SEC Filing - Murphy Oil Corporation

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mur-20220630

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 June 30, 2022


☐			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

https://cdn.kscope.io/3c1aa6f41d426a82c18d53f53e91f066-mur-20220630_g1.jpg

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 July 31, 2022 was 155,452,838.

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			17
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			22




Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			35
Part II – Other Information			36
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36

Item 6. Exhibits			36
Signature			37

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS (unaudited)


(Thousands of dollars)	June 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	432,019	521,184
Accounts receivable, net	522,023		258,150
Inventories	63,886		54,198
Prepaid expenses	33,392		31,925
Assets held for sale	15,561		15,453
Total current assets	1,066,881		880,910
Property, plant and equipment, at cost less accumulated depreciation, depletion and amortization of $12,751,486 in 2022 and $12,457,851 in 2021	8,295,655		8,127,852
Operating lease assets	855,975		881,389
Deferred income taxes	326,706		385,516
Deferred charges and other assets	26,994		29,273

Total assets	$	10,572,211	10,304,940
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt, finance lease	$	670	654
Accounts payable	910,009		623,129
Income taxes payable	25,452		19,951
Other taxes payable	30,698		20,306
Operating lease liabilities	167,953		139,427
Other accrued liabilities	483,430		360,859

Total current liabilities	1,618,212		1,164,326
Long-term debt, including finance lease obligation	2,267,934		2,465,414
Asset retirement obligations	863,892		839,776
Deferred credits and other liabilities	439,404		570,574
Non-current operating lease liabilities	706,016		761,162
Deferred income taxes	188,523		182,892

Total liabilities	6,083,981		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	883,368		926,698
Retained earnings	5,405,400		5,218,670
Accumulated other comprehensive loss	(554,727)		(527,711)
Treasury stock	(1,616,340)		(1,655,447)
Murphy Shareholders' Equity	4,312,802		4,157,311
Noncontrolling interest	175,428		163,485
Total equity	4,488,230		4,320,796
Total liabilities and equity	$	10,572,211	10,304,940

See Notes to Consolidated Financial Statements, page 7.

Table of Contents

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


	Three Months Ended June 30,			Six Months Ended June 30,
(Thousands of dollars, except per share amounts)	2022		2021	2022		2021
Revenues and other income
Revenue from production	$	1,146,299	758,829	$	1,980,827	1,351,356
Sales of purchased natural gas	49,939		—	86,785		—
Total revenue from sales to customers	1,196,238		758,829	2,067,612		1,351,356
Loss on crude contracts	(103,068)		(226,245)	(423,845)		(440,630)
Gain on sale of assets and other income	7,887		17,059	10,251		18,902
Total revenues and other income	1,101,057		549,643	1,654,018		929,628
Costs and expenses
Lease operating expenses	147,352		126,413	284,177		273,577
Severance and ad valorem taxes	17,565		11,314	32,200		20,545
Transportation, gathering and processing	49,948		49,696	96,871		92,608
Costs of purchased natural gas	47,971		—	81,636		—
Exploration expenses, including undeveloped lease amortization	15,151		13,543	62,717		25,323
Selling and general expenses	27,130		29,113	60,659		58,616

Depreciation, depletion and amortization	195,856		227,288	359,980		425,566
Accretion of asset retirement obligations	11,563		12,164	23,439		22,656
Impairment of assets	—		—	—		171,296
Other operating expense	36,913		70,328	142,855		91,407
Total costs and expenses	549,449		539,859	1,144,534		1,181,594
Operating income (loss) from continuing operations	551,608		9,784	509,484		(251,966)
Other income (loss)
Other income (expense)	5,308		(4,525)	2,813		(9,866)
Interest expense, net	(41,385)		(43,374)	(78,662)		(131,474)
Total other (loss)	(36,077)		(47,899)	(75,849)		(141,340)
Income (loss) from continuing operations before income taxes	515,531		(38,115)	433,635		(393,306)
Income tax (benefit) expense	105,084		(11,177)	88,123		(99,336)
Income (loss) from continuing operations	410,447		(26,938)	345,512		(293,970)
(Loss) income from discontinued operations, net of income taxes	(943)		(102)	(1,494)		106
Net income (loss) including noncontrolling interest	409,504		(27,040)	344,018		(293,864)
Less: Net income attributable to noncontrolling interest	58,947		36,042	106,797		56,656
NET INCOME (LOSS) ATTRIBUTABLE TO MURPHY	$	350,557	(63,082)	$	237,221	(350,520)
INCOME (LOSS) PER COMMON SHARE – BASIC
Continuing operations	$	2.27	(0.41)	$	1.54	(2.27)
Discontinued operations	(0.01)		—	(0.01)		—
Net income (loss)	$	2.26	(0.41)	$	1.53	(2.27)
INCOME (LOSS) PER COMMON SHARE – DILUTED
Continuing operations	$	2.24	(0.41)	$	1.51	(2.27)
Discontinued operations	(0.01)		—	(0.01)		—
Net income (loss)	$	2.23	(0.41)	$	1.50	(2.27)
Cash dividends per Common share	$	0.175	0.125	0.325		0.250

Average Common shares outstanding (thousands)
Basic	155,389		154,395	155,121		154,153
Diluted	157,455		154,395	157,852		154,153

See Notes to Consolidated Financial Statements, page 7.

Table of Contents

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)


	Three Months Ended June 30,			Six Months Ended June 30,
(Thousands of dollars)	2022		2021	2022		2021
Net income (loss) including noncontrolling interest	$	409,504	(27,040)	$	344,018	(293,864)
Other comprehensive (loss) income, net of tax
Net (loss) gain from foreign currency translation	(51,545)		17,945	(33,525)		37,842
Retirement and postretirement benefit plans	3,173		4,146	6,509		8,282
Deferred loss on interest rate hedges reclassified to interest expense	—		—	—		1,690

Other comprehensive (loss) income	(48,372)		22,091	(27,016)		47,814
Comprehensive income (loss) including noncontrolling interest	$	361,132	(4,949)	317,002		(246,050)
Less: Comprehensive income attributable to noncontrolling interest	58,947		36,042	106,797		56,656
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO MURPHY	$	302,185	(40,991)	$	210,205	(302,706)

See Notes to Consolidated Financial Statements, page 7.

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Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Six Months Ended June 30,
(Thousands of dollars)	2022		2021
Operating Activities
Net income (loss) including noncontrolling interest	$	344,018	(293,864)
Adjustments to reconcile net income (loss) to net cash provided by continuing operations activities
Loss (income) from discontinued operations	1,494		(106)
Depreciation, depletion and amortization	359,980		425,566
Unsuccessful exploration well costs and previously suspended exploration costs	34,102		633
Amortization of undeveloped leases	7,980		8,882
Accretion of asset retirement obligations	23,439		22,656
Deferred income tax (benefit) expense	66,691		(101,195)
Mark to market loss on contingent consideration	129,818		76,677
Mark to market loss on crude contracts	100,343		284,360
Long-term non-cash compensation	40,467		25,318
Impairment of assets	—		171,296

(Gain) from sale of assets	(35)		—
Net (increase) decrease in noncash working capital	(121,598)		26,565
Other operating activities, net	(27,458)		39,494
Net cash provided by continuing operations activities	959,241		686,282
Investing Activities
Property additions and dry hole costs 1	(552,825)		(422,841)
Acquisition of oil and gas properties 1	(46,491)		(22,473)
Property additions for King's Quay FPS	—		(17,734)
Proceeds from sales of property, plant and equipment	47		269,363
Net cash (required) by investing activities	(599,269)		(193,685)
Financing Activities
Borrowings on revolving credit facility	100,000		165,000
Repayment of revolving credit facility	(100,000)		(365,000)
Retirement of debt	(200,000)		(576,358)
Debt issuance, net of cost	—		541,974
Early redemption of debt cost	(3,438)		(34,177)
Distributions to noncontrolling interest	(94,854)		(75,238)
Contingent consideration payment	(81,742)		—
Cash dividends paid	(50,491)		(38,590)
Withholding tax on stock-based incentive awards	(16,697)		(3,895)
Capital lease obligation payments	(320)		(371)


Net cash (required) by financing activities	(447,542)		(386,655)






Effect of exchange rate changes on cash and cash equivalents	(1,595)		1,552
Net (decrease) increase in cash and cash equivalents	(89,165)		107,494
Cash and cash equivalents at beginning of period	521,184		310,606
Cash and cash equivalents at end of period	$	432,019	418,100

1 Certain prior-period amounts have been reclassified to conform to the current period presentation.

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 June 30,			Six Months Ended June 30,
(Thousands of dollars)	2022		2021	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 June 30, 2022 and 195,100,628 shares at June 30, 2021
Balance at beginning of period	195,101		195,101	195,101		195,101
Exercise of stock options	—		—	—		—
Balance at end of period	195,101		195,101	195,101		195,101
Capital in Excess of Par Value
Balance at beginning of period	880,537		914,303	926,698		941,692
Exercise of stock options, including income tax benefits	(3,415)		(587)	(10,635)		(626)
Restricted stock transactions and other	—		(5,347)	(45,169)		(38,347)
Share-based compensation	6,246		6,812	12,474		12,462

Balance at end of period	883,368		915,181	883,368		915,181
Retained Earnings
Balance at beginning of period	5,082,034		5,062,813	5,218,670		5,369,538
Net income (loss) attributable to Murphy	350,557		(63,082)	237,221		(350,520)


Cash dividends paid	(27,191)		(19,303)	(50,491)		(38,590)
Balance at end of period	5,405,400		4,980,428	5,405,400		4,980,428
Accumulated Other Comprehensive Loss
Balance at beginning of period	(506,355)		(575,610)	(527,711)		(601,333)
Foreign currency translation (loss) gain, net of income taxes	(51,545)		17,945	(33,525)		37,842
Retirement and postretirement benefit plans, net of income taxes	3,173		4,146	6,509		8,282
Deferred loss on interest rate hedges reclassified to interest expense, net of income taxes	—		—	—		1,690

Balance at end of period	(554,727)		(553,519)	(554,727)		(553,519)
Treasury Stock
Balance at beginning of period	(1,618,478)		(1,661,416)	(1,655,447)		(1,690,661)

Awarded restricted stock, net of forfeitures	—		4,339	32,297		33,545
Exercise of stock options	2,138		486	6,810		525
Balance at end of period – 39,677,584 shares of Common Stock in 2022 and 40,665,675 shares of Common Stock in 2021, at cost	(1,616,340)		(1,656,591)	(1,616,340)		(1,656,591)
Murphy Shareholders’ Equity	4,312,802		3,880,600	4,312,802		3,880,600
Noncontrolling Interest
Balance at beginning of period	171,451		164,418	163,485		179,810

Net income attributable to noncontrolling interest	58,947		36,042	106,797		56,656
Distributions to noncontrolling interest owners	(54,970)		(39,232)	(94,854)		(75,238)
Balance at end of period	175,428		161,228	175,428		161,228
Total Equity	$	4,488,230	4,041,828	$	4,488,230	4,041,828

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 June 30, 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 Murphy’s management, the unaudited financial statements presented herein include all accruals necessary to present fairly the Company’s financial position at June 30, 2022 and December 31, 2021, and the results of operations, cash flows and changes in stockholders’ equity for the interim periods ended June 30, 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 and six-month periods ended June 30, 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 period ended June 30, 2022, and 2021, the Company recognized $1,196 million and $758.8 million, respectively, from total revenue from sales to customers, from sales of oil, natural gas liquids and natural gas.

For the six-month period ended June 30, 2022, and 2021, the Company recognized $2,067.6 million and $1,351.4 million, respectively, from total revenue from sales to customers, from sales of oil, natural gas liquids and natural gas.


		Three Months Ended June 30,			Six Months Ended June 30,
(Thousands of dollars)		2022		2021	2022		2021
Net crude oil and condensate revenue
United States	Onshore	$	264,841	183,267	$	436,537	297,757
	Offshore	612,526		411,076	1,078,147		739,417
Canada	Onshore	40,417		30,695	77,114		60,598
	Offshore	38,354		31,772	67,186		49,834
Other		13,636		—	13,636		—
Total crude oil and condensate revenue		969,774		656,810	1,672,620		1,147,606

Net natural gas liquids revenue
United States	Onshore	18,062		9,596	34,747		17,124
	Offshore	18,093		10,766	32,072		20,820
Canada	Onshore	5,001		3,240	9,868		7,227
Total natural gas liquids revenue		41,156		23,602	76,687		45,171

Net natural gas revenue
United States	Onshore	19,034		6,872	30,403		13,315
	Offshore	43,567		17,273	69,768		39,411
Canada	Onshore	72,768		54,272	131,349		105,853
Total natural gas revenue		135,369		78,417	231,520		158,579

Revenue from production		1,146,299		758,829	1,980,827		1,351,356



Sales of purchased natural gas
United States	Offshore	181		—	181		—
Canada	Onshore	49,758		—	86,604		—
Total sales of purchased natural gas		49,939		—	86,785		—

Total revenue from sales to customers		1,196,238		758,829	2,067,612		1,351,356

Loss on crude contracts		(103,068)		(226,245)	(423,845)		(440,630)
Gain on sale of assets and other income		7,887		17,059	10,251		18,902
Total revenues and other income		$	1,101,057	549,643	$	1,654,018	929,628

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 June 30, 2022, and December 31, 2021, receivables from contracts with customers, net of royalties and associated payables, on the balance sheet from continuing operations, were $292.4 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

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

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 June 30, 2022.

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 June 30, 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 June 30, 2022

Location

Commodity

End Date

Description

Approximate Volumes

U.S.

Natural Gas and NGL

Q2 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.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

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

As of June 30, 2022, the Company had total capitalized exploratory well costs for continuing operations pending the determination of proved reserves of $178.4 million. The following table reflects the net changes in capitalized exploratory well costs during the six-month periods ended June 30, 2022 and 2021.


(Thousands of dollars)	2022		2021
Beginning balance at January 1	$	179,481	181,616
Additions pending the determination of proved reserves	9,412		15,921

Capitalized exploratory well costs charged to expense	(10,472)		—
Balance at June 30	$	178,421	197,537

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.


	June 30,
	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	$	4,268	2	2	13,881	3	3
One to two years	2,813		2	2	23,811	3	3
Two to three years	26,848		3	2	30,562	2	2
Three years or more	144,492		8	2	129,283	6	—
	$	178,421	15	8	197,537	14	8

Of the $174.2 million of exploratory well costs capitalized more than one year at June 30, 2022, $94.7 million is in Vietnam, $48.5 million is in the U.S., $15.5 million is in Mexico, $10.6 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 six months 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 at end of the first quarter 2021. Later in 2021, the Company sanctioned an asset life extension project and acquired an additional 7.525% working interest at Terra Nova following a commercial agreement to extend the life of the field.

Divestments

There were no divestments in the first six months 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.

Acquisitions

In June 2022, the Company acquired an additional working interest of 11.0% in the Kodiak field for a purchase price of $46.5 million, net of post-closing adjustments.

In the second quarter of 2021, the Company acquired an additional 3.5% working interest in the Lucius field for a purchase price of $22.5 million, net of post-closing adjustments.

Table of Contents

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 and six-month periods ended June 30, 2022 and 2021 were as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
(Thousands of dollars)	2022		2021	2022	2021
Revenues	$	—