Note C – Discontinued Operations

Separation of U.S. Downstream Business

On August 30, 2013, Murphy Oil Corporation (the “Company”) distributed 100% of the outstanding common stock of Murphy USA Inc. (“MUSA”) to its shareholders in a generally tax-free spin-off for U.S. federal income tax purposes. Prior to the separation, MUSA held all of the Company’s U.S. downstream operations, including retail gasoline stations and other marketing assets, plus two ethanol production facilities. In connection with the separation, Murphy Oil USA, Inc., MUSA’s 100% owned primary operating subsidiary, distributed $650,000,000 to the Company in the form of a cash dividend. The Company has no continuing involvement with MUSA operations. Accordingly, the operating results and the cash flows for these former U.S. downstream operations have been reported as discontinued operations for all periods presented in the consolidated financial statements.

In order to effect the separation and govern the Company’s relationship with MUSA after the separation, both parties entered into a series of agreements governing each party’s rights and obligations after the separation. Among such agreements, the Separation and Distribution Agreement governs the separation of the U.S. downstream business, the transfer of assets, cross-indemnities between the Company and MUSA, handling of claims subject to indemnification and related matters, and other matters related to the Company’s relationship with MUSA.

The Tax Matters Agreement governs the respective rights, responsibilities and obligations of the Company and MUSA with respect to taxes, tax attributes, tax returns, tax proceedings and certain other tax matters. In addition, the Tax Matters Agreement imposes certain restrictions on MUSA and its subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) that are designed to preserve the tax-free status of the distribution.

The Employee Matters Agreement governs the compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of the Company and MUSA, and generally allocates liabilities and responsibilities relating to employee compensation, benefit plans and programs. The Employee Matters Agreement provides that employees of MUSA will no longer participate in benefit plans sponsored or maintained by the Company. In addition, the Employee Matters Agreement provides that each of the parties will be responsible for their respective current employees and compensation plans for such current employees, and that the Company will be responsible for liabilities relating to former employees who left prior to the separation. The Employee Matters Agreement sets forth the general principles relating to employee matters and also addresses any special circumstances during the transition period. The Employee Matters Agreement also provides that (i) the distribution does not constitute a change in control under existing plans, programs, agreements or arrangements, and (ii) the distribution and the assignment, transfer or continuation of the employment of employees with another entity will not constitute a severance event under the applicable plans, programs, agreements or arrangements.

The Transition Service Agreement sets forth the terms on which the Company and MUSA will provide certain services or functions to the other party. Transition services include administration, payroll, human resources, data processing, environmental health and safety, audit support, financial transaction support, and other support services, information technology systems and various other corporate services. The agreement provided for the provision of specified services, generally for a period of up to 18 months, with a possible extension of six months (an aggregate of 24 months), on a full cost basis. The Transition Service Agreement expired in 2015.

Other Discontinued Operations

The Company sold all of its U.K. oil and natural gas production assets during 2013, and recognized an after-tax gain of $216,147,000 on sale of these assets. The results of these operations have been reported as discontinued operations for all periods presented in these consolidated financial statements.

On September 30, 2014, the Company sold its U.K. retail marketing operations and associated inventories with total proceeds of $211,965,000. The Company decommissioned the Milford Haven refinery units and completed the sale of its remaining downstream assets in the U.K. in the second quarter of 2015 for cash proceeds of $5,500,000. The Company has accounted for this U.K. downstream business as discontinued operations for all periods presented.

The following table presents the carrying value of the major categories of assets and liabilities of U.K. refining and marketing operations reflected as held for sale on the Company’s Consolidated Balance Sheets at December 31, 2015 and 2014.



(Thousands of dollars)	2015		2014
Current assets
Cash	$	7,927	200,512
Accounts receivable		12,037	97,568
Inventories		–	42,161
Other		18,376	35,889
Total current assets held for sale	$	38,340	376,130

Non-current assets
Property, plant and equipment, net	$	–	50,947
Other		–	13
Total non-current assets held for sale	$	–	50,960

Current liabilities
Accounts payable	$	2,433	59,023
Other accrued taxes payable		–	40,653
Accrued compensation and severance		2,179	30,872
Refinery decommissioning cost		2,685	21,000
Total current liabilities associated with assets held for sale	$	7,297	151,548

Non-current liabilities
Deferred income taxes payable	$	–	3,873
Deferred credits and other liabilities		–	4,437
Total non-current liabilities associated with assets held for sale	$	–	8,310

In 2014 and 2013, the Company wrote down its net investment in the held for sale U.K. refining and marketing assets by $269,200,000 and $73,000,000, respectively. The 2014 writedown was based on estimated salvage value of remaining refining and terminal assets as of the end of the year. The 2013 write down was based on an assessment of the fair value of these assets based on the status of the ongoing sale process at that time. The Company benefited in 2014 from a LIFO inventory liquidation credit of $209,600,000 and a gain on sale of the U.K. retail marketing assets of $101,700,000. These charges and benefits have been included in the results of discontinued operations.

Discontinued operations inventories accounted for under the LIFO method totaled $10,954,000 at December 31, 2014 and these amounts were $44,881,000 less than such inventories would have been valued using the FIFO method. These inventories are carried in Current Assets Held for Sale in the Consolidated Balance Sheet at December 31, 2014. In association with the shutdown of the Milford Haven, Wales, refinery in 2014, most crude oil inventories and a large portion of the refinery’s finished products were liquidated at market values. This reduction in LIFO inventory reserve benefited discontinued operating results in 2014 as noted above.

The results of operations associated with all discontinued operations are presented in the following table.



(Thousands of dollars)	2015		2014	2013
Revenues	$	381,747	2,786,394	17,586,236

Income (loss) from operations before income taxes	$	(6,758)	(261,873)	119,984
Gain (loss) on sale before income taxes		(4,990)	101,684	130,991
Total income (loss) from discontinued operations before taxes		(11,748)	(160,189)	250,975
Income tax expense (benefit)		3,313	(40,827)	15,639
Income (loss) from discontinued operations	$	(15,061)	(119,362)	235,336