Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
commitments and therefore is partially protected from potential increases in the price of services. However, from time to time, Murphy will seek to enter new commitments, exercise options to extend contracts and retender contracts for rigs and other industry services which could expose Murphy to the impact of higher costs. Murphy continues to strive toward safely executing our work in an ever-increasingly efficient manner to mitigate potential inflationary pressures in its business.
Natural gas prices are also affected by supply and demand factors, which are often influenced by the weather and by the fact that delivery of natural gas can be restricted to specific geographic areas. Natural gas prices can also be impacted by the demand for lower-carbon energy sources.
As a result of the overall volatility of oil and natural gas prices, it is not possible to predict the Company’s future cost of oil field goods and services.
Critical Accounting Estimates – In preparing the Company’s consolidated financial statements in accordance with GAAP, management must make a number of estimates and assumptions related to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Application of certain of the Company’s accounting policies requires significant estimates. The most significant of these accounting policies and estimates are described below.
Oil and natural gas proved reserves – Oil and natural gas proved reserves are defined by the SEC as those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations before the time at which contracts providing the right to operate expire (unless evidence indicates that renewal is reasonably certain). Proved developed reserves of oil and natural gas can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well, or through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
Although the Company’s engineers are knowledgeable of and follow the guidelines for reserves as established by the SEC, the estimation of reserves requires the engineers to make a significant number of assumptions based on professional judgment. SEC rules require the Company to use an unweighted average of the oil and natural gas prices in effect at the beginning of each month of the year for determining quantities of proved reserves. These historical prices often do not approximate the average price that the Company expects to receive for its oil and natural gas production in the future. The Company often uses significantly different oil and natural gas prices and reserve assumptions when making its own internal economic property evaluations. Changes in oil and natural gas prices can lead to a decision to start up or shut in production, which can lead to revisions to reserves quantities.
Estimated reserves are subject to future revision, certain of which could be substantial, based on the availability of additional information, including reservoir performance, new geological and geophysical data, additional drilling, technological advancements, price changes and other economic factors. Reserves revisions inherently lead to adjustments of the Company’s depreciation rates and the timing of settlement of asset retirement obligation (ARO) liabilities. Downward reserves revisions can also lead to significant impairment expense. The Company cannot predict the type of oil and natural gas reserves revisions that will be required in future periods.
The Company’s proved reserves of oil and natural gas are presented on pages 111 to 120 of this Form 10-K report. Murphy’s estimations for proved reserves were generated through the integration of available geoscience, engineering, and economic data (including hydrocarbon prices, operating costs, and development costs), and commercially available technologies, to establish “reasonable certainty” of economic producibility. As defined by the SEC, reasonable certainty of proved reserves describes a high degree of confidence that the quantities will be recovered. In estimating proved reserves, Murphy uses familiar industry-accepted methods for subsurface evaluations, including performance, volumetric, and analog-based studies.
Where appropriate, Murphy includes reliable geologic and engineering technology to estimate proved reserves. Reliable geologic and engineering technology is a method or combination of methods that are field-tested and have been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation. This integrated approach increases the quality of
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and confidence in Murphy’s proved reserves estimates. It was utilized in certain undrilled acreage at distances greater than the directly offsetting development spacing areas. Murphy utilized a combination of 3D seismic interpretation, core analysis, wellbore log measurements, well test data, historic production and pressure data, and commercially available seismic processing and numerical reservoir simulation programs. Reservoir parameters from analogous reservoirs were used to strengthen the reserves estimates when available.
See further discussion of proved reserves and changes in proved reserves during the three years ended December 31, 2025 beginning on pages 4 and 111 of this Form 10-K report.
Property, Plant and Equipment - impairment of long-lived assets – The Company continually monitors its long-lived assets recorded in “Property, plant and equipment” in the Consolidated Balance Sheets to ensure that they are fairly presented. The Company must evaluate its property, plant and equipment for potential impairment when circumstances indicate that the carrying value of an asset may not be recoverable from undiscounted future net cash flows.
A significant amount of judgment is involved in performing these evaluations since the results are based on estimated future events. Such events include a projection of future oil and natural gas sales prices, an estimate of the amount of oil and natural gas that will be produced from a field, the timing of this future production, future costs to produce the oil and natural gas, future capital, operating and abandonment costs and future inflation levels.
The need to test a long-lived asset for impairment can be based on several factors, including, but not limited to, a significant reduction in sales prices for oil and/or natural gas, unfavorable revisions of oil or natural gas reserves, or other changes to contracts, environmental, health and safety laws and regulations, tax laws or other regulatory changes. All of these factors must be considered when evaluating a property’s carrying value for possible impairment.
Due to the volatility of world oil and natural gas markets, the actual sales prices for oil and natural gas have often been different from the Company’s projections.
Estimates of future oil and natural gas production and sales volumes are based on a combination of proved and risked probable reserves. Although the estimation of reserves and future production is uncertain, the Company believes that its estimates are reasonable; however, there have been cases where actual production volumes were higher or lower than projected and the timing was different than the original projection. The Company adjusts reserves and production estimates as new information becomes available.
The Company generally projects future costs by using historical costs adjusted for both assumed long-term inflation rates and known or expected changes in future operations. Although the projected future costs are considered to be reasonable, at times, costs have been higher or lower than originally estimated.
In 2025, the Company recognized a pretax non-cash impairment charge of $115.0 million ($92.0 million excluding NCI) to reduce the carrying value at the Dalmatian field, in the Gulf of America, as certain projects in the field were less competitive for capital allocation.
In 2024, the Company recognized pretax non-cash impairment charges of $62.9 million to reduce the carrying values at select properties. The Company recognized impairments of $34.5 million, related to the Calliope field, and $28.4 million, related to the Nearly Headless Nick field, both in the Gulf of America. Both impairment charges were due to subsurface issues that led to reserve reductions.
See also Note D for further discussion of impairment charges.
Income taxes – The Company is subject to income and other similar taxes in all areas in which it operates. When recording income tax expense, certain estimates are required because: (a) income tax returns are generally filed months after the close of its annual accounting period; (b) tax returns are subject to audit by taxing authorities and audits can often take years to complete and settle; (c) future events often impact the timing of when income tax expenses and benefits are recognized by the Company; and (d) changes to regulations may be subject to different interpretations and require future clarification from issuing authorities or others.
The Company has deferred tax assets mostly relating to U.S. net operating losses, liabilities for dismantlement, retirement benefit plan obligations and net deferred tax liabilities relating to tax and accounting basis differences for property, plant and equipment.
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The Company routinely evaluates all deferred tax assets to determine the likelihood of their realization and reduces such assets to the expected realizable amount by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In assessing the need for valuation allowances, we consider all available positive and negative evidence. Positive evidence includes projected future taxable income and assessment of future business assumptions, a history of utilizing tax assets before expiration, significant proven and probable reserves and reversals of taxable temporary differences. Negative evidence includes losses in recent years.
As of December 31, 2025 the Company had a U.S. deferred tax asset associated with net operating losses of $225.0 million. In reviewing the likelihood of realizing this asset, the Company considered the reversal of taxable temporary differences, carryforward periods and future taxable income estimates based on projected financial information which, based on currently available evidence, we believe to be reasonably likely to occur. Certain estimates and assumptions are used in the estimation of future taxable income, including (but not limited to) (a) future commodity prices for oil and natural gas, (b) estimated reserves for oil and natural gas, (c) expected timing of production, (d) estimated lease operating costs and (e) future capital requirements. In the future, the underlying actual assumptions utilized in estimating future taxable income could be different and result in different conclusions about the likelihood of the future utilization of our net operating loss carryforwards.
Accounting for retirement and postretirement benefit plans – Murphy and certain of its subsidiaries maintain defined benefit retirement plans covering certain full-time employees. The Company also sponsors health care and life insurance benefit plans covering most retired U.S. employees. The expense associated with these plans is estimated by management based on a number of assumptions and with consultation assistance from qualified third-party actuaries. The most important of these assumptions for the retirement plans involve the discount rate used to measure future plan obligations and the expected long-term rate of return on plan assets. For the retiree medical and insurance plans, the most important assumptions are the discount rate for future plan obligations and the health care cost trend rate. Discount rates are based on the universe of high-quality corporate bonds that are available within each country. Cash flow analyses are performed in which a spot yield curve is used to discount projected benefit payment streams for the most significant plans. The discounted cash flows are used to determine an equivalent single rate, which is the basis for selecting the discount rate within each country. Expected plan asset returns are based on long-term expectations for asset portfolios with similar investment mix characteristics. Anticipated health care cost trend rates are determined based on prior experience of the Company and an assessment of near-term and long-term trends for medical and drug costs.
Based on bond yields as of December 31, 2025, the Company has used a weighted average discount rate of 5.40% at year end 2025 for the primary U.S. plans. This weighted average discount rate is 0.2% lower than prior year, which increased the Company’s recorded liabilities for retirement plans compared to a year ago. The Company assumed a return on plan assets of 7.70% for the primary U.S. plan and periodically reconsiders the appropriateness of this and other key assumptions. The Company’s retirement and postretirement plan (health care and life insurance benefit plans) expenses in 2026 are expected to be $0.4 million lower than in 2025 primarily due to higher actual return on plan assets, partially offset by an increase in the benefit obligations at December 31, 2025 compared to the prior year.
In 2025, the Company paid $25.1 million into various retirement plans and $12.9 million into postretirement plans. In 2026, the Company is expecting to fund payments of approximately $24.5 million into various retirement plans and $4.7 million for postretirement plans. The Company could be required to make additional and more significant funding payments to retirement plans in future years. Future required payments and the amount of liabilities recorded on the balance sheet associated with the plans could be unfavorably affected if the discount rate declines, the actual return on plan assets falls below the assumed return, or the health care cost trend rate increase is higher than expected.
Recent Accounting Pronouncements
See Note B in our Consolidated Financial Statements regarding the impact or potential impact of recent accounting pronouncements upon our financial position and results of operations.
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Contractual obligations and guarantees – The Company is obligated to make future cash payments under borrowing arrangements, operating leases, purchase obligations primarily associated with existing capital expenditure plans and other long-term liabilities. Total payments due after 2025 under such contractual obligations and arrangements are shown in the table below. Amounts are undiscounted and therefore may differ to those presented in the financial statements.
(Millions of dollars) Amount of Obligations
Total 2026 2027 - 2028 2029 - 2030 After 2030
Debt, excluding finance leases and interest $ 1,384.8 $ — $ 227.5 $ 217.5 $ 939.8
Operating and finance leases 1,024.8 318.9 215.8 123.0 367.1
Capital expenditures, drilling rigs and other ¹ 1,648.0 761.1 252.0 160.2 474.7
Other long-term liabilities, including debt interest ² 2,344.6 129.6 230.6 450.2 1,534.2
Total $ 6,402.2 $ 1,209.6 $ 925.9 $ 950.9 $ 3,315.8
1 Capital expenditures, drilling rigs and other includes $28.1 million, $25.4 million, $7.7 million, $1.0 million and $0.6 million in 2026 for approved capital projects in non-operated interests in the Gulf of America, the Eagle Ford Shale, Canada Offshore, Brunei, and Canada Onshore, respectively.
Also includes $72.2 million (2026), $141.1 million (2027 - 2028), $81.0 million (2029 - 2030) and $235.9 million (After 2030) for pipeline transportation commitments in Canada.
Also includes $3.7 million (2026), $7.5 million (2027 - 2028), $7.4 million (2029 - 2030) and $14.3 million (After 2030) for long-term take-or-pay commitments relating to natural gas processing in Canada.
Also includes $23.6 million (2026), $47.1 million (2027 - 2028), $48.1 million (2029 - 2030) and $176.8 million (After 2030) for the purpose of supporting future production activities in Vietnam.
2 Other long-term liabilities includes debt interest and future cash outflows for ARO liabilities.
The Company has entered into agreements to lease production facilities for various producing oil fields as well as other arrangements that require future payments as described in the following section. The Company’s share of the contractual obligations under these leases and other arrangements has been included in the table above.
In the normal course of its business, the Company is required under certain contracts with various governmental authorities and others to provide letters of credit that may be drawn upon if the Company fails to perform under those contracts. Total outstanding letters of credit were $211.8 million as of December 31, 2025.
Subsequent to the balance sheet date, the Company completed a series of transactions regarding its long-term debt arrangements and RCF. In January 2026, the Company closed a public offering of $500.0 million aggregate principal amount of its 6.500% senior notes due 2034 (2034 Notes), used the proceeds to redeem an aggregate $227.5 million of its outstanding 2027 Notes and 2028 Notes, repaid $100.0 million that was outstanding on the previous RCF, as of December 31, 2025, and expects to use the remaining proceeds to cover transaction-related fees and expenses and for general corporate purposes. See Note F for additional information.
Material off-balance sheet arrangements – Certain U.S. transportation contracts require minimum monthly payments through 2045, while Canada Onshore transportation and processing contracts call for minimum monthly payments through 2051. Future required minimum annual payments under these arrangements are included in the contractual obligation table above.
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Outlook
The oil and natural gas industry is impacted by global commodity pricing. As a result, the prices for the Company’s primary products are often volatile a nd are aff ected by the levels of supply and demand for energy. As discussed in the “ Results of Operations ” section on revenues, on page 38 , lower average crude oil price during 2025 directly impacted the Company’s product sales revenue.
As of close on February 23, 2026, forward price curves for existing forward contracts for the remainder of 2026 and 2027 are shown in the table below.
2026 2027
NYMEX WTI ($/BBL)
$ 64.90 $ 62.02
NYMEX Henry Hub ($/MMBTU)
3.39 3.72
AECO (US$ Equivalent/MCF)
1.36 1.90
In 2025, liquids from continuing operations represented approximately 55% of total hydrocarbons produced on a barrels of oil equivalent basis. In 2026, the Company’s ratio of hydrocarbon production represented by liquids is expected to be 56%. If the prices for crude oil and natural gas are lower in 2026 or beyond, this will have an unfavorable impact on the Company’s operating profits; likewise, if prices are higher, this will have a favorable impact. The Company, from time to time, may choose to use a variety of commodity hedge instruments to reduce commodity price risk, including forward sale fixed financial swaps and long-term fixed-price physical commodity sales.
The Company currently expects average daily production in 2026 to be between 173,000 and 181,000 BOEPD (including a noncontrolling interest of 6,000 BOEPD). If significant price declines occur, the Company will review the option of production curtailments to avoid incurring losses on certain produced barrels.
The oil and natural gas industry and the Company continue to observe higher costs for goods and services used in E&P operations. Murphy continues to manage input costs through its dedicated procurement department focused on managing supply chain and other costs to deliver cash flow from operations.
We cannot predict what impact economic factors (including, but not limited to, inflation, evolving trade policy, global conflicts and possible economic recession) may have on future commodity pricing. Lower prices, should they occur, will result in lower profits and operating cash flows.
The Company’s capital expenditure spend for 2026 is expected to be between $1,200 million and $1,300 million, excluding NCI. Capital and other expenditures are routinely reviewed and planned capital expenditures may be adjusted to reflect differences between budgeted and forecast cash flow during the year. Capital expenditures may also be affected by asset purchases or sales, which often are not anticipated at the time a budget is prepared. The Company will primarily fund its capital program in 2026 using operating cash flow and available cash. If oil and/or natural gas prices weaken, actual cash flow generated from operations could be reduced such that capital spending reductions are required and/or borrowings under available credit facilities might be required during the year to maintain funding of the Company’s ongoing development projects.
The Company plans to utilize surplus cash (not planned to be used by operations, investing activities, dividends or payment to noncontrolling interests), in accordance with the Company’s capital allocation plan designed to allow for additional shareholder returns and debt reduction. Details of the plan can be found in the “Capital Allocation Framework” section of the Company’s Form 8-K filed on August 4, 2022 and Form 8-K filed on August 8, 2024. The Board has authorized a share repurchase program whereby the Company can repurchase up to $1,100 million of the Company’s common stock. As of December 31, 2025, the Company had $550.1 million of its common stock remaining available to repurchase under the program.
Subsequent to the balance sheet date, the Company completed a series of transactions regarding its long-term debt arrangements and RCF. In January 2026, the Company closed a public offering of $500.0 million aggregate principal amount of its 2034 Notes, used the proceeds to redeem an aggregate $227.5 million of its outstanding 2027 Notes and 2028 Notes, repaid $100.0 million that was outstanding on the previous RCF, as of December 31, 2025, and expects to use the remaining proceeds to cover transaction-related fees and expenses and for general corporate purposes. In addition, the Company entered into an amendment to its credit agreement which increased its RCF capacity from $1.35 billion to $2.0 billion and extended the term of the agreement to 2031. See Note F for additional information on these transactions.
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On January 28, 2026, the Board of Directors declared a quarterly cash dividend on the Common Stock of Murphy Oil Corporation of $0.35 per share, which on an annualized basis would be $1.40 per share . The dividend is payable on March 2, 2026, to stockholders of record as of February 17, 2026.
The Company continues to monitor the impact of commodity prices on its financial position and is currently in compliance with the covenants related to the RCF (see Note F ).
As of February 23, 2026, the Company has entered into forward fixed-price delivery contracts to manage risk associated with certain future oil and natural gas sales prices, as follows.
Volumes
(MMCF/D) Price/MCF Remaining Period
Area Commodity Type Start Date End Date
Canada Natural Gas Fixed price forward sales 50 C$3.03 1/1/2026 3/31/2026
Canada Natural Gas Fixed price forward sales 78 C$2.94 4/1/2026 6/30/2026
Canada Natural Gas Fixed price forward sales 78 C$2.94 7/1/2026 9/30/2026
Canada Natural Gas Fixed price forward sales 59 C$3.00 10/1/2026 12/31/2026
Canada Natural Gas Fixed price forward sales 9.5 C$3.14 1/1/2027 12/31/2027
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Forward-Looking Statements
This Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally identified through the inclusion of words such as “aim”, “anticipate”, “believe”, “drive”, “estimate”, “expect”, “forecast”, “future”, “goal”, “guidance”, “intend”, “may”, “objective”, “outlook”, “plan”, “position”, “potential”, “project”, “seek”, “should”, “strategy”, “target”, “will” or variations of such words and other similar expressions. These statements, which express management’s current views concerning future events, results and plans, are subject to inherent risks, uncertainties and assumptions (many of which are beyond our control) and are not guarantees of performance. In particular, statements, express or implied, concerning the Company’s future operating results or activities and returns or the Company's ability and intent to replace or increase reserves, increase production, generate returns and rates of return, replace or increase drilling locations, reduce or otherwise control operating costs and expenditures, generate cash flows, pay down or refinance indebtedness, achieve, reach or otherwise meet initiatives, plans, goals, ambitions or targets with respect to emissions, safety matters or other environmental, social and governance matters, make capital expenditures, pay and/or increase dividends or make share repurchases and other capital allocation decisions are forward-looking statements. Factors that could cause one or more of these future events, results or plans not to occur as implied by any forward-looking statement, which consequently could cause actual results or activities to differ materially from the expectations expressed or implied by such forward-looking statements, include, but are not limited to: macro conditions in the oil and natural gas industry, including supply and demand levels, actions taken by major oil exporters and the resulting impacts on commodity prices; geopolitical concerns; increased volatility or deterioration in the success rate of our exploration programs or in our ability to maintain production rates and replace reserves; reduced customer demand for our products due to environmental, regulatory, technological or other reasons; adverse foreign exchange movements; political and regulatory instability in the markets where we do business; the impact on our operations or markets of health pandemics and related government responses; natural hazards impacting our operations or markets; any other deterioration in our business, markets or prospects; cyber attacks and other cybersecurity risks; any failure to obtain necessary regulatory approvals; the impact of current and future laws, rulings and governmental regulations; any inability to service or refinance our outstanding debt or to access debt markets at acceptable prices; or adverse developments in the U.S. or global capital markets, credit markets, banking system or economies in general, including inflation, trade policies, tariffs and other trade restrictions. For further discussion of factors that could cause one or more of these future events or results not to occur as implied by any forward-looking statement, see “ Item 1A. Risk Factors ”, which begins on page 13 of this Annual Report on Form 10-K. Investors and others should note that we may announce material information using SEC filings, press releases, public conference calls, webcasts and the investors page of our website. We may use these channels to distribute material information about the Company; therefore, we encourage investors, the media, business partners and others interested in the Company to review the information we post on our website. The information on our website is not part of, and is not incorporated into, this report. Each forward-looking statement contained in this report speaks only as of the date of this report. Except as required by applicable law, Murphy Oil Corporation undertakes no duty to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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