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Item 1A. Risk Factors

2022-02-25 compared with 2021-02-26 · 21 added, 307 removed, 20 unchanged (94% of the section changed)

Price Risk Factors

Volatility in the global prices of crude oil, natural gas liquids and natural gas can significantly affect the Company’s operating results.

Among the most significant variable factors impacting the Company’s results of operations are the sales prices for crude oil and natural gas that it produces.

Many of the factors influencing prices of crude oil and natural gas are beyond our control.

These factors include:

• the occurrence or threat of epidemics or pandemics, such as the recent outbreak of coronavirus disease 2019 (COVID-19), or any government response to such occurrence or threat which may lower the demand for hydrocarbon fuels;

• worldwide and domestic supplies of and demand for crude oil, natural gas liquids and natural gas;

• the ability of the members of OPEC and certain non-OPEC members, for example, certain major suppliers such as Russia and Saudi Arabia, to agree to and maintain production levels;

• the production levels of non-OPEC countries, including, amongst others, production levels in the shale plays in the United States;

• the level of drilling, completion and production activities by other exploration and production companies, and variability therein, in response to market conditions;

• political instability or armed conflict in oil and natural gas producing regions;

• changes in weather patterns and climate;

• natural disasters such as hurricanes and tornadoes;

• the price, availability and the demand for and of alternative and competing forms of energy, such as nuclear, hydroelectric, wind or solar;

• the effect of conservation efforts;

• technological advances affecting energy consumption and energy supply;

• domestic and foreign governmental regulations and taxes, including further legislation requiring, subsidizing or providing tax benefits for the use of alternative energy sources and fuels;

• general economic conditions worldwide.

The global economic downturn triggered by the COVID-19 pandemic (discussed below) has impacted demand, and hence has applied further downward pressure on hydrocarbon (most notably oil) energy prices.

The longer the COVID-19 pandemic continues, including prolonged government restrictions on businesses and reduced activity of consumers, the longer the downward pressure will be applied.

In the first quarter of 2020, certain major global suppliers announced supply increases in oil which contributed to the lower global commodity prices.

In the first quarter of 2020, certain countries also announced unexpected price discounts of $6 to $8 per barrel to global customers.

In the second quarter of 2020, the OPEC+ group of producers agreed to cut output by 9.7 million barrels of oil per day (MMBLD) in May and June 2020, which was later extended through the end of July 2020.

Cuts of 7.7 MMBLD were made from August and December 2020.

Subsequent to year end, production cuts have been scaled back to 7.2 MMBLD in January 2021 and 7.1 MMBLD for February and March.

However, outside of the OPEC+ agreement, Saudi Arabia unilaterally implemented an additional 1.0 MMBLD cut in February and March 2021.

West Texas Intermediate (WTI) crude oil prices averaged approximately $39 in 2020, compared to $57 in 2019, $65 in 2018, and $51 per barrel in 2017.

The closing price for WTI at the end of 2020 was approximately $47 per barrel, reflecting a 21% reduction from the price at the end of 2019.

As of close on February 25, 2021, the NYMEX WTI forward curve price for the remainder of 2021 and 2022 were $61.38 and $56.51 per barrel, respectively.

The current futures forward curve indicates that prices may continue at or near current prices for an extended time.

and Canadian crude oils are priced from oil indices other than WTI, and these indices are influenced by different supply and demand forces than those that affect WTI prices.

The most common crude oil indices used to price the Company’s crude include WTI Houston (MEH), Heavy Louisiana Sweet (HLS), Mars and Brent.

The average New York Mercantile Exchange (NYMEX) natural gas sales price was $1.99 per million British Thermal Units (MMBTU) in 2020, compared to $2.52 in 2019, $3.12 per MMBTU in 2018, and $2.96 per MMBTU in 2017.

The closing price for NYMEX natural gas as of December 31, 2020, was $2.58 per MMBTU.

The Company also has exposure to the Canadian

benchmark natural gas price, AECO, which averaged US$1.66 per MMBTU in 2020.

The closing price for AECO as of December 31, 2020 was US$2.03 per MMBTU.

The Company has entered into certain forward fixed price contracts as detailed in the Outlook section on page 47 a nd certain variable netback contracts providing exposure to Malin, Dawn and other locations.

Lower prices may materially and adversely affect our results of operations, cash flows and financial condition, and this trend could continue into 2021.

Lower oil and natural gas prices could reduce the amount of oil and natural gas that the Company can economically produce, resulting in a reduction in the proved oil and natural gas reserves we could recognize, which could impact the recoverability and carrying value of our assets.

The Company cannot predict how changes in the sales prices of oil and natural gas will affect the results of operations in future periods.

The Company has hedged a portion of its exposure to the effects of changing prices of crude oil and natural gas by selling forwards, swaps and other forms of derivative contracts.

The Company markets a portion of Canadian natural gas production to locations other than AECO and through physical forward sales.

See Note M – Financial Instruments and Risk Management for additional information on the derivative instruments used to manage certain risks related to commodity prices.

Murphy could face long-term challenges to the fossil fuels business model reducing demand and price for hydrocarbon fuels.

As environmental and social trends change towards less carbon intensive energy sources, Murphy’s business model may come under more pressure from changing global demands for non-fossil fuel energy sources.

As part of Murphy’s strategy review process, the Company reviews hydrocarbon demand forecasts and assesses the impact on its business model and plans.

The Company also has significant natural gas reserves which emit lower carbon compared to oil and liquids.

The issue of climate change has caused considerable attention to be directed towards initiatives to reduce global greenhouse gas emissions.

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.

It is possible that the Paris Agreement, and other such initiatives, including foreign, federal and state rules or regulations related to greenhouse gas emissions and climate change, may reduce the demand for crude oil and natural gas globally.

In addition to regulatory risk, other market and social initiatives such as public and private initiatives that aim to subsidize the development of non-fossil fuel energy sources, may reduce the competitiveness of carbon-based fuels, such as oil and gas.

While the magnitude of any reduction in hydrocarbon demand is difficult to predict, such a development could adversely impact the Company and other companies engaged in the exploration and production business.

With or without renewable-energy subsidies, the unknown pace and strength of technological advancement of non-fossil-fuel energy sources creates uncertainty about the timing and pace of effects on our business model.

The Company continually monitors the global climate change agenda initiatives and plans accordingly based on its assessment of such initiatives on its business.

Low oil and natural gas prices may adversely affect the Company’s operations in several ways in the future.

Lower oil and natural gas prices adversely affect the Company in several ways:

• Lower sales value for the Company’s oil and natural gas production reduces cash flows and net income.

• Lower cash flows may cause the Company to reduce its capital expenditure program, thereby potentially restricting its ability to grow production and add proved reserves.

• Lower oil and natural gas prices could lead to impairment charges in future periods, therefore reducing net income.

• Reductions in oil and natural gas prices could lead to reductions in the Company’s proved reserves in future years.

Low prices could make a portion of the Company’s proved reserves uneconomic, which in turn could lead to the removal of certain of the Company’s year-end reported proved oil reserves in future periods.

These reserve reductions could be significant.

• In order to manage the potential volatility of cash flows and credit requirements, we maintain appropriate bank credit facilities.

Inability to access, renew or replace such credit facilities or access other sources of funding as they mature would negatively impact our liquidity.

• Lower prices for oil and natural gas could cause the Company to lower its dividend because of lower cash flows.

Certain of these effects are further discussed in risk factors that follow.

Murphy’s commodity price risk management may limit the Company’s ability to fully benefit from potential future price increases for oil and natural gas.

The Company, from time to time, enters into various contracts to protect its cash flows against lower oil and natural gas prices.

Because of these contracts, if the prices for oil and natural gas increase in future periods, the Company will not fully benefit from the price improvement on all production.

Operational Risk Factors

Murphy operates in highly competitive environments which could adversely affect it in many ways, including its profitability, cash flows and its ability to grow.

Murphy operates in the oil and natural gas industry and experiences competition from other oil and natural gas companies, which include state-owned foreign oil companies, major integrated oil companies, private equity investors and independent producers of oil and natural gas.

Many of the state-owned and major integrated oil companies and some of the independent producers that compete with the Company have substantially greater resources than Murphy.

In addition, the oil industry as a whole competes with other industries in supplying energy requirements around the world.

Murphy competes, among other things, for valuable acreage positions, exploration licenses, drilling equipment and talent.

Exploration drilling results can significantly affect the Company’s operating results.

The Company drills exploratory wells which subjects its exploration and production operating results to exposure to dry holes expense, which may have adverse effects on, and create volatility for, the Company’s results of operations.

In response to lower oil prices in recent years, the Company has reduced its exploration program from pre-2015 levels and currently plans to participate in approximately three to five exploration wells per year.

In 2020, the Company reduced its exploration drilling plans further in response to external factors and participated in two unsuccessful non-operated exploration wells in the U.S.

Gulf of Mexico.

The Company has budgeted $73 million for its 2021 exploration program, which includes one non-operated well in the U.S.

Gulf of Mexico, up to two non-operated wells in Brazil, and one non-operated well in Brunei;

subject to rig availability/timing.

If Murphy cannot replace its oil and natural gas reserves, it may not be able to sustain or grow its business.

Murphy continually depletes its oil and natural gas reserves as production occurs.

To sustain and grow its business, the Company must successfully replace the oil and natural gas it produces with additional reserves.

Therefore, it must create and maintain a portfolio of good prospects for future reserves additions and production.

The Company does this by obtaining rights to explore for, develop and produce hydrocarbons in prospective areas.

In addition, it must find, develop and produce and/or acquire reserves at a competitive cost to be successful in the long-term.

Murphy’s ability to operate profitably in the exploration and production business, therefore, is dependent on its ability to find (and/or acquire), develop and produce oil and natural gas reserves at costs that are less than the realized sales price for these products.

Acquisitions – In 2019, the Company, completed a transaction with LLOG Exploration Offshore L.L.C.

and LLOG Bluewater Holdings, L.L.C., (LLOG), whereby the Company acquired 26 blocks in the Mississippi Canyon and Green Canyon areas of the Gulf of Mexico.

In addition, the Company acquired incremental ownership in the Chinook field in the Gulf of Mexico.

In 2018, the Company entered into a transaction among Murphy, PAI and MP Gulf of Mexico, LLC (MP GOM), whereby the Company through its interest in MP GOM acquired an 80% interest in PAI Gulf of Mexico producing Assets (Cascade, Chinook, Lucius, St.

Malo, Cottonwood, South Marsh Island, Northwestern, and South Hadrian fields) and its interests in exploration blocks in the U.S.

Gulf of Mexico to MP GOM.

Murphy’s proved reserves are based on the professional judgment of its engineers and may be subject to revision.

Proved reserves of crude oil, natural gas liquids (NGL) and natural gas included in this report on pages 102 through 110 have been prepared according to the Securities and Exchange (SEC) guidelines by qualified Company personnel or qualified independent engineers based on an unweighted average of crude oil, NGL and natural gas prices in effect at the beginning of each month of the respective year as well as other conditions and information available at the time the estimates were prepared.

Estimation of reserves is a subjective process that involves professional judgment by engineers about volumes to be recovered in future periods from underground oil and natural gas reservoirs.

Estimates of economically recoverable crude oil, NGL and natural gas reserves and future net cash flows depend upon a number of variable factors and assumptions, and consequently, different engineers could arrive at different estimates of reserves and future net cash flows based on the same available data and using industry accepted engineering practices and scientific methods.

In 2020, 94.8% of the Proved reserves were audited by third-party auditors.

Murphy’s actual future oil and natural gas production may vary substantially from its reported quantity of proved reserves due to a number of factors, including:

• Oil and natural gas prices which are materially different from prices used to compute proved reserves

• Operating and/or capital costs which are materially different from those assumed to compute proved reserves

• Future reservoir performance which is materially different from models used to compute proved reserves, and

• Governmental regulations or actions which materially impact operations of a field.

The Company’s proved undeveloped reserves represent significant portions of total proved reserves.

As of December 31, 2020, and including noncontrolling interests, approximately 33% of the Company’s crude oil and condensate proved reserves, 25% of natural gas liquids proved reserves and 51% of natural gas proved reserves are undeveloped.

The ability of the Company to reclassify these undeveloped proved reserves to the proved developed classification is generally dependent on the successful completion of one or more operations, which might include further development drilling, construction of facilities or pipelines, and well workovers.

The discounted future net revenues from our proved reserves as reported on pages 115 and 116 should not be considered as the market value of the reserves attributable to our properties.

As required by generally accepted accounting principles (GAAP), the estimated discounted future net revenues from our proved reserves are based on an unweighted average of the oil and natural gas prices in effect at the beginning of each month during the year.

Actual future prices and costs may be materially higher or lower than those used in the reserves computations.

In addition, the 10% discount factor that is required to be used to calculate discounted future net revenues for reporting purposes under GAAP is not necessarily the most appropriate discount factor based on our cost of capital, the risks associated with our business and the risk associated with the industry in general.

Murphy is sometimes reliant on joint venture partners for operating assets, and/or funding development projects and operations.

Certain of the Company’s major oil and natural gas producing properties are operated by others.

Therefore, Murphy does not fully control all activities at certain of its revenue generating properties.

During 2020, approximately 22% of the Company’s total production was at fields operated by others, while at December 31, 2020, approximately 13% of the Company’s total proved reserves were at fields operated by others.

Additionally, the Company relies on the availability of transportation and processing facilities that are often owned and operated by others.

These third-party systems and facilities may not always be available to the Company, and if available, may not be available at a price that is acceptable to the Company.

Some of Murphy’s development projects entail significant capital expenditures and have long development cycle times.

As a result, the Company’s partners must be able to fund their share of investment costs through the development cycle, through cash flow from operations, external credit facilities, or other sources, including financing arrangements.

Murphy’s partners are also susceptible to certain of the risk factors noted herein, including, but not limited to, commodity price, fiscal regime changes, government project approval delays, regulatory changes, credit downgrades and regional conflict.

If one or more of these factors negatively impacts a project partners’ cash flows or ability to obtain adequate financing, it could result in a delay or cancellation of a project, resulting in a reduction of the Company’s reserves and production, which negatively impacts the timing and receipt of planned cash flows and expected profitability.

Murphy’s business is subject to operational hazards, physical security risks and risks normally associated with the exploration and production of oil and natural gas.

The Company operates in urban and remote, and sometimes inhospitable, areas around the world.

The occurrence of an event, including but not limited to acts of nature such as hurricanes, floods, earthquakes (and other forms of severe weather), mechanical equipment failures, industrial accidents, fires, explosions, acts of war, civil unrest, piracy and acts of terrorism could result in the loss of hydrocarbons and associated revenues, environmental pollution or contamination, personal injury, (including death), and property damages for which the Company could be deemed to be liable and which could subject the Company to substantial fines and/or claims for punitive damages.

This risk extends to actions and operational hazards of other operators in the industry, which may also impact the Company.

The location of many of Murphy’s key assets causes the Company to be vulnerable to severe weather, including hurricanes and tropical storms.

Many of the Company’s offshore fields are in the U.S.

Gulf of Mexico, where hurricanes and tropical storms can lead to shutdowns and damages.

hurricane season runs from June through November.

Moreover, it should be noted that scientists have predicted that increasing concentrations of greenhouse gases in the earth’s atmosphere may produce climate changes that increase significant weather events, such as increased frequency and severity of storms, droughts, and floods and other climatic events.

If such effects were to occur, our operations could be adversely affected.

Although the Company maintains insurance for such risks as described elsewhere in this Form 10-K report, due to policy deductibles and possible coverage limits, weather-related risks are not fully insured.

Murphy is subject to numerous environmental, health and safety laws and regulations, and such existing and any potential future laws and regulations may result in material liabilities and costs.

The Company’s operations are subject to various international, foreign, national, state, and provincial, and local environmental, health and safety laws and regulations, including related to 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 are subject to frequent change and have tended to become stricter over time.

They can impose operational controls and/or siting constraints on our business and can result in additional capital and operating expenditures.

Murphy also could be subject to strict liability for environmental contamination in various jurisdictions where we operate, including with respect to its current or former properties, operations and waste disposal sites, or those of its predecessors.

Contamination has been identified at some locations and the Company has been required, and in the future may be required, to investigate, remove or remediate previously disposed wastes;

or otherwise clean up contaminated soil, surface water or groundwater, address spills and leaks from pipelines and production equipment, and perform remedial plugging operations.

In addition to significant investigation and remediation costs, such matters can result in fines and also give rise to third-party claims for personal injury and property or other environmental damage.

It is possible in the future certain regulatory bodies such as the Railroad Commission of Texas may enact regulation that bans or reduces flaring for US Onshore operations.

Compliance with such regulations could result in capital investment which would reduce the Company’s net cash flows and profitability.

The Company’s onshore North America oil and natural gas production is dependent on a technique known as hydraulic fracturing whereby water, sand and certain chemicals are injected into deep oil and natural gas bearing reservoirs in North America.

This process occurs thousands of feet below the surface and creates fractures in the rock formation within the reservoir which enhances migration of oil and natural gas to the wellbore.

The Company primarily uses this technique in the Eagle Ford Shale in South Texas and in Western Canada.

In June 2011, the State of Texas adopted a law requiring public disclosure of certain information regarding the components used in the hydraulic fracturing process.

The Provinces of British Columbia and Alberta have also issued regulations related to various aspects of hydraulic fracturing activities under their jurisdictions.

It is possible that the states, the U.S., Canadian provinces and certain municipalities adopt further laws or regulations which could render the process unlawful, less effective or drive up its costs.

If any such action is taken in the future, the Company’s production levels could be adversely affected, or its costs of drilling and completion could be increased.

Once new laws and/or regulations have been enacted and adopted, the costs of compliance are appraised.

Hydraulic fracturing operations subject the Company to operational risks inherent in the drilling and production of oil and natural gas.

These risks include underground migration or surface spillage due to releases of oil, natural gas, formation water or well fluids, as well as any related surface or groundwater contamination, including from petroleum constituents or hydraulic fracturing chemical additives.

Ineffective containment of surface spillage and surface or groundwater contamination resulting from hydraulic fracturing operations, including from petroleum constituents or hydraulic fracturing chemical additives, could result in environmental pollution, remediation expenses and third-party claims alleging damages, which could adversely affect

the Company’s financial condition and results of operations.

In addition, hydraulic fracturing requires significant quantities of water;

the wastewater from oil and natural gas operations is often disposed of through underground injection.

Certain increased seismic activities have been linked to underground water injection.

Any diminished access to water for use in the hydraulic fracturing process, any inability to properly dispose of wastewater, or any further restrictions placed on wastewater, could curtail the Company’s operations or otherwise result in operational delays or increased costs.

In April 2016, BSEE enacted broad regulatory changes related to Gulf of Mexico well design, well control, casing, cementing, real-time monitoring, and subsea containment, among other items.

These changes are known broadly as the Well Control Rule, and amendments to this rule were enacted in May 2019.

Compliance is required over the next several years.

Some provisions remain for which BSEE future enforcement actions are unclear, so risk of impact leading to increased future cost on the Company’s Gulf of Mexico operations remains.

In July 2016, BOEM issued an updated Notice to Lessees and Operators (NTL) providing details on revised procedures BOEM used to determine a lessee’s ability to carry out decommissioning obligations for activities on the Outer Continental Shelf (OCS), including the Gulf of Mexico.

This revised policy became effective in September 2016 and instituted new criteria by which the BOEM will evaluate the financial strength and reliability of lessees and operators active on the OCS.

If the BOEM determines under the revised policy that a company does not have the financial ability to meet its decommissioning and other obligations, that company will be required to post additional financial security as assurance.

In January 2017 BOEM extended the implementation timeline for the NTL by six months for properties which have co-lessees, and in February 2017 BOEM withdrew sole liability orders issued in December 2016 to allow time for the new administration to review the financial assurance program for decommissioning.

Although the Company believes a potential new BOEM policy could lead to increased costs for its Gulf of Mexico operations, it does not currently believe that the impact will be material to its operations in the Gulf of Mexico.

In the future, BOEM and/or BSEE, may impose new and more stringent offshore operating regulations which may adversely affect the Company’s operations.

On January 21, 2021 the Company (along with all operators in the industry) was given notice that the Department of Interior is for 60 days suspending authority for normal-course issuance of permits for fossil fuel development on federal lands.

Following this notice, the Department of Interior has continued to approve permits and Murphy has not experienced a delay in project approvals.

An extension or permanency of this suspension could impact the options available to Murphy for future development, reserves available for production and hence future cash flows and profitability.

In the event leasing delays or cancellations alter Murphy’s plans in the Gulf of Mexico, the company is able to re-focus activities and allocate capital to other areas.

The company does not hold any onshore federal lands in the U.S.

Further, on January 27, 2021, the President signed an Executive Order announcing the pause of new oil and natural gas leasing on public lands and offshore waters while undertaking a review of the federal oil and gas program.

The pause does not impact existing operations or permits for valid, existing leases, which are continuing to be reviewed and approved.

See Risk Factors – General Risk Factors – Murphy’s operations and earnings have been and will continue to be affected by domestic and worldwide political developments.

Financial Risk Factors

Capital financing may not always be available to fund Murphy’s activities;

and interest rates could impact cash flows.

Murphy usually must spend and risk a significant amount of capital to find and develop reserves before revenue is generated from production.

Although most capital needs are funded from operating cash flow, the timing of cash flows from operations and capital funding requirements may not always coincide, and the levels of cash flow generated by operations may not fully cover capital funding requirements, especially in periods of low commodity prices.

Therefore, the Company maintains financing arrangements with lending institutions to meet certain funding needs.

The Company periodically renews these financing arrangements based on foreseeable financing needs or as they expire.

In November 2018, the Company entered into a $1.6 billion revolving credit facility (the “RCF”).

The RCF is a senior unsecured guaranteed facility and will expire in November 2023.

Amounts drawn under the RCF may bear interest in relation to LIBOR, depending on our selection of rates.

In July 2017, the Financial Conduct Authority in the U.K.

announced a desire to phase out LIBOR as a benchmark by the end of 2021.

Financial industry working groups are developing replacement rates, such as the Secured Overnight Financing Rate (SOFR) discussed below, and methodologies to transition existing agreements that depend on LIBOR as a reference rate;

however, we can provide no assurance that market-accepted rates and transition methodologies will be available and finalized at the time of LIBOR cessation.

If clear market standards and transition methodologies have not developed by the time LIBOR becomes unavailable, we may have difficulty reaching agreement on acceptable replacement rates under the RCF.

If we are unable to negotiate replacement rates, on favorable terms, it could have a material adverse effect on our earnings and cash flows.

In 2018, the Alternative Reference Rates Committee (ARRC), a group of private-market participants convened by the Federal Reserve Board and the New York Fed, recommended an alternative to LIBOR, the Secured Overnight Financing Rate (SOFR).

The publication of SOFR began in April 2018, and, therefore, it has a limited history.

In addition, the future performance of SOFR cannot be predicted based on the limited historical performance.

SOFR is fundamentally different from USD LIBOR for two key reasons.

First, SOFR is a secured rate, while LIBOR is an unsecured rate.

Second, SOFR is an overnight rate, while USD LIBOR represents interbank funding over different maturities.

As a result, there can be no assurance that SOFR will perform in the same way as LIBOR would have at any time, including, without limitation, as a result of changes in interest and yield rates in the market, market volatility or global or regional economic, financial, political, regulatory, judicial or other events.

In November 2019, the Company issued $550 million of new notes that bear interest at a rate of 5.875% and mature on December 1, 2027 and repurchased and canceled $239.7 million of the Company’s 4.00% notes due 2022 and $281.6 million of the Company’s 4.45% notes due 2022 (originally issued as 3.70% notes due 2022) during November and December 2019.

The Company’s ability to obtain additional financing is also affected by the Company’s debt credit ratings and competition for available debt financing.

A ratings downgrade could materially and adversely impact the Company’s ability to access debt markets, increase the borrowing cost under the Company’s credit facility and the cost of future debt, and potentially require the Company to post additional letters of credit or other forms of collateral for certain obligations.

Further, changes in economic environments and investors’ view of risk of the exploration and production industry could adversely impact interest rates.

This could result in higher interest costs on capital funding lowering net income and cash-flows.

Murphy partially manages this risk through borrowing at fixed rates where-ever possible;

however, rates determined when refinancing or new capital is required are partly determined through factors outside of Murphy’s control, such as centrally (federal government) set interest rates and investors’ view of the exploration and production industry.

See Note H – Financing Arrangements and Debt for information regarding the Company’s outstanding debt and other commitments as of December 31, 2020 and the terms associated therewith.

Murphy’s operations could be adversely affected by changes in foreign exchange rates.

The Company’s worldwide operational scope exposes it to risks associated with foreign currencies.

Most of the Company’s business is transacted in U.S.

dollars, and therefore the Company and most of its subsidiaries are U.S.

dollar functional entities for accounting purposes.

However, the Canadian dollar is the functional currency for all Canadian operations.

This exposure to currencies other than the U.S.

dollar functional currency can lead to impacts on consolidated financial results from foreign currency translation.

On occasions, the Canadian business may hold assets or incur liabilities denominated in a currency which is not Canadian dollars which could lead to exposure to foreign exchange rate fluctuations.

See also Note M – Financial Instruments and Risk Management in the Notes to Consolidated Financial Statements for additional information on derivative contracts.

The costs and funding requirements related to the Company’s retirement plans are affected by several factors.

A number of actuarial assumptions impact funding requirements for the Company’s retirement plans.

The most significant of these assumptions include return on assets, long-term interest rates and mortality.

If the actual results for the plans vary significantly from the actuarial assumptions used, or if laws regulating such retirement plans are changed, Murphy could be required to make more significant funding payments to one or more of its retirement plans in the future and/or it could be required to record a larger liability for future obligations in its Consolidated Balance Sheet.

Murphy has limited control over supply chain costs.

The Company often experiences pressure on its operating and capital expenditures in periods of strong crude oil and natural gas prices because an increase in exploration and production activities due to high oil and natural gas sales prices generally leads to higher demand for, and consequently higher costs for, goods and services in the oil and natural gas industry.

The increase in oil prices in 2017 and 2018 (compared to 2015 to 2016) led to some upward inflation pressure in oil field goods and service costs during those years.

In 2019 the cost of goods and services in the oil and natural gas industry were approximately in line with 2018.

In 2020, following the reduction in oil prices (mainly as a result of the COVID-19 pandemic), the Company observed reductions in the costs for oil and natural gas goods and services.

The Company is exposed to credit risks associated with (i) sales of certain of its products to customers, (ii) joint venture partners and (iii) other counterparties.

Murphy is exposed to credit risk in three principle areas:

• Accounts receivable credit risk from selling its produced commodity to customers;

• Joint venture partners related to certain oil and natural gas properties operated by the Company.

These joint venture partners may not be able to meet their financial obligation to pay for their share of capital and operating costs as they become due;

• Counterparty credit risk related to forward price commodity hedge contracts to protect the Company’s cash flows against lower oil and natural gas prices

To mitigate these risks the Company:

• Actively monitors the credit worthiness of all its customers, joint venture partners, and forward commodity hedge counterparties;

• Given the inherent credit risks in a cyclical commodity price business, the Company has increased the focus on its review of joint venture partners, the magnitude of potential exposure, and planning suitable actions should a joint venture partner fail to pay its share of capital and operating expenditures.

The inability of a purchaser of the Company’s produced commodity, a joint venture partner of the Company, or counterparty in a forward price commodity hedge to meet their respective payment obligations to the Company could have an adverse effect on Murphy’s future earnings and cash flows.

General Risk Factors

We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.

We face various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19.

In 2020 the continued spread of COVID-19 has led to disruption in the global economy and weakness in demand in crude oil, natural gas liquids and natural gas, which has applied downward pressure on global commodity prices.

See Risk Factors – Price Risk Factors – Volatility in the global prices of crude oil, natural gas liquids and natural gas can significantly affect the Company’s operating results.

If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures or other restrictions in connection with the COVID-19 pandemic, our operations will likely be impacted and decrease our ability to produce, oil, natural gas liquids and natural gas.

We may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak.

These cost increases may not be fully recoverable or adequately covered by insurance.

It is possible that the continued spread of COVID-19 could also further cause disruption in our supply chain;

cause delay, or limit the ability of vendors and customers to perform, including in making timely payments to us;

and cause other unpredictable events.

The impact of COVID-19 has impacted capital markets, which may increase the cost of capital and adversely impact access to capital.

The impact on capital markets may also impact our customers financial position and recoverability of our receivables from sales to customers.

We continue to work with our stakeholders (including customers, employees, suppliers, financial and lending institutions and local communities) to address responsibly this global pandemic.

We continue to monitor the situation, to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences.

The Company initiated an aggressive cost and capital expenditures reduction program in response to the lower commodity price as a result of weaker demand caused by the COVID-19 pandemic.

We cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on our business, financial position, results of operations and/or cash flows.

The extent to which the COVID-19 or other health pandemics or epidemics may impact our results will depend on future developments, which are highly uncertain and cannot be predicted.

Murphy’s Information Technology environment may be exposed to cyber threats.

The oil and natural gas industry has become increasingly dependent on digital technologies to conduct exploration, development, and production activities.

We are no exception to this trend.

As a company, we depend on these technologies to estimate quantities of oil and natural gas reserves, process and record financial and operating data, analyze seismic and drilling information, internal and external communication, and conduct many other business activities.

Maintaining the security of our technology and preventing breaches is critical to our business operation.

We rely on our information systems to protect and secure intellectual property, strategic plans, customer information, and personally identifiable information, such as employee information.

A successful or undetected cyberattack has the potential to halt business operations, impair our reputation, weaken our competitive advantage, and / or adversely impact our financial condition.

Given the increasing global threats from cybercrime, the Company’s approach to mitigate cybersecurity risk focuses on recurrent internal and external cyber risk assessments, physical and digital asset protection, eradicating security vulnerabilities via preventative and detective measures, and security awareness training.

The Company’s effort to reduce information systems risk extends beyond company personnel and assets.

Specifically, where we engage third party providers, the Company includes contract provisions requiring vendors to comply with our security policies, standards and controls, immediately notify us of any actual or suspected information security breaches, and jointly perform risk assessments.

As the sophistication of cyber threats continues to evolve, we may be required to dedicate additional resources to continue to modify or enhance our security measures, or to investigate and remediate any vulnerabilities to cyber-attacks.

Murphy’s operations and earnings have been and will continue to be affected by domestic and worldwide political developments.

Many governments, including those that are members of the Organization of Petroleum Exporting Countries (OPEC), unilaterally intervene at times in the market of crude oil and natural gas produced in their countries through such actions as changing fiscal regimes (including corporate income tax rates), setting prices, determining rates of production, and controlling who may buy and sell the production.

Murphy is exposed to regulation, legislation and policies enacted by the federal government.

As an example, following the election and inauguration of President Biden in January 2021, the U.S.

Secretary of the Interior issued Order No.

3395 on January 20, 2021.

This order, among other things, placed a 60 day moratorium on oil and gas leases, lease amendments and extension, and drilling permits on federal lands and offshore waters.

Following this notice, the Department of Interior has continued to approve permits and Murphy has not experienced a delay in project approvals.

An extension or permanency of this suspension could impact the options available to Murphy for future development, reserves available for production and hence future cash flows and profitability.

In the event leasing delays or cancellations alter Murphy’s plans in the Gulf of Mexico, the Company believes it will be able to re-focus activities and allocate capital to other areas.

The Company does not hold any onshore federal lands in the U.S.

In addition, the Biden administration has taken a number of actions that may result in stricter environmental, health and safety standards applicable to our operations and those of the oil and gas industry more generally.

The Biden Administration issued the “Executive Order on Tackling the Climate Crisis at Home and Abroad” on January 27, 2021.

This executive order directed the Secretary of the Interior to halt indefinitely new oil and natural gas leases on federal lands and offshore waters pending completion of a review by the Secretary of the Interior of federal oil and gas permitting and leasing practices in light of the Biden administration’s concerns regarding the impact of these activities on the environment and climate.

In addition, the Executive Order, among other things, establishes climate conditions as an essential element of U.S.

foreign policy;

establishes a White House office and a climate task force to coordinate and implement the Biden Administration’s domestic climate change agenda;

directs federal agencies to procure carbon pollution-free electricity and zero-emission vehicles;

eliminate fossil fuel subsidies as consistent with applicable law;

identifies a goal of a carbon pollution-free power sector by 2035 and a net-zero emissions U.S.

economy by 2050;

and commits to a goal of conserving at least 30% of federal lands and oceans by 2030.

Separately, President Biden signed another executive order on January 20, 2021, titled “Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis”, which among other things calls for a review of regulations and other executive actions promulgated, issued or adopted during the prior Presidential administration to assess whether they are, in the view of the current Presidential Administration, sufficiently protective of public health and the environment, including with respect to climate change, and consistent with science.

The order also specifically calls for consideration of new regulations regarding methane emissions in the oil and gas sector, reassessment of decisions made by the prior administration limiting the size of certain national monuments, limitations on oil and gas exploration and production in the Arctic Refuge, incorporation of the impact of GHG emissions (known as the “social cost of carbon”) in decision making by federal agencies and revoking the permit for the Keystone XL pipeline.

The pause does not impact existing operations or permits for valid, existing leases, which are continuing to be reviewed and approved.

However, these actions and any future changes to applicable environmental, health and safety, regulatory and legal requirements promulgated by the current Presidential administration and Congress may restrict our access to additional acreage and new leases in the U.S.

Gulf of Mexico or lead to limitations or delays on our ability to secure additional permits to drill and develop our acreage and leases or otherwise lead to limitations on the scope of our operations, or may lead to increases to our

compliance costs.

The potential impacts these changes on our future consolidated financial condition, results of operations or cash flows cannot be predicted.

As of December 31, 2020, none of the Company’s proved reserves, as defined by the SEC, were located in countries other than the U.S.

Risk Factors - Continued

climate change-focused review of regulations and other executive actions promulgated, issued or adopted during the prior Presidential administration.

These actions and any future changes to applicable environmental, health and safety, regulatory and legal requirements promulgated by the current presidential administration and Congress may restrict our access to additional acreage and new leases in the U.S.

The potential impacts of these changes on our future consolidated financial condition, results of operations or cash flows cannot be predicted.

Prices and availability of crude oil, natural gas and refined products could be influenced by political factors and by various governmental policies to restrict or increase petroleum usage and supply.

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Governments could also initiate regulations concerning matters such as currency fluctuations, currency conversion, protection and remediation of the environment, and concerns over the possibility of global warming caused by the production and use of hydrocarbon energy.

As of December 31, 2021, 0.1% of the Company’s proved reserves, as defined by the SEC, were located in countries other than the U.S.

A number of non-governmental entities routinely attempt to influence industry members and government energy policy in an effort to limit industry activities, such as hydrocarbon production, drilling and hydraulic fracturing with the desire to minimize the emission of greenhouse gases such as carbon dioxide, which may harm air quality, and to restrict hydrocarbon spills, which may harm land and/or groundwater.

Additionally, because of the numerous countries in which the Company operates, certain other risks exist, including the application of the U.S.

Foreign Corrupt Practices Act, the Canada Corruption of Foreign Officials Act, the Brazil Clean Companies Act, the Mexico General Law of the National Anti-Corruption System, and other similar anti-corruption compliance statutes.

Foreign Corrupt Practices Act and other similar anti-corruption compliance statutes in the jurisdictions in which we operate.

It is not possible to predict the actions of governments and hence the impact on Murphy’s future operations and earnings.

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The occurrence of an event that is not insured or not fully insured could have a material adverse effect on the Company’s financial condition and results of operations in the future.

Murphy could face long-term challenges to the fossil fuels business model reducing demand and price for hydrocarbon fuels.

As part of Murphy’s strategy review process, the Company reviews hydrocarbon demand forecasts and assesses the impact on its business model and plans.

The Company also has significant natural gas reserves which emit lower carbon compared to oil and liquids.

The issue of climate change has caused considerable attention to be directed towards initiatives to reduce global GHG emissions.

The Paris Agreement and COP26 have resulted in commitments from many countries to reduce GHG emissions and have called for parties to eliminate certain fossil fuel subsidies and pursue further action on non-carbon dioxide GHGs.

In addition, the federal government could issue various executive orders that may result in additional laws, rules and regulations in the area of climate change.

It is possible that the Paris

Risk Factors - Continued

Agreement, COP26, government executive orders and other such initiatives, including foreign, federal and state laws, rules or regulations related to greenhouse gas emissions and climate change, may reduce the demand for crude oil and natural gas globally.

The Company continually monitors the global climate change agenda initiatives and plans accordingly based on its assessment of such initiatives on its business.

Lawsuits against Murphy and its subsidiaries could adversely affect its operating results.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors