NOCs Join Fray for Murphy’s Malaysia Upstream Assets

By: Cheang Chee Yew

As they say, there is no smoke without fire. Reports of recent moves by some Asian national oil companies (NOC) to acquire a 30 percent stake in Murphy Oil Corp.’s assets in Malaysia suggest that the U.S. international oil and gas firm is planning to dispose part of its upstream assets in the region.

Vietnam Oil and Gas Group (PetroVietnam), like other state-owned oil and gas firms seeking to expand their production amid declining domestic supplies and higher demand, was the latest regional NOC to express interest in bidding for Murphy’s Malaysian upstream assets. To support its bid, PetroVietnam has begun negotiations with banks in August to secure a 7-year loan of up to $1.8 billion loan, according to sources cited by Thomson Reuters publication Basis Point.

Given the rising dependence on imported crude oil, the Vietnamese NOC probably felt that “as a state company [it] must be involved in oil production overseas,” Philip Andrews-Speed, an energy security specialist at Singapore’s Energy Studies Institute told Reuters.

The PetroVietnam offer was higher than the $1.5 billion bid that an Indian consortium, comprising state-owned Oil and Natural Gas Corp. (ONGC) and Oil India Ltd., was believed to have submitted for the Murphy assets.

India’s interest to acquire producing upstream assets is not a surprise as the Asian giant is the world’s fourth largest energy consumer and net importer of petroleum in 2013 after the United States, China and Japan, the Energy Information Administration (EIA) commented in an August report. Last year, India consumed around 3.7 million barrels of petroleum products per day, which caused a shortfall in the country as domestic production amounted to only 1 million barrels.

Apart from generating interests from NOCs in India and Vietnam, the potential sale of Murphy Malaysian assets attracted bids from Japan’s Mitsubishi Corp. and Mitsui & Co. as well as Kuwait Foreign Petroleum Exploration Co., Reuters reported.

News about Murphy’s upstream asset disposal in Asia first appeared in February, when the firm was said to be considering selling part of its regional oil and gas properties for as much as $3 billion. The plan coincided with moves by other U.S. energy companies that were scaling back on their upstream operations in Asia such as Newfield Exploration Co. and Hess Corp.

Newfield sold its Malaysian upstream assets to SapuraKencana Petroleum Berhad for $898 million in October 2013, while Hess disposed of its Pangkah asset in Indonesia’s East Java Sea to a subsidiary of local natural gas distribution and transportation firm PT Perusahaan Gas Negara’s unit PT Saka Energi Indonesia for $650 million.

Last December, Thai NOC PTT Exploration and Production Public Company Limited (PTTEP) and its Indonesian counterpart PT Pertamina formed an equal joint venture to acquire a 23 percent stake in the Natuna Sea A project, in offshore Indonesia from Hess for $650 million. In April, PTTEP acquired Hess’ upstream assets in Thailand for $1 billion.

Asian demand for upstream oil and gas assets appears unabated as it is supported by rising energy consumption, despite the sale of over $3.2 billion of upstream petroleum assets in the region by Hess and Newfield since last October.

Murphy’s upstream assets in Malaysia accounted for over 40 percent of the company’s total 2013 net production from 9 production sharing contracts – 7 of which it holds a majority interest in. Malaysia contributed about 86,000 barrels of oil equivalent per day in the firm’s net production and has booked total proved reserves of 125 million barrels of oil and 406 billion cubic feet of gas, data from the company’s website showed. That could perhaps explain why regional firms are interested in getting a hold of these assets, especially given the demand for energy in Asia.

Still, it is worth noting that Murphy has not confirmed its plan to reduce its upstream assets in Asia.

“We didn’t start that rumor [about selling 30 percent of the assets in Malaysia] … we don’t comment on all those articles,” Roger Jenkins, CEO of Murphy Oil said in a July 31 conference call held to discuss the firm’s second quarter results.

But the interests of the bidders, including NOCs in Asia, are surely signs that something is afoot. It would not be a surprise if a deal is struck for the acquisition of a part of Murphy’s Malaysian upstream assets.

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