March 21, 2019 / 11:58 AM / 3 months ago

UPDATE 4-Murphy Oil sells Malaysia assets to PTTEP for $2.1 bln, turns toward home

* Murphy will focus on Western Hemisphere after transaction

* PTTEP expects deal to add sales volumes, operating cash flow

* M&A activity picking up in Southeast Asia energy sector (Recasts with comment from PTTEP, analyst, other details)

By Shradha Singh and Nivedita Bhattacharjee

March 22 (Reuters) - Murphy Oil Corp is exiting Malaysia with a $2.13 billion sale of its oil and gas assets there to Thailand's PTTEP and said it will use the proceeds to pay down debt, buy back shares and fund potential deals in the United States.

Besides the enterprise value of the sale, PTT Exploration and Production Public Co Ltd (PTTEP), a unit of state-owned PTT PCL, will also pay Murphy Oil up to $100 million as a bonus if certain exploration projects show results before October 2020, the companies said on Thursday.

The deal between Murphy and PTTEP comes as M&A activity is heating up in Malaysia's oil and gas sector, where global companies pursuing expansion plans are spotting opportunities.

Reuters reported that Murphy was nearing a deal to sell its Malaysian assets to PTTEP earlier on Thursday.

"Like many Asian national companies, PTTEP suffers from a maturing domestic portfolio. To improve its production outlook the company has been on the hunt for licence extensions and counter-cyclical M&A opportunities, with a focus on Southeast Asia," said Alex Siow, a research analyst at energy research firm Wood Mackenzie, in an email.

"This is the biggest oil and gas deal in Southeast Asia for over five years, and supports our view that 2019 is set to be a big year for M&A activity in the region," he said.

Reuters reported in November, citing sources, that Murphy was in talks to sell its Malaysian assets after an unsolicited bid.

Sources had said Spanish oil major Repsol, whose presence in Malaysia is focused on the upstream sector, or other global majors could be potential buyers for Murphy's assets.

Murphy had proven reserves of 816 million barrels of oil equivalent (boe) in 2018, of which 129 million boe were from Malaysia. Those assets produced over 48,000 boe per day for Murphy last year.

The deal follows moves by other U.S. oil majors to turn investment to high-yielding shale fields at home, where output has soared to more than 12 million barrels per day (bpd), rising over 2 million bpd since early 2018.

WESTERN FOCUS

Murphy, which also has operations in Canada, Brazil and other regions, said it will focus on the Western Hemisphere - mostly on the Eagle Ford basin in Texas and the U.S. Gulf of Mexico - for future exploration and production deals.

"We expect to generate approximately $1.2 billion of free cash flow at a flat $55 West Texas Intermediate price," CEO Roger Jenkins said on a call with analysts.

Futures for light crude were trading at around $60 per barrel on Friday.

Murphy shares rose as much as 1.8 percent before closing at $30.97 on Thursday.

PTTEP said the deal is expected to promptly raise sales volumes by 15 percent and operating cash flow upon completion.

"This diversified self-funded portfolio will add a mix of production, development and exploration assets that will provide immediate revenue stream, production and reserves for both short and long term," PTTEP said in a statement.

Malaysian state-owned Petronas partners Murphy in Malaysia, which has seen M&A pick-up in the energy sector.

In September, Austrian oil and gas company OMV agreed on a joint venture with Sapura Energy Bhd, paying $540 million for a 50 percent stake in the exploration assets of the Malaysian firm.

In August, citing sources, Reuters reported that U.S. company Hess Corp's Southeast Asian offshore natural gas assets had attracted bid interest from PTTEP and OMV. Hess later said it had no plans to sell its Southeast Asian assets.

Murphy also announced a $500 million share buyback as well as debt reduction of about $750 million. The company had about $3 billion in debts as of December 2018.

The deal on the Malaysian assets is expected to close by the end of the second quarter.

Bank of America Merrill Lynch served as advisor to Murphy on the sale, while Tudor, Pickering, Holt & Co was the financial advisor. Jefferies Group LLC was the financial advisor to PTTEP. (Reporting by Nivedita Bhattacharjee and Shradha Singh in BENGALURU; Kane Wu in HONG KONG and Anshuman Daga in SINGAPORE; Editing by Arun Koyyur and Tom Hogue)

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