MURPHY OIL CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (unaudited) (Thousands of dollars) September 30, 2022 December 31, 2021 ASSETS Current assets Cash and cash equivalents $ 465,998 521,184 Accounts receivable, net 385,153 258,150 Inventories 53,265 54,198 Prepaid expenses 39,633 31,925 Assets held for sale 7,538 15,453 Total current assets 951,587 880,910 Property, plant and equipment, at cost less accumulated depreciation, depletion and amortization of $ 12,220,651 in 2022 and $ 12,457,851 in 2021 8,249,387 8,127,852 Operating lease assets 798,119 881,389 Deferred income taxes 196,894 385,516 Deferred charges and other assets 33,227 29,273 Total assets $ 10,229,214 10,304,940 LIABILITIES AND EQUITY Current liabilities Current maturities of long-term debt, finance lease $ 678 654 Accounts payable 539,576 623,129 Income taxes payable 38,701 19,951 Other taxes payable 30,898 20,306 Operating lease liabilities 166,908 139,427 Other accrued liabilities 435,740 360,859 Total current liabilities 1,212,501 1,164,326 Long-term debt, including finance lease obligation 2,022,976 2,465,414 Asset retirement obligations 848,607 839,776 Deferred credits and other liabilities 429,200 570,574 Non-current operating lease liabilities 648,286 761,162 Deferred income taxes 188,046 182,892 Total liabilities 5,349,616 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 887,730 926,698 Retained earnings 5,894,965 5,218,670 Accumulated other comprehensive loss ( 653,828 ) ( 527,711 ) Treasury stock ( 1,615,027 ) ( 1,655,447 ) Murphy Shareholders' Equity 4,708,941 4,157,311 Noncontrolling interest 170,657 163,485 Total equity 4,879,598 4,320,796 Total liabilities and equity $ 10,229,214 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 September 30, Nine Months Ended September 30, (Thousands of dollars, except per share amounts) 2022 2021 2022 2021 Revenues and other income Revenue from production $ 1,120,909 687,549 $ 3,101,736 2,038,905 Sales of purchased natural gas 45,500 — 132,285 — Total revenue from sales to customers 1,166,409 687,549 3,234,021 2,038,905 Gain (Loss) on derivative instruments 115,191 ( 59,164 ) ( 308,654 ) ( 499,794 ) Gain on sale of assets and other income 21,825 2,315 32,076 21,217 Total revenues and other income 1,303,425 630,700 2,957,443 1,560,328 Costs and expenses Lease operating expenses 198,710 130,131 482,887 403,708 Severance and ad valorem taxes 15,140 11,670 47,340 32,215 Transportation, gathering and processing 55,348 44,588 152,219 137,196 Costs of purchased natural gas 43,622 — 125,258 — Exploration expenses, including undeveloped lease amortization 9,491 24,517 72,208 49,840 Selling and general expenses 29,348 27,210 90,007 85,826 Depreciation, depletion and amortization 214,521 189,806 574,501 615,372 Accretion of asset retirement obligations 11,286 12,198 34,725 34,854 Impairment of assets — — — 171,296 Other operating (income) expense ( 27,129 ) ( 32,791 ) 115,726 58,616 Total costs and expenses 550,337 407,329 1,694,871 1,588,923 Operating income (loss) from continuing operations 753,088 223,371 1,262,572 ( 28,595 ) Other income (loss) Other income (expense) 18,301 ( 1,593 ) 21,114 ( 11,459 ) Interest expense, net ( 37,440 ) ( 46,925 ) ( 116,102 ) ( 178,399 ) Total other loss ( 19,139 ) ( 48,518 ) ( 94,988 ) ( 189,858 ) Income (loss) from continuing operations before income taxes 733,949 174,853 1,167,584 ( 218,453 ) Income tax expense (benefit) 159,451 36,838 247,574 ( 62,498 ) Income (loss) from continuing operations 574,498 138,015 920,010 ( 155,955 ) Loss from discontinued operations, net of income taxes ( 422 ) ( 706 ) ( 1,916 ) ( 600 ) Net income (loss) including noncontrolling interest 574,076 137,309 918,094 ( 156,555 ) Less: Net income attributable to noncontrolling interest 45,648 28,853 152,445 85,509 NET INCOME (LOSS) ATTRIBUTABLE TO MURPHY $ 528,428 108,456 $ 765,649 ( 242,064 ) INCOME (LOSS) PER COMMON SHARE – BASIC Continuing operations $ 3.40 0.70 $ 4.94 ( 1.57 ) Discontinued operations — — ( 0.01 ) — Net income (loss) $ 3.40 0.70 $ 4.93 ( 1.57 ) INCOME (LOSS) PER COMMON SHARE – DILUTED Continuing operations $ 3.36 0.70 $ 4.87 ( 1.57 ) Discontinued operations — — ( 0.01 ) — Net income (loss) $ 3.36 0.70 $ 4.86 ( 1.57 ) Cash dividends per Common share $ 0.250 0.125 $ 0.575 0.375 Average Common shares outstanding (thousands) Basic 155,446 154,439 155,221 154,239 Diluted 157,336 155,932 157,407 154,239 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 September 30, Nine Months Ended September 30, (Thousands of dollars) 2022 2021 2022 2021 Net income (loss) including noncontrolling interest $ 574,076 137,309 $ 918,094 ( 156,555 ) Other comprehensive (loss) income, net of tax Net (loss) gain from foreign currency translation ( 102,266 ) ( 31,308 ) ( 135,791 ) 6,534 Retirement and postretirement benefit plans 3,165 4,653 9,674 12,935 Deferred loss on interest rate hedges reclassified to interest expense — — — 1,690 Other comprehensive (loss) income ( 99,101 ) ( 26,655 ) ( 126,117 ) 21,159 Comprehensive income (loss) including noncontrolling interest $ 474,975 110,654 $ 791,977 ( 135,396 ) Less: Comprehensive income attributable to noncontrolling interest 45,648 28,853 152,445 85,509 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO MURPHY $ 429,327 81,801 $ 639,532 ( 220,905 ) See Notes to Consolidated Financial Statements, page 7. 4 Table of Contents Murphy Oil Corporation and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, (Thousands of dollars) 2022 2021 Operating Activities Net income (loss) including noncontrolling interest $ 918,094 ( 156,555 ) Adjustments to reconcile net income (loss) to net cash provided by continuing operations activities Loss from discontinued operations 1,916 600 Depreciation, depletion and amortization 574,501 615,372 Unsuccessful exploration well costs and previously suspended exploration costs 35,224 17,899 Amortization of undeveloped leases 10,651 13,872 Accretion of asset retirement obligations 34,725 34,854 Deferred income tax (benefit) expense 207,105 ( 65,149 ) Mark to market loss on contingent consideration 98,451 105,111 Mark to market loss (gain) on crude contracts ( 138,707 ) 228,497 Long-term non-cash compensation 57,612 42,080 Impairment of assets — 171,296 (Gain) from sale of assets ( 18,871 ) — Net (increase) decrease in noncash working capital ( 59,874 ) 117,330 Other operating activities, net ( 42,101 ) ( 33,924 ) Net cash provided by continuing operations activities 1,678,726 1,091,283 Investing Activities Property additions and dry hole costs 1 ( 800,868 ) ( 541,324 ) Acquisition of oil and gas properties 1 ( 125,602 ) ( 22,906 ) Proceeds from sales of property, plant and equipment ( 2,129 ) 270,038 Property additions for King's Quay FPS — ( 17,734 ) Net cash (required) by investing activities ( 928,599 ) ( 311,926 ) Financing Activities Borrowings on revolving credit facility 300,000 165,000 Repayment of revolving credit facility ( 300,000 ) ( 365,000 ) Retirement of debt ( 446,032 ) ( 726,358 ) Debt issuance, net of cost — 541,913 Early redemption of debt cost ( 5,419 ) ( 36,756 ) Distributions to noncontrolling interest ( 145,273 ) ( 100,880 ) Contingent consideration payment ( 81,742 ) — Cash dividends paid ( 89,354 ) ( 57,896 ) Withholding tax on stock-based incentive awards ( 17,338 ) ( 4,973 ) Capital lease obligation payments ( 475 ) ( 643 ) Net cash (required) by financing activities ( 785,633 ) ( 585,593 ) Cash Flows from Discontinued Operations Operating activities ( 14,500 ) — Net cash (required) by discontinued operations ( 14,500 ) — Effect of exchange rate changes on cash and cash equivalents ( 5,180 ) 697 Net (decrease) increase in cash and cash equivalents ( 55,186 ) 194,461 Cash and cash equivalents at beginning of period 521,184 310,606 Cash and cash equivalents at end of period $ 465,998 505,067 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 September 30, Nine Months Ended September 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 September 30, 2022 and 195,100,628 shares at September 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 883,368 915,181 926,698 941,692 Exercise of stock options, including income tax benefits ( 1,956 ) ( 35 ) ( 12,591 ) ( 661 ) Restricted stock transactions and other — ( 402 ) ( 45,169 ) ( 38,749 ) Share-based compensation 6,318 6,483 18,792 18,945 Balance at end of period 887,730 921,227 887,730 921,227 Retained Earnings Balance at beginning of period 5,405,400 4,980,428 5,218,670 5,369,538 Net income (loss) attributable to Murphy 528,428 108,456 765,649 ( 242,064 ) Cash dividends paid ( 38,863 ) ( 19,306 ) ( 89,354 ) ( 57,896 ) Balance at end of period 5,894,965 5,069,578 5,894,965 5,069,578 Accumulated Other Comprehensive Loss Balance at beginning of period ( 554,727 ) ( 553,519 ) ( 527,711 ) ( 601,333 ) Foreign currency translation (loss) gain, net of income taxes ( 102,266 ) ( 31,308 ) ( 135,791 ) 6,534 Retirement and postretirement benefit plans, net of income taxes 3,165 4,653 9,674 12,935 Deferred loss on interest rate hedges reclassified to interest expense, net of income taxes — — — 1,690 Balance at end of period ( 653,828 ) ( 580,174 ) ( 653,828 ) ( 580,174 ) Treasury Stock Balance at beginning of period ( 1,616,340 ) ( 1,656,591 ) ( 1,655,447 ) ( 1,690,661 ) Awarded restricted stock, net of forfeitures — 343 32,297 33,888 Exercise of stock options 1,313 24 8,123 549 Balance at end of period – 39,645,345 shares of Common Stock in 2022 and 40,656,661 shares of Common Stock in 2021, at cost ( 1,615,027 ) ( 1,656,224 ) ( 1,615,027 ) ( 1,656,224 ) Murphy Shareholders’ Equity 4,708,941 3,949,508 4,708,941 3,949,508 Noncontrolling Interest Balance at beginning of period 175,428 161,228 163,485 179,810 Net income attributable to noncontrolling interest 45,648 28,853 152,445 85,509 Distributions to noncontrolling interest owners ( 50,419 ) ( 25,642 ) ( 145,273 ) ( 100,880 ) Balance at end of period 170,657 164,439 170,657 164,439 Total Equity $ 4,879,598 4,113,947 $ 4,879,598 4,113,947 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 as Murphy is not considered the primary beneficiary. These non-consolidated VIEs are not material to our financial position or results of operations. As of September 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 September 30, 2022 and December 31, 2021, and the results of operations, cash flows and changes in stockholders’ equity for the interim periods ended September 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 nine-month periods ended September 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 Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 Gulf of Mexico, LLC (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 (GOM). 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 periods ended September 30, 2022, and 2021, the Company recognized $ 1,166 million and $ 687.5 million, respectively, from total revenue from sales to customers, from sales of oil, natural gas liquids and natural gas. For the nine-month periods ended September 30, 2022, and 2021, the Company recognized $ 3,234.0 million and $ 2,038.9 million, respectively, from total revenue from sales to customers, from sales of oil, natural gas liquids and natural gas. Three Months Ended September 30, Nine Months Ended September 30, (Thousands of dollars) 2022 2021 2022 2021 Net crude oil and condensate revenue United States Onshore $ 247,562 167,010 $ 684,099 464,767 Offshore 597,242 340,001 1,675,389 1,079,418 Canada Onshore 29,445 29,110 106,559 89,708 Offshore 30,030 20,499 97,216 70,333 Other 4,867 — 18,503 — Total crude oil and condensate revenue 909,146 556,620 2,581,766 1,704,226 Net natural gas liquids revenue United States Onshore 18,288 16,356 53,035 33,480 Offshore 16,079 11,046 48,151 31,866 Canada Onshore 4,932 4,501 14,800 11,728 Total natural gas liquids revenue 39,299 31,903 115,986 77,074 Net natural gas revenue United States Onshore 21,009 11,127 51,412 24,442 Offshore 52,143 17,444 121,911 56,855 Canada Onshore 99,312 70,455 230,661 176,308 Total natural gas revenue 172,464 99,026 403,984 257,605 Revenue from production 1,120,909 687,549 3,101,736 2,038,905 Sales of purchased natural gas United States Offshore — — 181 — Canada Onshore 45,500 — 132,104 — Total sales of purchased natural gas 45,500 — 132,285 — Total revenue from sales to customers 1,166,409 687,549 3,234,021 2,038,905 Gain (Loss) on derivative instruments 115,191 ( 59,164 ) ( 308,654 ) ( 499,794 ) Gain on sale of assets and other income 21,825 2,315 32,076 21,217 Total revenues and other income $ 1,303,425 630,700 $ 2,957,443 1,560,328 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 September 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 $ 210.1 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 September 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 September 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 September 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 September 30, 2022, the Company had total capitalized exploratory well costs for continuing operations pending the determination of proved reserves of $ 181.5 million. The following table reflects the net changes in capitalized exploratory well costs during the nine-month periods ended September 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 22,275 5,007 Capitalized exploratory well costs charged to expense ( 20,295 ) — Balance at September 30 $ 181,461 186,623 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. September 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 $ 8,851 2 2 3,297 2 2 One to two years 8,489 2 2 — — — Two to three years — — — 53,078 5 5 Three years or more 164,121 6 3 130,248 6 — $ 181,461 10 7 186,623 13 7 Of the $ 172.6 million of exploratory well costs capitalized more than one year at September 30, 2022, $ 95.5 million is in Vietnam, $ 54.9 million is in the U.S., $ 15.5 million is in Mexico, $ 2.8 million is in Brunei, and $ 3.9 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 nine 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 During the third quarter of 2022, the Company completed the disposition of its 62.5 % operated working interest of the Thunder Hawk field for a purchase price of $ 20.0 million, less closing adjustments of $ 22.2 million, resulting in a total net payment to the buyer of $ 2.2 million. Additionally, the buyer assumed the asset retirement obligations of approximately $ 47.9 million. An $ 18.8 million gain on sale was recorded in the period related to the sale. Also in the third quarter, the Company completed the disposition of the CA-2 asset in Brunei for contingent consideration valued at approximately $ 8.7 million. No gain or loss was recorded related to this sale. 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 August 2022, the Company acquired an additional working interest of 3.37 % in the Lucius field for a purchase price of $ 77.1 million, net of closing adjustments. In June 2022, the Company acquired an additional working interest of 11.0 % in the Kodiak field for a purchase price of $ 48.5 million, net of closing adjustments. 11 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note D – Property, Plant and Equipment (Contd.) 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 closing adjustments. Note E – Assets Held for Sale and Discontinued Operations The Company has accounted for its former U.K. and U.S. refining and marketing and Malaysian exploration and production operations as discontinued operations for all periods presented. The results of operations associated with discontinued operations for the three-month and nine-month periods ended September 30, 2022 and 2021 were as follows: Three Months Ended September 30, Nine Months Ended September 30, (Thousands of dollars) 2022 2021 2022 2021 Revenues $ — 144 $ 10 801 Costs and expenses Other costs and expenses 422 850 1,926 1,401 Loss before taxes ( 422 ) ( 706 ) ( 1,916 ) ( 600 ) Income tax expense — — — — Loss from discontinued operations $ ( 422 ) ( 706 ) $ ( 1,916 ) ( 600 ) In September 2022, the Company sold its share of Brunei block CA-2 to Petronas Carigali Brunei Ltd (see Note D for additional information). The remaining balance of assets held for sale on the Consolidated Balance Sheet as of September 30, 2022 consists only of the Company’s former headquarters office building in El Dorado, Arkansas. As of December 31, 2021, assets held for sale includes 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) September 30, 2022 December 31, 2021 Current assets Property, plant, and equipment, net 7,538 15,453 Total current assets associated with assets held for sale $ 7,538 15,453 Note F – Financing Arrangements and Debt As of September 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 September 30, 2022, the Company had no outstanding borrowings under the RCF and $ 53.9 million of outstanding letters of credit, which reduce the borrowing capacity of the RCF. At September 30, 2022, the interest rate in effect on borrowings under the facility was 4.84 %. At September 30, 2022 and 2021, the Company was in compliance with all covenants related to the RCF. In September 2022, the Company paid $ 5.5 million to complete an open market repurchase of $ 7.1 million aggregate principal amount of its 6.125 % senior notes due 2042 (2042 Notes). There were no additional cash costs related to the September 2022 debt extinguishment on the 2042 Notes for the three months and nine months ended September 30, 2022. In August 2022, the Company redeemed the remaining $ 42.4 million of its 6.875 % senior notes due in 2024 (2024 Notes) and tendered $ 100.0 million and $ 98.1 million aggregate principal amount of its 5.750 % and 6.375 % senior notes due 2025 and 2028 (2025 Notes and 2028 Notes), respectively. The total cost of the debt extinguishment of $ 4.0 million is included in Interest expense, net on the Consolidated Statement of Operations for the three months and nine months ended September 30, 2022. The debt extinguishment on the 2025 and 2028 Notes had cash costs of $ 2.0 million and is shown as a financing activity on the Consolidated Statement of Cash Flows for the three months and nine months ended September 30, 2022. In June 2022, the Company redeemed $ 200.0 million aggregate principal amount of its 6.875 % 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 nine months ended September 30, 2022. The cash costs of $ 3.4 million are shown as a financing activity on the Consolidated Statement of Cash Flows for the nine months ended September 30, 2022. 12 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note F – Financing Arrangements and Debt (Contd.) 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 $ 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 nine months ended September 30, 2021. The cash costs of $ 34.2 million are shown as a financing activity on the Consolidated Statement of Cash Flows for the nine months ended September 30, 2021. In August 2021, the Company redeemed $ 150.0 million aggregate principal amount of its 6.875 % senior notes due 2024 (2024 Notes). The cost of the debt extinguishment of $ 3.5 million is included in Interest expense, net on the Consolidated Statement of Operations for the nine months ended September 30, 2021. The cash costs of $ 2.6 million are shown as a financing activity on the Consolidated Statement of Cash Flows for the nine months ended September 30, 2021. The Company also has a shelf registration statement on file with the U.S. Securities and Exchange Commission (SEC) that permits the offer and sale of debt and/or equity securities through October 15, 2024. On October 31, 2022, the Company issued a notice of partial redemption with respect to $ 200.0 million aggregate principal amount of its 5.750 % 2025 Notes. The Company will redeem the 2025 Notes at the applicable redemption price set forth in the indenture governing the 2025 Notes, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. The redemption date of the 2025 Notes will be November 30, 2022. Note G – Other Financial Information Additional disclosures regarding cash flow activities are provided below. Nine Months Ended September 30, (Thousands of dollars) 2022 2021 Net (increase) decrease in operating working capital, excluding cash and cash equivalents: (Increase) decrease in accounts receivable ¹ $ ( 130,792 ) 75,100 (Increase) decrease in inventories ( 410 ) 9,718 (Increase) in prepaid expenses ( 8,561 ) ( 6,682 ) Increase in accounts payable and accrued liabilities ¹ 61,139 40,687 Increase (decrease) in income taxes payable 18,750 ( 1,493 ) Net (increase) decrease in noncash operating working capital $ ( 59,874 ) 117,330 Supplementary disclosures: Cash income taxes paid, net of refunds $ 16,493 1,685 Interest paid, net of amounts capitalized of $ 13.2 million in 2022 and $ 11.6 million in 2021 112,332 127,793 Non-cash investing activities: Asset retirement costs capitalized 2 $ 29,327 36,300 Decrease in capital expenditure accrual 34,853 31,301 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 and a gain in other operating income of $ 71.8 million following a commercial agreement to sanction an asset life extension project at Terra Nova in the third quarter of 2021, which extended the life of Terra Nova by approximately 10 years. 13 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note H – Employee and Retiree Benefit Plans The Company has defined benefit pension plans that are noncontributory and cover most full-time employees. All pension plans are funded except for the U.S. and Canadian nonqualified supplemental plan and the U.S. director’s plan. All U.S. tax qualified plans meet the funding requirements of federal laws and regulations. Contributions to foreign plans are based on local laws and tax regulations. The Company also sponsors health care and life insurance benefit plans, which are not funded, that cover most retired U.S. employees. The health care benefits are contributory; the life insurance benefits are noncontributory. The table that follows provides the components of net periodic benefit expense for the three-month and nine-month periods ended September 30, 2022 and 2021. Three Months Ended September 30, Pension Benefits Other Postretirement Benefits (Thousands of dollars) 2022 2021 2022 2021 Service cost $ 2,129 1,770 $ 292 328 Interest cost 5,163 4,258 574 521 Expected return on plan assets ( 7,999 ) ( 6,038 ) — — Amortization of prior service cost (credit) 582 155 ( 133 ) — Recognized actuarial loss (gain) 3,822 5,269 ( 77 ) ( 8 ) Net periodic benefit expense $ 3,697 5,414 $ 656 841 Nine Months Ended September 30, Pension Benefits Other Postretirement Benefits (Thousands of dollars) 2022 2021 2022 2021 Service cost $ 6,387 5,306 $ 876 981 Interest cost 15,545 12,844 1,722 1,563 Expected return on plan assets ( 24,091 ) ( 18,326 ) — — Amortization of prior service cost (credit) 1,761 467 ( 399 ) — Recognized actuarial loss (gain) 11,466 15,829 ( 232 ) ( 23 ) Net periodic benefit expense $ 11,068 16,120 $ 1,967 2,521 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 nine-month period ended September 30, 2022, the Company made contributions of $ 30.7 million to its defined benefit pension and postretirement benefit plans. Remaining funding in 2022 for the Company’s defined benefit pension and postretirement plans is anticipated to be $ 11.9 million. Note I – Incentive Plans The costs resulting from all share-based and cash-based incentive plans are recognized as an expense in the Consolidated Statements of Operations using a fair value-based measurement method over the periods that the awards vest. The 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 the Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including shares purchased in the open market. Share awards that have been canceled, expired, forfeited or otherwise not issued under an award shall not count as shares issued under the Plan. 14 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note I – Incentive Plans (Contd.) During the first nine 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 Performance Based RSUs 1 15,100 July 1, 2022 $ 37.77 Monte Carlo Time Based RSUs 2 273,400 February 1, 2022 $ 32.12 Average Stock Price Time Based RSUs 2 5,000 July 1, 2022 $ 29.80 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 nine 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 nine-month period ended September 30, 2022. Amounts recognized in the financial statements with respect to share-based plans are shown in the following table: Nine Months Ended September 30, (Thousands of dollars) 2022 2021 Compensation charged against income before tax benefit $ 43,216 29,145 Related income tax benefit recognized in income 6,872 4,120 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 income (loss) attributable to Murphy was used as the numerator in computing both basic and diluted income per Common share for the three-month and nine-month periods ended September 30, 2022 and 2021. The following table reports the weighted-average shares outstanding used for these computations. Three Months Ended September 30, Nine Months Ended September 30, (Weighted-average shares) 2022 2021 2022 2021 Basic method 155,446,201 154,439,313 155,220,945 154,239,440 Dilutive stock options and restricted stock units ¹ 1,889,972 1,492,949 2,185,957 — Diluted method 157,336,173 155,932,262 157,406,902 154,239,440 1 Due to a net loss recognized by the Company for the nine-month period ended September 30, 2021, no unvested stock awards were included in the computation of diluted earnings per share because the effect would have been antidilutive. The following table reflects certain options to purchase shares of common stock that were outstanding during the periods presented but were not included in the computation of diluted shares above because the incremental shares from the assumed conversion were antidilutive. Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Antidilutive stock options excluded from diluted shares — 1,316,222 163,800 1,502,758 Weighted average price of these options $ — $ 34.42 $ 49.65 $ 34.97 Note K – Income Taxes The Company’s effective income tax rate is calculated as the amount of income tax expense (benefit) divided by income (loss) from continuing operations before income taxes. For the three-month and nine-month periods ended September 30, 2022 and 2021, the Company’s effective income tax rates were as follows: 2022 2021 Three months ended September 30, 21.7 % 21.1 % Nine months ended September 30, 21.2 % 28.6 % The effective tax rate for the three-month period ended September 30, 2022, was above the U.S. statutory tax rate of 21% primarily due to several factors, including: the effects of income generated in foreign tax jurisdictions, certain of which have income tax rates higher than the U.S. Federal rate; U.S. state tax expense; and certain expenses, including exploration and other expenses in certain foreign jurisdictions, for which no income tax benefits are currently available. These impacts were partially offset by no tax applied to the pre-tax income of the noncontrolling interest in MP GOM. The effective tax rate for the three-month period ended September 30, 2021, was above the statutory tax rate of 21% primarily due to income generated in Canada, which has a higher tax rate, offset by no tax applied to the pre-tax income of the noncontrolling interest in MP GOM, which has the impact of decreasing the effective tax rate on income. The effective tax rate for the nine-month period ended September 30, 2022, was above the U.S. statutory tax rate of 21% primarily due to several factors, including: the effects of income generated in foreign tax jurisdictions, certain of which have income tax rates higher than the U.S. Federal rate; U.S. state tax expense; and certain expenses, including exploration and other expenses in certain foreign jurisdictions, for which no income tax benefits are currently available. These impacts were mostly offset by no tax applied to the pre-tax income of the noncontrolling interest in MP GOM. The effective tax rate for the nine-month period ended September 30, 2021, was above the statutory tax rate of 21% primarily due to no tax applied to the pretax income of the noncontrolling interest in MP GOM, which has the impact of increasing the effective tax rate on an overall loss. 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 16 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note K– Income Taxes (Contd.) 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 September 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. Note L – Financial Instruments and Risk Management Murphy uses derivative instruments, such as swap 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 swap and collar contracts. Under the swaps contracts, which mature monthly, the Company pays the average monthly price in effect and receives the fixed contract price on a notional amount of sales volume, thereby fixing the price for the commodity sold. Under the collar contracts, which also mature monthly, the Company purchased a put option and sold a call option with no net premiums paid to or received from counterparties. Upon maturity, collar contracts require payments by the Company if the NYMEX average closing price is above the ceiling price or payments to the Company if the NYMEX average closing price is below the floor price. At September 30, 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 September 30, 2022 and 2021. At September 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 September 30, 2022 December 31, 2021 Commodity swaps Accounts payable $ ( 84,933 ) ( 239,882 ) Commodity collars Accounts payable ( 20,954 ) ( 19,533 ) Commodity collars Accounts receivable — 4,280 17 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note L – Financial Instruments and Risk Management (Contd.) For the three-month and nine-month periods ended September 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. Gain (Loss) Gain (Loss) (Thousands of dollars) Statement of Operations Location Three Months Ended September 30, Nine Months Ended September 30, Type of Derivative Contract 2022 2021 2022 2021 Commodity swaps Gain (Loss) on derivative instruments $ 50,089 ( 43,235 ) $ ( 152,822 ) ( 483,865 ) Commodity collars Gain (Loss) on derivative instruments 65,102 ( 15,929 ) ( 155,832 ) ( 15,929 ) Fair Values – Recurring The Company carries certain assets and liabilities at fair value in its Consolidated Balance Sheets. The fair value hierarchy is based on the quality of inputs used to measure fair value, with Level 1 being the highest quality and Level 3 being the lowest quality. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1. Level 3 inputs are unobservable inputs which reflect assumptions about pricing by market participants. The carrying value of assets and liabilities recorded at fair value on a recurring basis at September 30, 2022 and December 31, 2021, are presented in the following table. September 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 $ — 84,933 — 84,933 — 239,882 — 239,882 Commodity collars — 20,954 — 20,954 — 19,533 — 19,533 Contingent consideration — — 212,860 212,860 — — 196,151 196,151 Nonqualified employee savings plan 15,642 — — 15,642 16,962 — — 16,962 $ 15,642 105,887 212,860 334,389 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 Gain (Loss) on derivative instruments 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 nine months ended September 30, 2022 and 2021, the pre-tax income effect of changes in the fair value of the contingent consideration was an expense of $ 98.5 million and $ 105.1 million respectively and is recorded in Other operating (income) expense in the Consolidated Statements of Operations. In the nine months ended September 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. 18 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note L – Financial Instruments and Risk Management (Contd.) The Company offsets certain assets and liabilities related to derivative contracts when the legal right of offset exists. There were no offsetting positions recorded at September 30, 2022 and December 31, 2021. Note M – Accumulated Other Comprehensive Loss The components of Accumulated other comprehensive loss on the Consolidated Balance Sheets at December 31, 2021 and September 30, 2022 and the changes during the nine-month period ended September 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 ( 135,791 ) — ( 135,791 ) Reclassifications to income — 9,674 ¹ 9,674 Net other comprehensive income (loss) ( 135,791 ) 9,674 ( 126,117 ) Balance at September 30, 2022 $ ( 447,686 ) ( 206,142 ) ( 653,828 ) 1 Reclassifications before taxes of $ 12,293 are included in the computation of net periodic benefit expense for the nine-month period ended September 30, 2022. See Note H for additional information. Related income taxes of $ 2,619 are included in Income tax expense (benefit) for the nine-month period ended September 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. Given the factors involved in various government actions, including political considerations, it is difficult to predict their likelihood, the form they may take, or the effect they 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. There continues to be an increase in regulatory oversight of the oil and gas industry at the federal level, with a focus on climate change and greenhouse gas emissions (including methane emissions). For example, the Inflation Reduction Act of 2022 contains provisions that impose fees for excess methane emissions from petroleum and natural gas facilities. In addition, there have been a number of executive orders issued that address climate change, including creation of climate-related task forces, 19 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.) Note N– Environmental and Other Contingencies (Contd.) 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. Executive orders have also been issued related to oil and gas activities on federal lands, infrastructure and environmental justice. In addition, an international climate agreement (the Paris Agreement) was agreed to at the 2015 United Nations Framework Convention on Climate Change in Paris, France. The Paris Agreement entered into force in November 2016. Although the U.S. officially withdrew from the Paris Agreement on November 4, 2020, the U.S. has since 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 September 30, 2022 Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 (Millions of dollars) External Revenues Income (Loss) External Revenues Income (Loss) Exploration and production ¹ United States $ 6,901.0 973.8 481.5 565.2 168.1 Canada 2,076.0 209.6 41.4 124.6 73.9 Other 237.4 4.8 ( 5.8 ) — ( 5.2 ) Total exploration and production 9,214.4 1,188.2 517.1 689.8 236.8 Corporate 1,014.0 115.2 57.4 ( 59.1 ) ( 98.8 ) Continuing operations 10,228.4 1,303.4 574.5 630.7 138.0 Discontinued operations, net of tax 0.8 — ( 0.4 ) — ( 0.7 ) Total $ 10,229.2 1,303.4 574.1 630.7 137.3 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 (Millions of dollars) External Revenues Income (Loss) External Revenues Income (Loss) Exploration and production ¹ United States $ 2,659.2 1,225.9 1,704.4 481.8 Canada 582.3 111.3 349.2 ( 37.7 ) Other 18.5 ( 53.5 ) — ( 22.5 ) Total exploration and production 3,260.0 1,283.7 2,053.6 421.6 Corporate ( 302.6 ) ( 363.7 ) ( 493.3 ) ( 577.6 ) Continuing operations 2,957.4 920.0 1,560.3 ( 156.0 ) Discontinued operations, net of tax — ( 1.9 ) — ( 0.6 ) Total $ 2,957.4 918.1 1,560.3 ( 156.6 ) 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 third quarter of 2022, crude oil and natural gas benchmark prices increased compared to the same period of 2021. Prices were higher in the third quarter of 2022 as compared to the same period in 2021, principally due to demand recovery from COVID-19 and geopolitical uncertainty and market disruption following the Russian invasion of Ukraine. Prices were lower in the third quarter 2022 as compared to the second quarter of 2022 primarily due to increased supply related to the Strategic Petroleum Reserve oil release in the third quarter, ongoing concerns related to possible economic slowdown and lower demand from China. 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 September 30, 2022, West Texas Intermediate (WTI) crude oil prices averaged approximately $91.55 per barrel (compared to $108.41 in the second quarter of 2022 and $70.56 in the third quarter of 2021). The average price for WTI in September of 2022 was approximately $83.80 per barrel, reflecting a 17% increase from September of 2021 and a 27% reduction from the average price from June of 2022. The average price in October 2022 was $87.03 per barrel. As of close on November 1, 2022, the NYMEX WTI forward curve prices for the remainder of 2022 and 2023 were $88.37 and $81.53 per barrel, respectively. For the three months ended September 30, 2022, the Company produced 196 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations and invested $296.1 million in capital expenditures (on a value of work done basis), which included $79.1 million in acquisition capital, primarily for an additional working interests in the GOM Lucius field. The Company reported net income from continuing operations of $574.5 million for the three months ended September 30, 2022; this amount includes income attributable to noncontrolling interest of $45.6 million and after-tax gains on unrealized mark to market revaluations on commodity price swap and collar positions and contingent consideration of $188.8 million and $24.8 million, respectively. In the third quarter of 2022, the Company reduced debt by $247.6 million aggregate principal amount of its 6.875%, 5.750%, 6.375%, 6.125% senior notes due 2024, 2025, 2028, 2042 for the principal amount plus cash costs of $2.0 million. In 2021, the Company executed a series of financial transactions which redeemed the remaining notes due 2022 and partially redeemed the 2024 Notes. In August 2022, the Company acquired an additional 3.37% working interest (there is no noncontrolling interest) in the Lucius field in the Gulf of Mexico for a purchase price of $77.1 million. For the nine months ended September 30, 2022, the Company produced 173 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations and invested $918.0 million in capital expenditures (on a value of work done basis), which included $125.6 million related to acquisition capital and $25.3 million related to the Cutthroat exploration well in Brazil deferred from 2021. The Company reported net income from continuing operations of $920.0 million for the nine months ended September 30, 2022. This amount includes income attributable to noncontrolling interest of $152.4 million, after-tax gains on unrealized mark to market revaluations on commodity price swap and collar positions of $109.5 million and after-tax losses on contingent consideration of $77.5 million. In the second quarter of 2022, the Company achieved first production from the 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 facility. In addition, the Company acquired an additional 11.0% working interest (with no noncontrolling interest) in the Kodiak field in the Gulf of Mexico for a purchase price of $48.5 million. In the second quarter of 2022, the Company redeemed $200.0 million aggregate principal amount of its 6.875% 2024 Notes for the principal amount plus cash costs of $3.4 million. For the three months ended September 30, 2021, the Company produced 163 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations; this includes the impact of Hurricane Ida on U.S. Gulf of Mexico production of 14.5 thousand barrels of oil equivalent per day (including NCI). The Company invested $110.5 million in capital expenditures (on a value of work done basis), in the three months ended September 31, 2021. The Company reported net income from continuing operations of $138.0 million for the third quarter of 2021. This amount included income attributable to noncontrolling interest of $28.9 million, after-tax gains on unrealized mark to market revaluations on commodity price swap and collar positions of $44.1 million, an after-tax non-cash credit of $53.6 million related to the deferral of asset retirement obligations and after-tax losses on contingent consideration of $22.4 million. 22 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.) Summary (contd.) For the nine months ended September 30, 2021, the Company produced 170 thousand barrels of oil equivalent per day (including noncontrolling interest) from continuing operations; this includes the impact of Hurricane Ida on U.S. Gulf of Mexico production of 4.9 thousand barrels of oil equivalent per day (including NCI). The Company invested $568.7 million in capital expenditures (on a value of work done basis) in the nine months ended September 30, 2021, which included $18.0 million to fund the development of the King’s Quay floating production system (which was subsequently reimbursed by Arclight). The Company reported net loss from continuing operations of $156.0 million for the nine months ended September 30, 2021. This amount included income attributable to noncontrolling interest of $85.5 million, after-tax impairment charges of $128.0 million, an after-tax non-cash credit of $53.6 million related to the deferral of asset retirement obligations and after-tax losses on unrealized mark to market revaluations on commodity price derivative positions and contingent consideration of $180.5 million and $83.0 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. Results of Operations Murphy’s income (loss) by type of business is presented below. Income (Loss) Three Months Ended September 30, Nine Months Ended September 30, (Millions of dollars) 2022 2021 2022 2021 Exploration and production $ 517.1 236.8 $ 1,283.7 421.6 Corporate and other 57.4 (98.8) (363.7) (577.6) Income (loss) from continuing operations 574.5 138.0 920.0 (156.0) Discontinued operations ¹ (0.4) (0.7) (1.9) (0.6) Net income (loss) including noncontrolling interest $ 574.1 137.3 $ 918.1 (156.6) 1 The Company has presented its former U.K. and U.S. refining and marketing and Malaysian exploration and production operations as discontinued operations in its consolidated financial statements. Exploration and Production Results of E&P continuing operations are presented by geographic segment below. Income (Loss) Three Months Ended September 30, Nine Months Ended September 30, (Millions of dollars) 2022 2021 2022 2021 Exploration and production United States $ 481.5 168.1 $ 1,225.9 481.8 Canada 41.4 73.9 111.3 (37.7) Other (5.8) (5.2) (53.5) (22.5) Total $ 517.1 236.8 $ 1,283.7 421.6 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 23 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.) Results of Operations (contd.) accounting principles generally accepted in the United States of America. Also presented below is adjusted EBITDA per barrel of oil equivalent sold, a non-GAAP financial metric. Management uses EBITDA per barrel of oil equivalent sold to evaluate the Company’s profitability of one barrel of oil equivalent sold in the period. Three Months Ended September 30, Nine Months Ended September 30, (Millions of dollars, except per barrel of oil equivalents sold) 2022 2021 2022 2021 Net income (loss) attributable to Murphy (GAAP) $ 528.4 108.5 $ 765.6 (242.1) Income tax expense (benefit) 159.5 36.8 247.6 (62.5) Interest expense, net 37.4 46.9 116.1 178.4 Depreciation, depletion and amortization expense ¹ 207.7 182.8 552.5 588.4 EBITDA attributable to Murphy (Non-GAAP) 933.0 375.0 1,681.8 462.2 Mark-to-market (gain) loss on derivative instruments (239.1) (55.9) (138.7) 228.5 Mark-to-market (gain) loss on contingent consideration (31.4) 28.4 98.5 105.1 Foreign exchange gain (20.7) (2.8) (28.7) (1.5) Gain on sale of assets ¹ (15.2) — (15.2) — Accretion of asset retirement obligations ¹ 10.0 10.8 30.7 30.8 Discontinued operations loss 0.4 0.7 1.9 0.6 Impairment of assets — — — 171.3 Unutilized rig charges — 3.2 — 8.5 Asset retirement obligation gains — (71.8) — (71.8) Adjusted EBITDA attributable to Murphy (Non-GAAP) $ 637.1 287.6 $ 1,630.3 933.7 Total barrels of oil equivalents sold from continuing operations attributable to Murphy (thousands of barrels) 17,525 14,219 44,973 43,536 Adjusted EBITDA per barrel of oil equivalents sold $ 36.35 20.23 $ 36.25 21.45 1 Depreciation, depletion, and amortization expense, gain on sale of assets and accretion of asset retirement obligations used in the computation of Adjusted EBITDA exclude the portion attributable to the non-controlling interest (NCI). 24 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.) Results of Operations (contd.) OIL AND GAS OPERATING RESULTS – THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (Millions of dollars) United States 1 Canada Other Total Three Months Ended September 30, 2022 Oil and gas sales and other operating revenues $ 973.8 164.1 4.8 1,142.7 Sales of purchased natural gas — 45.5 — 45.5 Lease operating expenses 158.8 39.6 0.3 198.7 Severance and ad valorem taxes 14.9 0.3 — 15.2 Transportation, gathering and processing 38.5 16.9 — 55.4 Costs of purchased natural gas — 43.7 — 43.7 Depreciation, depletion and amortization 169.4 40.9 0.9 211.2 Accretion of asset retirement obligations 8.8 2.4 — 11.2 Exploration expenses Dry holes and previously suspended exploration costs 0.2 — 0.9 1.1 Geological and geophysical 1.1 0.1 0.4 1.6 Other exploration 1.5 — 2.6 4.1 2.8 0.1 3.9 6.8 Undeveloped lease amortization 2.0 0.1 0.6 2.7 Total exploration expenses 4.8 0.2 4.5 9.5 Selling and general expenses 2.6 5.2 2.0 9.8 Other (27.7) 3.7 0.6 (23.4) Results of operations before taxes 603.7 56.7 (3.5) 656.9 Income tax provisions 122.2 15.3 2.3 139.8 Results of operations (excluding Corporate segment) $ 481.5 41.4 (5.8) 517.1 Three Months Ended September 30, 2021 Oil and gas sales and other operating revenues $ 565.2 124.6 — 689.8 Lease operating expenses 96.7 33.4 0.1 130.2 Severance and ad valorem taxes 10.8 0.8 — 11.6 Transportation, gathering and processing 28.4 16.2 — 44.6 Depreciation, depletion and amortization 147.0 39.7 0.1 186.8 Accretion of asset retirement obligations 9.3 2.9 — 12.2 Exploration expenses Dry holes and previously suspended exploration costs 17.3 — — 17.3 Geological and geophysical — — 0.3 0.3 Other exploration 1.3 0.1 0.5 1.9 18.6 0.1 0.8 19.5 Undeveloped lease amortization 3.1 0.1 1.8 5.0 Total exploration expenses 21.7 0.2 2.6 24.5 Selling and general expenses 4.2 4.0 1.2 9.4 Other 39.1 (71.7) 2.0 (30.6) Results of operations before taxes 208.0 99.1 (6.0) 301.1 Income tax provisions 39.9 25.2 (0.8) 64.3 Results of operations (excluding Corporate segment) $ 168.1 73.9 (5.2) 236.8 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 – NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (Millions of dollars) United States 1 Canada Other Total Nine Months Ended September 30, 2022 Oil and gas sales and other operating revenues $ 2,659.0 450.2 18.5 3,127.7 Sales of purchased natural gas 0.2 132.1 — 132.3 Lease operating expenses 368.2 113.4 1.2 482.8 Severance and ad valorem taxes 46.4 1.0 — 47.4 Transportation, gathering and processing 100.0 52.2 — 152.2 Costs of purchased natural gas 0.2 125.1 — 125.3 Depreciation, depletion and amortization 449.6 110.7 4.4 564.7 Accretion of asset retirement obligations 27.3 7.3 0.1 34.7 Exploration expenses Dry holes and previously suspended exploration costs (0.5) — 35.7 35.2 Geological and geophysical 3.7 0.2 1.4 5.3 Other exploration 5.9 0.4 14.7 21.0 9.1 0.6 51.8 61.5 Undeveloped lease amortization 6.7 0.2 3.8 10.7 Total exploration expenses 15.8 0.8 55.6 72.2 Selling and general expenses 14.1 14.1 6.5 34.7 Other 110.4 6.5 1.0 117.9 Results of operations before taxes 1,527.2 151.2 (50.3) 1,628.1 Income tax provisions (benefits) 301.3 39.9 3.2 344.4 Results of operations (excluding Corporate segment) $ 1,225.9 111.3 (53.5) 1,283.7 Nine months ended September 30, 2021 Oil and gas sales and other operating revenues $ 1,704.4 349.2 — 2,053.6 Lease operating expenses 303.3 100.0 0.4 403.7 Severance and ad valorem taxes 30.6 1.6 — 32.2 Transportation, gathering and processing 90.5 46.7 — 137.2 Depreciation, depletion and amortization 476.6 128.0 1.1 605.7 Accretion of asset retirement obligations 27.5 7.4 — 34.9 Impairment of assets — 171.3 — 171.3 Exploration expenses Dry holes and previously suspended exploration costs 17.9 — — 17.9 Geological and geophysical 2.7 — 1.3 4.0 Other exploration 4.2 0.2 9.6 14.0 24.8 0.2 10.9 35.9 Undeveloped lease amortization 7.9 0.2 5.8 13.9 Total exploration expenses 32.7 0.4 16.7 49.8 Selling and general expenses 15.0 12.0 4.7 31.7 Other 133.5 (67.7) (1.2) 64.6 Results of operations before taxes 594.7 (50.5) (21.7) 522.5 Income tax provisions (benefits) 112.9 (12.8) 0.8 100.9 Results of operations (excluding Corporate segment) $ 481.8 (37.7) (22.5) 421.6 1 Includes results attributable to a noncontrolling interest in MP GOM. 26 Table of Contents