MURPHY OIL CORP [MUR] Filings

10-Q 1 mur-20210930.htm 10-Q mur-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-8590

MURPHY OIL CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		71-0361522
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
9805 Katy Fwy, Suite G-200		77024
Houston,	Texas	(Zip Code)
(Address of principal executive offices)
(281)		675-9000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $1.00 Par Value	MUR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

Number of shares of Common Stock, $1.00 par value, outstanding at October 31, 2021 was 154,459,128.

MURPHY OIL CORPORATION

TABLE OF CONTENTS


			Page
Part I – Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets			2
Consolidated Statements of Operations			3
Consolidated Statements of Comprehensive Income			4
Consolidated Statements of Cash Flows			5
Consolidated Statements of Stockholders’ Equity			6
Notes to Consolidated Financial Statements			7
Note A – Nature of Business and Interim Financial Statements			7
Note B – New Accounting Principles and Recent Accounting Pronouncements			7
Note C – Revenue from Contracts with Customers			8
Note D – Property, Plant, and Equipment			10
Note E – Discontinued Operations and Assets Held for Sale			12
Note F – Financing Arrangements and Debt			12
Note G – Other Financial Information			13
Note H – Employee and Retiree Benefit Plans			14
Note I – Incentive Plans			14
Note J – Earnings Per Share			16
Note K – Income Taxes			16
Note L – Financial Instruments and Risk Management			17
Note M – Accumulated Other Comprehensive Loss			19
Note N – Environmental and Other Contingencies			19
Note O – Business Segments			20



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22




Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			35
Part II – Other Information			36
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 6. Exhibits			36
Signature			37

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS (unaudited)


(Thousands of dollars)	September 30, 2021		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	505,067	310,606
Accounts receivable, less allowance for doubtful accounts of $1,605 in 2021 and 2020	186,683		262,014
Inventories	57,411		66,076
Prepaid expenses	40,583		33,860
Assets held for sale	40,987		327,736
Total current assets	830,731		1,000,292
Property, plant and equipment, at cost less accumulated depreciation, depletion and amortization of $12,268,101 in 2021 and $11,455,305 in 2020	8,112,093		8,269,038
Operating lease assets	918,719		927,658
Deferred income taxes	442,212		395,253
Deferred charges and other assets	27,101		28,611

Total assets	$	10,330,856	10,620,852
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt, finance lease	$	646	—
Accounts payable	615,436		407,097
Income taxes payable	18,035		18,018
Other taxes payable	26,997		22,498
Operating lease liabilities	157,294		103,758
Other accrued liabilities	316,205		150,578
Liabilities associated with assets held for sale	—		14,372
Total current liabilities	1,134,613		716,321
Long-term debt, including finance lease obligation	2,613,703		2,988,067
Asset retirement obligations	797,627		816,308
Deferred credits and other liabilities	723,732		680,580
Non-current operating lease liabilities	781,114		845,088
Deferred income taxes	166,120		180,341

Total liabilities	6,216,909		6,226,705
Equity
Cumulative Preferred Stock, par $100, authorized 400,000 shares, none issued	—		—
Common Stock, par $1.00, authorized 450,000,000 shares, issued 195,100,628 shares in 2021 and 195,100,628 shares in 2020	195,101		195,101
Capital in excess of par value	921,227		941,692
Retained earnings	5,069,578		5,369,538
Accumulated other comprehensive loss	(580,174)		(601,333)
Treasury stock	(1,656,224)		(1,690,661)
Murphy Shareholders' Equity	3,949,508		4,214,337
Noncontrolling interest	164,439		179,810
Total equity	4,113,947		4,394,147
Total liabilities and equity	$	10,330,856	10,620,852

See Notes to Consolidated Financial Statements, page 7.

Table of Contents

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


	Three Months Ended September 30,			Nine Months Ended September 30,
(Thousands of dollars, except per share amounts)	2021		2020	2021		2020
Revenues and other income
Revenue from sales to customers	$	687,549	425,324	$	2,038,905	1,311,627
(Loss) gain on derivative instruments	(59,164)		(5,290)	(499,794)		319,502
Gain on sale of assets and other income	2,315		1,831	21,217		6,006
Total revenues and other income	630,700		421,865	1,560,328		1,637,135
Costs and expenses
Lease operating expenses	130,131		124,491	403,708		478,283
Severance and ad valorem taxes	11,670		6,781	32,215		22,645
Transportation, gathering and processing	44,588		41,322	137,196		126,779
Exploration expenses, including undeveloped lease amortization	24,517		12,092	49,840		61,686
Selling and general expenses	27,210		28,509	85,826		104,381
Restructuring expenses	—		4,982	—		46,379
Depreciation, depletion and amortization	189,806		231,603	615,372		769,151
Accretion of asset retirement obligations	12,198		10,778	34,854		31,213
Impairment of assets	—		219,138	171,296		1,206,284
Other (benefit) expense	(32,791)		20,224	58,616		(2,957)
Total costs and expenses	407,329		699,920	1,588,923		2,843,844
Operating income (loss) from continuing operations	223,371		(278,055)	(28,595)		(1,206,709)
Other income (loss)
Interest income and other (loss)	(1,593)		(5,177)	(11,459)		(10,107)
Interest expense, net	(46,925)		(45,182)	(178,399)		(124,877)
Total other loss	(48,518)		(50,359)	(189,858)		(134,984)
Income (loss) from continuing operations before income taxes	174,853		(328,414)	(218,453)		(1,341,693)
Income tax expense (benefit)	36,838		(62,584)	(62,498)		(248,890)
Income (loss) from continuing operations	138,015		(265,830)	(155,955)		(1,092,803)
(Loss) from discontinued operations, net of income taxes	(706)		(778)	(600)		(6,907)
Net income (loss) including noncontrolling interest	137,309		(266,608)	(156,555)		(1,099,710)
Less: Net income (loss) attributable to noncontrolling interest	28,853		(23,055)	85,509		(122,869)
NET INCOME (LOSS) ATTRIBUTABLE TO MURPHY	$	108,456	(243,553)	$	(242,064)	(976,841)
INCOME (LOSS) PER COMMON SHARE – BASIC
Continuing operations	$	0.70	(1.58)	$	(1.57)	(6.31)
Discontinued operations	—		(0.01)	—		(0.05)
Net income (loss)	$	0.70	(1.59)	$	(1.57)	(6.36)
INCOME (LOSS) PER COMMON SHARE – DILUTED
Continuing operations	$	0.70	(1.58)	$	(1.57)	(6.31)
Discontinued operations	—		(0.01)	—		(0.05)
Net income (loss)	$	0.70	(1.59)	$	(1.57)	(6.36)
Cash dividends per Common share	$	0.125	0.125	0.375		0.500

Average Common shares outstanding (thousands)
Basic	154,439		153,596	154,239		153,480
Diluted	155,932		153,596	154,239		153,480

See Notes to Consolidated Financial Statements, page 7.

Table of Contents

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


	Three Months Ended September 30,			Nine Months Ended September 30,
(Thousands of dollars)	2021		2020	2021		2020
Net income (loss) including noncontrolling interest	$	137,309	(266,608)	$	(156,555)	(1,099,710)
Other comprehensive (loss) income, net of tax
Net (loss) gain from foreign currency translation	(31,308)		28,323	6,534		(39,520)
Retirement and postretirement benefit plans	4,653		3,726	12,935		(45,219)
Deferred loss on interest rate hedges reclassified to interest expense	—		297	1,690		905

Other comprehensive (loss) income	(26,655)		32,346	21,159		(83,834)
COMPREHENSIVE INCOME (LOSS)	$	110,654	(234,262)	$	(135,396)	(1,183,544)

See Notes to Consolidated Financial Statements, page 7.

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Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Nine Months Ended September 30,
(Thousands of dollars)	2021		2020
Operating Activities
Net income (loss) including noncontrolling interest	$	(156,555)	(1,099,710)
Adjustments to reconcile net income (loss) to net cash provided by continuing operations activities
Loss from discontinued operations	600		6,907
Depreciation, depletion and amortization	615,372		769,151
Dry hole and previously suspended exploration costs	17,899		8,255
Amortization of undeveloped leases	13,872		21,951
Accretion of asset retirement obligations	34,854		31,213
Impairment of assets	171,296		1,206,284
Noncash restructuring expense	—		17,565
Deferred income tax (benefit) expense	(65,149)		(231,748)

Mark to market loss (gain) on contingent consideration	105,111		(29,476)
Mark to market loss (gain) on derivative instruments	228,497		(104,463)
Long-term non-cash compensation	42,080		35,200
Net decrease (increase) in noncash working capital	117,330		(26,261)
Other operating activities, net	(33,924)		(26,837)
Net cash provided by continuing operations activities	1,091,283		578,031
Investing Activities
Property additions and dry hole costs	(564,230)		(648,725)
Property additions for King's Quay FPS	(17,734)		(74,936)

Proceeds from sales of property, plant and equipment	270,038		—
Net cash required by investing activities	(311,926)		(723,661)
Financing Activities
Borrowings on revolving credit facility	165,000		450,000
Repayment of revolving credit facility	(365,000)		(250,000)
Retirement of debt	(726,358)		(12,225)
Debt issuance, net of cost	541,913		(613)
Early redemption of debt cost	(36,756)		—
Distributions to noncontrolling interest	(100,880)		(43,673)
Cash dividends paid	(57,896)		(76,790)
Withholding tax on stock-based incentive awards	(4,973)		(7,094)

Capital lease obligation payments	(643)		(514)

Net cash (required) provided by financing activities	(585,593)		59,091
Cash Flows from Discontinued Operations 1
Operating activities	—		(1,202)
Investing activities	—		4,494
Financing activities	—		—
Net cash provided by discontinued operations	—		3,292

Effect of exchange rate changes on cash and cash equivalents	697		(585)
Net increase (decrease) in cash and cash equivalents	194,461		(87,124)
Cash and cash equivalents at beginning of period	310,606		306,760
Cash and cash equivalents at end of period	$	505,067	219,636

1 Net cash provided by discontinued operations is not part of the cash flow reconciliation. See Notes to Consolidated Financial Statements, page 7.

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Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)


	Three Months Ended September 30,			Nine Months Ended September 30,
(Thousands of dollars)	2021		2020	2021		2020
Cumulative Preferred Stock – par $100, authorized 400,000 shares, none issued	$	—	—	$	—	—
Common Stock – par $1.00, authorized 450,000,000 shares, issued 195,100,628 shares at September 30, 2021 and 195,100,628 shares at September 30, 2020
Balance at beginning of period	195,101		195,101	195,101		195,089
Exercise of stock options	—		—	—		12
Balance at end of period	195,101		195,101	195,101		195,101
Capital in Excess of Par Value
Balance at beginning of period	915,181		931,429	941,692		949,445
Exercise of stock options, including income tax benefits	(35)		—	(661)		(156)
Restricted stock transactions and other	(402)		(409)	(38,749)		(33,649)
Share-based compensation	6,483		5,298	18,945		20,678

Balance at end of period	921,227		936,318	921,227		936,318
Retained Earnings
Balance at beginning of period	4,980,428		5,823,426	5,369,538		6,614,304
Net (loss) attributable to Murphy	108,456		(243,553)	(242,064)		(976,841)


Cash dividends	(19,306)		(19,200)	(57,896)		(76,790)
Balance at end of period	5,069,578		5,560,673	5,069,578		5,560,673
Accumulated Other Comprehensive Loss
Balance at beginning of period	(553,519)		(690,341)	(601,333)		(574,161)
Foreign currency translation gain (loss), net of income taxes	(31,308)		28,323	6,534		(39,520)
Retirement and postretirement benefit plans, net of income taxes	4,653		3,726	12,935		(45,219)
Deferred loss on interest rate hedges reclassified to interest expense, net of income taxes	—		297	1,690		905

Balance at end of period	(580,174)		(657,995)	(580,174)		(657,995)
Treasury Stock
Balance at beginning of period	(1,656,591)		(1,691,070)	(1,690,661)		(1,717,217)

Awarded restricted stock, net of forfeitures	343		409	33,888		26,556
Exercise of stock options	24		—	549		—
Balance at end of period – 40,656,661 shares of Common Stock in 2021 and 41,502,003 shares of Common Stock in 2020, at cost	(1,656,224)		(1,690,661)	(1,656,224)		(1,690,661)
Murphy Shareholders’ Equity	3,949,508		4,343,436	3,949,508		4,343,436
Noncontrolling Interest
Balance at beginning of period	161,228		204,937	179,810		337,151

Net income (loss) attributable to noncontrolling interest	28,853		(23,055)	85,509		(122,869)
Distributions to noncontrolling interest owners	(25,642)		(11,273)	(100,880)		(43,673)
Balance at end of period	164,439		170,609	164,439		170,609
Total Equity	$	4,113,947	4,514,045	$	4,113,947	4,514,045

See Notes to Consolidated Financial Statements, page 7.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These notes are an integral part of the financial statements of Murphy Oil Corporation and Consolidated Subsidiaries (Murphy/ Company) on pages 2 through 6 of this Form 10-Q report.

Note A – Nature of Business and Interim Financial Statements

NATURE OF BUSINESS – Murphy Oil Corporation is an international oil and natural gas exploration and production company that conducts its business through various operating subsidiaries. The Company primarily produces oil and natural gas in the United States and Canada and conducts oil and natural gas exploration activities worldwide.

In connection with the LLOG Exploration Offshore L.L.C. and LLOG Bluewater Holdings, L.L.C., (LLOG) acquisition, we hold a 0.5% interest in two variable interest entities (VIEs), Delta House Oil and Gas Lateral LLC and Delta House Floating Production System (FPS) LLC (collectively Delta House). These VIEs have not been consolidated because we are not considered the primary beneficiary. These non-consolidated VIEs are not material to our financial position or results of operations. As of September 30, 2021, our maximum exposure to loss was $3.4 million (excluding operational impacts), which represents our net investment in Delta House. We have not provided any financial support to Delta House other than amounts previously required by our membership interest.

INTERIM FINANCIAL STATEMENTS – In the opinion of Murphy’s management, the unaudited financial statements presented herein include all accruals necessary to present fairly the Company’s financial position at September 30, 2021 and December 31, 2020, and the results of operations, cash flows and changes in stockholders’ equity for the interim periods ended September 30, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America (U.S.). In preparing the financial statements of the Company in conformity with accounting principles generally accepted in the U.S., management has made a number of estimates and assumptions related to the reporting of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. Actual results may differ from the estimates.

Consolidated financial statements and notes to consolidated financial statements included in this Form 10-Q report should be read in conjunction with the Company’s 2020 Form 10-K report, as certain notes and other pertinent information have been abbreviated or omitted in this report. Financial results for the three-month and nine-month periods ended September 30, 2021 are not necessarily indicative of future results.

Note B – New Accounting Principles and Recent Accounting Pronouncements

Accounting Principles Adopted

Income Taxes. In December 2019, the FASB issued ASU 2019-12, which removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Implementation on a prospective or retrospective basis varies by specific topics within the ASU. The Company adopted this guidance in the first quarter of 2021 and it did not have a material impact on its consolidated financial statements.

Recent Accounting Pronouncements

None affecting the Company.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note C – Revenue from Contracts with Customers

Nature of Goods and Services

The Company explores for and produces crude oil, natural gas and natural gas liquids (collectively oil and natural gas) in select basins around the globe. The Company’s revenue from sales of oil and natural gas production activities are primarily subdivided into two key geographic segments: the U.S. and Canada. Additionally, revenue from sales to customers is generated from three primary revenue streams: crude oil and condensate, natural gas liquids, and natural gas.

For operated oil and natural gas production where the non-operated working interest owner does not take-in-kind its proportionate interest in the produced commodity, the Company acts as an agent for the working interest owner and recognizes revenue only for its own share of the commingled production. The exception to this is the reporting of the noncontrolling interest in MP GOM as prescribed by ASC 810-10-45.

U.S. - In the United States, the Company primarily produces oil and natural gas from fields in the Eagle Ford Shale area of South Texas and in the Gulf of Mexico. Revenue is generally recognized when oil and natural gas are transferred to the customer at the delivery point. Revenue recognized is largely index based with price adjustments for floating market differentials.

Canada - In Canada, contracts include long-term floating commodity index priced and natural gas physical forward sales fixed-price contracts. For the Offshore business in Canada, contracts are based on index prices and revenue is recognized at the time of vessel load based on the volumes on the bill of lading and point of custody transfer.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note C – Revenue from Contracts with Customers (Contd.)

Disaggregation of Revenue

The Company reviews performance based on two key geographical segments and between onshore and offshore sources of revenue within these geographies.

For the three-month and nine-month periods ended September 30, 2021, the Company recognized $687.5 million and $2,038.9 million, respectively, from contracts with customers for the sales of oil, natural gas liquids and natural gas. For the three-month and nine-month periods ended September 30, 2020, the Company recognized $425.3 million and $1,311.6 million, respectively, from contracts with customers for the sales of oil, natural gas liquids and natural gas.


		Three Months Ended September 30,			Nine Months Ended September 30,
(Thousands of dollars)		2021		2020	2021	2020
Net crude oil and condensate revenue
United States	Onshore	$	167,010	86,498	464,767	272,284
	Offshore	340,001		216,918	1,079,418	714,143
Canada	Onshore	29,110		32,358	89,708	67,268
	Offshore	20,499		19,173	70,333	54,864
Other		—		—	—	1,806
Total crude oil and condensate revenue		556,620		354,947	1,704,226	1,110,365

Net natural gas liquids revenue
United States	Onshore	16,356		6,766	33,480	16,145
	Offshore	11,046		4,765	31,866	13,255
Canada	Onshore	4,501		2,780	11,728	6,090
Total natural gas liquids revenue		31,903		14,311	77,074	35,490

Net natural gas revenue
United States	Onshore	11,127		4,529	24,442	14,177
	Offshore	17,444		9,827	56,855	35,487
Canada	Onshore	70,455		41,710	176,308	116,108
Total natural gas revenue		99,026		56,066	257,605	165,772
Total revenue from contracts with customers		687,549		425,324	2,038,905	1,311,627

(Loss) gain on derivative instruments		(59,164)		(5,290)	(499,794)	319,502
Gain on sale of assets and other income		2,315		1,831	21,217	6,006
Total revenue and other income		$	630,700	421,865	1,560,328	1,637,135

Contract Balances and Asset Recognition

As of September 30, 2021, and December 31, 2020, receivables from contracts with customers, net of royalties and associated payables, on the balance sheet from continuing operations, were $144.0 million and $135.2 million, respectively. Payment terms for the Company’s sales vary across contracts and geographical regions, with the majority of the cash receipts required within 30 days of billing. Based on a forward-looking expected loss model in accordance with ASU 2016-13, the Company did not recognize any impairment losses on receivables or contract assets arising from customer contracts during the reporting periods.

The Company has not entered into any revenue contracts that have financing components as at September 30, 2021.

The Company does not employ sales incentive strategies such as commissions or bonuses for obtaining sales contracts. For the periods presented, the Company did not identify any assets to be recognized associated with the costs to obtain a contract with a customer.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note C – Revenue from Contracts with Customers (Contd.)

Performance Obligations

The Company recognizes oil and natural gas revenue when it satisfies a performance obligation by transferring control over a commodity to a customer. Judgment is required to determine whether some customers simultaneously receive and consume the benefit of commodities. As a result of this assessment for the Company, each unit of measure of the specified commodity is considered to represent a distinct performance obligation that is satisfied at a point in time upon the transfer of control of the commodity.

For contracts with market or index-based pricing, which represent the majority of sales contracts, the Company has elected the allocation exception and allocates the variable consideration to each single performance obligation in the contract. As a result, there is no price allocation to unsatisfied remaining performance obligations for delivery of commodity product in subsequent periods.

The Company has entered into several long-term, fixed-price contracts in Canada. The underlying reason for entering a fixed price contract is generally unrelated to anticipated future prices or other observable data and serves a particular purpose in the company’s long-term strategy.

As of September 30, 2021, the Company had the following sales contracts in place which are expected to generate revenue from sales to customers for a period of more than 12 months starting at the inception of the contract:

Current Long-Term Contracts Outstanding at September 30, 2021

Location

Commodity

End Date

Description

Approximate Volumes

U.S.

Oil

Q4 2021

Fixed quantity delivery in Eagle Ford

17,000 BOED

U.S.

Natural Gas and NGL

Q1 2023

Deliveries from dedicated acreage in Eagle Ford

As produced

Canada

Natural Gas

Q4 2021

Contracts to sell natural gas at USD index pricing

10 MMCFD

Canada

Natural Gas

Q4 2022

Contracts to sell natural gas at USD index pricing

8 MMCFD

Canada

Natural Gas

Q4 2022

Contracts to sell natural gas at CAD fixed prices

5 MMCFD

Canada

Natural Gas

Q4 2022

Contracts to sell natural gas at USD fixed pricing

20 MMCFD

Canada

Natural Gas

Q4 2023

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

1 These contracts are scheduled to commence after the balance sheet date, at various dates between Q4 2021 and Q1 2022.

Fixed price contracts are accounted for as normal sales and purchases for accounting purposes.

Note D – Property, Plant, and Equipment

Exploratory Wells

Under FASB guidance exploratory well costs should continue to be capitalized when the well has found a sufficient quantity of reserves to justify its completion as a producing well and the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project.

As of September 30, 2021, the Company had total capitalized exploratory well costs for continuing operations pending the determination of proved reserves of $186.6 million. The following table reflects the net changes in capitalized exploratory well costs during the nine-month periods ended September 30, 2021 and 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note D – Property, Plant and Equipment (Contd.)


(Thousands of dollars)	2021		2020
Beginning balance at January 1	$	181,616	217,326
Additions pending the determination of proved reserves	5,007		9,941

Capitalized exploratory well costs charged to expense	—		(39,408)
Balance at September 30	$	186,623	187,859

The capitalized well costs charged to expense during 2020 represent a charge for asset impairments (see below).

The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed for each individual well and the number of projects for which exploratory well costs have been capitalized. The projects are aged based on the last well drilled in the project.


	September 30,
	2021				2020

(Thousands of dollars)	Amount		No. of Wells	No. of Projects	Amount	No. of Wells	No. of Projects
Aging of capitalized well costs:
Zero to one year	$	3,297	2	2	8,000	1	—
One to two years	—		—	—	54,334	5	5
Two to three years	53,078		5	5	—	—	—
Three years or more	130,248		6	—	125,525	6	—
	$	186,623	13	7	187,859	12	5

Of the $183.3 million of exploratory well costs capitalized more than one year at September 30, 2021, $92.3 million is in Vietnam, $45.0 million is in the U.S., $25.9 million is in Brunei, $15.3 million is in Mexico, and $4.8 million is in Canada. In all geographical areas, either further appraisal or development drilling is planned and/or development studies/plans are in various stages of completion.

Impairments

During the first quarter of 2021, the Company recorded an impairment charge of $171.3 million for Terra Nova due to the status, including agreements with the partners, of operating and production plans.

In 2020, declines in future oil and natural gas prices (principally driven by reduced demand from the COVID-19 pandemic) led to impairments in certain of the Company’s U.S. Offshore and Other Foreign properties. The Company recorded pretax noncash impairment charges of $1,206.3 million to reduce the carrying values to their estimated fair values at select properties.

The fair values were determined by internal discounted cash flow models using estimates of future production, prices, costs and discount rates believed to be consistent with those used by principal market participants in the applicable region.

The following table reflects the recognized impairments for the nine months ended September 30, 2021 and 2020.


	Nine Months Ended September 30,
(Thousands of dollars)	2021		2020
U.S.	$	—	1,152,515
Canada	171,296		—
Other Foreign	—		39,709
Corporate	—		14,060
	$	171,296	1,206,284

Divestments

During the first quarter of 2021, the King’s Quay FPS was sold to ArcLight Capital Partners, LLC (ArcLight) for proceeds of $267.7 million, which reimburses the Company for previously incurred capital expenditures.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Note E – Assets Held for Sale and Discontinued Operations

The Company has accounted for its former U.K. and U.S. refining and marketing and Malaysian exploration and production operations as discontinued operations for all periods presented. The results of operations associated with discontinued operations for the three-month and nine-month periods ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30,			Nine Months Ended September 30,
(Thousands of dollars)	2021		2020	2021		2020
Revenues	$	144	—	$	801	4,074
Costs and expenses


Other costs and expenses (benefits)	850		778	1,401		10,981
(Loss) income before taxes	(706)		(778)	(600)		(6,907)