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Murphy Oil eyes North American buying opportunities after Malaysia divestiture

Murphy Oil Corp. will likely use some of the proceeds from the newly announced $2.13 billion divestiture of its Malaysian assets to support aspirations to expand its North American presence on land and offshore.

Murphy, which does the majority of its oil and gas producing business in North America, announced March 21 it will sell its Malaysian subsidiaries to Thailand's PTT Exploration and Production Public Co. Ltd.

"Considering the company's growth aspirations in the Eagle Ford relative to our risked probable inventory, we would not be surprised by an acquisition in US onshore," Paul Sankey, managing director at Mizuho Securities USA LLC, said following the announcement.

However, Murphy is focused on free cash flow asset building, CEO Roger Jenkins said during a March 21 conference call. After debt reduction the company expects to be able to deliver about $1.2 billion of free cash flow between 2019 and 2023 with oil priced at $55 per barrel, with about 8% compound annual growth from core producing assets in onshore and offshore North American markets.

The search for free cash flow assets hurts the prospects for onshore growth, Jenkins said. "It's hard to find a free cash flow-providing onshore asset. It would have to be quite sizable," Jenkins said. "So it just points to more work into offshore quite frankly."

Jenkins did not rule out looking at U.S. onshore possibilities but said opportunities would likely come from "bolt-on opportunities" that have some production, which would allow the company to increase inventory.

Murphy built its reputation as an oil business with a strategy focus on offshore work and built a team successful in doing onshore work, Jenkins said. "This allows us to look at all kinds of different opportunities, but we are going to be a Western Hemisphere-focused on all those opportunities ... and that would lead to more Eagle Ford and to [the] Gulf of Mexico from an M&A perspective," the CEO said.

Murphy is looking for free cash flow accretive assets that do not have declining production profiles, Jenkins said. While not disclosing any assets the company is currently looking to acquire, the CEO suggested deals would be similar to the MP Gulf of Mexico joint-venture deal it closed December 2018 with Petróleo Brasileiro SA - Petrobras subsidiary Petrobras America Inc.

A deep push into U.S. land markets would put the Arkansas-based oil and gas exploration and production company in league with oil majors Exxon Mobil Corp., Chevron Corp. and BP PLC in increasing bets on U.S. shale gas production.

Raymond James analyst Pavel Molchanov said March 21 that even after its divestment in Malaysia, Murphy's production mix "will still benefit from a Brent-linked liquids outweight, particularly bearing in mind the increased [Gulf of Mexico] presence following last year's acquisition from Petrobras." Molchanov said he would prefer to see "better growth visibility" from Murphy but Raymond James is keeping its rating at Market Perform.