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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q  

(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission file number 1-8590

MURPHY OIL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware						71-0361522
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)
9805 Katy Fwy, Suite G-200						77024
Houston,			Texas			(Zip Code)
(Address of principal executive offices)
(281)						675-9000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol			Name of each exchange on which registered
Common Stock, $1.00 Par Value			MUR			New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes  ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ Yes    ☐ No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

Number of shares of Common Stock, $1.00 par value, outstanding at April 30, 2022 was 155,372,135.

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MURPHY OIL CORPORATION

TABLE OF CONTENTS

			Page
Part I – Financial Information
Item 1.  Financial Statements
Consolidated Balance Sheets			2
Consolidated Statements of Operations			3
Consolidated Statements of Comprehensive Income			4
Consolidated Statements of Cash Flows			5
Consolidated Statements of Stockholders’ Equity			6
Notes to Consolidated Financial Statements			7
Note A – Nature of Business and Interim Financial Statements			7
Note B – New Accounting Principles and Recent Accounting Pronouncements			7
Note C – Revenue from Contracts with Customers			8
Note D – Property, Plant and Equipment			10
Note E – Assets Held for Sale and Discontinued Operations			12
Note F – Financing Arrangements and Debt			12
Note G – Other Financial Information			13
Note H – Employee and Retiree Benefit Plans			14
Note I – Incentive Plans			14
Note J – Earnings Per Share			16
Note K – Income Taxes			16
Note L – Financial Instruments and Risk Management			16
Note M – Accumulated Other Comprehensive Loss			19
Note N – Environmental and Other Contingencies			19
Note O – Business Segments			20
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3.  Quantitative and Qualitative Disclosures About Market Risk			32
Item 4.  Controls and Procedures			32
Part II – Other Information			33
Item 1.  Legal Proceedings			33
Item 1A.  Risk Factors			33
Item 6.  Exhibits			33
Signature			34

1

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Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS (unaudited)

(Thousands of dollars)			March 31, 2022						December 31, 2021
ASSETS
Current assets
Cash and cash equivalents			$	480,587					521,184
Accounts receivable, net			371,838						258,150
Inventories			59,339						54,198
Prepaid expenses			32,585						31,925
Assets held for sale			15,701						15,453
Total current assets			960,050						880,910
Property, plant and equipment, at cost less accumulated depreciation, depletion and amortization of $12,660,784 in 2022 and $12,457,851 in 2021			8,237,743						8,127,852
Operating lease assets			907,504						881,389
Deferred income taxes			408,346						385,516
Deferred charges and other assets			28,094						29,273
Total assets			$	10,541,737					10,304,940
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt, finance lease			$	662					654
Accounts payable			939,941						623,129
Income taxes payable			21,587						19,951
Other taxes payable			21,415						20,306
Operating lease liabilities			173,892						139,427
Other accrued liabilities			441,382						360,859
Total current liabilities			1,598,879						1,164,326
Long-term debt, including finance lease obligation			2,466,114						2,465,414
Asset retirement obligations			859,335						839,776
Deferred credits and other liabilities			472,708						570,574
Non-current operating lease liabilities			752,364						761,162
Deferred income taxes			188,047						182,892
Total liabilities			6,337,447						5,984,144
Equity
Cumulative Preferred Stock, par $100, authorized 400,000 shares, none issued			—						—
Common Stock, par $1.00, authorized 450,000,000 shares, issued 195,100,628 shares in 2022 and 195,100,628 shares in 2021			195,101						195,101
Capital in excess of par value			880,537						926,698
Retained earnings			5,082,034						5,218,670
Accumulated other comprehensive loss			(506,355)						(527,711)
Treasury stock			(1,618,478)						(1,655,447)
Murphy Shareholders' Equity			4,032,839						4,157,311
Noncontrolling interest			171,451						163,485
Total equity			4,204,290						4,320,796
Total liabilities and equity			$	10,541,737					10,304,940

See Notes to Consolidated Financial Statements, page 7.

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Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

									Three Months Ended March 31,
(Thousands of dollars, except per share amounts)															2022						2021
Revenues and other income
Revenue from production															$	834,528					592,527
Sales of purchased natural gas															36,846						—
Total revenue from sales to customers															871,374						592,527
Loss on crude contracts															(320,777)						(214,385)
Gain on sale of assets and other income															2,364						1,843
Total revenues and other income															552,961						379,985
Costs and expenses
Lease operating expenses															136,825						147,164
Severance and ad valorem taxes															14,635						9,231
Transportation, gathering and processing															46,923						42,912
Costs of purchased natural gas															33,665						—
Exploration expenses, including undeveloped lease amortization															47,566						11,780
Selling and general expenses															33,529						29,503
Depreciation, depletion and amortization															164,124						198,278
Accretion of asset retirement obligations															11,876						10,492
Impairment of assets															—						171,296
Other operating expense															105,942						21,079
Total costs and expenses															595,085						641,735
Operating loss from continuing operations															(42,124)						(261,750)
Other income (loss)
Other expense															(2,495)						(5,341)
Interest expense, net															(37,277)						(88,100)
Total other loss															(39,772)						(93,441)
Loss from continuing operations before income taxes															(81,896)						(355,191)
Income tax benefit															(16,961)						(88,159)
Loss from continuing operations															(64,935)						(267,032)
(Loss) income from discontinued operations, net of income taxes															(551)						208
Net loss including noncontrolling interest															(65,486)						(266,824)
Less: Net income attributable to noncontrolling interest															47,850						20,614
NET LOSS ATTRIBUTABLE TO MURPHY															$	(113,336)					(287,438)
LOSS PER COMMON SHARE – BASIC
Continuing operations															$	(0.73)					(1.87)
Discontinued operations															—						—
Net loss															$	(0.73)					(1.87)
LOSS PER COMMON SHARE – DILUTED
Continuing operations															$	(0.73)					(1.87)
Discontinued operations															—						—
Net loss															$	(0.73)					(1.87)
Cash dividends per Common share															0.15						0.125
Average Common shares outstanding (thousands)
Basic															154,916						153,953
Diluted															154,916						153,953

See Notes to Consolidated Financial Statements, page 7.

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Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

									Three Months Ended March 31,
(Thousands of dollars)															2022						2021
Net loss including noncontrolling interest															$	(65,486)					(266,824)
Other comprehensive income, net of tax
Net gain from foreign currency translation															18,020						19,897
Retirement and postretirement benefit plans															3,336						4,136
Deferred loss on interest rate hedges reclassified to interest expense															—						1,690
Other comprehensive income															21,356						25,723
Comprehensive loss including noncontrolling interest															(44,130)						(241,101)
Less: Comprehensive income attributable to noncontrolling interest															47,850						20,614
COMPREHENSIVE LOSS ATTRIBUTABLE TO MURPHY															$	(91,980)					(261,715)

See Notes to Consolidated Financial Statements, page 7.

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Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

			Three Months Ended March 31,
(Thousands of dollars)			2022						2021
Operating Activities
Net loss including noncontrolling interest			$	(65,486)					(266,824)
Adjustments to reconcile net loss to net cash provided by continuing operations activities
Loss (income) from discontinued operations			551						(208)
Depreciation, depletion and amortization			164,124						198,278
Unsuccessful exploration well costs and previously suspended exploration costs			32,831						717
Amortization of undeveloped leases			4,198						4,602
Accretion of asset retirement obligations			11,876						10,492
Deferred income tax benefit			(20,253)						(88,867)
Mark to market loss on contingent consideration			98,126						14,923
Mark to market loss on crude contracts			188,509						153,505
Long-term non-cash compensation			17,288						12,124
Impairment of assets			—						171,296
Net (increase) in noncash working capital			(80,922)						(9,052)
Other operating activities, net			(12,512)						36,780
Net cash provided by continuing operations activities			338,330						237,766
Investing Activities
Property additions and dry hole costs			(244,908)						(240,545)
Property additions for King's Quay FPS			—						(17,734)
Proceeds from sales of property, plant and equipment			—						268,023
Net cash (required) provided by investing activities			(244,908)						9,744
Financing Activities
Borrowings on revolving credit facility			—						140,000
Repayment of revolving credit facility			—						(340,000)
Retirement of debt			—						(576,358)
Debt issuance, net of cost			—						541,980
Early redemption of debt cost			—						(34,177)
Distributions to noncontrolling interest			(39,884)						(36,006)
Contingent consideration payment			(55,169)						—
Cash dividends paid			(23,300)						(19,287)
Withholding tax on stock-based incentive awards			(15,421)						(3,794)
Capital lease obligation payments			(158)						(178)
Net cash (required) by financing activities			(133,932)						(327,820)
Effect of exchange rate changes on cash and cash equivalents			(87)						574
Net (decrease) in cash and cash equivalents			(40,597)						(79,736)
Cash and cash equivalents at beginning of period			521,184						310,606
Cash and cash equivalents at end of period			$	480,587					230,870

See Notes to Consolidated Financial Statements, page 7.

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Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

									Three Months Ended March 31,
(Thousands of dollars)															2022						2021
Cumulative Preferred Stock – par $100, authorized 400,000 shares, none issued															$	—					—
Common Stock – par $1.00, authorized 450,000,000 shares, issued 195,100,628 shares at March 31, 2022 and 195,100,628 shares at March 31, 2021
Balance at beginning of period															195,101						195,101
Exercise of stock options															—						—
Balance at end of period															195,101						195,101
Capital in Excess of Par Value
Balance at beginning of period															926,698						941,692
Exercise of stock options, including income tax benefits															(7,220)						(39)
Restricted stock transactions and other															(45,169)						(33,000)
Share-based compensation															6,228						5,650
Balance at end of period															880,537						914,303
Retained Earnings
Balance at beginning of period															5,218,670						5,369,538
Net loss attributable to Murphy															(113,336)						(287,438)
Cash dividends															(23,300)						(19,287)
Balance at end of period															5,082,034						5,062,813
Accumulated Other Comprehensive Loss
Balance at beginning of period															(527,711)						(601,333)
Foreign currency translation gain, net of income taxes															18,020						19,897
Retirement and postretirement benefit plans, net of income taxes															3,336						4,136
Deferred loss on interest rate hedges reclassified to interest expense, net of income taxes															—						1,690
Balance at end of period															(506,355)						(575,610)
Treasury Stock
Balance at beginning of period															(1,655,447)						(1,690,661)
Awarded restricted stock, net of forfeitures															32,297						29,206
Exercise of stock options															4,672						39
Balance at end of period – 39,730,079 shares of Common Stock in 2022 and 40,784,118 shares of Common Stock in 2021, at cost															(1,618,478)						(1,661,416)
Murphy Shareholders’ Equity															4,032,839						3,935,191
Noncontrolling Interest
Balance at beginning of period															163,485						179,810
Net income attributable to noncontrolling interest															47,850						20,614
Distributions to noncontrolling interest owners															(39,884)						(36,006)
Balance at end of period															171,451						164,418
Total Equity															$	4,204,290					4,099,609

See Notes to Consolidated Financial Statements, page 7.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These notes are an integral part of the financial statements of Murphy Oil Corporation and Consolidated Subsidiaries (the Company or Murphy) on pages 2 through 6 of this Form 10-Q report.

Note A – Nature of Business and Interim Financial Statements

NATURE OF BUSINESS – Murphy Oil Corporation is an international oil and natural gas exploration and production company that conducts its business through various operating subsidiaries.  The Company primarily produces oil and natural gas in the United States and Canada and conducts oil and natural gas exploration activities worldwide.

In connection with the LLOG Exploration Offshore L.L.C. and LLOG Bluewater Holdings, L.L.C., (LLOG) acquisition, we hold a 0.5% interest in two variable interest entities (VIEs), Delta House Oil and Gas Lateral LLC and Delta House Floating Production System (FPS) LLC (collectively Delta House). These VIEs have not been consolidated because we are not considered the primary beneficiary. These non-consolidated VIEs are not material to our financial position or results of operations. As of March 31, 2022, our maximum exposure to loss was $3.2 million (excluding operational impacts), which represents our net investment in Delta House. We have not provided any financial support to Delta House other than amounts previously required by our membership interest.

INTERIM FINANCIAL STATEMENTS – In the opinion of the Murphy’s management, the unaudited financial statements presented herein include all accruals necessary to present fairly the Company’s financial position at March 31, 2022 and December 31, 2021, and the results of operations, cash flows and changes in stockholders’ equity for the interim periods ended March 31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America (U.S.).  In preparing the financial statements of the Company in conformity with accounting principles generally accepted in the U.S., management has made a number of estimates and assumptions related to the reporting of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities.  Actual results may differ from the estimates.

Consolidated financial statements and notes to consolidated financial statements included in this Form 10-Q report should be read in conjunction with the Company’s 2021 Form 10-K report, as certain notes and other pertinent information have been abbreviated or omitted in this report.  Financial results for the three-month period ended March 31, 2022 are not necessarily indicative of future results.

Note B – New Accounting Principles and Recent Accounting Pronouncements

Accounting Principles Adopted

Income Taxes. In December 2019, the FASB issued ASU 2019-12, which removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Implementation on a prospective or retrospective basis varies by specific topics within the ASU. The Company adopted this guidance in the first quarter of 2021 and it did not have a material impact on its consolidated financial statements.

Recent Accounting Pronouncements

None affecting the Company.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note C – Revenue from Contracts with Customers

Nature of Goods and Services

The Company explores for and produces crude oil, natural gas and natural gas liquids (collectively oil and natural gas) in select basins around the globe. The Company’s revenue from sales of oil and natural gas production activities are primarily subdivided into two key geographic segments: the U.S. and Canada.  Additionally, revenue from sales to customers is generated from three primary revenue streams: crude oil and condensate, natural gas liquids, and natural gas.

For operated oil and natural gas production where the non-operated working interest owner does not take-in-kind its proportionate interest in the produced commodity, the Company acts as an agent for the working interest owner and recognizes revenue only for its own share of the commingled production. The exception to this is the reporting of the noncontrolling interest in MP GOM as prescribed by ASC 810-10-45.

U.S. - In the United States, the Company primarily produces oil and natural gas from fields in the Eagle Ford Shale area of South Texas and in the Gulf of Mexico.  Revenue is generally recognized when oil and natural gas are transferred to the customer at the delivery point. Revenue recognized is largely index based with price adjustments for floating market differentials.

Canada - In Canada, contracts include long-term floating commodity index priced and natural gas physical forward sales fixed-price contracts. For the offshore business in Canada, contracts are based on index prices and revenue is recognized at the time of vessel load based on the volumes on the bill of lading and point of custody transfer. The Company also purchases natural gas in Canada to meet certain sales commitments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note C – Revenue from Contracts with Customers (Contd.)

Disaggregation of Revenue

The Company reviews performance based on two key geographical segments and between onshore and offshore sources of revenue within these geographies.

For the three-month periods ended March 31, 2022, and 2021, the Company recognized $871.4 million and $592.5 million, respectively, from total revenue from sales to customers, from sales of oil, natural gas liquids and natural gas.

For the three-month periods ended March 31, 2022, and 2021, the Company recognized $834.5 million and $592.5 million, respectively, from sales of oil, natural gas liquids and natural gas from production.

												Three Months Ended March 31,
(Thousands of dollars)																		2022						2021
Net crude oil and condensate revenue
United States			Onshore															$	171,696					114,490
			Offshore															465,621						328,341
Canada			Onshore															36,697						29,903
			Offshore															28,832						18,062
Total crude oil and condensate revenue																		702,846						490,796
Net natural gas liquids revenue
United States			Onshore															16,685						7,528
			Offshore															13,979						10,054
Canada			Onshore															4,867						3,987
Total natural gas liquids revenue																		35,531						21,569
Net natural gas revenue
United States			Onshore															11,369						6,443
			Offshore															26,201						22,138
Canada			Onshore															58,581						51,581
Total natural gas revenue																		96,151						80,162
Revenue from production																		834,528						592,527
Sales of purchased natural gas1																		36,846						—
Total revenue from sales to customers																		871,374						592,527
Loss on crude contracts																		(320,777)						(214,385)
Gain on sale of assets and other income																		2,364						1,843
Total revenues and other income																		$	552,961					379,985

1  Sales of purchase natural gas are associated with Canada Onshore.

In 2022, the Company included additional line items on the face of the Consolidated Statements of Operations to report Sales of purchased natural gas and Costs of purchased natural gas. Sales and purchases of natural gas are reported on a gross basis when Murphy takes control of the products and has risks and rewards of ownership.

Contract Balances and Asset Recognition

As of March 31, 2022, and December 31, 2021, receivables from contracts with customers, net of royalties and associated payables, on the balance sheet from continuing operations, were $258.6 million and $169.8 million, respectively. Payment terms for the Company’s sales vary across contracts and geographical regions, with the majority of the cash receipts required within 30 days of billing. Based on a forward-looking expected loss model in accordance with ASU 2016-13, the Company did not recognize any impairment losses on receivables or contract assets arising from customer contracts during the reporting periods.

The Company has not entered into any revenue contracts that have financing components as of March 31, 2022.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note C – Revenue from Contracts with Customers (Contd.)

The Company does not employ sales incentive strategies such as commissions or bonuses for obtaining sales contracts. For the periods presented, the Company did not identify any assets to be recognized associated with the costs to obtain a contract with a customer.

Performance Obligations

The Company recognizes oil and natural gas revenue when it satisfies a performance obligation by transferring control over a commodity to a customer.  Judgment is required to determine whether some customers simultaneously receive and consume the benefit of commodities. As a result of this assessment for the Company, each unit of measure of the specified commodity is considered to represent a distinct performance obligation that is satisfied at a point in time upon the transfer of control of the commodity.

For contracts with market or index-based pricing, which represent the majority of sales contracts, the Company has elected the allocation exception and allocates the variable consideration to each single performance obligation in the contract. As a result, there is no price allocation to unsatisfied remaining performance obligations for delivery of commodity product in subsequent periods.

The Company has entered into several long-term, fixed-price contracts in Canada. The underlying reason for entering a fixed price contract is generally unrelated to anticipated future prices or other observable data and serves a particular purpose in the Company’s long-term strategy.

As of March 31, 2022, the Company had the following sales contracts in place which are expected to generate revenue from sales to customers for a period of more than 12 months starting at the inception of the contract:

Current Long-Term Contracts Outstanding at March 31, 2022

Location

Commodity

End Date

Description

Approximate Volumes

U.S.

Natural Gas and NGL

Q1 2023

Deliveries from dedicated acreage in Eagle Ford

As produced

Canada

Natural Gas

Q4 2022

Contracts to sell natural gas at USD index pricing

8 MMCFD

Canada

Natural Gas

Q4 2022

Contracts to sell natural gas at CAD fixed prices

5 MMCFD

Canada

Natural Gas

Q4 2022

Contracts to sell natural gas at USD fixed pricing

20 MMCFD

Canada

Natural Gas

Q4 2023

Contracts to sell natural gas at USD index pricing

25 MMCFD

Canada

Natural Gas

Q4 2023

Contracts to sell natural gas at CAD fixed prices

38 MMCFD

Canada

Natural Gas

Q4 2024

Contracts to sell natural gas at USD index pricing

31 MMCFD

Canada

Natural Gas

Q4 2024

Contracts to sell natural gas at CAD fixed prices

100 MMCFD

Canada

Natural Gas

Q4 2024

Contracts to sell natural gas at CAD fixed prices

34 MMCFD

Canada

Natural Gas

Q4 2024

Contracts to sell natural gas at USD fixed pricing

15 MMCFD

Canada

Natural Gas

Q4 2026

Contracts to sell natural gas at USD index pricing

49 MMCFD

Canada

NGL

Q3 2023

Contracts to sell natural gas liquids at CAD pricing

952 BOED

Fixed price contracts are accounted for as normal sales and purchases for accounting purposes.

Note D – Property, Plant and Equipment

Exploratory Wells

Under FASB guidance exploratory well costs should continue to be capitalized when the well has found a sufficient quantity of reserves to justify its completion as a producing well and the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project.

As of March 31, 2022, the Company had total capitalized exploratory well costs for continuing operations pending the determination of proved reserves of $172.7 million.  The following table reflects the net changes in capitalized exploratory well costs during the three-month periods ended March 31, 2022 and 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note D – Property, Plant and Equipment (Contd.)

(Thousands of dollars)			2022						2021
Beginning balance at January 1			$	179,481					181,616
Additions pending the determination of proved reserves			3,698						785
Capitalized exploratory well costs charged to expense			(10,473)						—
Balance at March 31			$	172,706					182,401

The capitalized well costs charged to expense during 2022 represent expenditures related to the Cutthroat-1 exploration well in block SEAL-M-428 in the Sergipe-Alagoas Basin offshore Brazil. There were no hydrocarbons found in this well.

The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed for each individual well and the number of projects for which exploratory well costs have been capitalized.  The projects are aged based on the last well drilled in the project.

			March 31,
			2022																		2021
(Thousands of dollars)			Amount						No. of Wells						No. of Projects						Amount						No. of Wells						No. of Projects
Aging of capitalized well costs:
Zero to one year			$	2,810					2						2						—						—						—
One to two years			—						—						—						23,514						3						3
Two to three years			23,667						3						3						30,562						2						2
Three years or more			146,229						8						2						128,325						6						—
			$	172,706					13						7						182,401						11						5

Of the $169.9 million of exploratory well costs capitalized more than one year at March 31, 2022, $94.0 million is in Vietnam, $47.6 million is in the U.S., $15.3 million is in Mexico, $8.2 million is in Brunei, and $4.8 million is in Canada.  In all geographical areas, either further appraisal or development drilling is planned and/or development studies/plans are in various stages of completion. 

Impairments

There were no impairments in the first quarter of 2022. In the first quarter of 2021, the Company recorded an impairment charge of $171.3 million for Terra Nova due to the status, including agreements with partners, of operating and production plans. Later in 2021, the Company acquired an additional 7.525% working interest at Terra Nova following a commercial agreement to sanction an asset life extension project.

Divestments

There were no divestments in the first quarter of 2022. During the first quarter of 2021, the King’s Quay FPS was sold to ArcLight Capital Partners, LLC (ArcLight) for proceeds of $267.7 million, which reimbursed the Company for previously incurred capital expenditures.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note E – Assets Held for Sale and Discontinued Operations

The Company has accounted for its former U.K. and U.S. refining and marketing and Malaysian exploration and production operations as discontinued operations for all periods presented.  The results of operations associated with discontinued operations for the three-month periods ended March 31, 2022 and 2021 were as follows:

									Three Months Ended March 31,
(Thousands of dollars)															2022						2021
Revenues															$	10					44
Costs and expenses
Other costs and expenses (benefits)															561						(164)
(Loss) income before taxes															(551)						208
Income tax expense															—						—
(Loss) income from discontinued operations															$	(551)					208

As of March 31, 2022 and December 31, 2021, assets held for sale on the Consolidated Balance Sheet include the carrying value of the net property, plant and equipment of CA-2 project in Brunei and the Company’s former headquarters office building in El Dorado, Arkansas.

(Thousands of dollars)			March 31, 2022						December 31, 2021
Current assets
Property, plant, and equipment, net			15,701						15,453
Total current assets associated with assets held for sale			$	15,701					15,453

Note F – Financing Arrangements and Debt

As of March 31, 2022, the Company had a $1.6 billion revolving credit facility (RCF). The RCF is a senior unsecured guaranteed facility which expires in November 2023. At March 31, 2022, the Company had no outstanding borrowings under the RCF and $31.4 million of outstanding letters of credit, which reduce the borrowing capacity of the RCF. At March 31, 2022, the interest rate in effect on borrowings under the facility was 2.15%. At March 31, 2022 and 2021, the Company was in compliance with all covenants related to the RCF.

In March 2021, the Company issued $550.0 million of new notes that bear interest at a rate of 6.375% and mature on July 15, 2028. The Company incurred transaction costs of $8.1 million on the issuance of these new notes and the Company will pay interest semi-annually on January 15 and July 15 of each year, beginning July 15, 2021. The proceeds of the $550.0 million notes, along with cash on hand, were used to redeem and cancel $259.3 million of the Company’s 4.00% notes due June 2022 and $317.1 million of the Company’s 4.95% notes due December 2022 (originally issued as 3.70% notes due 2022; collectively the 2022 Notes). The cost of the debt extinguishment of $36.9 million is included in Interest expense, net on the Consolidated Statement of Operations for the three months ended March 31, 2021. The cash costs of $34.2 million are shown as a financing activity on the Consolidated Statement of Cash Flows for the three months ended March 31, 2021.

The Company also has a shelf registration statement on file with the U.S. Securities and Exchange Commission that permits the offer and sale of debt and/or equity securities through October 15, 2024.

On May 2, 2022, the Company issued a notice of partial redemption with respect to $200.0 million aggregate principal amount of its 6.875% senior notes due 2024 (the Notes). The Company will redeem the Notes at the applicable redemption price set forth in the indenture governing the Notes, plus accrued and unpaid interest, if any, to but, not including, the date of redemption. The redemption date of the Notes will be June 2, 2022.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note G – Other Financial Information

Additional disclosures regarding cash flow activities are provided below.

			Three Months Ended March 31,
(Thousands of dollars)			2022						2021
Net decrease (increase) in operating working capital, excluding cash and cash equivalents:
(Increase) in accounts receivable ¹			$	(117,928)					(16,954)
(Increase) decrease in inventories			(4,541)						392
(Increase) in prepaid expenses			(515)						(3,652)
Increase in accounts payable and accrued liabilities ¹			40,426						11,810
Increase (decrease) in income taxes payable			1,636						(648)
Net (increase) in noncash operating working capital			$	(80,922)					(9,052)
Supplementary disclosures:
Cash income taxes paid, net of refunds			$	103					720
Interest paid, net of amounts capitalized of $5.3 million in 2022 and $3.3 million in 2021			40,181						44,577
Non-cash investing activities:
Asset retirement costs capitalized 2			$	3,889					6,390
(Increase) decrease in capital expenditure accrual			(49,352)						13,617

1 Excludes receivable/payable balances relating to mark-to-market of derivative instruments and contingent consideration relating to acquisitions.

2 Excludes non-cash capitalized cost offset by Terra Nova impairment of $74.4 million in the first quarter of 2021.

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Note H – Employee and Retiree Benefit Plans

The Company has defined benefit pension plans that are principally noncontributory and cover most full-time employees.  All pension plans are funded except for the U.S. and Canadian nonqualified supplemental plan and the U.S. director’s plan.  All U.S. tax qualified plans meet the funding requirements of federal laws and regulations.  Contributions to foreign plans are based on local laws and tax regulations.  The Company also sponsors health care and life insurance benefit plans, which are not funded, that cover most retired U.S. employees.  The health care benefits are contributory; the life insurance benefits are noncontributory.

The table that follows provides the components of net periodic benefit expense for the three-month periods ended March 31, 2022 and 2021.

			Three Months Ended March 31,
			Pension Benefits												Other Postretirement Benefits
(Thousands of dollars)			2022						2021						2022						2021
Service cost			$	2,129					1,768						292						326
Interest cost			5,243						4,286						574						521
Expected return on plan assets			(8,138)						(6,133)						—						—
Amortization of prior service cost (credit)			600						156						(133)						—
Recognized actuarial loss			3,822						5,279						(77)						(7)
Net periodic benefit expense			$	3,656					5,356						656						840

The components of net periodic benefit expense, other than the service cost, are recorded in Other expense in the Consolidated Statements of Operations.

During the three-month period ended March 31, 2022, the Company made contributions of $8.7 million to its defined benefit pension and postretirement benefit plans. Remaining funding in 2022 for the Company’s defined benefit pension and postretirement plans is anticipated to be $34.4 million.

Note I – Incentive Plans

The costs resulting from all share-based and cash-based incentive plans are recognized as an expense in the Consolidated Statements of Operations using a fair value-based measurement method over the periods that the awards vest.

On December 7, 2021, the Board approved the replacement of the 2017 Annual Incentive Plan (2017 Annual Plan) with the Murphy Oil Corporation Annual Incentive Plan (AIP) effective as of January 1, 2022. The new AIP can be found as an exhibit to the Company’s 2021 Form 10-K filed on February 25, 2022 and will remain in effect until such time as the Plan is terminated by the Board. The AIP authorizes the Executive Compensation Committee (the Committee) to establish specific performance goals associated with annual cash awards that may be earned by officers, executives and certain other employees.  Cash awards under the AIP are determined based on the Company’s actual financial and operating results as measured against the performance goals established by the Committee. 

The 2020 Long-Term Incentive Plan (2020 Long-Term Plan) authorizes the Committee to make grants of the Company’s Common Stock to employees.  These grants may be in the form of stock options (nonqualified or incentive), stock appreciation rights (SAR), restricted stock, restricted stock units (RSU), performance units, performance shares, dividend equivalents and other stock-based incentives.  The 2020 Long-Term Plan expires in 2030.  A total of five million shares are issuable during the life of the 2020 Long-Term Plan. Shares issued pursuant to awards granted under this Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including shares purchased in the open market. Share awards that have been canceled, expired, forfeited or otherwise not issued under an award shall not count as shares issued under this Plan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note I – Incentive Plans (Contd.)

During the first three months of 2022, the Committee granted the following awards from the 2020 Long-Term Plan:

2020 Long-Term Incentive Plan

Type of Award

Number of Awards Granted

Grant Date

Grant Date Fair Value

Valuation Methodology

Performance Based RSUs 1

580,600

February 1, 2022

$

47.37

Monte Carlo

Time Based RSUs 2

273,400

February 1, 2022

$

32.12

Average Stock Price

Cash Settled RSUs 3

674,300

February 1, 2022

$

32.12

Average Stock Price

1 Performance based RSUs are scheduled to vest over a three year performance period.

2 Time based RSUs are generally scheduled to vest over three years from the date of grant.

3 Cash settled RSUs are generally scheduled to vest over three years from the date of grant.

The Company also has a Stock Plan for Non-Employee Directors that permits the issuance of restricted stock, restricted stock units and stock options or a combination thereof to the Company’s Non-Employee Directors.

At the Company’s annual stockholders’ meeting held on May 12, 2021, shareholders approved the replacement of the 2018 Stock Plan for Non-Employee Directors (2018 NED Plan) with the 2021 Stock Plan for Non-Employee Directors (2021 NED Plan). The 2021 NED Plan permits the issuance of restricted stock, restricted stock units and stock options or a combination thereof to the Company’s Non-Employee Directors. The Company currently has outstanding incentive awards issued to Directors under the 2021 NED Plan and the 2018 NED Plan. All awards on or after May 12, 2021, were made under the 2021 NED Plan.

During the first three months of 2022, the Committee granted the following awards to Non-Employee Directors:

2021 Stock Plan for Non-Employee Directors

Type of Award

Number of Awards Granted

Grant Date

Grant Date Fair Value

Valuation Methodology

Time Based RSUs 1

73,092

February 2, 2022

$

32.84

Closing Stock Price

1 Non-employee directors time-based RSUs are scheduled to vest in February 2023.

All stock option exercises are non-cash transactions for the Company.  The employee receives net shares, after applicable withholding obligations, upon each stock option exercise. The actual income tax benefit realized from the tax deductions related to stock option exercises of the share-based payment arrangements were immaterial for the three-month period ended March 31, 2022.

Amounts recognized in the financial statements with respect to share-based plans are shown in the following table:

			Three Months Ended March 31,
(Thousands of dollars)			2022						2021
Compensation charged against income before tax benefit			$	13,962					8,196
Related income tax benefit recognized in income			2,272						1,165

Certain incentive compensation granted to the Company’s named executive officers, to the extent their total compensation exceeds $1.0 million per executive per year, is not eligible for a U.S. income tax deduction under the Tax Cuts and Jobs Act (2017 Tax Act).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note J – Earnings Per Share

Net loss attributable to Murphy was used as the numerator in computing both basic and diluted income per Common share for the three-month periods ended March 31, 2022 and 2021.  The following table reports the weighted-average shares outstanding used for these computations.

									Three Months Ended March 31,
(Weighted-average shares)															2022						2021
Basic method															154,916,004						153,952,552
Dilutive stock options and restricted stock units ¹															—						—
Diluted method															154,916,004						153,952,552

1 Due to a net loss recognized by the Company for the three-month periods ended March 31, 2022 and 2021, no unvested stock awards were included in the computation of diluted earnings per share because the effect would have been antidilutive.

Note K – Income Taxes

The Company’s effective income tax rate is calculated as the amount of income tax expense (benefit) divided by income (loss) from continuing operations before income taxes.  For the three-month periods ended March 31, 2022 and 2021, the Company’s effective income tax rates were as follows:

			2022						2021
Three months ended March 31,			20.7%						24.8%

The effective tax rate for the three-month period ended March 31, 2022 was below the U.S. statutory tax rate of 21% primarily due to exploration expenses in certain foreign jurisdictions in which no income tax benefit is currently available, offset by no tax applied to the pre-tax income of the noncontrolling interest in MP GOM.

The effective tax rate for the three-month period ended March 31, 2021 was above the statutory tax rate of 21% primarily due to losses recorded in Canada which have a higher tax rate, no tax applied to the pre-tax income of the noncontrolling interest in MP GOM, offset by exploration expenses in certain foreign jurisdictions in which no income tax benefit is currently available.

The Company’s tax returns in multiple jurisdictions are subject to audit by taxing authorities. These audits often take years to complete and settle. Although the Company believes that recorded liabilities for unsettled issues are adequate, additional gains or losses could occur in future years from resolution of outstanding unsettled matters. Additionally, the Company could be required to pay amounts into an escrow account as any matters are identified and appealed with the relevant taxing authorities.  As of March 31, 2022, the earliest years remaining open for audit and/or settlement in our major taxing jurisdictions are as follows: United States – 2016; Canada – 2016; and Malaysia – 2014. The Company has retained certain possible liabilities and rights to income tax receivables relating to Malaysia for the years prior to 2019. The Company believes current recorded liabilities are adequate.

Note L – Financial Instruments and Risk Management

Murphy uses derivative instruments, such as swaps and zero-cost commodity price collar contracts, to manage certain risks related to commodity prices, foreign currency exchange rates and interest rates.  The use of derivative instruments for risk management is covered by operating policies and is closely monitored by the Company’s senior management.  The Company does not hold any derivatives for speculative purposes, and it does not use derivatives with leveraged or complex features.  Derivative instruments are traded with creditworthy major financial institutions or over national exchanges such as the New York Mercantile Exchange (NYMEX).  The Company has a risk management control system to monitor commodity price risks and any derivatives obtained to manage a portion of such risks.  For accounting purposes, the Company has not designated commodity and foreign currency derivative contracts as hedges, and therefore, it recognizes all gains and losses on these derivative contracts in its Consolidated Statements of Operations.  

Commodity Price Risks

The Company has entered into crude oil swaps and collar contracts. Under the swaps contracts, which mature monthly, the Company pays the average monthly price in effect and receives the fixed contract price on a notional amount of sales volume, thereby fixing the price for the commodity sold. Under the collar contracts, which also mature monthly, the Company purchased a put option and sold a call option with no net premiums paid to or received from counterparties. Upon maturity,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note L – Financial Instruments and Risk Management (Contd.)

collar contracts require payments by the Company if the NYMEX average closing price is above the ceiling price or payments to the Company if the NYMEX average closing price is below the floor price.

At March 31, 2022, volumes per day associated with outstanding crude oil derivative contracts and the weighted average prices for these contracts are as follows:

												2022
NYMEX WTI swap contracts:
Volume per day (Bbl):												20,000
Price per Bbl:												$	44.88
NYMEX WTI collar contracts:
Volume per day (Bbl):												25,000
Price per Bbl:
Average Ceiling:												$	75.20
Average Floor:												$	63.24

Foreign Currency Exchange Risks

The Company is subject to foreign currency exchange risk associated with operations in countries outside the U.S. The Company had no foreign currency exchange derivatives outstanding at March 31, 2022 and 2021.

At March 31, 2022 and December 31, 2021, the fair value of derivative instruments not designated as hedging instruments are presented in the following table.

(Thousands of dollars)

Asset (Liability) Derivatives Fair Value

Type of Derivative Contract

Balance Sheet Location

March 31, 2022

December 31, 2021

Commodity swaps

Accounts payable

$

(306,095)

(239,882)

Commodity collars

Accounts receivable

—

4,280

Accounts payable

(162,123)

(19,533)

For the three-month periods ended March 31, 2022 and 2021, the gains and losses recognized in the Consolidated Statements of Operations for derivative instruments not designated as hedging instruments are presented in the following table.

																		Gain (Loss)
(Thousands of dollars)						Statement of Operations Location												Three months ended March 31,
Type of Derivative Contract																								2022						2021
Commodity swaps						Loss on crude contracts																		$	(156,359)					(214,385)
Commodity collars						Loss on crude contracts																		(164,418)						—

Fair Values – Recurring

The Company carries certain assets and liabilities at fair value in its Consolidated Balance Sheets.  The fair value hierarchy is based on the quality of inputs used to measure fair value, with Level 1 being the highest quality and Level 3 being the lowest quality.  Level 1 inputs are quoted prices in active markets for identical assets or liabilities.  Level 2 inputs are observable inputs other than quoted prices included within Level 1.  Level 3 inputs are unobservable inputs which reflect assumptions about pricing by market participants.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note L – Financial Instruments and Risk Management (Contd.)

The carrying value of assets and liabilities recorded at fair value on a recurring basis at March 31, 2022 and December 31, 2021, are presented in the following table.

						March 31, 2022																								December 31, 2021
(Thousands of dollars)						Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
Assets:
Commodity collars						$	—					—						—						—						—						4,280						—						4,280
						$	—					—						—						—						—						4,280						—						4,280
Liabilities:
Nonqualified employee savings plan						$	17,038