MURPHY OIL CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (unaudited) (Thousands of dollars) September 30, 2021 December 31, 2020 ASSETS Current assets Cash and cash equivalents $ 505,067 310,606 Accounts receivable, less allowance for doubtful accounts of $ 1,605 in 2021 and 2020 186,683 262,014 Inventories 57,411 66,076 Prepaid expenses 40,583 33,860 Assets held for sale 40,987 327,736 Total current assets 830,731 1,000,292 Property, plant and equipment, at cost less accumulated depreciation, depletion and amortization of $ 12,268,101 in 2021 and $ 11,455,305 in 2020 8,112,093 8,269,038 Operating lease assets 918,719 927,658 Deferred income taxes 442,212 395,253 Deferred charges and other assets 27,101 28,611 Total assets $ 10,330,856 10,620,852 LIABILITIES AND EQUITY Current liabilities Current maturities of long-term debt, finance lease $ 646 — Accounts payable 615,436 407,097 Income taxes payable 18,035 18,018 Other taxes payable 26,997 22,498 Operating lease liabilities 157,294 103,758 Other accrued liabilities 316,205 150,578 Liabilities associated with assets held for sale — 14,372 Total current liabilities 1,134,613 716,321 Long-term debt, including finance lease obligation 2,613,703 2,988,067 Asset retirement obligations 797,627 816,308 Deferred credits and other liabilities 723,732 680,580 Non-current operating lease liabilities 781,114 845,088 Deferred income taxes 166,120 180,341 Total liabilities 6,216,909 6,226,705 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 2021 and 195,100,628 shares in 2020 195,101 195,101 Capital in excess of par value 921,227 941,692 Retained earnings 5,069,578 5,369,538 Accumulated other comprehensive loss ( 580,174 ) ( 601,333 ) Treasury stock ( 1,656,224 ) ( 1,690,661 ) Murphy Shareholders' Equity 3,949,508 4,214,337 Noncontrolling interest 164,439 179,810 Total equity 4,113,947 4,394,147 Total liabilities and equity $ 10,330,856 10,620,852 See Notes to Consolidated Financial Statements, page 7. 2 Table of Contents Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended September 30, Nine Months Ended September 30, (Thousands of dollars, except per share amounts) 2021 2020 2021 2020 Revenues and other income Revenue from sales to customers $ 687,549 425,324 $ 2,038,905 1,311,627 (Loss) gain on derivative instruments ( 59,164 ) ( 5,290 ) ( 499,794 ) 319,502 Gain on sale of assets and other income 2,315 1,831 21,217 6,006 Total revenues and other income 630,700 421,865 1,560,328 1,637,135 Costs and expenses Lease operating expenses 130,131 124,491 403,708 478,283 Severance and ad valorem taxes 11,670 6,781 32,215 22,645 Transportation, gathering and processing 44,588 41,322 137,196 126,779 Exploration expenses, including undeveloped lease amortization 24,517 12,092 49,840 61,686 Selling and general expenses 27,210 28,509 85,826 104,381 Restructuring expenses — 4,982 — 46,379 Depreciation, depletion and amortization 189,806 231,603 615,372 769,151 Accretion of asset retirement obligations 12,198 10,778 34,854 31,213 Impairment of assets — 219,138 171,296 1,206,284 Other (benefit) expense ( 32,791 ) 20,224 58,616 ( 2,957 ) Total costs and expenses 407,329 699,920 1,588,923 2,843,844 Operating income (loss) from continuing operations 223,371 ( 278,055 ) ( 28,595 ) ( 1,206,709 ) Other income (loss) Interest income and other (loss) ( 1,593 ) ( 5,177 ) ( 11,459 ) ( 10,107 ) Interest expense, net ( 46,925 ) ( 45,182 ) ( 178,399 ) ( 124,877 ) Total other loss ( 48,518 ) ( 50,359 ) ( 189,858 ) ( 134,984 ) Income (loss) from continuing operations before income taxes 174,853 ( 328,414 ) ( 218,453 ) ( 1,341,693 ) Income tax expense (benefit) 36,838 ( 62,584 ) ( 62,498 ) ( 248,890 ) Income (loss) from continuing operations 138,015 ( 265,830 ) ( 155,955 ) ( 1,092,803 ) (Loss) from discontinued operations, net of income taxes ( 706 ) ( 778 ) ( 600 ) ( 6,907 ) Net income (loss) including noncontrolling interest 137,309 ( 266,608 ) ( 156,555 ) ( 1,099,710 ) Less: Net income (loss) attributable to noncontrolling interest 28,853 ( 23,055 ) 85,509 ( 122,869 ) NET INCOME (LOSS) ATTRIBUTABLE TO MURPHY $ 108,456 ( 243,553 ) $ ( 242,064 ) ( 976,841 ) INCOME (LOSS) PER COMMON SHARE – BASIC Continuing operations $ 0.70 ( 1.58 ) $ ( 1.57 ) ( 6.31 ) Discontinued operations — ( 0.01 ) — ( 0.05 ) Net income (loss) $ 0.70 ( 1.59 ) $ ( 1.57 ) ( 6.36 ) INCOME (LOSS) PER COMMON SHARE – DILUTED Continuing operations $ 0.70 ( 1.58 ) $ ( 1.57 ) ( 6.31 ) Discontinued operations — ( 0.01 ) — ( 0.05 ) Net income (loss) $ 0.70 ( 1.59 ) $ ( 1.57 ) ( 6.36 ) Cash dividends per Common share $ 0.125 0.125 0.375 0.500 Average Common shares outstanding (thousands) Basic 154,439 153,596 154,239 153,480 Diluted 155,932 153,596 154,239 153,480 See Notes to Consolidated Financial Statements, page 7. 3 Table of Contents Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) Three Months Ended September 30, Nine Months Ended September 30, (Thousands of dollars) 2021 2020 2021 2020 Net income (loss) including noncontrolling interest $ 137,309 ( 266,608 ) $ ( 156,555 ) ( 1,099,710 ) Other comprehensive (loss) income, net of tax Net (loss) gain from foreign currency translation ( 31,308 ) 28,323 6,534 ( 39,520 ) Retirement and postretirement benefit plans 4,653 3,726 12,935 ( 45,219 ) Deferred loss on interest rate hedges reclassified to interest expense — 297 1,690 905 Other comprehensive (loss) income ( 26,655 ) 32,346 21,159 ( 83,834 ) COMPREHENSIVE INCOME (LOSS) $ 110,654 ( 234,262 ) $ ( 135,396 ) ( 1,183,544 ) See Notes to Consolidated Financial Statements, page 7. 4 Table of Contents Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, (Thousands of dollars) 2021 2020 Operating Activities Net income (loss) including noncontrolling interest $ ( 156,555 ) ( 1,099,710 ) Adjustments to reconcile net income (loss) to net cash provided by continuing operations activities Loss from discontinued operations 600 6,907 Depreciation, depletion and amortization 615,372 769,151 Dry hole and previously suspended exploration costs 17,899 8,255 Amortization of undeveloped leases 13,872 21,951 Accretion of asset retirement obligations 34,854 31,213 Impairment of assets 171,296 1,206,284 Noncash restructuring expense — 17,565 Deferred income tax (benefit) expense ( 65,149 ) ( 231,748 ) Mark to market loss (gain) on contingent consideration 105,111 ( 29,476 ) Mark to market loss (gain) on derivative instruments 228,497 ( 104,463 ) Long-term non-cash compensation 42,080 35,200 Net decrease (increase) in noncash working capital 117,330 ( 26,261 ) Other operating activities, net ( 33,924 ) ( 26,837 ) Net cash provided by continuing operations activities 1,091,283 578,031 Investing Activities Property additions and dry hole costs ( 564,230 ) ( 648,725 ) Property additions for King's Quay FPS ( 17,734 ) ( 74,936 ) Proceeds from sales of property, plant and equipment 270,038 — Net cash required by investing activities ( 311,926 ) ( 723,661 ) Financing Activities Borrowings on revolving credit facility 165,000 450,000 Repayment of revolving credit facility ( 365,000 ) ( 250,000 ) Retirement of debt ( 726,358 ) ( 12,225 ) Debt issuance, net of cost 541,913 ( 613 ) Early redemption of debt cost ( 36,756 ) — Distributions to noncontrolling interest ( 100,880 ) ( 43,673 ) Cash dividends paid ( 57,896 ) ( 76,790 ) Withholding tax on stock-based incentive awards ( 4,973 ) ( 7,094 ) Capital lease obligation payments ( 643 ) ( 514 ) Net cash (required) provided by financing activities ( 585,593 ) 59,091 Cash Flows from Discontinued Operations 1 Operating activities — ( 1,202 ) Investing activities — 4,494 Financing activities — — Net cash provided by discontinued operations — 3,292 Effect of exchange rate changes on cash and cash equivalents 697 ( 585 ) Net increase (decrease) in cash and cash equivalents 194,461 ( 87,124 ) Cash and cash equivalents at beginning of period 310,606 306,760 Cash and cash equivalents at end of period $ 505,067 219,636 1 Net cash provided by discontinued operations is not part of the cash flow reconciliation. See Notes to Consolidated Financial Statements, page 7. 5 Table of Contents Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) Three Months Ended September 30, Nine Months Ended September 30, (Thousands of dollars) 2021 2020 2021 2020 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 September 30, 2021 and 195,100,628 shares at September 30, 2020 Balance at beginning of period 195,101 195,101 195,101 195,089 Exercise of stock options — — — 12 Balance at end of period 195,101 195,101 195,101 195,101 Capital in Excess of Par Value Balance at beginning of period 915,181 931,429 941,692 949,445 Exercise of stock options, including income tax benefits ( 35 ) — ( 661 ) ( 156 ) Restricted stock transactions and other ( 402 ) ( 409 ) ( 38,749 ) ( 33,649 ) Share-based compensation 6,483 5,298 18,945 20,678 Balance at end of period 921,227 936,318 921,227 936,318 Retained Earnings Balance at beginning of period 4,980,428 5,823,426 5,369,538 6,614,304 Net (loss) attributable to Murphy 108,456 ( 243,553 ) ( 242,064 ) ( 976,841 ) Cash dividends ( 19,306 ) ( 19,200 ) ( 57,896 ) ( 76,790 ) Balance at end of period 5,069,578 5,560,673 5,069,578 5,560,673 Accumulated Other Comprehensive Loss Balance at beginning of period ( 553,519 ) ( 690,341 ) ( 601,333 ) ( 574,161 ) Foreign currency translation gain (loss), net of income taxes ( 31,308 ) 28,323 6,534 ( 39,520 ) Retirement and postretirement benefit plans, net of income taxes 4,653 3,726 12,935 ( 45,219 ) Deferred loss on interest rate hedges reclassified to interest expense, net of income taxes — 297 1,690 905 Balance at end of period ( 580,174 ) ( 657,995 ) ( 580,174 ) ( 657,995 ) Treasury Stock Balance at beginning of period ( 1,656,591 ) ( 1,691,070 ) ( 1,690,661 ) ( 1,717,217 ) Awarded restricted stock, net of forfeitures 343 409 33,888 26,556 Exercise of stock options 24 — 549 — Balance at end of period – 40,656,661 shares of Common Stock in 2021 and 41,502,003 shares of Common Stock in 2020, at cost ( 1,656,224 ) ( 1,690,661 ) ( 1,656,224 ) ( 1,690,661 ) Murphy Shareholders’ Equity 3,949,508 4,343,436 3,949,508 4,343,436 Noncontrolling Interest Balance at beginning of period 161,228 204,937 179,810 337,151 Net income (loss) attributable to noncontrolling interest 28,853 ( 23,055 ) 85,509 ( 122,869 ) Distributions to noncontrolling interest owners ( 25,642 ) ( 11,273 ) ( 100,880 ) ( 43,673 ) Balance at end of period 164,439 170,609 164,439 170,609 Total Equity $ 4,113,947 4,514,045 $ 4,113,947 4,514,045 See Notes to Consolidated Financial Statements, page 7. 6 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS These notes are an integral part of the financial statements of Murphy Oil Corporation and Consolidated Subsidiaries (Murphy/ Company) 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 September 30, 2021, our maximum exposure to loss was $ 3.4 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 September 30, 2021 and December 31, 2020, and the results of operations, cash flows and changes in stockholders’ equity for the interim periods ended September 30, 2021 and 2020, 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 2020 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 nine-month periods ended September 30, 2021 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. 7 Table of Contents 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. 8 Table of Contents 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 and nine-month periods ended September 30, 2021, the Company recognized $ 687.5 million and $ 2,038.9 million, respectively, from contracts with customers for the sales of oil, natural gas liquids and natural gas. For the three-month and nine-month periods ended September 30, 2020, the Company recognized $ 425.3 million and $ 1,311.6 million, respectively, from contracts with customers for the sales of oil, natural gas liquids and natural gas. Three Months Ended September 30, Nine Months Ended September 30, (Thousands of dollars) 2021 2020 2021 2020 Net crude oil and condensate revenue United States Onshore $ 167,010 86,498 464,767 272,284 Offshore 340,001 216,918 1,079,418 714,143 Canada Onshore 29,110 32,358 89,708 67,268 Offshore 20,499 19,173 70,333 54,864 Other — — — 1,806 Total crude oil and condensate revenue 556,620 354,947 1,704,226 1,110,365 Net natural gas liquids revenue United States Onshore 16,356 6,766 33,480 16,145 Offshore 11,046 4,765 31,866 13,255 Canada Onshore 4,501 2,780 11,728 6,090 Total natural gas liquids revenue 31,903 14,311 77,074 35,490 Net natural gas revenue United States Onshore 11,127 4,529 24,442 14,177 Offshore 17,444 9,827 56,855 35,487 Canada Onshore 70,455 41,710 176,308 116,108 Total natural gas revenue 99,026 56,066 257,605 165,772 Total revenue from contracts with customers 687,549 425,324 2,038,905 1,311,627 (Loss) gain on derivative instruments ( 59,164 ) ( 5,290 ) ( 499,794 ) 319,502 Gain on sale of assets and other income 2,315 1,831 21,217 6,006 Total revenue and other income $ 630,700 421,865 1,560,328 1,637,135 Contract Balances and Asset Recognition As of September 30, 2021, and December 31, 2020, receivables from contracts with customers, net of royalties and associated payables, on the balance sheet from continuing operations, were $ 144.0 million and $ 135.2 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 at September 30, 2021. 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. 9 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note C – Revenue from Contracts with Customers (Contd.) 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 September 30, 2021, 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 September 30, 2021 Location Commodity End Date Description Approximate Volumes U.S. Oil Q4 2021 Fixed quantity delivery in Eagle Ford 17,000 BOED U.S. Natural Gas and NGL Q1 2023 Deliveries from dedicated acreage in Eagle Ford As produced Canada Natural Gas Q4 2021 Contracts to sell natural gas at USD index pricing 10 MMCFD 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 1 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 1 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 1 Contracts to sell natural gas at USD index pricing 49 MMCFD 1 These contracts are scheduled to commence after the balance sheet date, at various dates between Q4 2021 and Q1 2022. 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 September 30, 2021, the Company had total capitalized exploratory well costs for continuing operations pending the determination of proved reserves of $ 186.6 million. The following table reflects the net changes in capitalized exploratory well costs during the nine-month periods ended September 30, 2021 and 2020. 10 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note D – Property, Plant and Equipment (Contd.) (Thousands of dollars) 2021 2020 Beginning balance at January 1 $ 181,616 217,326 Additions pending the determination of proved reserves 5,007 9,941 Capitalized exploratory well costs charged to expense — ( 39,408 ) Balance at September 30 $ 186,623 187,859 The capitalized well costs charged to expense during 2020 represent a charge for asset impairments (see below). 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. September 30, 2021 2020 (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 $ 3,297 2 2 8,000 1 — One to two years — — — 54,334 5 5 Two to three years 53,078 5 5 — — — Three years or more 130,248 6 — 125,525 6 — $ 186,623 13 7 187,859 12 5 Of the $ 183.3 million of exploratory well costs capitalized more than one year at September 30, 2021, $ 92.3 million is in Vietnam, $ 45.0 million is in the U.S., $ 25.9 million is in Brunei, $ 15.3 million is in Mexico, 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 During 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 the partners, of operating and production plans. In 2020, declines in future oil and natural gas prices (principally driven by reduced demand from the COVID-19 pandemic) led to impairments in certain of the Company’s U.S. Offshore and Other Foreign properties. The Company recorded pretax noncash impairment charges of $ 1,206.3 million to reduce the carrying values to their estimated fair values at select properties. The fair values were determined by internal discounted cash flow models using estimates of future production, prices, costs and discount rates believed to be consistent with those used by principal market participants in the applicable region. The following table reflects the recognized impairments for the nine months ended September 30, 2021 and 2020. Nine Months Ended September 30, (Thousands of dollars) 2021 2020 U.S. $ — 1,152,515 Canada 171,296 — Other Foreign — 39,709 Corporate — 14,060 $ 171,296 1,206,284 Divestments 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 reimburses the Company for previously incurred capital expenditures. 11 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 nine-month periods ended September 30, 2021 and 2020 were as follows: Three Months Ended September 30, Nine Months Ended September 30, (Thousands of dollars) 2021 2020 2021 2020 Revenues $ 144 — $ 801 4,074 Costs and expenses Other costs and expenses (benefits) 850 778 1,401 10,981 (Loss) income before taxes ( 706 ) ( 778 ) ( 600 ) ( 6,907 ) Income tax expense — — — — (Loss) income from discontinued operations $ ( 706 ) ( 778 ) $ ( 600 ) ( 6,907 ) As of September 30, 2021, assets held for sale on the Consolidated Balance Sheet include the carrying value of the net property, plant equipment of CA-2 project in Brunei and the Company’s office building in El Dorado, Arkansas. As of June 30, 2021, the CA-1 asset in Brunei is no longer being marketed for sale. As of December 31, 2020, assets held for sale included the King’s Quay Floating Production System (FPS) of $ 250.1 million (sold in March 2021), the Brunei exploration and production properties, and the Company’s office building in El Dorado, Arkansas. (Thousands of dollars) September 30, 2021 December 31, 2020 Current assets Cash $ — 10,185 Inventories — 406 Property, plant, and equipment, net 40,987 307,704 Deferred income taxes and other assets — 9,441 Total current assets associated with assets held for sale $ 40,987 327,736 Current liabilities Accounts payable $ — 5,306 Other accrued liabilities — 45 Current maturities of long-term debt (finance lease) — 737 Taxes payable — 1,510 Long-term debt (finance lease) — 6,513 Asset retirement obligation — 261 Total current liabilities associated with assets held for sale $ — 14,372 Note F – Financing Arrangements and Debt As of September 30, 2021, 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 September 30, 2021, 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 September 30, 2021, the interest rate in effect on borrowings under the facility was 1.78 %. At September 30, 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 12 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note F – Financing Arrangements and Debt (Contd.) 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 nine months ended September 30, 2021. The cash costs of $ 34.2 million are shown as a financing activity on the Consolidated Statement of Cash Flows for the nine months ended September 30, 2021. In August 2021, the Company redeemed $ 150.0 million aggregate principal amount of its 6.875 % senior notes due 2024 (2024 Notes). The cost of the debt extinguishment of $ 3.5 million is included in Interest expense, net on the Consolidated Statement of Operations for the nine months ended September 30, 2021. The cash costs of $ 2.6 million are shown as a financing activity on the Consolidated Statement of Cash Flows for the nine months ended September 30, 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. Subsequent to quarter end, the Company issued a notice of partial redemption with respect to $ 150.0 million aggregate principal amount of its 6.875 % senior notes due 2024 (2024 Notes). The Company will redeem the 2024 Notes at the applicable redemption price set forth in the indenture governing the 2024 Notes, plus accrued and unpaid interest, if any, to the date of redemption. The redemption date of the 2024 Notes will be December 2, 2021. Note G – Other Financial Information Additional disclosures regarding cash flow activities are provided below. Nine Months Ended September 30, (Thousands of dollars) 2021 2020 Net (increase) decrease in operating working capital, excluding cash and cash equivalents: Decrease in accounts receivable ¹ $ 75,100 251,706 Decrease in inventories 9,718 4,747 (Increase) in prepaid expenses ( 6,682 ) ( 17,400 ) Increase (decrease) in accounts payable and accrued liabilities ¹ 40,687 ( 264,078 ) (Decrease) in income taxes payable ( 1,493 ) ( 1,236 ) Net (increase) decrease in noncash operating working capital $ 117,330 ( 26,261 ) Supplementary disclosures: Cash income taxes paid, net of refunds $ 1,685 ( 12,559 ) Interest paid, net of amounts capitalized of $ 11.6 million in 2021 and $ 5.9 million in 2020 127,793 139,651 Non-cash investing activities: Asset retirement costs capitalized ² $ 36,300 6,342 Decrease in capital expenditure accrual 31,301 74,742 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 impairment of $ 74.4 million in the first quarter of 2021 and a gain in other operating income of $ 71.8 million following a commercial agreement to sanction an asset life extension project at Terra Nova in the third quarter of 2021, which extended the life of Terra Nova by approximately 10 years. 13 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) 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 and nine-month periods ended September 30, 2021 and 2020. Three Months Ended September 30, Pension Benefits Other Postretirement Benefits (Thousands of dollars) 2021 2020 2021 2020 Service cost $ 1,770 1,664 328 342 Interest cost 4,258 4,827 521 612 Expected return on plan assets ( 6,038 ) ( 5,773 ) — — Amortization of prior service cost (credit) 155 149 — — Recognized actuarial loss 5,269 5,690 ( 8 ) ( 24 ) Net periodic benefit expense $ 5,414 6,557 841 930 Nine Months Ended September 30, Pension Benefits Other Postretirement Benefits (Thousands of dollars) 2021 2020 2021 2020 Service cost $ 5,306 5,996 981 1,235 Interest cost 12,844 16,381 1,563 2,200 Expected return on plan assets ( 18,326 ) ( 18,414 ) — — Amortization of prior service cost (credit) 467 515 — — Recognized actuarial loss 15,829 14,223 ( 23 ) ( 24 ) Net periodic benefit expense $ 16,120 18,701 2,521 3,411 Other - curtailment — 586 — ( 1,825 ) Other - special termination benefits — 8,435 — — Total net periodic benefit expense $ 16,120 27,722 2,521 1,586 The components of net periodic benefit expense, other than the service cost, curtailment and special termination benefits components, are included in the line item “Interest and other income (loss)” in Consolidated Statements of Operations. During the nine-month period ended September 30, 2021, the Company made contributions of $ 31.0 million to its defined benefit pension and postretirement benefit plans. Remaining funding in 2021 for the Company’s defined benefit pension and postretirement plans is anticipated to be $ 10.9 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. The 2017 Annual Incentive Plan (2017 Annual Plan) 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 2017 Annual Plan 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 14 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) 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. During the first nine months of 2021, 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 1,156,800 February 2, 2021 $ 16.03 Monte Carlo at Grant Date Time Based RSUs 2 385,600 February 2, 2021 $ 12.30 Average Stock Price at Grant Date Cash Settled RSUs 3 1,022,700 February 2, 2021 $ 12.30 Average Stock Price at Grant Date 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 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, will be made under the 2021 NED Plan. During the first nine months of 2021, the Committee granted the following awards to Non-Employee Directors: 2018 Stock Plan for Non-Employee Directors Type of Award Number of Awards Granted Grant Date Grant Date Fair Value Valuation Methodology Time Based RSUs 1 182,652 February 3, 2021 $ 13.14 Closing Stock Price at Grant Date 1 Non-employee directors time-based RSUs are scheduled to vest in February 2022. 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 5,655 June 10, 2021 $ 23.58 Closing Stock Price at Grant Date 1 Non-employee directors time-based RSUs are scheduled to vest in February 2022. 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 nine-month period ended September 30, 2021. Amounts recognized in the financial statements with respect to share-based plans are shown in the following table: Nine Months Ended September 30, (Thousands of dollars) 2021 2020 Compensation charged against income before tax benefit $ 29,145 17,542 Related income tax benefit recognized in income 4,120 2,278 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). 15 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note J – Earnings Per Share Net (loss) income attributable to Murphy was used as the numerator in computing both basic and diluted income per Common share for the three-month and nine-month periods ended September 30, 2021 and 2020. The following table reports the weighted-average shares outstanding used for these computations. Three Months Ended September 30, Nine Months Ended September 30, (Weighted-average shares) 2021 2020 2021 2020 Basic method 154,439,313 153,596,109 154,239,440 153,479,654 Dilutive stock options and restricted stock units ¹ 1,492,949 — — — Diluted method 155,932,262 153,596,109 154,239,440 153,479,654 1 Due to a net loss recognized by the Company for the nine-month period ended September 30, 2021 and the three-month and nine-month periods ended September 30, 2020, no unvested stock awards were included in the computation of diluted earnings per share because the effect would have been antidilutive. The following table reflects certain options to purchase shares of common stock that were outstanding during the periods presented but were not included in the computation of diluted shares above because the incremental shares from the assumed conversion were antidilutive. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Antidilutive stock options excluded from diluted shares 1,316,222 2,111,068 1,502,758 2,305,973 Weighted average price of these options $ 34.42 $ 38.54 $ 34.97 $ 40.15 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 and nine-month periods ended September 30, 2021 and 2020, the Company’s effective income tax rates were as follows: 2021 2020 Three months ended September 30, 21.1 % 19.1 % Nine months ended September 30, 28.6 % 18.6 % The effective tax rate for the three-month period ended September 30, 2021 was above the U.S. statutory tax rate of 21% primarily due to income generated in Canada, which has a higher tax rate, offset by no tax applied to the pre-tax income of the noncontrolling interest in MP GOM, which has the impact of decreasing the effective tax rate on income. The effective tax rate for the three-month period ended September 30, 2020 was below the statutory tax rate of 21% due to exploration expenses in certain foreign jurisdictions in which no income tax benefit is available, as well as no tax benefit available from the pre-tax loss of the noncontrolling interest in MP GOM. The effective tax rate for the nine-month period ended September 30, 2021 was above the U.S. statutory tax rate of 21% primarily due to no tax applied to the pre-tax income of the noncontrolling interest in MP GOM, which has the impact of increasing the effective tax rate on an overall loss. The effective tax rate for the nine-month period ended September 30, 2020 was below the statutory tax rate of 21% due to exploration expenses in certain foreign jurisdictions in which no income tax benefit is available, as well as no tax benefit available from the pre-tax loss of the noncontrolling interest in MP GOM. These items reduced the tax credit on a reported pre-tax net loss. The Company’s tax returns in multiple jurisdictions are subject to audit by taxing authorities, and currently the Company is under audit in several of these jurisdictions. These audits often take multiple 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. As of September 30, 2021, the earliest years remaining open for audit and/or settlement in our major taxing jurisdictions are as follows: United States – 2016; Canada – 2016; Malaysia – 2014; and 16 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note K– Income Taxes (Contd.) United Kingdom – 2018. Following the divestment of Malaysia in the third quarter of 2019, 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. Certain interest rate derivative contracts were previously accounted for as hedges and the gain or loss associated with recording the fair value of these contracts was deferred in Accumulated other comprehensive loss and amortized to the income statement over time. During the nine-month period ended September 30, 2021, the Company redeemed all of the remaining notes due 2022 and expensed the remainder of the previously deferred loss on the interest rate swap of $ 2.1 million to Interest expense in the Consolidated Statement 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, 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 September 30, 2021, volumes per day associated with outstanding crude oil derivative contracts and the weighted average prices for these contracts are as follows: September 30, 2021 2021 2022 NYMEX WTI swap contracts: Volume per day (Bbl): 45,000 20,000 Price per Bbl: $ 42.77 $ 44.88 NYMEX WTI collar contracts: Volume per day (Bbl): — 16,000 Price per Bbl: Ceiling: $ — $ 71.83 Floor: — 60.38 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 September 30, 2021 and 2020. At September 30, 2021 and December 31, 2020, the fair value of derivative instruments not designated as hedging instruments are presented in the following table. 17 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note L – Financial Instruments and Risk Management (Contd.) September 30, 2021 December 31, 2020 (Thousands of dollars) Asset (Liability) Derivatives Asset (Liability) Derivatives Type of Derivative Contract Balance Sheet Location Fair Value Balance Sheet Location Fair Value Commodity swaps Accounts receivable $ — Accounts receivable 13,050 Accounts payable ( 312,448 ) Accounts payable ( 89,842 ) Deferred credits and other liabilities ( 41,645 ) Deferred credits and other liabilities ( 12,833 ) Commodity collars Accounts receivable — Accounts receivable — Accounts payable ( 15,929 ) Accounts payable — For the three-month and nine-month periods ended September 30, 2021 and 2020, 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) Gain (Loss) (Thousands of dollars) Statement of Operations Location Three Months Ended September 30, Nine months ended September 30, Type of Derivative Contract 2021 2020 2021 2020 Commodity swaps (Loss) gain on derivative instruments $ ( 43,235 ) ( 5,290 ) ( 483,865 ) 319,502 Commodity collars (Loss) gain on derivative instruments ( 15,929 ) — ( 15,929 ) — 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. The carrying value of assets and liabilities recorded at fair value on a recurring basis at September 30, 2021 and December 31, 2020, are presented in the following table. September 30, 2021 December 31, 2020 (Thousands of dollars) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Commodity swaps $ — — — — — 13,050 — 13,050 $ — — — — — 13,050 — 13,050 Liabilities: Commodity collars $ — 15,929 — 15,929 — — — — Nonqualified employee savings plan 17,180 — — 17,180 14,988 — — 14,988 Commodity swaps — 354,093 — 354,093 — 102,675 — 102,675 Contingent consideration — — 238,115 238,115 — — 133,004 133,004 $ 17,180 370,022 238,115 625,317 14,988 102,675 133,004 250,667 The fair value of commodity (WTI crude oil) derivative contracts in 2021 and 2020 were based on active market quotes for WTI crude oil. The before tax income effect of changes in the fair value of crude oil derivative contracts is recorded in Gain (loss) on derivative instruments in the Consolidated Statements of Operations. The nonqualified employee savings plan is an unfunded savings plan through which participants seek a return via phantom investments in equity securities and/or mutual funds. The fair value of this liability was based on quoted prices for these equity securities and mutual funds. The income effect of changes in the fair value of the nonqualified employee savings plan is recorded in Selling and general expenses in the Consolidated Statements of Operations. 18 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note L – Financial Instruments and Risk Management (Contd.) The contingent consideration, related to two acquisitions in 2019 and 2018, is valued using a Monte Carlo simulation model. The income effect of changes in the fair value of the contingent consideration is recorded in Other expense (benefit) in the Consolidated Statements of Operations. Contingent consideration is payable annually in years 2022 to 2026. The Company offsets certain assets and liabilities related to derivative contracts when the legal right of offset exists. There were no offsetting positions recorded at September 30, 2021 and December 31, 2020. Note M – Accumulated Other Comprehensive Loss The components of Accumulated other comprehensive loss on the Consolidated Balance Sheets at December 31, 2020 and September 30, 2021 and the changes during the nine-month period ended September 30, 2021, are presented net of taxes in the following table. (Thousands of dollars) Foreign Currency Translation Gains (Losses) Retirement and Postretirement Benefit Plan Adjustments Deferred Loss on Interest Rate Derivative Hedges Total Balance at December 31, 2020 $ ( 324,011 ) ( 275,632 ) ( 1,690 ) ( 601,333 ) Components of other comprehensive income (loss): Before reclassifications to income and retained earnings 6,534 — — 6,534 Reclassifications to income — 12,935 ¹ 1,690 ² 14,625 Net other comprehensive income (loss) 6,534 12,935 1,690 21,159 Balance at September 30, 2021 $ ( 317,477 ) ( 262,697 ) — ( 580,174 ) 1 Reclassifications before taxes of $ 16,282 are included in the computation of net periodic benefit expense for the nine-month period ended September 30, 2021. See Note H for additional information. Related income taxes of $ 3,347 are included in Income tax expense (benefit) for the nine-month period ended September 30, 2021. 2 Reclassifications before taxes of $ 2,140 are included in Interest expense, net, for the nine-month period ended September 30, 2021. Related income taxes of $ 450 are included in Income tax expense (benefit) for the nine-month period ended September 30, 2021. See Note L for additional information. Note N – Environmental and Other Contingencies The Company’s operations and earnings have been and may be affected by various forms of governmental action both in the United States and throughout the world. Examples of such governmental action include, but are by no means limited to: tax legislation changes, including tax rate changes, and retroactive tax claims; royalty and revenue sharing increases; import and export controls; price controls; currency controls; allocation of supplies of crude oil and petroleum products and other goods; expropriation of property; restrictions and preferences affecting the issuance of oil and natural gas or mineral leases; restrictions on drilling and/or production; laws and regulations intended for the promotion of safety and the protection and/or remediation of the environment; governmental support for other forms of energy; and laws and regulations affecting the Company’s relationships with employees, suppliers, customers, stockholders and others. Governmental actions are often motivated by political considerations and may be taken without full consideration of their consequences or may be taken in response to actions of other governments. It is not practical to attempt to predict the likelihood of such actions, the form the actions may take or the effect such actions may have on the Company. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS – Murphy and other companies in the oil and natural gas industry are subject to numerous federal, state, local and foreign laws and regulations dealing with the environment and protection of health and safety. The principal environmental, health and safety laws and regulations to which Murphy is subject address such matters as the generation, storage, handling, use, disposal and remediation of petroleum products, wastewater and hazardous materials; the emission and discharge of such materials to the environment, including greenhouse gas emissions; wildlife, habitat and water protection; the placement, operation and decommissioning of production equipment; and the health and safety of our employees, contractors and communities where our operations are located. These laws and regulations also generally require permits for existing operations, as well as the construction or development of new operations and the decommissioning facilities once production has ceased. Violation of environmental, health and safety laws, regulations and permits can result in the imposition of significant civil and criminal penalties, injunctions and construction bans or delays. A discharge of hazardous substances into the environment 19 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note N– Environmental and Other Contingencies (Contd.) could, to the extent such event is not insured, subject the Company to substantial expense, including both the cost to comply with applicable laws and regulations and claims by neighboring landowners and other third parties for any personal injury and property damage that might result. Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that the Company reasonably believes will exceed a specified threshold. Pursuant to recent SEC amendments to this item, the Company will be using a threshold of $ 1.0 million for such proceedings. The Biden administration has indicated that it intends to increase regulatory oversight of the oil and gas industry, with a focus on climate change and greenhouse gas emissions (including methane emissions). The Biden administration has issued a number of executive orders that address climate change, including creation of climate-related task forces, directives to federal agencies to procure carbon-free electricity, and a goal of a carbon pollution-free power sector by 2035 and a net-zero emissions U.S. economy by 2050. The Biden administration has also issued orders related to oil and gas activities on federal lands, infrastructure and environmental justice. In addition, an international climate agreement (the Paris Agreement) was agreed to at the 2015 United Nations Framework Convention on Climate Change in Paris, France. The Paris Agreement entered into force in November 2016. Although the U.S. officially withdrew from the Paris Agreement on November 4, 2020, on January 20, 2021, President Biden began the 30-day process of rejoining the Paris Agreement, which became effective for the U.S. on February 19, 2021. The Company currently owns or leases, and has in the past owned or leased, properties at which hazardous substances have been or are being handled. Hazardous substances may have been disposed of or released on or under the properties owned or leased by the Company or on or under other locations where these wastes have been taken for disposal. In addition, many of these properties have been operated by third parties whose treatment and disposal or release of hydrocarbons or other wastes were not under Murphy’s control. Under existing laws, the Company could be required to investigate, remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators), to investigate and clean up contaminated property (including contaminated groundwater) or to perform remedial plugging operations to prevent future contamination. Certain of these historical properties are in various stages of negotiation, investigation, and/or cleanup, and the Company is investigating the extent of any such liability and the availability of applicable defenses. The Company has retained certain liabilities related to environmental matters at formerly owned U.S. refineries that were sold in 2011. The Company also obtained insurance covering certain levels of environmental exposures related to past operations of these refineries. Murphy USA Inc. has retained any environmental exposure associated with Murphy’s former U.S. marketing operations that were spun-off in August 2013. The Company believes costs related to these sites will not have a material adverse effect on Murphy’s net income, financial condition or liquidity in a future period. There is the possibility that environmental expenditures could be required at currently unidentified sites, and additional expenditures could be required at known sites. However, based on information currently available to the Company, the amount of future investigation and remediation costs incurred at known or currently unidentified sites is not expected to have a material adverse effect on the Company’s future net income, cash flows or liquidity. LEGAL MATTERS – Murphy and its subsidiaries are engaged in a number of other legal proceedings, all of which Murphy considers routine and incidental to its business. Based on information currently available to the Company, the ultimate resolution of environmental and legal matters referred to in this note is not expected to have a material adverse effect on the Company’s net income, financial condition or liquidity in a future period. Note O – Business Segments Information about business segments and geographic operations is reported in the following table. For geographic purposes, revenues are attributed to the country in which the sale occurs. Corporate, including interest income, other gains and losses (including foreign exchange gains/losses and realized and unrealized gains/losses on crude oil contracts), interest expense and unallocated overhead, is shown in the tables to reconcile the business segments to consolidated totals. 20 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Total Assets at September 30, 2021 Three Months Ended September 30, 2021 Three Months Ended September 30, 2020 (Millions of dollars) External Revenues Income (Loss) External Revenues Income (Loss) Exploration and production ¹ United States $ 6,586.3 565.2 168.1 330.8 ( 172.6 ) Canada 2,241.2 124.6 73.9 96.3 ( 8.6 ) Other 264.6 — ( 5.2 ) — ( 11.7 ) Total exploration and production 9,092.1 689.8 236.8 427.1 ( 192.9 ) Corporate 1,237.8 ( 59.1 ) ( 98.8 ) ( 5.2 ) ( 72.9 ) Continuing operations 10,329.9 630.7 138.0 421.9 ( 265.8 ) Discontinued operations, net of tax 1.0 — ( 0.7 ) — ( 0.8 ) Total $ 10,330.9 630.7 137.3 421.9 ( 266.6 ) Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020 (Millions of dollars) External Revenues Income (Loss) External Revenues Income (Loss) Exploration and production ¹ United States 1,704.4 481.8 1,070.6 ( 1,011.7 ) Canada 349.2 ( 37.7 ) 245.2 ( 35.0 ) Other — ( 22.5 ) 1.8 ( 73.0 ) Total exploration and production 2,053.6 421.6 1,317.6 ( 1,119.7 ) Corporate ( 493.3 ) ( 577.6 ) 319.5 26.9 Continuing operations 1,560.3 ( 156.0 ) 1,637.1 ( 1,092.8 ) Discontinued operations, net of tax — ( 0.6 ) — ( 6.9 ) Total 1,560.3 ( 156.6 ) 1,637.1 ( 1,099.7 ) 1 Additional details about results of oil and natural gas operations are presented in the table on pages 25 and 26. 21 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS Summary In 2021, the global distribution and administration of vaccinations in response to the ongoing coronavirus disease 2019 (COVID-19) pandemic has led to an improving global economic outlook and subsequently increased demand for oil and gas. Emerging COVID-19 variants, such as the Delta variant, continue to create uncertainty in the outlook, however in 2021 demand for oil and gas has remained resilient. The demand resilience has revealed an oil supply shortage, and hence is applying upward pressure to current and future oil and gas prices. The OPEC+ group of oil producing countries (OPEC+) continues to target increasing supply by 0.4 million bpd a month, with aims to fully phase out prior cuts by September 2022, at the current rate of OPEC+ supply increases. In 2020 OPEC+ cut production by 10 million barrels per day (bpd) following the COVID-19 demand reduction. It has gradually reinstated supply so that the curtailments are approximately 5.8 million bpd at the end of September 2021. However, some members of the OPEC+ are falling short on supply increases. Overall, the combination of OPEC+ supply constraints and the increase in demand driven by the global COVID-19 vaccine roll out has provided upward pressure to the oil price which directly impacts the Company’s product revenue from sales compared to one year ago. For the three months ended September 30, 2021, West Texas Intermediate (WTI) crude oil prices averaged approximately $70.56 per barrel (compared to $66.07 in the second quarter of 2021 and $40.93 in the third quarter of 2020). The closing price for WTI at the end of the third quarter of 2021 was approximately $71.54 per barrel, reflecting a modest increase from the second quarter 2021 closing price and an 81% increase from the third quarter 2020 closing price. The average price in October 2021 was $81.22 per barrel. As of close on November 2, 2021, the NYMEX WTI forward curve price for the remainder of 2021 and 2022 were $83.91 and $76.27 per barrel, respectively. In the third quarter of 2021, the Company continued to delever by redeeming $150.0 million aggregate principal amount of its 6.875% senior notes due 2024 for the principal amount plus cash costs of $2.6 million. Earlier in 2021, the Company executed a series of financial transactions which redeemed the remaining notes due 2022 and issued new 7 year senior unsecured notes maturing in July 2028. The 2022 notes were redeemed for total use of funds of $619.5 million, which included redemption at par of $576.4 million, early retirement premium (make whole payment) of $34.2 million, and $8.9 million of accrued interest. The 2028 notes were issued for total proceeds of $550.0 million and closing costs of $8.1 million. The proceeds from issue are reported net of costs to issue on the Consolidated Balance Sheets. In the third quarter of 2021, the Company acquired an additional 7.525% working interest at Terra Nova in Canada following a commercial agreement to sanction an asset life extension project. This transaction deferred an asset obligation at Terra Nova by approximately 10 years and decreased the obligation associated with the abandonment liability of the working interest before the acquisition by approximately $72 million. For the three months ended September 30, 2021, the Company produced 163 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations; this includes the impact of Hurricane Ida on U.S. Gulf of Mexico production of 14.5 thousand barrels of oil equivalent per day (including NCI). The Company invested $110.5 million in capital expenditures (on a value of work done basis) in the three months ended September 30, 2021. The Company reported net income from continuing operations of $138.0 million for the three months ended September 30, 2021. This amount includes income attributable to noncontrolling interest of $28.9 million, after-tax gains on unrealized mark to market revaluations on commodity price swap and collar positions of $44.1 million, an after-tax non-cash credit of $53.6 million related to the deferral of asset retirement obligations and after-tax losses on contingent consideration of $22.4 million. For the nine months ended September 30, 2021, the Company produced 170 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations; this includes the impact of Hurricane Ida on U.S. Gulf of Mexico production of 4.9 thousand barrels of oil equivalent per day (including NCI). The Company invested $568.7 million in capital expenditures (on a value of work done basis) in the nine months ended September 30, 2021, which included $18.0 million to fund the development of the King’s Quay Floating Production System (FPS). The FPS capital expenditures were reimbursed by Arclight in the first quarter of 2021 (see below). The Company reported net loss from continuing operations of $156.0 million for the nine months ended September 30, 2021. This amount includes income attributable to noncontrolling interest of $85.5 million, after-tax impairment charges of $128.0 million, an after-tax non-cash credit of $53.6 million related to the deferral of asset retirement obligations and after-tax losses on unrealized mark to market revaluations on commodity price swap and collar positions and contingent consideration of $180.5 million and $83.0 million, respectively. 22 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.) Summary (contd.) For the three months ended September 30, 2020, the Company produced 163 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations. The Company invested $122.7 million in capital expenditures (on a value of work done basis), in the third quarter of 2020, which included $19.3 million to fund the development of the King’s Quay FPS. The Company reported net loss from continuing operations of $265.8 million for the third quarter of 2020. This amount included loss attributable to noncontrolling interest of $23.1 million, after-tax impairment charges of $145.9 million and after-tax losses on unrealized mark to market revaluations on commodity price hedge positions and contingent consideration of $54.8 million and $11.1 million, respectively. For the nine months ended September 30, 2020, the Company produced 180 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations. The Company invested $680.3 million in capital expenditures (on a value of work done basis) for the nine months ended September 30, 2020, which included $80.7 million to fund the development of the King’s Quay FPS. The Company reported net loss from continuing operations of $1,092.8 million for the nine months ended September 30, 2020. This amount included loss attributable to noncontrolling interest of $122.9 million, after-tax impairment charges of $854.2 million and after-tax gains on unrealized mark to market revaluations on commodity price hedge positions and contingent consideration of $82.5 million and $23.3 million, respectively. In the first quarter, the Company’s subsidiary "Murphy Exploration & Production Company USA" closed a transaction with ArcLight Capital Partners, LLC (ArcLight) for the sale of Murphy’s entire 50% interest in the King’s Quay FPS and associated export lateral pipelines. The transaction reimbursed Murphy for its share of project costs from inception to closing with proceeds of $267.7 million. Results of Operations Murphy’s income (loss) by type of business is presented below. Income (Loss) Three Months Ended September 30, Nine Months Ended September 30, (Millions of dollars) 2021 2020 2021 2020 Exploration and production $ 236.8 (192.9) 421.6 (1,119.7) Corporate and other (98.8) (72.9) (577.6) 26.9 Income (loss) from continuing operations 138.0 (265.8) (156.0) (1,092.8) Discontinued operations ¹ (0.7) (0.8) (0.6) (6.9) Net income (loss) including noncontrolling interest $ 137.3 (266.6) (156.6) (1,099.7) 1 The Company has presented its former U.K. and U.S. refining and marketing and Malaysian exploration and production operations as discontinued operations in its consolidated financial statements. Exploration and Production Results of E&P continuing operations are presented by geographic segment below. Income (Loss) Three Months Ended September 30, Nine Months Ended September 30, (Millions of dollars) 2021 2020 2021 2020 Exploration and production United States $ 168.1 (172.6) 481.8 (1,011.7) Canada 73.9 (8.6) (37.7) (35.0) Other (5.2) (11.7) (22.5) (73.0) Total $ 236.8 (192.9) 421.6 (1,119.7) 23 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.) Results of Operations (contd.) Other key performance metrics The Company uses other operational performance and income metrics to review operational performance. The table below presents Earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA. Management uses EBITDA and adjusted EBITDA internally to evaluate the Company’s operational performance and trends between periods and relative to its industry competitors. EBITDA and adjusted EBITDA are non-GAAP financial measures and should not be considered a substitute for Net income (loss) or Cash provided by operating activities as determined in accordance with accounting principles generally accepted in the United States of America. Also presented below is adjusted EBITDA per barrel of oil equivalent sold, a non-GAAP financial metric. Management uses EBITDA per barrel of oil equivalent sold to evaluate the Company’s profitability of one barrel of oil equivalent sold in the period. Three Months Ended September 30, Nine Months Ended September 30, (Millions of dollars, except per barrel of oil equivalents sold) 2021 2020 2021 2020 Net income (loss) attributable to Murphy (GAAP) $ 108.5 (243.6) (242.1) (976.8) Income tax expense (benefit) 36.8 (62.6) (62.5) (248.9) Interest expense, net 46.9 45.2 178.4 124.9 Depreciation, depletion and amortization expense ¹ 182.8 219.7 588.4 725.1 EBITDA attributable to Murphy (Non-GAAP) 375.0 (41.3) 462.2 (375.7) Mark-to-market (gain) loss on derivative instruments (55.9) 69.3 228.5 (104.5) Impairment of assets ¹ — 186.5 171.3 1,072.5 Mark-to-market loss (gain) on contingent consideration 28.4 14.0 105.1 (29.5) Asset retirement obligation (gains) losses (71.8) — (71.8) — Accretion of asset retirement obligations ¹ 10.8 10.8 30.8 31.2 Unutilized rig charges 3.2 5.2 8.5 13.2 Foreign exchange (gains) losses (2.8) 0.8 (1.5) (2.5) Discontinued operations loss 0.7 0.8 0.6 6.9 Restructuring expenses — 5.0 — 46.4 Inventory loss — — — 4.8 Seal insurance proceeds — (1.7) — (1.7) Adjusted EBITDA attributable to Murphy (Non-GAAP) $ 287.6 249.4 933.7 661.1 Total barrels of oil equivalents sold from continuing operations attributable to Murphy (thousands of barrels) 14,219 14,166 43,536 46,478 Adjusted EBITDA per barrel of oil equivalents sold $ 20.23 17.61 21.45 14.22 1 Depreciation, depletion, and amortization expense, impairment of assets and accretion of asset retirement obligations used in the computation of Adjusted EBITDA exclude the portion attributable to the non-controlling interest. 24 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.) Results of Operations (contd.) OIL AND GAS OPERATING RESULTS – THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Millions of dollars) United States 1 Canada Other Total Three Months Ended September 30, 2021 Oil and gas sales and other operating revenues $ 565.2 124.6 — 689.8 Lease operating expenses 96.7 33.4 0.1 130.2 Severance and ad valorem taxes 10.8 0.8 — 11.6 Transportation, gathering and processing 28.4 16.2 — 44.6 Depreciation, depletion and amortization 147.0 39.7 0.1 186.8 Accretion of asset retirement obligations 9.3 2.9 — 12.2 Exploration expenses Dry holes and previously suspended exploration costs 17.3 — — 17.3 Geological and geophysical — — 0.3 0.3 Other exploration 1.3 0.1 0.5 1.9 18.6 0.1 0.8 19.5 Undeveloped lease amortization 3.1 0.1 1.8 5.0 Total exploration expenses 21.7 0.2 2.6 24.5 Selling and general expenses 4.2 4.0 1.2 9.4 Other ² 39.1 (71.7) 2.0 (30.6) Results of operations before taxes 208.0 99.1 (6.0) 301.1 Income tax provisions (benefits) 39.9 25.2 (0.8) 64.3 Results of operations (excluding Corporate segment) $ 168.1 73.9 (5.2) 236.8 Three Months Ended September 30, 2020 Oil and gas sales and other operating revenues $ 330.8 96.3 — 427.1 Lease operating expenses 91.5 32.6 0.4 124.5 Severance and ad valorem taxes 6.4 0.3 — 6.7 Transportation, gathering and processing 29.3 12.0 — 41.3 Depreciation, depletion and amortization 166.2 59.6 0.5 226.3 Accretion of asset retirement obligations 9.4 1.4 — 10.8 Impairment of assets 205.1 — — 205.1 Exploration expenses Dry holes and previously suspended exploration costs 0.6 — — 0.6 Geological and geophysical 0.1 — (0.1) — Other exploration 0.6 0.1 3.6 4.3 1.3 0.1 3.5 4.9 Undeveloped lease amortization 4.9 0.1 2.3 7.3 Total exploration expenses 6.2 0.2 5.8 12.2 Selling and general expenses 5.3 3.4 1.6 10.3 Other 22.5 (1.5) 2.5 23.5 Results of operations before taxes (211.1) (11.7) (10.8) (233.6) Income tax (benefits) provisions (38.5) (3.1) 0.9 (40.7) Results of operations (excluding Corporate segment) $ (172.6) (8.6) (11.7) (192.9) 1 Includes results attributable to a noncontrolling interest in MP GOM. 2 For the three months ended September 30, 2021, Canada includes $71.8 million of income related to the deferral of an asset retirement obligation at Terra Nova. 25 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.) Results of Operations (contd.) OIL AND GAS OPERATING RESULTS – NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Millions of dollars) United States 1 Canada Other Total Nine Months Ended September 30, 2021 Oil and gas sales and other operating revenues $ 1,704.4 349.2 — 2,053.6 Lease operating expenses 303.3 100.0 0.4 403.7 Severance and ad valorem taxes 30.6 1.6 — 32.2 Transportation, gathering and processing 90.5 46.7 — 137.2 Depreciation, depletion and amortization 476.6 128.0 1.1 605.7 Accretion of asset retirement obligations 27.5 7.4 — 34.9 Impairment of assets — 171.3 — 171.3 Exploration expenses Dry holes and previously suspended exploration costs 17.9 — — 17.9 Geological and geophysical 2.7 — 1.3 4.0 Other exploration 4.2 0.2 9.6 14.0 24.8 0.2 10.9 35.9 Undeveloped lease amortization 7.9 0.2 5.8 13.9 Total exploration expenses 32.7 0.4 16.7 49.8 Selling and general expenses 15.0 12.0 4.7 31.7 Other ² 133.5 (67.7) (1.2) 64.6 Results of operations before taxes 594.7 (50.5) (21.7) 522.5 Income tax provisions (benefits) 112.9 (12.8) 0.8 100.9 Results of operations (excluding Corporate segment) $ 481.8 (37.7) (22.5) 421.6 Nine months ended September 30, 2020 Oil and gas sales and other operating revenues $ 1,070.6 245.2 1.8 1,317.6 Lease operating expenses 386.5 90.6 1.2 478.3 Severance and ad valorem taxes 21.6 1.0 — 22.6 Transportation, gathering and processing 95.4 31.4 — 126.8 Depreciation, depletion and amortization 589.5 161.3 1.5 752.3 Accretion of asset retirement obligations 27.1 4.1 — 31.2 Impairment of assets 1,152.5 — 39.7 1,192.2 Exploration expenses Dry holes and previously suspended exploration costs 8.3 — — 8.3 Geological and geophysical 9.4 0.1 4.1 13.6 Other exploration 4.3 0.4 13.1 17.8 22.0 0.5 17.2 39.7 Undeveloped lease amortization 14.8 0.3 6.9 22.0 Total exploration expenses 36.8 0.8 24.1 61.7 Selling and general expenses 16.6 13.2 5.5 35.3 Other 1.0 (2.5) 1.4 (0.1) Results of operations before taxes (1,256.4) (54.7) (71.6) (1,382.7) Income tax provisions (benefits) (244.7) (19.7) 1.4 (263.0) Results of operations (excluding Corporate segment) $ (1,011.7) (35.0) (73.0) (1,119.7) 1 Includes results attributable to a noncontrolling interest in MP GOM. 2 For the nine months ended September 30, 2021, Canada includes $71.8 million of income related to the deferral of an asset retirement obligation at Terra Nova. 26 Table of Contents