MURPHY OIL CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (unaudited) (Thousands of dollars) June 30, 2022 December 31, 2021 ASSETS Current assets Cash and cash equivalents $ 432,019 521,184 Accounts receivable, net 522,023 258,150 Inventories 63,886 54,198 Prepaid expenses 33,392 31,925 Assets held for sale 15,561 15,453 Total current assets 1,066,881 880,910 Property, plant and equipment, at cost less accumulated depreciation, depletion and amortization of $ 12,751,486 in 2022 and $ 12,457,851 in 2021 8,295,655 8,127,852 Operating lease assets 855,975 881,389 Deferred income taxes 326,706 385,516 Deferred charges and other assets 26,994 29,273 Total assets $ 10,572,211 10,304,940 LIABILITIES AND EQUITY Current liabilities Current maturities of long-term debt, finance lease $ 670 654 Accounts payable 910,009 623,129 Income taxes payable 25,452 19,951 Other taxes payable 30,698 20,306 Operating lease liabilities 167,953 139,427 Other accrued liabilities 483,430 360,859 Total current liabilities 1,618,212 1,164,326 Long-term debt, including finance lease obligation 2,267,934 2,465,414 Asset retirement obligations 863,892 839,776 Deferred credits and other liabilities 439,404 570,574 Non-current operating lease liabilities 706,016 761,162 Deferred income taxes 188,523 182,892 Total liabilities 6,083,981 5,984,144 Equity Cumulative Preferred Stock, par $ 100 , authorized 400,000 shares, none issued — — Common Stock, par $ 1.00 , authorized 450,000,000 shares, issued 195,100,628 shares in 2022 and 195,100,628 shares in 2021 195,101 195,101 Capital in excess of par value 883,368 926,698 Retained earnings 5,405,400 5,218,670 Accumulated other comprehensive loss ( 554,727 ) ( 527,711 ) Treasury stock ( 1,616,340 ) ( 1,655,447 ) Murphy Shareholders' Equity 4,312,802 4,157,311 Noncontrolling interest 175,428 163,485 Total equity 4,488,230 4,320,796 Total liabilities and equity $ 10,572,211 10,304,940 See Notes to Consolidated Financial Statements, page 7. 2 Table of Contents Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended June 30, Six Months Ended June 30, (Thousands of dollars, except per share amounts) 2022 2021 2022 2021 Revenues and other income Revenue from production $ 1,146,299 758,829 $ 1,980,827 1,351,356 Sales of purchased natural gas 49,939 — 86,785 — Total revenue from sales to customers 1,196,238 758,829 2,067,612 1,351,356 Loss on crude contracts ( 103,068 ) ( 226,245 ) ( 423,845 ) ( 440,630 ) Gain on sale of assets and other income 7,887 17,059 10,251 18,902 Total revenues and other income 1,101,057 549,643 1,654,018 929,628 Costs and expenses Lease operating expenses 147,352 126,413 284,177 273,577 Severance and ad valorem taxes 17,565 11,314 32,200 20,545 Transportation, gathering and processing 49,948 49,696 96,871 92,608 Costs of purchased natural gas 47,971 — 81,636 — Exploration expenses, including undeveloped lease amortization 15,151 13,543 62,717 25,323 Selling and general expenses 27,130 29,113 60,659 58,616 Depreciation, depletion and amortization 195,856 227,288 359,980 425,566 Accretion of asset retirement obligations 11,563 12,164 23,439 22,656 Impairment of assets — — — 171,296 Other operating expense 36,913 70,328 142,855 91,407 Total costs and expenses 549,449 539,859 1,144,534 1,181,594 Operating income (loss) from continuing operations 551,608 9,784 509,484 ( 251,966 ) Other income (loss) Other income (expense) 5,308 ( 4,525 ) 2,813 ( 9,866 ) Interest expense, net ( 41,385 ) ( 43,374 ) ( 78,662 ) ( 131,474 ) Total other (loss) ( 36,077 ) ( 47,899 ) ( 75,849 ) ( 141,340 ) Income (loss) from continuing operations before income taxes 515,531 ( 38,115 ) 433,635 ( 393,306 ) Income tax (benefit) expense 105,084 ( 11,177 ) 88,123 ( 99,336 ) Income (loss) from continuing operations 410,447 ( 26,938 ) 345,512 ( 293,970 ) (Loss) income from discontinued operations, net of income taxes ( 943 ) ( 102 ) ( 1,494 ) 106 Net income (loss) including noncontrolling interest 409,504 ( 27,040 ) 344,018 ( 293,864 ) Less: Net income attributable to noncontrolling interest 58,947 36,042 106,797 56,656 NET INCOME (LOSS) ATTRIBUTABLE TO MURPHY $ 350,557 ( 63,082 ) $ 237,221 ( 350,520 ) INCOME (LOSS) PER COMMON SHARE – BASIC Continuing operations $ 2.27 ( 0.41 ) $ 1.54 ( 2.27 ) Discontinued operations ( 0.01 ) — ( 0.01 ) — Net income (loss) $ 2.26 ( 0.41 ) $ 1.53 ( 2.27 ) INCOME (LOSS) PER COMMON SHARE – DILUTED Continuing operations $ 2.24 ( 0.41 ) $ 1.51 ( 2.27 ) Discontinued operations ( 0.01 ) — ( 0.01 ) — Net income (loss) $ 2.23 ( 0.41 ) $ 1.50 ( 2.27 ) Cash dividends per Common share $ 0.175 0.125 0.325 0.250 Average Common shares outstanding (thousands) Basic 155,389 154,395 155,121 154,153 Diluted 157,455 154,395 157,852 154,153 See Notes to Consolidated Financial Statements, page 7. 3 Table of Contents Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) Three Months Ended June 30, Six Months Ended June 30, (Thousands of dollars) 2022 2021 2022 2021 Net income (loss) including noncontrolling interest $ 409,504 ( 27,040 ) $ 344,018 ( 293,864 ) Other comprehensive (loss) income, net of tax Net (loss) gain from foreign currency translation ( 51,545 ) 17,945 ( 33,525 ) 37,842 Retirement and postretirement benefit plans 3,173 4,146 6,509 8,282 Deferred loss on interest rate hedges reclassified to interest expense — — — 1,690 Other comprehensive (loss) income ( 48,372 ) 22,091 ( 27,016 ) 47,814 Comprehensive income (loss) including noncontrolling interest $ 361,132 ( 4,949 ) 317,002 ( 246,050 ) Less: Comprehensive income attributable to noncontrolling interest 58,947 36,042 106,797 56,656 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO MURPHY $ 302,185 ( 40,991 ) $ 210,205 ( 302,706 ) See Notes to Consolidated Financial Statements, page 7. 4 Table of Contents Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended June 30, (Thousands of dollars) 2022 2021 Operating Activities Net income (loss) including noncontrolling interest $ 344,018 ( 293,864 ) Adjustments to reconcile net income (loss) to net cash provided by continuing operations activities Loss (income) from discontinued operations 1,494 ( 106 ) Depreciation, depletion and amortization 359,980 425,566 Unsuccessful exploration well costs and previously suspended exploration costs 34,102 633 Amortization of undeveloped leases 7,980 8,882 Accretion of asset retirement obligations 23,439 22,656 Deferred income tax (benefit) expense 66,691 ( 101,195 ) Mark to market loss on contingent consideration 129,818 76,677 Mark to market loss on crude contracts 100,343 284,360 Long-term non-cash compensation 40,467 25,318 Impairment of assets — 171,296 (Gain) from sale of assets ( 35 ) — Net (increase) decrease in noncash working capital ( 121,598 ) 26,565 Other operating activities, net ( 27,458 ) 39,494 Net cash provided by continuing operations activities 959,241 686,282 Investing Activities Property additions and dry hole costs 1 ( 552,825 ) ( 422,841 ) Acquisition of oil and gas properties 1 ( 46,491 ) ( 22,473 ) Property additions for King's Quay FPS — ( 17,734 ) Proceeds from sales of property, plant and equipment 47 269,363 Net cash (required) by investing activities ( 599,269 ) ( 193,685 ) Financing Activities Borrowings on revolving credit facility 100,000 165,000 Repayment of revolving credit facility ( 100,000 ) ( 365,000 ) Retirement of debt ( 200,000 ) ( 576,358 ) Debt issuance, net of cost — 541,974 Early redemption of debt cost ( 3,438 ) ( 34,177 ) Distributions to noncontrolling interest ( 94,854 ) ( 75,238 ) Contingent consideration payment ( 81,742 ) — Cash dividends paid ( 50,491 ) ( 38,590 ) Withholding tax on stock-based incentive awards ( 16,697 ) ( 3,895 ) Capital lease obligation payments ( 320 ) ( 371 ) Net cash (required) by financing activities ( 447,542 ) ( 386,655 ) Effect of exchange rate changes on cash and cash equivalents ( 1,595 ) 1,552 Net (decrease) increase in cash and cash equivalents ( 89,165 ) 107,494 Cash and cash equivalents at beginning of period 521,184 310,606 Cash and cash equivalents at end of period $ 432,019 418,100 1 Certain prior-period amounts have been reclassified to conform to the current period presentation. See Notes to Consolidated Financial Statements, page 7. 5 Table of Contents Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) Three Months Ended June 30, Six Months Ended June 30, (Thousands of dollars) 2022 2021 2022 2021 Cumulative Preferred Stock – par $ 100 , authorized 400,000 shares, none issued $ — — $ — — Common Stock – par $ 1.00 , authorized 450,000,000 shares, issued 195,100,628 shares at June 30, 2022 and 195,100,628 shares at June 30, 2021 Balance at beginning of period 195,101 195,101 195,101 195,101 Exercise of stock options — — — — Balance at end of period 195,101 195,101 195,101 195,101 Capital in Excess of Par Value Balance at beginning of period 880,537 914,303 926,698 941,692 Exercise of stock options, including income tax benefits ( 3,415 ) ( 587 ) ( 10,635 ) ( 626 ) Restricted stock transactions and other — ( 5,347 ) ( 45,169 ) ( 38,347 ) Share-based compensation 6,246 6,812 12,474 12,462 Balance at end of period 883,368 915,181 883,368 915,181 Retained Earnings Balance at beginning of period 5,082,034 5,062,813 5,218,670 5,369,538 Net income (loss) attributable to Murphy 350,557 ( 63,082 ) 237,221 ( 350,520 ) Cash dividends paid ( 27,191 ) ( 19,303 ) ( 50,491 ) ( 38,590 ) Balance at end of period 5,405,400 4,980,428 5,405,400 4,980,428 Accumulated Other Comprehensive Loss Balance at beginning of period ( 506,355 ) ( 575,610 ) ( 527,711 ) ( 601,333 ) Foreign currency translation (loss) gain, net of income taxes ( 51,545 ) 17,945 ( 33,525 ) 37,842 Retirement and postretirement benefit plans, net of income taxes 3,173 4,146 6,509 8,282 Deferred loss on interest rate hedges reclassified to interest expense, net of income taxes — — — 1,690 Balance at end of period ( 554,727 ) ( 553,519 ) ( 554,727 ) ( 553,519 ) Treasury Stock Balance at beginning of period ( 1,618,478 ) ( 1,661,416 ) ( 1,655,447 ) ( 1,690,661 ) Awarded restricted stock, net of forfeitures — 4,339 32,297 33,545 Exercise of stock options 2,138 486 6,810 525 Balance at end of period – 39,677,584 shares of Common Stock in 2022 and 40,665,675 shares of Common Stock in 2021, at cost ( 1,616,340 ) ( 1,656,591 ) ( 1,616,340 ) ( 1,656,591 ) Murphy Shareholders’ Equity 4,312,802 3,880,600 4,312,802 3,880,600 Noncontrolling Interest Balance at beginning of period 171,451 164,418 163,485 179,810 Net income attributable to noncontrolling interest 58,947 36,042 106,797 56,656 Distributions to noncontrolling interest owners ( 54,970 ) ( 39,232 ) ( 94,854 ) ( 75,238 ) Balance at end of period 175,428 161,228 175,428 161,228 Total Equity $ 4,488,230 4,041,828 $ 4,488,230 4,041,828 See Notes to Consolidated Financial Statements, page 7. 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 (the Company or Murphy) on pages 2 through 6 of this Form 10-Q report. Note A – Nature of Business and Interim Financial Statements NATURE OF BUSINESS – Murphy Oil Corporation is an international oil and natural gas exploration and production company that conducts its business through various operating subsidiaries. The Company primarily produces oil and natural gas in the United States and Canada and conducts oil and natural gas exploration activities worldwide. In connection with the LLOG Exploration Offshore L.L.C. and LLOG Bluewater Holdings, L.L.C., (LLOG) acquisition, we hold a 0.5 % interest in two variable interest entities (VIEs), Delta House Oil and Gas Lateral LLC and Delta House Floating Production System (FPS) LLC (collectively Delta House). These VIEs have not been consolidated because we are not considered the primary beneficiary. These non-consolidated VIEs are not material to our financial position or results of operations. As of June 30, 2022, our maximum exposure to loss was $ 3.2 million (excluding operational impacts), which represents our net investment in Delta House. We have not provided any financial support to Delta House other than amounts previously required by our membership interest. INTERIM FINANCIAL STATEMENTS – In the opinion of Murphy’s management, the unaudited financial statements presented herein include all accruals necessary to present fairly the Company’s financial position at June 30, 2022 and December 31, 2021, and the results of operations, cash flows and changes in stockholders’ equity for the interim periods ended June 30, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America (U.S.). In preparing the financial statements of the Company in conformity with accounting principles generally accepted in the U.S., management has made a number of estimates and assumptions related to the reporting of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. Actual results may differ from the estimates. Consolidated financial statements and notes to consolidated financial statements included in this Form 10-Q report should be read in conjunction with the Company’s 2021 Form 10-K report, as certain notes and other pertinent information have been abbreviated or omitted in this report. Financial results for the three-month and six-month periods ended June 30, 2022, are not necessarily indicative of future results. Note B – New Accounting Principles and Recent Accounting Pronouncements Accounting Principles Adopted Income Taxes . In December 2019, the FASB issued ASU 2019-12, which removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Implementation on a prospective or retrospective basis varies by specific topics within the ASU. The Company adopted this guidance in the first quarter of 2021 and it did not have a material impact on its consolidated financial statements. Recent Accounting Pronouncements None affecting the Company. 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. The Company also purchases natural gas in Canada to meet certain sales commitments. 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 period ended June 30, 2022, and 2021, the Company recognized $ 1,196 million and $ 758.8 million, respectively, from total revenue from sales to customers, from sales of oil, natural gas liquids and natural gas. For the six-month period ended June 30, 2022, and 2021, the Company recognized $ 2,067.6 million and $ 1,351.4 million, respectively, from total revenue from sales to customers, from sales of oil, natural gas liquids and natural gas. Three Months Ended June 30, Six Months Ended June 30, (Thousands of dollars) 2022 2021 2022 2021 Net crude oil and condensate revenue United States Onshore $ 264,841 183,267 $ 436,537 297,757 Offshore 612,526 411,076 1,078,147 739,417 Canada Onshore 40,417 30,695 77,114 60,598 Offshore 38,354 31,772 67,186 49,834 Other 13,636 — 13,636 — Total crude oil and condensate revenue 969,774 656,810 1,672,620 1,147,606 Net natural gas liquids revenue United States Onshore 18,062 9,596 34,747 17,124 Offshore 18,093 10,766 32,072 20,820 Canada Onshore 5,001 3,240 9,868 7,227 Total natural gas liquids revenue 41,156 23,602 76,687 45,171 Net natural gas revenue United States Onshore 19,034 6,872 30,403 13,315 Offshore 43,567 17,273 69,768 39,411 Canada Onshore 72,768 54,272 131,349 105,853 Total natural gas revenue 135,369 78,417 231,520 158,579 Revenue from production 1,146,299 758,829 1,980,827 1,351,356 Sales of purchased natural gas United States Offshore 181 — 181 — Canada Onshore 49,758 — 86,604 — Total sales of purchased natural gas 49,939 — 86,785 — Total revenue from sales to customers 1,196,238 758,829 2,067,612 1,351,356 Loss on crude contracts ( 103,068 ) ( 226,245 ) ( 423,845 ) ( 440,630 ) Gain on sale of assets and other income 7,887 17,059 10,251 18,902 Total revenues and other income $ 1,101,057 549,643 $ 1,654,018 929,628 In 2022, the Company included additional line items on the face of the Consolidated Statements of Operations to report Sales of purchased natural gas and Costs of purchased natural gas. Sales and purchases of natural gas are reported on a gross basis when Murphy takes control of the products and has risks and rewards of ownership. Contract Balances and Asset Recognition As of June 30, 2022, and December 31, 2021, receivables from contracts with customers, net of royalties and associated payables, on the balance sheet from continuing operations, were $ 292.4 million and $ 169.8 million, respectively. Payment terms for the Company’s sales vary across contracts and geographical regions, with the majority of the cash receipts required within 30 days of billing. Based on a forward-looking expected loss model in accordance with ASU 2016-13, the Company did 9 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note C – Revenue from Contracts with Customers (Contd.) not recognize any impairment losses on receivables or contract assets arising from customer contracts during the reporting periods. The Company has not entered into any revenue contracts that have financing components as of June 30, 2022. The Company does not employ sales incentive strategies such as commissions or bonuses for obtaining sales contracts. For the periods presented, the Company did not identify any assets to be recognized associated with the costs to obtain a contract with a customer. Performance Obligations The Company recognizes oil and natural gas revenue when it satisfies a performance obligation by transferring control over a commodity to a customer. Judgment is required to determine whether some customers simultaneously receive and consume the benefit of commodities. As a result of this assessment for the Company, each unit of measure of the specified commodity is considered to represent a distinct performance obligation that is satisfied at a point in time upon the transfer of control of the commodity. For contracts with market or index-based pricing, which represent the majority of sales contracts, the Company has elected the allocation exception and allocates the variable consideration to each single performance obligation in the contract. As a result, there is no price allocation to unsatisfied remaining performance obligations for delivery of commodity product in subsequent periods. The Company has entered into several long-term, fixed-price contracts in Canada. The underlying reason for entering a fixed price contract is generally unrelated to anticipated future prices or other observable data and serves a particular purpose in the Company’s long-term strategy. As of June 30, 2022, the Company had the following sales contracts in place which are expected to generate revenue from sales to customers for a period of more than 12 months starting at the inception of the contract: Current Long-Term Contracts Outstanding at June 30, 2022 Location Commodity End Date Description Approximate Volumes U.S. Natural Gas and NGL Q2 2023 Deliveries from dedicated acreage in Eagle Ford As produced Canada Natural Gas Q4 2022 Contracts to sell natural gas at USD index pricing 8 MMCFD Canada Natural Gas Q4 2022 Contracts to sell natural gas at CAD fixed prices 5 MMCFD Canada Natural Gas Q4 2022 Contracts to sell natural gas at USD fixed pricing 20 MMCFD Canada Natural Gas Q4 2023 Contracts to sell natural gas at USD index pricing 25 MMCFD Canada Natural Gas Q4 2023 Contracts to sell natural gas at CAD fixed prices 38 MMCFD Canada Natural Gas Q4 2024 Contracts to sell natural gas at USD index pricing 31 MMCFD Canada Natural Gas Q4 2024 Contracts to sell natural gas at CAD fixed prices 100 MMCFD Canada Natural Gas Q4 2024 Contracts to sell natural gas at CAD fixed prices 34 MMCFD Canada Natural Gas Q4 2024 Contracts to sell natural gas at USD fixed pricing 15 MMCFD Canada Natural Gas Q4 2026 Contracts to sell natural gas at USD index pricing 49 MMCFD Canada NGL Q3 2023 Contracts to sell natural gas liquids at CAD pricing 952 BOED Fixed price contracts are accounted for as normal sales and purchases for accounting purposes. Note D – Property, Plant and Equipment Exploratory Wells Under FASB guidance exploratory well costs should continue to be capitalized when the well has found a sufficient quantity of reserves to justify its completion as a producing well and the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. 10 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note D – Property, Plant and Equipment (Contd.) As of June 30, 2022, the Company had total capitalized exploratory well costs for continuing operations pending the determination of proved reserves of $ 178.4 million. The following table reflects the net changes in capitalized exploratory well costs during the six-month periods ended June 30, 2022 and 2021. (Thousands of dollars) 2022 2021 Beginning balance at January 1 $ 179,481 181,616 Additions pending the determination of proved reserves 9,412 15,921 Capitalized exploratory well costs charged to expense ( 10,472 ) — Balance at June 30 $ 178,421 197,537 The capitalized well costs charged to expense during 2022 represent expenditures related to the Cutthroat-1 exploration well in block SEAL-M-428 in the Sergipe-Alagoas Basin offshore Brazil. There were no hydrocarbons found in this well. The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed for each individual well and the number of projects for which exploratory well costs have been capitalized. The projects are aged based on the last well drilled in the project. June 30, 2022 2021 (Thousands of dollars) Amount No. of Wells No. of Projects Amount No. of Wells No. of Projects Aging of capitalized well costs: Zero to one year $ 4,268 2 2 13,881 3 3 One to two years 2,813 2 2 23,811 3 3 Two to three years 26,848 3 2 30,562 2 2 Three years or more 144,492 8 2 129,283 6 — $ 178,421 15 8 197,537 14 8 Of the $ 174.2 million of exploratory well costs capitalized more than one year at June 30, 2022, $ 94.7 million is in Vietnam, $ 48.5 million is in the U.S., $ 15.5 million is in Mexico, $ 10.6 million is in Brunei, and $ 4.8 million is in Canada. In all geographical areas, either further appraisal or development drilling is planned and/or development studies/plans are in various stages of completion. Impairments There were no impairments in the first six months of 2022. In the first quarter of 2021, the Company recorded an impairment charge of $ 171.3 million for Terra Nova due to the status, including agreements with partners, of operating and production plans at end of the first quarter 2021. Later in 2021, the Company sanctioned an asset life extension project and acquired an additional 7.525 % working interest at Terra Nova following a commercial agreement to extend the life of the field. Divestments There were no divestments in the first six months of 2022. During the first quarter of 2021, the King’s Quay FPS was sold to ArcLight Capital Partners, LLC (ArcLight) for proceeds of $ 267.7 million, which reimbursed the Company for previously incurred capital expenditures. Acquisitions In June 2022, the Company acquired an additional working interest of 11.0 % in the Kodiak field for a purchase price of $ 46.5 million, net of post-closing adjustments. In the second quarter of 2021, the Company acquired an additional 3.5 % working interest in the Lucius field for a purchase price of $ 22.5 million, net of post-closing adjustments. 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 six-month periods ended June 30, 2022 and 2021 were as follows: Three Months Ended June 30, Six Months Ended June 30, (Thousands of dollars) 2022 2021 2022 2021 Revenues $ — 246 $ 10 658 Costs and expenses Other costs and expenses (benefits) 943 348 1,504 552 (Loss) income before taxes ( 943 ) ( 102 ) ( 1,494 ) 106 Income tax expense — — — — (Loss) income from discontinued operations $ ( 943 ) ( 102 ) $ ( 1,494 ) 106 As of June 30, 2022 and December 31, 2021, assets held for sale on the Consolidated Balance Sheet include the carrying value of the net property, plant and equipment of the CA-2 project in Brunei and the Company’s former headquarters office building in El Dorado, Arkansas. (Thousands of dollars) June 30, 2022 December 31, 2021 Current assets Property, plant, and equipment, net 15,561 15,453 Total current assets associated with assets held for sale $ 15,561 15,453 Note F – Financing Arrangements and Debt As of June 30, 2022, the Company had a $ 1.6 billion revolving credit facility (RCF). The RCF is a senior unsecured guaranteed facility which expires in November 2023. At June 30, 2022, the Company had no outstanding borrowings under the RCF and $ 27.6 million of outstanding letters of credit, which reduce the borrowing capacity of the RCF. At June 30, 2022, the interest rate in effect on borrowings under the facility was 3.46 %. At June 30, 2022 and 2021, the Company was in compliance with all covenants related to the RCF. On June 2, 2022, the Company redeemed $ 200.0 million aggregate principal amount of its 6.875 % senior notes due 2024 (2024 Notes). The cost of the debt extinguishment of $ 4.3 million is included in Interest expense, net on the Consolidated Statement of Operations for the three months and six months ended June 30, 2022. The cash costs of $ 3.4 million are shown as a financing activity on the Consolidated Statement of Cash Flows for the six months ended June 30, 2022. In March 2021, the Company issued $ 550.0 million of new notes that bear interest at a rate of 6.375 % and mature on July 15, 2028. The Company incurred transaction costs of $ 8.1 million on the issuance of these new notes and the Company will pay interest semi-annually on January 15 and July 15 of each year, beginning July 15, 2021. The proceeds of the $ 550.0 million notes, along with cash on hand, were used to redeem and cancel $ 259.3 million of the Company’s 4.00 % notes due June 2022 and $ 317.1 million of the Company’s 4.95 % notes due December 2022 (originally issued as 3.70 % notes due 2022; collectively the 2022 Notes). The cost of the debt extinguishment of $ 36.9 million is included in Interest expense, net on the Consolidated Statement of Operations for the three months and six months ended June 30, 2021. The cash costs of $ 34.2 million are shown as a financing activity on the Consolidated Statement of Cash Flows for the six months ended June 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. On July 20, 2022, the Company issued a notice of redemption with respect to all of its outstanding, $ 42.4 million aggregate principal amount, 6.875 % senior notes due 2024. 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, but not including, the date of redemption. The redemption date of the 2024 Notes will be August 19, 2022. On August 1, 2022, the Company announced the commencement of cash tender offers (the “Tender Offers”) to purchase up to $ 200.0 million in aggregate purchase price of its outstanding 5.750 % senior notes due 2025, 6.375 % senior notes due 2028 and 12 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note F – Financing Arrangements and Debt (Contd.) 5.875 % senior notes due 2027. Details of the Tender Offers can be found as part of the Company’s Form 8-K filed on August 1, 2022. Note G – Other Financial Information Additional disclosures regarding cash flow activities are provided below. Six Months Ended June 30, (Thousands of dollars) 2022 2021 Net decrease (increase) in operating working capital, excluding cash and cash equivalents: (Increase) in accounts receivable ¹ $ ( 263,104 ) ( 104,775 ) (Increase) decrease in inventories ( 10,092 ) 8,938 (Increase) in prepaid expenses ( 1,693 ) ( 1,945 ) Increase in accounts payable and accrued liabilities ¹ 147,790 124,699 Increase (decrease) in income taxes payable 5,501 ( 352 ) Net decrease (increase) in noncash operating working capital $ ( 121,598 ) 26,565 Supplementary disclosures: Cash income taxes paid, net of refunds $ 1,783 1,474 Interest paid, net of amounts capitalized of $ 10.4 million in 2022 and $ 7.4 million in 2021 78,747 80,546 Non-cash investing activities: Asset retirement costs capitalized 2 $ 9,007 6,669 (Increase) decrease in capital expenditure accrual ( 1,929 ) 20,614 1 Excludes receivable/payable balances relating to mark-to-market of derivative instruments and contingent consideration relating to acquisitions. 2 2021 Excludes non-cash capitalized cost offset by Terra Nova impairment of $ 74.4 million. 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 six-month periods ended June 30, 2022 and 2021. Three Months Ended June 30, Pension Benefits Other Postretirement Benefits (Thousands of dollars) 2022 2021 2022 2021 Service cost $ 2,129 1,768 292 327 Interest cost 5,139 4,300 574 521 Expected return on plan assets ( 7,954 ) ( 6,155 ) — — Amortization of prior service cost (credit) 579 156 ( 133 ) — Recognized actuarial loss (gain) 3,822 5,281 ( 78 ) ( 8 ) Net periodic benefit expense $ 3,715 5,350 655 840 Six Months Ended June 30, Pension Benefits Other Postretirement Benefits (Thousands of dollars) 2022 2021 2022 2021 Service cost $ 4,258 3,536 584 653 Interest cost 10,382 8,586 1,148 1,042 Expected return on plan assets ( 16,092 ) ( 12,288 ) — — Amortization of prior service cost (credit) 1,179 312 ( 266 ) — Recognized actuarial loss (gain) 7,644 10,560 ( 155 ) ( 15 ) Net periodic benefit expense $ 7,371 10,706 1,311 1,680 The components of net periodic benefit expense, other than the service cost, are recorded in Other income (expense) in the Consolidated Statements of Operations. During the six-month period ended June 30, 2022, the Company made contributions of $ 18.4 million to its defined benefit pension and postretirement benefit plans. Remaining funding in 2022 for the Company’s defined benefit pension and postretirement plans is anticipated to be $ 24.4 million. Note I – Incentive Plans The costs resulting from all share-based and cash-based incentive plans are recognized as an expense in the Consolidated Statements of Operations using a fair value-based measurement method over the periods that the awards vest. The Annual Incentive Plan (AIP) authorizes the Executive Compensation Committee (the Committee) to establish specific performance goals associated with annual cash awards that may be earned by officers, executives and certain other employees. Cash awards under the AIP are determined based on the Company’s actual financial and operating results as measured against the performance goals established by the Committee. The 2020 Long-Term Incentive Plan (2020 Long-Term Plan) authorizes the Committee to make grants of the Company’s Common Stock to employees. These grants may be in the form of stock options (nonqualified or incentive), stock appreciation rights (SAR), restricted stock, restricted stock units (RSU), performance units, performance shares, dividend equivalents and other stock-based incentives. The 2020 Long-Term Plan expires in 2030. A total of five million shares are issuable during the life of the 2020 Long-Term Plan. Shares issued pursuant to awards granted under this Plan may be shares that are authorized 14 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note I – Incentive Plans (Contd.) 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 six months of 2022, the Committee granted the following awards from the 2020 Long-Term Plan: 2020 Long-Term Incentive Plan Type of Award Number of Awards Granted Grant Date Grant Date Fair Value Valuation Methodology Performance Based RSUs 1 580,600 February 1, 2022 $ 47.37 Monte Carlo Time Based RSUs 2 273,400 February 1, 2022 $ 32.12 Average Stock Price Cash Settled RSUs 3 674,300 February 1, 2022 $ 32.12 Average Stock Price 1 Performance based RSUs are scheduled to vest over a three year performance period. 2 Time based RSUs are generally scheduled to vest over three years from the date of grant. 3 Cash settled RSUs are generally scheduled to vest over three years from the date of grant. The Company also has a Stock Plan for Non-Employee Directors that permits the issuance of restricted stock, restricted stock units and stock options or a combination thereof to the Company’s Non-Employee Directors. The 2021 Stock Plan for Non-Employee Directors (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 Stock Plan for Non-Employee Directors. All awards on or after May 12, 2021, were made under the 2021 NED Plan. During the first six months of 2022, the Committee granted the following awards to Non-Employee Directors: 2021 Stock Plan for Non-Employee Directors Type of Award Number of Awards Granted Grant Date Grant Date Fair Value Valuation Methodology Time Based RSUs 1 73,092 February 2, 2022 $ 32.84 Closing Stock Price 1 Non-employee directors time-based RSUs are scheduled to vest in February 2023. All stock option exercises are non-cash transactions for the Company. The employee receives net shares, after applicable withholding obligations, upon each stock option exercise. The actual income tax benefit realized from the tax deductions related to stock option exercises of the share-based payment arrangements were immaterial for the six-month period ended June 30, 2022. Amounts recognized in the financial statements with respect to share-based plans are shown in the following table: Six Months Ended June 30, (Thousands of dollars) 2022 2021 Compensation charged against income before tax benefit $ 34,016 18,045 Related income tax benefit recognized in income 5,822 2,478 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 attributable to Murphy was used as the numerator in computing both basic and diluted income per Common share for the three-month and six-month periods ended June 30, 2022 and 2021. The following table reports the weighted-average shares outstanding used for these computations. Three Months Ended June 30, Six Months Ended June 30, (Weighted-average shares) 2022 2021 2022 2021 Basic method 155,388,555 154,394,602 155,121,098 154,153,158 Dilutive stock options and restricted stock units 2,066,575 — 2,730,624 — Diluted method 157,455,130 154,394,602 157,851,722 154,153,158 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 June 30, Six Months Ended June 30, 2022 2021 2022 2021 Antidilutive stock options excluded from diluted shares — 1,379,481 234,000 1,592,812 Weighted average price of these options $ — $ 33.79 $ 49.65 $ 35.07 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 six-month periods ended June 30, 2022 and 2021, the Company’s effective income tax rates were as follows: 2022 2021 Three months ended June 30, 20.4 % 29.3 % Six months ended June 30, 20.3 % 25.3 % The effective tax rate for the three-month period ended June 30, 2022 was below 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. The effective tax rate for the three-month period ended June 30, 2021 was above the 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 six-month period ended June 30, 2022 was below 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 offset by exploration expenses in certain foreign jurisdictions in which no income tax benefit is currently available . The effective tax rate for the six-month period ended June 30, 2021 was above the statutory tax rate of 21% primarily due to loss generated in Canada, which has a higher tax rate, as well as no tax applied to the pre-tax income of the noncontrolling interest in MP GOM. The Company’s tax returns in multiple jurisdictions are subject to audit by taxing authorities. These audits often take years to complete and settle. Although the Company believes that recorded liabilities for unsettled issues are adequate, additional gains or losses could occur in future years from resolution of outstanding unsettled matters. Additionally, the Company could be required to pay amounts into an escrow account as any matters are identified and appealed with the relevant taxing authorities. As of June 30, 2022, the earliest years remaining open for audit and/or settlement in our major taxing jurisdictions are as follows: United States – 2016; Canada – 2016; and Malaysia – 2014. Following the sale in 2019, the Company has retained certain possible liabilities and rights to income tax receivables relating to the divested Malaysia business for the years prior to 2019. The Company believes current recorded liabilities are adequate. 16 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note L – Financial Instruments and Risk Management Murphy uses derivative instruments, such as swaps and zero-cost commodity price collar contracts, to manage certain risks related to commodity prices, foreign currency exchange rates and interest rates. The use of derivative instruments for risk management is covered by operating policies and is closely monitored by the Company’s senior management. The Company does not hold any derivatives for speculative purposes, and it does not use derivatives with leveraged or complex features. Derivative instruments are traded with creditworthy major financial institutions or over national exchanges such as the New York Mercantile Exchange (NYMEX). The Company has a risk management control system to monitor commodity price risks and any derivatives obtained to manage a portion of such risks. For accounting purposes, the Company has not designated commodity and foreign currency derivative contracts as hedges, and therefore, it recognizes all gains and losses on these derivative contracts in its Consolidated Statements of Operations. Commodity Price Risks The Company has entered into crude oil swaps and collar contracts. Under the swaps contracts, which mature monthly, the Company pays the average monthly price in effect and receives the fixed contract price on a notional amount of sales volume, thereby fixing the price for the commodity sold. Under the collar contracts, which also mature monthly, the Company purchased a put option and sold a call option with no net premiums paid to or received from counterparties. Upon maturity, 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 June 30, 2022, volumes per day associated with outstanding crude oil derivative contracts and the weighted average prices for these contracts are as follows: 2022 NYMEX WTI swap contracts: Volume per day (Bbl): 20,000 Price per Bbl: $ 44.88 NYMEX WTI collar contracts: Volume per day (Bbl): 25,000 Price per Bbl: Average Ceiling: $ 75.20 Average Floor: $ 63.24 Foreign Currency Exchange Risks The Company is subject to foreign currency exchange risk associated with operations in countries outside the U.S. The Company had no foreign currency exchange derivatives outstanding at June 30, 2022 and 2021. At June 30, 2022 and December 31, 2021, the fair value of derivative instruments not designated as hedging instruments are presented in the following table. (Thousands of dollars) Asset (Liability) Derivatives Fair Value Type of Derivative Contract Balance Sheet Location June 30, 2022 December 31, 2021 Commodity swaps Accounts payable $ ( 239,382 ) ( 239,882 ) Commodity collars Accounts payable ( 146,780 ) ( 19,533 ) Commodity collars Accounts receivable — 4,280 For the three-month and six-month periods ended June 30, 2022 and 2021, the gains and losses recognized in the Consolidated Statements of Operations for derivative instruments not designated as hedging instruments are presented in the following table. 17 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note L – Financial Instruments and Risk Management (Contd.) Gain (Loss) Gain (Loss) (Thousands of dollars) Statement of Operations Location Three Months Ended June 30, Six months ended June 30, Type of Derivative Contract 2022 2021 2022 2021 Commodity swaps Loss on crude contracts $ ( 46,552 ) ( 226,245 ) $ ( 202,911 ) ( 440,630 ) Commodity collars Loss on crude contracts ( 56,516 ) — ( 220,934 ) — 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 June 30, 2022 and December 31, 2021, are presented in the following table. June 30, 2022 December 31, 2021 (Thousands of dollars) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Commodity collars $ — — — — — 4,280 — 4,280 $ — — — — — 4,280 — 4,280 Liabilities: Commodity swaps $ — 239,382 — 239,382 — 239,882 — 239,882 Commodity collars — 146,780 — 146,780 — 19,533 — 19,533 Contingent consideration — — 244,226 244,226 — — 196,151 196,151 Nonqualified employee savings plan 17,167 — — 17,167 16,962 — — 16,962 $ 17,167 386,162 244,226 647,555 16,962 259,415 196,151 472,528 The fair value of commodity (WTI crude oil) swaps was based on active market quotes for WTI crude oil. The fair value of commodity (WTI crude oil) collars was determined using an option pricing model. The before tax income effect of changes in the fair value of crude oil derivative contracts is recorded in Loss on crude contracts in the Consolidated Statements of Operations. The contingent consideration, related to 2018 and 2019 U.S. Gulf of Mexico acquisitions, is valued using a Monte Carlo simulation model. For the six months ended June 30, 2022 and 2021, the pre-tax income effect of changes in the fair value of the contingent consideration was an expense of $ 129.8 million and $ 76.7 million respectively and is recorded in Other operating expense in the Consolidated Statements of Operations. In the six months ended June 30, 2022, the pre-tax income effect of changes in the fair value of the contingent consideration exclude cash payments of $ 81.7 million, which reduced the value of the contingent consideration liability. Contingent consideration is payable annually in years 2022 to 2026. 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 pre-tax 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. 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 June 30, 2022 and December 31, 2021. 18 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note M – Accumulated Other Comprehensive Loss The components of Accumulated other comprehensive loss on the Consolidated Balance Sheets at December 31, 2021 and June 30, 2022 and the changes during the six-month period ended June 30, 2022, are presented net of taxes in the following table. (Thousands of dollars) Foreign Currency Translation Gains (Losses) Retirement and Postretirement Benefit Plan Adjustments Total Balance at December 31, 2021 $ ( 311,895 ) ( 215,816 ) ( 527,711 ) Components of other comprehensive income (loss): Before reclassifications to income and retained earnings ( 33,525 ) — ( 33,525 ) Reclassifications to income — 6,509 ¹ 6,509 Net other comprehensive income (loss) ( 33,525 ) 6,509 ( 27,016 ) Balance at June 30, 2022 $ ( 345,420 ) ( 209,307 ) ( 554,727 ) 1 Reclassifications before taxes of $ 8,256 are included in the computation of net periodic benefit expense for the six-month period ended June 30, 2022. See Note H for additional information. Related income taxes of $ 1,747 are included in Income tax expense (benefit) for the six-month period ended June 30, 2022. 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 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, 19 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note N– Environmental and Other Contingencies (Contd.) 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, under the Biden administration it rejoined 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 commodity price derivatives), interest expense and unallocated overhead, is shown in the table to reconcile the business segments to consolidated totals. 20 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Total Assets at June 30, 2022 Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 (Millions of dollars) External Revenues Income (Loss) External Revenues Income (Loss) Exploration and production ¹ United States $ 7,034.9 978.0 491.5 648.9 194.7 Canada 2,250.1 206.6 47.2 120.6 12.7 Other 244.9 13.7 ( 3.5 ) — ( 10.4 ) Total exploration and production 9,529.9 1,198.3 535.2 769.5 197.0 Corporate 1,041.3 ( 97.2 ) ( 124.8 ) ( 219.9 ) ( 223.9 ) Continuing operations 10,571.2 1,101.1 410.4 549.6 ( 26.9 ) Discontinued operations, net of tax 1.0 — ( 0.9 ) — ( 0.1 ) Total $ 10,572.2 1,101.1 409.5 549.6 ( 27.0 ) Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 (Millions of dollars) External Revenues Income (Loss) External Revenues Income (Loss) Exploration and production ¹ United States 1,685.4 744.4 1,139.2 313.7 Canada 372.7 69.9 224.6 ( 111.6 ) Other 13.7 ( 47.7 ) — ( 17.3 ) Total exploration and production 2,071.8 766.6 1,363.8 184.8 Corporate ( 417.8 ) ( 421.1 ) ( 434.2 ) ( 478.8 ) Continuing operations 1,654.0 345.5 929.6 ( 294.0 ) Discontinued operations, net of tax — ( 1.5 ) — 0.1 Total 1,654.0 344.0 929.6 ( 293.9 ) 1 Additional details about results of oil and natural gas operations are presented in the tables on page 25 and 26. 21 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS Summary In the second quarter of 2022, crude oil and natural gas benchmark prices increased compared to the same period of 2021. Prices were higher in the second quarter 2022 principally due to continued market concerns over supply shortfalls stemming from lack of investment in the exploration and production sector, demand recovery from COVID-19 as well as geopolitical uncertainty and market disruption following the Russian invasion of Ukraine. Similar to the overall inflation in the wider economy, the oil and gas industry, and hence the Company, is observing higher costs for goods and services used in exploration and production operations. Murphy continues to manage input costs through its dedicated procurement department focused on managing supply chain and other costs. For the three months ended June 30, 2022, West Texas Intermediate (WTI) crude oil prices averaged approximately $108.41 per barrel (compared to $94.29 in the first quarter of 2022 and $66.07 in the second quarter of 2021). The average price for WTI in June of 2022 was approximately $114.34 per barrel, reflecting a 60% increase from June of 2021 and a 6% increase from the average price from March of 2022. The average price in July 2022 was $99.38 per barrel. As of close on August 2, 2022, the NYMEX WTI forward curve prices for the remainder of 2022 and 2023 were $92.82 and $86.14 per barrel, respectively. For the three months ended June 30, 2022, the Company produced 173 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations and invested $317.1 million in capital expenditures (on a value of work done basis), which included $46.5 million for an additional working interest in the GOM Kodiak field. The Company reported net income from continuing operations of $410.4 million for the three months ended June 30, 2022; this amount includes income attributable to noncontrolling interest of $58.9 million, after-tax gains on unrealized mark to market revaluations on commodity price swap and collar positions of $69.6 million and after-tax losses on contingent consideration of $25.1 million. In the second quarter of 2022, the Company achieved first production from the first four wells at the Khaleesi, Mormont, Samurai field development project in the Gulf of Mexico; with production flowing through the Murphy-operated King’s Quay floating production and storage facility. In June 2022, the Company acquired an additional 11.0% working interest (there is no noncontrolling interest) in the Kodiak field in the Gulf of Mexico for a purchase price of $46.5 million. For the three months ended June 30, 2021, the Company produced 182 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations and invested $207.1 million in capital expenditures (on a value of work done basis). The Company reported net loss from continuing operations of $26.9 million for the second quarter of 2021. This amount included income attributable to noncontrolling interest of $36.0 million and after-tax losses on unrealized mark to market revaluations on commodity price hedge positions and contingent consideration of $103.3 million and $48.8 million, respectively. In the first quarter of 2021, 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. For the six months ended June 30, 2022, the Company produced 162 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations and invested $621.9 million in capital expenditures (on a value of work done basis), which included $46.5 million related to acquisition capital and $24.3 million related to the Cutthroat exploration well in Brazil deferred from 2021). The Company reported net income from continuing operations of $345.5 million for the six months ended June 30, 2022. This amount includes income attributable to noncontrolling interest of $106.8 million and after-tax losses on unrealized mark to market revaluations on commodity price derivative positions and contingent consideration of $79.3 million and $102.3 million, respectively. For the six months ended June 30, 2021, the Company produced 174 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations and invested $458.2 million in capital expenditures (on a value of work done basis), which included $17.3 million to fund the development of the King’s Quay floating production system (which was subsequently reimbursed by Arclight). The Company reported net loss from continuing operations of $294.0 million for the six months ended June 30, 2021. This amount included income attributable to noncontrolling interest of $56.7 million, after-tax impairment charges of $128.0 million and after-tax losses on unrealized mark to market revaluations on commodity price derivative positions and contingent consideration of $224.6 million and $60.6 million, respectively. 22 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.) Summary (contd.) During the six months ended June 30, 2022, crude oil and condensate volumes from continuing operations were lower than the prior year period. The decrease in production volumes is due to an ongoing focused effort to reduce capital expenditures that began in 2020 to prioritize corporate debt reduction and return funds to shareholders. Revenue from production was 47% higher during the first half of 2022 compared to the first half of 2021, primarily driven by the increase in price. Results of Operations Murphy’s income (loss) by type of business is presented below. Income (Loss) Three Months Ended June 30, Six Months Ended June 30, (Millions of dollars) 2022 2021 2022 2021 Exploration and production $ 535.2 197.0 $ 766.6 184.8 Corporate and other (124.8) (223.9) (421.1) (478.8) Income (loss) from continuing operations 410.4 (26.9) 345.5 (294.0) Discontinued operations ¹ (0.9) (0.1) (1.5) 0.1 Net income (loss) including noncontrolling interest $ 409.5 (27.0) $ 344.0 (293.9) 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 June 30, Six Months Ended June 30, (Millions of dollars) 2022 2021 2022 2021 Exploration and production United States $ 491.5 194.7 $ 744.4 313.7 Canada 47.2 12.7 69.9 (111.6) Other (3.5) (10.4) (47.7) (17.3) Total $ 535.2 197.0 $ 766.6 184.8 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 June 30, Six Months Ended June 30, (Millions of dollars, except per barrel of oil equivalents sold) 2022 2021 2022 2021 Net income (loss) attributable to Murphy (GAAP) $ 350.6 (63.1) $ 237.2 (350.5) Income tax expense (benefit) 105.1 (11.2) 88.1 (99.3) Interest expense, net 41.4 43.4 78.7 131.5 Depreciation, depletion and amortization expense ¹ 188.2 217.3 344.8 405.6 EBITDA attributable to Murphy (Non-GAAP) 685.3 186.4 748.8 87.3 Mark-to-market (gain) loss on derivative instruments (88.1) 130.9 100.4 284.4 Mark-to-market loss on contingent consideration 31.7 61.8 129.8 76.7 Accretion of asset retirement obligations ¹ 10.2 9.5 20.7 20.0 Discontinued operations loss (income) 0.9 0.1 1.5 (0.1) Foreign exchange (gain) loss (8.0) — (8.0) 1.3 Impairment of assets ¹ — — — 171.3 Unutilized rig charges — 2.5 — 5.3 Adjusted EBITDA attributable to Murphy (Non-GAAP) $ 632.0 391.2 $ 993.2 646.2 Total barrels of oil equivalents sold from continuing operations attributable to Murphy (thousands of barrels) 14,884 15,648 27,449 29,318 Adjusted EBITDA per barrel of oil equivalents sold $ 42.46 25.00 $ 36.18 22.04 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 JUNE 30, 2022 AND 2021 (Millions of dollars) United States 1 Canada Other Total Three Months Ended June 30, 2022 Oil and gas sales and other operating revenues $ 977.8 156.8 13.7 1,148.3 Sales of purchased natural gas 0.2 49.8 — 50.0 Lease operating expenses 109.5 36.9 0.9 147.3 Severance and ad valorem taxes 17.3 0.3 — 17.6 Transportation, gathering and processing 32.3 17.6 — 49.9 Costs of purchased natural gas 0.2 47.7 — 47.9 Depreciation, depletion and amortization 153.7 35.6 3.4 192.7 Accretion of asset retirement obligations 9.1 2.4 0.1 11.6 Exploration expenses Dry holes and previously suspended exploration costs (0.7) — 2.0 1.3 Geological and geophysical — 0.1 0.8 0.9 Other exploration 2.9 0.3 6.0 9.2 2.2 0.4 8.8 11.4 Undeveloped lease amortization 2.3 — 1.4 3.7 Total exploration expenses 4.5 0.4 10.2 15.1 Selling and general expenses 3.2 3.8 2.1 9.1 Other 35.3 (2.3) — 33.0 Results of operations before taxes 612.9 64.2 (3.0) 674.1 Income tax provisions 121.4 17.0 0.5 138.9 Results of operations (excluding Corporate segment) $ 491.5 47.2 (3.5) 535.2 Three Months Ended June 30, 2021 Oil and gas sales and other operating revenues $ 648.9 120.6 — 769.5 Lease operating expenses 90.5 35.8 — 126.3 Severance and ad valorem taxes 10.9 0.5 — 11.4 Transportation, gathering and processing 33.6 16.1 — 49.7 Depreciation, depletion and amortization 180.0 43.5 0.5 224.0 Accretion of asset retirement obligations 9.2 3.0 — 12.2 Exploration expenses Dry holes and previously suspended exploration costs (0.1) — — (0.1) Geological and geophysical 2.1 — 0.8 2.9 Other exploration 2.3 0.1 4.1 6.5 4.3 0.1 4.9 9.3 Undeveloped lease amortization 2.5 — 1.8 4.3 Total exploration expenses 6.8 0.1 6.7 13.6 Selling and general expenses 5.3 3.9 2.1 11.3 Other 72.9 0.9 0.3 74.1 Results of operations before taxes 239.7 16.8 (9.6) 246.9 Income tax provisions 45.0 4.1 0.8 49.9 Results of operations (excluding Corporate segment) $ 194.7 12.7 (10.4) 197.0 1 Includes results attributable to a noncontrolling interest in MP GOM. 25 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.) Results of Operations (contd.) OIL AND GAS OPERATING RESULTS – SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (Millions of dollars) United States 1 Canada Other Total Six Months Ended June 30, 2022 Oil and gas sales and other operating revenues $ 1,685.2 286.1 13.7 1,985.0 Sales of purchased natural gas 0.2 86.6 — 86.8 Lease operating expenses 209.4 73.8 0.9 284.1 Severance and ad valorem taxes 31.5 0.7 — 32.2 Transportation, gathering and processing 61.5 35.3 — 96.8 Costs of purchased natural gas 0.2 81.4 — 81.6 Depreciation, depletion and amortization 280.2 69.8 3.5 353.5 Accretion of asset retirement obligations 18.5 4.9 0.1 23.5 Exploration expenses Dry holes and previously suspended exploration costs (0.7) — 34.8 34.1 Geological and geophysical 2.6 0.1 1.0 3.7 Other exploration 4.4 0.4 12.1 16.9 6.3 0.5 47.9 54.7 Undeveloped lease amortization 4.7 0.1 3.2 8.0 Total exploration expenses 11.0 0.6 51.1 62.7 Selling and general expenses 11.5 8.9 4.5 24.9 Other 138.1 2.8 0.4 141.3 Results of operations before taxes 923.5 94.5 (46.8) 971.2 Income tax provisions (benefits) 179.1 24.6 0.9 204.6 Results of operations (excluding Corporate segment) $ 744.4 69.9 (47.7) 766.6 Six months ended June 30, 2021 Oil and gas sales and other operating revenues $ 1,139.2 224.6 — 1,363.8 Lease operating expenses 206.6 66.6 0.3 273.5 Severance and ad valorem taxes 19.8 0.8 — 20.6 Transportation, gathering and processing 62.1 30.5 — 92.6 Depreciation, depletion and amortization 329.6 88.3 1.0 418.9 Accretion of asset retirement obligations 18.2 4.5 — 22.7 Impairment of assets — 171.3 — 171.3 Exploration expenses Dry holes and previously suspended exploration costs 0.6 — — 0.6 Geological and geophysical 2.7 — 1.0 3.7 Other exploration 2.9 0.1 9.1 12.1 6.2 0.1 10.1 16.4 Undeveloped lease amortization 4.8 0.1 4.0 8.9 Total exploration expenses 11.0 0.2 14.1 25.3 Selling and general expenses 10.8 8.0 3.5 22.3 Other 94.4 4.0 (3.2) 95.2 Results of operations before taxes 386.7 (149.6) (15.7) 221.4 Income tax provisions (benefits) 73.0 (38.0) 1.6 36.6 Results of operations (excluding Corporate segment) $ 313.7 (111.6) (17.3) 184.8 1 Includes results attributable to a noncontrolling interest in MP GOM. 26 Table of Contents