Petrobras (PBR - Free Report) and Murphy Oil Corporation (MUR - Free Report) have entered into a joint venture (JV) agreement for deep-water oil exploration operations in the Gulf of Mexico (GoM). The JV will comprise GoM producing assets from both Murphy Oil and Petrobras’s subsidiary PAI. The transaction, with an effective date of Oct 1, is expected to close by the end of this year. Murphy Oil will be the chief operator of the JV, with 80% stake.
The deal is expected to boost Murphy Oil’s production in the GoM by 41,000 net barrels of oil equivalent per day (Boe/d). Post the completion of the deal, Murphy Oil’s total output is likely to be approximately 60,000 net barrels. The JV will help Murphy Oil collaborate with the global leader in deep-water developments, leading to shareholder value creation and robust cash flow generation for the company.
Murphy Oil will be paying $900 million in cash to PAI for the formation of the JV. Additionally, Petrobras can earn $150 million if certain price and output limits exceed in the time frame of 2019-2025.
The $900-million cash consideration is likely to strengthen the balance sheet of Petrobras. As it is, the company aims to revive its financial health through divestments and spin offs, thereby gaining additional liquidity, as it intends to increase its investment in ultra-deepwater projects. The company’s successful cost-cut initiatives and aggressive divestment programs are helping it in its endeavor to trim the debt load. Petrobras has plans to reduce its operating expenses to $136.8 billion from $153 billion projected in the five-year plan earlier. Its divestment program of $21 billion throughout 2017-2018 is expected to support debt reduction.
Zacks Rank and Other Stocks to Consider
Petrobras currently sports a Zacks Rank #1 (Strong Buy). The company’s committed efforts to improve liquidity and operational efficiency, along with its ambitious five-year plans make us optimistic about the stock.
Other top-ranked players in the oil and gas sector include Shell Midstream Partners, L.P. (SHLX - Free Report) and Chevron Corporation (CVX - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shell Midstream Partners is involved in owning, operating, developing and acquiring pipelines, and other midstream assets. The partnership delivered an average positive earnings surprise of 7.9% in the trailing four quarters.
Chevron is an integrated energy company based in San Ramon, CA. The company’s top line for 2018 is expected to grow 17.7% year over year.
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