio. As we know, Murphy Oil’s Malaysian business will be sold to PTT Exploration and Production Public Company Limited (“PTTEP”) in an all-cash transaction worth $2.1 billion. The company intends to use the proceeds from the same to repurchase shares, trim debt and focus on domestic assets.
Post the closure of the deal within second-quarter 2019, the U.S. oil producer will be holding foreign exploration assets in Australia, Brunei and Vietnam. The company is contemplating to offload non-core assets in these regions, in a bid to streamline portfolio and deepen its focus on domestic holdings.
How Prudent is Murphy Oil’s Divestment Plans?
The divestment plans are certainly in sync with the company’s intention to expand operations in oil-rich Eagle Ford Shale and the Gulf of Mexico. With Equinor (NYSE:EQNR) and Pioneer Natural Resources (NYSE:PXD) mulling the sale of their Eagle Ford acreage, Murphy Oil could well tap this opportunity to bolster its presence in the shale play. The company’s divestment plans are likely to help it in boosting financials and enhancing investor-friendly moves.
However, one thing that’s worth noticing here is the fact that the Malaysian holdings of the firm attributed to revenues and profits of $854.2 million and $269.5 million, respectively. Further, it generated cash flows of $468 million, given modest capex requirement of $140 million. Since the Malaysian assets were a strong free cash flow generator for the company, we remain a little uncertain if Murphy will be able to meet its FCF target of more than $400 million.
The ‘other’ holdings (in Australia, Vietnam and Brunei) resulted in a loss of $37.5 million in 2018 despite shelling out $88 million as capital expenditure. Hence, it seems judicious for the company to shed off these non-core assets, and concentrate on deep-water projects and U.S. onshore opportunities.
Final Thoughts
We appreciate Murphy Oil’s strategic JV with Petrobras (NYSE:PBR) in the GoM late last year, increased focus on the production of more profitable domestic assets and cost-saving initiatives. While we would also like to remain optimistic about Murphy Oil’s divestment plans, whether the decision will actually be fruitful for the Zacks Rank #3 (Hold) company totally depends upon the way it will reinvest the proceeds and the impact of the same in the coming periods. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
Petroleo Brasileiro S.A.- Petrobras (PBR): Free Stock Analysis Report
Pioneer Natural Resources Company (PXD): Free Stock Analysis Report
Murphy Oil Corporation (MUR): Free Stock Analysis Report
Statoil ASA (OL:EQNR
Original post
Zacks Investment Research