Note B – Property, Plant and Equipment

Under U.S. generally accepted accounting principles for companies that use the successful efforts method of accounting, 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.

At September 30, 2016, the Company had total capitalized exploratory well costs pending the determination of proved reserves of $128.2 million. The following table reflects the net changes in capitalized exploratory well costs during the

nine-month periods ended September 30, 2016 and 2015.



(Thousands of dollars)	2016		2015
Beginning balance at January 1	$	130,514	120,455
Additions pending the determination of proved reserves		847	89,197
Other adjustments		(3,205)	–
Balance at September 30	$	128,156	209,652

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

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,
	2016				2015
(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	$	10,563	2	2	$	52,249	5	3
One to two years		53,101	3	3		32,192	2	1
Two to three years		31,627	2	–		27,842	2	–
Three years or more		32,865	4	–		97,369	4	2
	$	128,156	11	5	$	209,652	13	6

Of the $117.6 million of exploratory well costs capitalized more than one year at September 30, 2016, $64.5 million is in Brunei, $31.4 million is in Vietnam and $21.7 million is in Malaysia. In all geographical areas, either further appraisal or development drilling is planned and/or development studies/plans are in various stages of completion.

In April 2016, a Canadian subsidiary of the Company signed a purchase and sale agreement for the sale of its five percent, non-operated working interest in Syncrude Canada Ltd. (“Syncrude”) asset to Suncor Energy Inc. (“Suncor”), subject to closing adjustments. The sale was completed in June 2016 and the Company received net cash proceeds of $739.1 million. The Company recorded an after-tax gain of $71.7 million in the second quarter of 2016 associated with the Syncrude divestiture.

In April 2016, a Canadian subsidiary of the Company completed its transaction to divest natural gas processing and sales pipeline assets that support Murphy’s Montney natural gas fields in the Tupper area of northeastern British Columbia. Total cash consideration received by Murphy upon closing of the transaction was $414.1 million. A gain on sale of approximately $187 million is being deferred and recognized over the next 20 years in the Canadian operating segment. The Company has amortized $3.4 million of the deferred gain during 2016. The remaining deferred gain is included as a component of deferred credits and other liabilities on the Company’s Consolidated Balance Sheet.

In a separate transaction, the same Canadian subsidiary signed a definitive agreement to acquire a 70 percent operated working interest (WI) of Athabasca Oil Corporation’s (Athabasca) production, acreage, infrastructure and facilities in the Kaybob Duvernay lands, and a 30 percent non-operated WI of Athabasca’s production, acreage, infrastructure and facilities in the liquids rich Montney lands in Alberta, the majority of which is unproved. Under the terms of the joint venture the total consideration amounts to approximately $375 million, of which Murphy paid $206.7 million in cash at closing, subject to normal closing adjustments, and the remaining $168.0 million in the form of a carried interest for a period of up to five years. The transaction closed in the second quarter of 2016.

During the first quarter of 2016, declines in crude oil and natural gas prices from year end 2015 provided indications of possible impairments in certain of the company’s producing properties. As a result of management’s assessments, the Company recognized pretax non-cash impairments charges of $95.1 million in the nine-month period ended September 30, 2016, to reduce the carrying value to their estimated fair value for its Terra Nova field offshore Canada and its Western Canada onshore heavy oil producing properties. The fair values were determined by internal discounted cash flow models using estimates of future production, prices from futures exchanges, estimates of future costs, and a discount rate believed to be consistent with those used by principal market participants in the region.

During the third quarter 2015, declines in future oil and gas prices provided indications of possible impairments in certain of the Company’s producing properties. As a result of management’s assessments, during the third quarter of 2015, the Company recognized a pretax noncash impairment charge of approximately $2.3 billion to reduce the carrying value of certain producing properties in the Gulf of Mexico, Western Canada and Malaysia to their estimated fair value. The fair values were determined by internal discounted cash flow models using estimates of future production, prices from futures exchanges, estimates of future costs, and a discount rate believed to be consistent with those used by principal market participants in the applicable region.

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

During 2015, the Company completed the second phase of the sale of 30% of its oil and gas assets in Malaysia and received net cash proceeds of $417.2 million. The Company recorded an after-tax gain of $218.8 million on the sale of the final 10% portion of the total 30% sold.