(S&P Global Platts, 11.Oct.2018) — Brazilian state-led oil company Petrobras and Murphy Oil will combine production assets in the US Gulf of Mexico in a joint venture that will produce about 75,000 barrels of oil equivalent/day in the fourth quarter of 2018.
“The joint venture will be formed by the combination of all of both companies’ production assets in the Gulf of Mexico, with Murphy the operator with 80% participation and Petrobras America Inc. 20%,” Petrobras said in a filing with the Brazilian stock regulator after markets closed Wednesday.
The deal continued recent trends for both companies, with Petrobras retreating from international projects to focus on the subsalt at home and Murphy expanding its presence in US Gulf plays where the company sees cheap growth opportunities. Petrobras has also focused on the sale of international assets under its $21 billion divestment plan for 2017-2018 after facing legal hurdles to the sale of refineries, oil fields and other assets in Brazil.
Petrobras previously sold off its stake in Petrobras Argentina, exploration and production assets in Colombia and distribution assets in Chile and Paraguay. The company is currently trying to sell off its stakes in exploration and production assets in Africa.
The deepwater fields that will form the production foundation for the JV include Cascade, Chinook, St. Malo, Lucius, Hadrian North, Hadrian South, Cottonwood, Dalmatian, Front Runner, Clipper, Habanero, Kodiak, Medusa and Thunder Hawk, Petrobras said. In addition, the shallow-water fields South Marsh Island 280, Garden Banks 200/201 and Tahoe were also part of the portfolio of combined assets, Petrobras said.
Petrobras will receive a total of $1.1 billion as part of the deal because of the higher value of its production contributions, including $900 million in cash, the company said. A $150 million contingency payment is also on tap for 2025 as well as $50 million worth of development costs at the St. Malo Field that will be paid for by Murphy on behalf of Petrobras, should several enhanced oil-recovery projects currently being studied for the field move forward, the company said.
The cash will be used to pay down debt and fund Petrobras’ investments, which are currently expected to be about $16 billion in 2019 under the company’s 2018-2022 investment plan. Most of Petrobras’ investment cash is earmarked for subsalt fields, where the company holds a dominant position in the deepwater frontier and operates about 1.5 million b/d of output.
Murphy, meanwhile, is part of a shift in the US Gulf after several large independents such as Apache, Devon Energy and ConocoPhillips left the play. Murphy is part of a series of relative newcomers including Talos Energy and Kosmos Energy to snap up opportunities in a region that operators say delivers high margins even at oil prices at or below $40/b.
The company seeks out mature fields with opportunities to tie back fresh wells to existing production facilities. A tieback project will cost about $660 million and take 18 months to complete, but break even at about $32/boe, according to Murphy.
The deal with Petrobras also represents an expansion of Murphy’s ties to Brazil, where the El Dorado, Arkansas-based company purchased stakes in several blocks at recent licensing sales. The biggest opportunity is in the Sergipe-Alagoas Basin, where the company teamed up with ExxonMobil and Brazil’s QGEP Participacoes on several blocks next to a region where Petrobras made 12 separate deepwater discoveries.
Petrobras expects to start a long-term well test in the area in the fourth quarter of 2018.
Brazil also needs companies with Murphy’s expertise in mature field revitalization, which could create additional opportunities for the US company off the coast of South America. The Campos Basin, where many shallow-water and early deepwater developments are approaching the end of their working lives, needs fresh investment aimed at boosting recovery rates to the industry standard of 30%-35% from the current 24%.
Petrobras currently has more than 100 onshore and offshore mature fields in Brazil up for sale under its divestment program. Brazil’s National Petroleum Agency (ANP) is pushing Petrobras to determine which of the fields the company wants to extend concession contracts for and to return the rest to the regulator for resale.
The ANP recently implemented a program aimed at boosting investment in mature fields by reducing royalty rates on incremental production increases to 5% from the current 10% in exchange for investment that extends the assets’ working lives, boosts recovery rates and increases production. The program covers more than 200 of Brazil’s 241 offshore fields, according to ANP officials.
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