10-Q 1 mur-20170331x10q.htm 10-Q Q1 2017 10Q





















UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





 

 



FORM 10-Q

 







 



(Mark One)

[X]

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



For the quarterly period ended March 31, 2017



OR

[  ]

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)



 

 

300 Peach Street, P.O. Box 7000,

 

 

El Dorado, Arkansas

 

71731-7000

(Address of principal executive offices)

 

(Zip Code)







(870) 862-6411

(Registrant’s telephone number, including area code)



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.
[X] Yes    [  ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
[X] Yes    [  ] No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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 [X]                Accelerated filer [  ]               Non-accelerated filer [  ]              Smaller reporting company [  ]

Emerging growth company [  ]



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



Number of shares of Common Stock, $1.00 par value, outstanding at March 31, 2017 was 172,546,147





 


 

MURPHY OIL CORPORATION



TABLE OF CONTENTS



 

1

 


 

 

PART I – FINANCIAL INFORMATION



ITEM 1.  FINANCIAL STATEMENTS



Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS (unaudited)

(Thousands of dollars)





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2017

 

2016

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

875,853 

 

 

872,797 

Canadian government securities with maturities greater than 90 days at
 the date of acquisition

 

 

211,549 

 

 

111,542 

Accounts receivable, less allowance for doubtful accounts of $1,605 in 
2017 and 2016

 

 

320,935 

 

 

357,099 

Inventories, at lower of cost or market

 

 

129,556 

 

 

127,071 

Prepaid expenses

 

 

46,478 

 

 

63,604 

Assets held for sale

 

 

25,485 

 

 

27,070 

                    Total current assets

 

 

1,609,856 

 

 

1,559,183 

Property, plant and equipment, at cost less accumulated depreciation,
 depletion and amortization of $11,486,580 in 2017 and $12,607,815 in 2016

 

 

8,253,112 

 

 

8,316,188 

Deferred charges and other assets

 

 

409,019 

 

 

420,489 

Total assets

 

$

10,271,987 

 

 

10,295,860 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Current maturities of long-term debt

 

$

562,426 

 

 

569,817 

Accounts payable

 

 

712,201 

 

 

784,975 

Income taxes payable

 

 

42,392 

 

 

13,920 

Other taxes payable

 

 

34,833 

 

 

28,167 

Other accrued liabilities

 

 

113,981 

 

 

102,777 

Liabilities associated with assets held for sale

 

 

2,816 

 

 

2,776 

                    Total current liabilities

 

 

1,468,649 

 

 

1,502,432 

Long-term debt, including capital lease obligation

 

 

2,421,611 

 

 

2,422,750 

Deferred income taxes

 

 

109,594 

 

 

69,081 

Asset retirement obligations

 

 

693,771 

 

 

681,528 

Deferred credits and other liabilities

 

 

619,879 

 

 

617,490 

Liabilities associated with assets held for sale

 

 

– 

 

 

85,900 

Stockholders’ equity

 

 

 

 

 

 

    Cumulative Preferred Stock, par $100, authorized 400,000 shares,
        none issued

 

 

– 

 

 

– 

    Common Stock, par $1.00, authorized 450,000,000 shares, issued
        195,055,724 shares in 2017 and 2016

 

 

195,056 

 

 

195,056 

    Capital in excess of par value

 

 

898,227 

 

 

916,799 

    Retained earnings

 

 

5,744,924 

 

 

5,729,596 

    Accumulated other comprehensive loss

 

 

(602,679)

 

 

(628,212)

    Treasury stock

 

 

(1,277,045)

 

 

(1,296,560)

                    Total stockholders’ equity

 

 

4,958,483 

 

 

4,916,679 

                    Total liabilities and stockholders’ equity

 

$

10,271,987 

 

 

10,295,860 



See Notes to Consolidated Financial Statements, page 7.



The Exhibit Index is on page 32.

2


 

 





Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Thousands of dollars, except per share amounts)







 

 

 

 

 



 

 

 

 

 



 

Three Months Ended

 



March 31,

 



2017

 

2016

 

REVENUES

 

 

 

 

 

Sales and other operating revenues

$

544,658 

 

429,094 

 

Gain on sale of assets

 

131,982 

 

22 

 

Interest and other income (loss)

 

(12,021)

 

1,179 

 

Total revenues

 

664,619 

 

430,295 

 

COSTS AND EXPENSES

 

 

 

 

 

Lease operating expenses

 

122,142 

 

159,103 

 

Severance and ad valorem taxes

 

11,213 

 

12,637 

 

Exploration expenses, including undeveloped lease amortization

 

28,663 

 

26,916 

 

Selling and general expenses

 

54,255 

 

73,507 

 

Depreciation, depletion and amortization

 

236,154 

 

286,149 

 

Impairment of assets

 

– 

 

95,088 

 

Accretion of asset retirement obligations

 

10,556 

 

12,125 

 

Interest expense

 

45,690 

 

32,061 

 

Interest capitalized

 

(1,093)

 

(1,841)

 

Other expense (benefit)

 

2,157 

 

(416)

 

Total costs and expenses

 

509,737 

 

695,329 

 

Income (loss) from continuing operations before income taxes

 

154,882 

 

(265,034)

 

Income tax expense (benefit)

 

97,387 

 

(65,549)

 

Income (loss) from continuing operations

 

57,495 

 

(199,485)

 

Income from discontinued operations, net of income taxes

 

969 

 

683 

 

NET INCOME (LOSS)

$

58,464 

 

(198,802)

 

INCOME (LOSS) PER COMMON SHARE – BASIC

 

 

 

 

 

Continuing operations

$

0.33 

 

(1.16)

 

Discontinued operations

 

0.01 

 

– 

 

Net income (loss)

$

0.34 

 

(1.16)

 

INCOME (LOSS) PER COMMON SHARE – DILUTED

 

 

 

 

 

Continuing operations

$

0.33 

 

(1.16)

 

Discontinued operations

 

0.01 

 

– 

 

Net income (loss)

$

0.34 

 

(1.16)

 

Average Common shares outstanding

 

 

 

 

 

Basic

 

172,422,449 

 

172,114,012 

 

Diluted

 

173,088,691 

 

172,114,012 

 





See Notes to Consolidated Financial Statements, page 7. 

3


 

 

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(Thousands of dollars)









 

 

 

 

 



 

 

 

 

 



Three Months Ended

 



March 31,

 



2017

 

2016

 



 

 

 

 

 

Net income (loss)

$

58,464 

 

(198,802)

 

Other comprehensive income, net of tax

 

 

 

 

 

Net gain from foreign currency translation

 

22,664 

 

148,669 

 

Retirement and postretirement benefit plans

 

2,387 

 

2,516 

 

Deferred loss on interest rate hedges reclassified to interest expense

 

482 

 

482 

 

Other comprehensive income

 

25,533 

 

151,667 

 

COMPREHENSIVE INCOME (LOSS)

$

83,997 

 

(47,135)

 



See Notes to Consolidated Financial Statements, page 7.

 

4


 

 

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Thousands of dollars)





 

 

 

 

 



 

 

 

 

 



Three Months Ended

 



March 31,

 



2017

 

2016

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income (loss)

$

58,464 

 

(198,802)

 

Adjustments to reconcile net income (loss) to net cash provided by
  continuing operations activities:

 

 

 

 

 

Income from discontinued operations

 

(969)

 

(683)

 

Depreciation, depletion and amortization

 

236,154 

 

286,149 

 

Impairment of assets

 

– 

 

95,088 

 

Amortization of deferred major repair costs

 

– 

 

2,002 

 

Dry hole costs

 

2,904 

 

(69)

 

Amortization of undeveloped leases

 

9,957 

 

10,469 

 

Accretion of asset retirement obligations

 

10,556 

 

12,125 

 

Deferred income tax expense (benefit)

 

58,533 

 

(85,683)

 

Pretax gains from disposition of assets

 

(131,982)

 

(22)

 

Net (increase) decrease in noncash operating working capital 1

 

43,418 

 

(104,347)

 

Other operating activities, net

 

18,478 

 

27,085 

 

Net cash provided by continuing operations activities

 

305,513 

 

43,312 

 

INVESTING ACTIVITIES

 

 

 

 

 

Property additions and dry hole costs

 

(211,631)

 

(210,029)

 

Proceeds from sales of property, plant and equipment

 

64,097 

 

33 

 

Purchase of investment securities2

 

(212,661)

 

(49,277)

 

Proceeds from maturity of investment securities2

 

113,210 

 

86,983 

 

Other investing activities, net

 

– 

 

(21,658)

 

Net cash required by investing activities

 

(246,985)

 

(193,948)

 

FINANCING ACTIVITIES

 

 

 

 

 

Borrowings of debt

 

– 

 

371,000 

 

Capital lease obligation payments

 

(9,660)

 

(2,690)

 

Withholding tax on stock-based incentive awards

 

(5,808)

 

(1,052)

 

Cash dividends paid

 

(43,136)

 

(60,267)

 

Net cash provided (required) by financing activities

 

(58,604)

 

306,991 

 

CASH FLOWS FROM DISCONTINUED OPERATIONS

 

 

 

 

 

Operating activities

 

– 

 

2,312 

 

Investing activities

 

– 

 

– 

 

Changes in cash included in current assets held for sale

 

– 

 

(2,312)

 

Net change in cash and cash equivalents of discontinued operations

 

– 

 

– 

 

Effect of exchange rate changes on cash and cash equivalents

 

3,132 

 

(16,475)

 

Net increase in cash and cash equivalents

 

3,056 

 

139,880 

 

Cash and cash equivalents at January 1

 

872,797 

 

283,183 

 

Cash and cash equivalents at March 31

$

875,853 

 

423,063 

 







12016 balance includes payments for deepwater rig contract exit of $253.2 million.

2Investments are Canadian government securities with maturities greater than 90 days at the date of acquisition.



See Notes to Consolidated Financial Statements, page 7.

5


 

 



Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

(Thousands of dollars)





 

 

 

 

 



 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31,



2017

 

2016

Cumulative Preferred Stock – par $100, authorized 400,000 shares,
   none issued

$

– 

 

 

– 

Common Stock – par $1.00, authorized 450,000,000 shares,
   issued 195,055,724 shares at March 31, 2017 and 2016.

 

 

 

 

 

Balance at beginning of period

 

195,056 

 

 

195,056 

Exercise of stock options

 

– 

 

 

– 

Balance at end of period

 

195,056 

 

 

195,056 

Capital in Excess of Par Value

 

 

 

 

 

Balance at beginning of period

 

916,799 

 

 

910,074 

Restricted stock transactions and other

 

(25,251)

 

 

(9,972)

Stock-based compensation

 

6,716 

 

 

6,759 

Other

 

(37)

 

 

(128)

Balance at end of period

 

898,227 

 

 

906,733 

Retained Earnings

 

 

 

 

 

Balance at beginning of period

 

5,729,596 

 

 

6,212,201 

Net income (loss) for the period

 

58,464 

 

 

(198,802)

Cash dividends

 

(43,136)

 

 

(60,267)

Balance at end of period

 

5,744,924 

 

 

5,953,132 

Accumulated Other Comprehensive Income (Loss)

 

 

 

 

 

Balance at beginning of period

 

(628,212)

 

 

(704,542)

Foreign currency translation gain, net of income taxes

 

22,664 

 

 

148,669 

Retirement and postretirement benefit plans, net of income taxes

 

2,387 

 

 

2,516 

Deferred loss on interest rate hedges reclassified to interest expense,
   net of income taxes

 

482 

 

 

482 

Balance at end of period

 

(602,679)

 

 

(552,875)

Treasury Stock

 

 

 

 

 

Balance at beginning of period

 

(1,296,560)

 

 

(1,306,061)

Sale of stock under employee stock purchase plans

 

71 

 

 

197 

Awarded restricted stock, net of forfeitures

 

19,444 

 

 

8,906 

Balance at end of period – 22,509,577 shares of Common Stock in
2017 and 22,860,555 shares of Common Stock in 2016, at cost

 

(1,277,045)

 

 

(1,296,958)

Total Stockholders’ Equity

$

4,958,483 

 

 

5,205,088 



See Notes to Consolidated Financial Statements, page 7.

6


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

These notes are an integral part of the financial statements of Murphy Oil Corporation and Consolidated Subsidiaries (Murphy/the 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 gas company that conducts its business through various operating subsidiaries.  The Company produces oil and natural gas in the United States, Canada and Malaysia and conducts oil and natural gas exploration activities worldwide.



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 March 31, 2017 and December 31, 2016, and the results of operations,  cash flows and changes in stockholders’ equity for the interim periods ended March 31, 2017 and 2016, 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.



Financial statements and notes to consolidated financial statements included in this Form 10-Q report should be read in conjunction with the Company's 2016 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 period ended March 31, 2017 are not necessarily indicative of future results.



Note B – Property, Plant and Equipment





Exploratory Wells



Under Financial Accounting Standards Board (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.



At March 31, 2017, the Company had total capitalized exploratory well costs pending the determination of proved reserves of $166.4 million.  The following table reflects the net changes in capitalized exploratory well costs during the

three-month periods ended March 31, 2017 and 2016.







 

 

 

 

 



 

 

 

 

 

(Thousands of dollars)

2017

 

 

2016

Beginning balance at January 1

$

148,500 

 

 

130,514 

Additions pending the determination of proved reserves

 

39,653 

 

 

– 

Reclassifications to proved properties based on the determination of proved reserves

 

(13,370)

 

 

– 

Capitalized exploratory well costs charged to expense

 

(8,360)

 

 

– 

Other adjustments

 

– 

 

 

(886)

Balance at March 31

$

166,423 

 

 

129,628 

 

7

 


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

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.





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31,



2017

 

2016

(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

$

48,202 

 

 

 

$

65,136 

 

 

One to two years

 

53,729 

 

 

 

 

– 

 

– 

 

– 

Two to three years

 

– 

 

– 

 

– 

 

 

31,627 

 

 

– 

Three years or more

 

64,492 

 

 

– 

 

 

32,865 

 

 

– 



$

166,423 

 

11 

 

 

$

129,628 

 

13 

 



Of the $118.2 million of exploratory well costs capitalized more than one year at March 31, 2017, $64.5 million is in Brunei, and $53.7 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.  The capitalized well costs charged to expense in the first quarter 2017 included one well in Block H, offshore Malaysia in which development of the well could not be justified due to noncommercial hydrocarbon quantities found and change in development plan due to low commodity prices.



Divestments



In January 2017, a Canadian subsidiary of the Company completed its disposition of the Seal field in Western Canada.  Total cash consideration to Murphy upon closing of the transaction was approximately $49.0 million.  Additionally, the buyer assumed the asset retirement obligation of approximately $85.9 million.  A  $132.4 million pretax gain was reported in the first quarter of 2017 related to the sale. Also, in January 2017, a U.S. subsidiary of the Company completed its disposition of several non-core properties in the North Tilden area of Eagle Ford Shale.  Total cash consideration to Murphy upon closing of the transaction was approximately $14.8 million.  There was no gain or loss recorded related to this sale.



Impairments



During the first quarter of 2016, declines in future oil and gas prices led to impairments in certain of the Company’s producing properties and the Company recorded pretax noncash impairment charges of $95.1 million to reduce the carrying values to their estimated fair values for the Terra Nova field offshore Canada and the Western Canada onshore heavy oil producing properties at Seal.  The fair values were determined by internal discounted cash flow models using estimates of future production, prices from futures exchanges, costs, and a discount rate believed to be consistent with those used by principal market participants in the applicable region. 



Other



The Company has an interest in the Kakap field in Block K Malaysia.  The Kakap field is operated by another company and was jointly developed with the Gumusut field owned by others.  In the fourth quarter 2016, the Company recorded $39.0 million in redetermination expense related to an expected reduction in the Company’s working interest covering the period from inception through year-end 2016 at Kakap.  In February 2017, PETRONAS officially approved the redetermination that reduces the Company’s working interest effective April 1, 2017.  The Company currently expects to settle the redetermination in cash in the second quarter of 2017.  It is possible that the final adjustment amount could be different than the current estimate.



8


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note C – Discontinued Operations



The Company has accounted for its former U.K. refining and marketing operations as discontinued operations for all periods presented.    The results of operations associated with discontinued operations for the three-month periods ended March 31, 2017 and 2016 were as follows:







 

 

 

 

 



 

 

 

 

 



 

 

 



Three Months

 



Ended March 31,

 

(Thousands of dollars)

 

2017

 

2016

 

Revenues

$

1,022 

 

683 

 

Income before income taxes

 

969 

 

683 

 

Income tax benefit

 

– 

 

– 

 

Income from discontinued operations

$

969 

 

683 

 



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 March  31, 2017 and December 31, 2016.  







 

 

 

 



 

 

 

 



March 31,

 

December 31,

(Thousands of dollars)

2017

 

2016

Current assets

 

 

 

 

Cash

$

16,340 

 

4,126 

Accounts receivable

 

9,145 

 

22,944 

Total current assets held for sale

$

25,485 

 

27,070 

Current liabilities

 

 

 

 

Accounts payable

$

367 

 

270 

Refinery decommissioning cost

 

2,449 

 

2,506 

Total current liabilities associated with assets held for sale

$

2,816 

 

2,776 

 





Note D – Financing Arrangements and Debt



At March 31, 2017, the Company has a $1.1 billion senior unsecured guaranteed credit facility (2016 facility) with a major banking consortium, which expires in August 2019.  At March 31, 2017, the Company had no outstanding borrowings under the 2016 facility, however, there were $171.9 million of outstanding letters of credit.    Advances under the 2016 facility will accrue interest based, at the Company’s option, on either the London Interbank Offered rate plus an applicable margin (Eurodollar rate) or the alternate base rate (as defined in the 2016 facility agreement) plus an applicable margin.  The Eurodollar rate and the applicable base rate, had there been any amounts borrowed under the 2016 facility at March 31, 2017, would have been 5.0% and 7.0%, respectively.  The Company also has a $630.0 million unsecured revolving credit facility (2011 facility) with a major banking consortium, which expires in June 2017.  At March 31, 2017,  the Company had no outstanding borrowings or letters of credit under the 2011 facility.  Advances under the 2011 facility will accrue interest based, at the Company’s option, on either the Eurodollar rate or the alternate base rate (as defined in the 2011 facility agreement) plus an applicable margin.  The Eurodollar rate and the applicable base rate, had there been any amounts borrowed under the 2011 facility at March 31, 2017, would have been 2.45% and 4.45%, respectively.    At March 31, 2017, the Company was in compliance with all covenants related to both the 2016 facility and the 2011 facility.



The Company also has a shelf registration statement on file with the U.S. Securities and Exchange Commission that permits the offer and sale of debt and/or equity securities through October 2018.



The Company and its partners are parties to a 25-year lease of production equipment at the Kakap field offshore Malaysia.  The lease has been accounted for as a capital lease, and payments under the agreement are to be made over a 15-year period through June 2028.  Current maturities and long-term debt on the Consolidated Balance Sheet included $13.0 million and $193.5 million, respectively, associated with this lease at March 31, 2017.

9


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note EOther Financial Information



Additional disclosures regarding cash flow activities are provided below.





 

 

 

 

 



Three Months Ended March 31

 

(Thousands of dollars)

2017

 

2016

 

Net (increase) decrease in operating working capital other than
   cash and cash equivalents:

 

 

 

 

 

Decrease in accounts receivable

$

36,246 

 

2,354 

 

Decrease in inventories

 

4,497 

 

1,667 

 

Decrease in prepaid expenses

 

17,788 

 

98,888 

 

Decrease in other

 

– 

 

6,134 

 

Decrease in accounts payable and accrued liabilities

 

(44,240)

 

(225,309)

*

Increase in current income tax liabilities

 

29,127 

 

11,919 

 

Net (increase) decrease in noncash operating working capital

$

43,418 

 

(104,347)

 

Supplementary disclosures:

 

 

 

 

 

Cash income taxes paid, net of refunds

$

3,422 

 

(7,865)

 

Interest paid, net of amounts capitalized

 

17,720 

 

1,849 

 



 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

Asset retirement costs capitalized

$

565 

 

3,723 

 

Decrease in capital expenditure accrual

 

12,906 

 

81,858 

 





*    2016 balances included payments for deepwater rig contract exit of $253.2 million.



In April 2016, a Canadian subsidiary of the Company completed a divestiture of natural gas processing and sales pipeline assets that support Murphy’s Montney natural gas fields in the Tupper area of northeastern British Columbia.  A gain on sale of approximately $187.0 million was deferred and is being recognized over the next 20 years in the Canadian operating segment.  The Company amortized approximately $1.7 million of the deferred gain during first quarter ended March 31, 2017.  The remaining deferred gain of $176.7 million was included as a component of deferred credits and other liabilities in the Company’s Consolidated Balance Sheets.

 

Note F – Employee and Retiree Benefit Plans



The Company has defined benefit pension plans that are principally noncontributory and cover most full-time employees.  All pension plans are funded except for the U.S. and Canadian nonqualified supplemental plans and the U.S. Directors’ 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 active and retired U.S. employees.  Additionally, most U.S. retired employees are covered by a life insurance benefit plan.  The health care benefits are contributory; the life insurance benefits are noncontributory.

10


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note F – Employee and Retiree Benefit Plans (Contd.)



The table that follows provides the components of net periodic benefit expense for the three-month periods ended March 31, 2017 and 2016.







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended March 31,



Pension Benefits

 

Other Postretirement Benefits

(Thousands of dollars)

 

2017

 

 

2016

 

2017

 

2016

Service cost

$

2,032 

 

 

3,153 

 

 

425 

 

 

673 

Interest cost

 

6,719 

 

 

5,608 

 

 

966 

 

 

1,108 

Expected return on plan assets

 

(7,185)

 

 

(5,385)

 

 

– 

 

 

– 

Amortization of prior service cost (credit)

 

254 

 

 

319 

 

 

(18)

 

 

(21)

Recognized actuarial loss

 

3,554 

 

 

3,529 

 

 

– 

 

 

39 

Curtailments

 

– 

 

 

822 

 

 

– 

 

 

(19)

Net periodic benefit expense

$

5,374 

 

 

8,046 

 

 

1,373 

 

 

1,780 



 

 

 

 

 

 

 

 

 

 

 



Curtailment expense for the three months ended March 31, 2016, shown in the table above relate to restructuring activities in the U.S. undertaken by the Company in the first quarter 2016.  During the three-month period ended March 31, 2017, the Company made contributions of $9.7 million to its defined benefit pension and postretirement benefit plans.  Remaining required funding in 2017 for the Company’s defined benefit pension and postretirement plans is anticipated to be $21.1 million.

 

Note G – Incentive Plans



The costs resulting from all share-based payment transactions 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 2012 Annual Incentive Plan (2012 Annual Plan) 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 2012 Annual Plan are determined based on the Company’s actual financial and operating results as measured against the performance goals established by the Committee.  The 2012 Long-Term Incentive Plan (2012 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 2012 Long-Term Plan expires in 2022.  A total of 8,700,000 shares are issuable during the life of the 2012 Long-Term Plan, with annual grants limited to 1% of Common shares outstanding; allowed shares not granted in an earlier year may be granted in future years.  The Company has an Employee Stock Purchase Plan (ESPP) that permits the issuance of up to 980,000 shares.    The ESPP will terminate on June 30, 2017 and will not be renewed by the Company.  The Company also has a 2013 Stock Plan for Non-Employee Directors (Director Plan) that permits the issuance of restricted stock, restricted stock units and stock options or a combination thereof to the Company’s Non-Employee Directors. 



In February 2017, the Committee granted stock options for 599,000 shares at an exercise price of $28.505 per share.  The Black-Scholes valuation for these awards was $7.96 per option.  The Committee also granted 556,000 performance-based RSU and 282,000 time-based RSU in February 2017.  The fair value of the performance-based RSU, using a Monte Carlo valuation model, ranged from $24.10 to $28.28 per unit.  The fair value of time-based RSU was estimated based on the fair market value of the Company’s stock on the date of grant, which was $28.505 per share.  Additionally, the Committee granted 329,400 SAR and 154,150 units of cash-settled RSU (RSU-C) to certain employees.  The SAR and RSU-C are to be settled in cash, net of applicable income taxes, and are accounted for as liability-type awards.  The initial fair value of these SAR was equivalent to the stock options granted, while the initial value of RSU-C was equivalent to equity-settled restricted stock units granted.  Also in February, the Committee granted 83,220 shares of time-based RSU to the Company’s Directors under the Non-Employee Director Plan.  These shares vest on the third anniversary of the date of grant. The estimated fair value of these awards was $28.84 per unit on date of grant.

11


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note G – Incentive Plans( Contd.)



For the first quarter 2017 and 2016,  the Company had no stock options exercised.



Amounts recognized in the financial statements with respect to share-based plans are shown in the following table:







 

 

 

 



 

 

 

 



Three Months Ended



March 31,

(Thousands of dollars)

 

2017

 

2016

Compensation charged against income before tax benefit

$

8,148 

 

9,988 

Related income tax benefit recognized in income

 

2,529 

 

3,251 











Note H – Earnings per Share



Net income (loss) was used as the numerator in computing both basic and diluted income per Common share for the

three-months ended March 31, 2017 and 2016.  The following table reconciles the weighted-average shares outstanding used for these computations.





 

 

 



 

 

 



Three Months Ended



March 31,

(Weighted-average shares)

2017

 

2016

Basic method

172,422,449 

 

172,114,012 

Dilutive stock options and restricted stock units*

666,242 

 

– 

   Diluted method

173,088,691 

 

172,114,012 





     *Due to a net loss, recognized by the Company for the 2016 period, no unvested stock awards were included in the computation of diluted earnings per share because the effect would have been anti-dilutive.





 

 

 

 

 



 

 

 

 

 



Three Months Ended



 

March 31,



 

2017

 

2016

Antidilutive stock options excluded from diluted shares

 

5,029,752 

 

 

5,714,823 

Weighted average price of these options

$

52.26 

 

$

51.07 







 



12


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note I – Income Taxes



The Company’s effective income tax rate is calculated as the amount of income tax expense divided by income before income tax expense.  For the three-month periods in 2017 and 2016, the Company’s effective income tax rates were as follows:





 

 

 

 



 

 

 

 



2017

 

2016

 

Three months ended March 31

62.9%

 

24.7%

 



The effective tax rates for most periods where earnings are generated, generally exceed the U.S. statutory tax rate of 35% due to several factors, including:  the effects of income generated in foreign tax jurisdictions, certain of which have income tax rates that are 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 available or are not presently being recorded due to a lack of reasonable certainty of adequate future revenue against which to utilize these expenses as deductions.  Conversely, the effective tax rates for most periods where losses are incurred generally are lower than U.S. statutory tax rate of 35% due to similar reasons.  



The effective tax rate for the three-month period ended March 31, 2017 was above the U.S. statutory tax rate primarily due to tax expense recorded in the current period related to undistributed foreign earnings partially offset by income tax benefit on investment in foreign areas.    During the first quarter 2017, the Company determined that prospective earnings from its Malaysian and Canadian subsidiaries will not be considered reinvested into local operations.  Due to this change in assertion, the Company recorded a deferred tax charge of $54.6 million in the first quarter 2017 associated with the estimated tax consequence of the future repatriation of these subsidiaries’ first quarter earnings.  This decision allows the Company to have additional funding options and provides greater financial flexibility as it considers future domestic investment opportunities.  The Company expects to incur further tax charges in future 2017 quarters for additional 2017 foreign earnings as they arise.  The effective tax rate for the three-month period ended March 31, 2016 was below the U.S. statutory tax rate primarily due to effects of losses incurred in its Canadian operations and exploration and other expenses in certain foreign jurisdictions that have little or no realized tax benefits.



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 or losses could occur in future years from resolution of outstanding unsettled matters.  As of March 31, 2017, the earliest years remaining open for audit and/or settlement in our major taxing jurisdictions are as follows: United States – 2011; Canada – 2012; Malaysia – 2010; and United Kingdom – 2014.



Note J – Financial Instruments and Risk Management



Murphy often uses derivative instruments 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 primarily 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.  Certain interest rate derivative contracts were accounted for as hedges and the gain or loss associated with recording the fair value of these contracts was deferred in Accumulated Other Comprehensive Loss until the anticipated transactions occur.  This deferred cost is being reclassified to Interest Expense in the Consolidated Statements of Operations over the period until the associated notes mature in 2022.



Commodity Purchase Price Risks



The Company is subject to commodity price risk related to crude oil it produces and sells.  During the first quarter 2017 and 2016, the Company had West Texas Intermediate (WTI) crude oil swap financial contracts to economically hedge a portion of its United States production.  Under these contracts, which matured monthly, the Company paid the average monthly price in effect and received the fixed contract prices.  At March 31, 2017, the Company had 22,000 barrels per day in WTI crude oil swap financial contracts maturing ratably during 2017.  At March 31, 2017, the fair value of WTI contracts of $7.8 million was included in Accounts Payable.  The impact of marking to market these 2017 commodity derivative contracts increased the loss before income taxes by $7.8 million for the three-month period ended March 31, 2017At March 31, 2016, the Company





13


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note J – Financial Instruments and Risk Management (Contd.)



had 20,000 barrels per day in WTI crude oil swap financial contracts maturing ratably during 2016.  At March 31, 2016, the fair value of WTI contracts of $65.5 million was included in Accounts Receivable.  The impact of marking to market these

2016 commodity derivative contracts decreased the loss before income taxes by $56.8 million for the three-month period ended March 31, 2016.



Foreign Currency Exchange Risks



The Company is subject to foreign currency exchange risk associated with operations in countries outside the U.S.  At March 31, 2017 and 2016 short-term derivative instrument were outstanding in Canada for approximately $18.5 million and $11.3 million, respectively, to manage the currency risks of certain U.S. dollar accounts receivable associated with sale of Canadian crude oil in both years.  The fair values of open foreign currency derivative contracts were assets of $0.2 million at March 31, 2017 and $0.3 million at March 31, 2016.



At March 31, 2017 and December 31, 2016, the fair value of derivative instruments not designated as hedging instruments are presented in the following table.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

March 31, 2017

 

December 31, 2016

(Thousands of dollars)

 

Asset (Liability) Derivatives

 

Asset (Liability) Derivatives

Type of Derivative Contract

 

Balance Sheet Location

 

Fair Value

 

Balance Sheet Location

 

Fair Value

Commodity

 

Accounts payable

 

$

(7,753)

 

Accounts payable

 

$

(48,864)

Foreign exchange

 

Accounts receivable

 

 

152 

 

Accounts payable

 

 

(73)



For the three-month period ended March 31, 2017 and 2016, 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)



 

 

 

Three Months Ended

(Thousands of dollars)

 

 

 

March 31,

Type of Derivative Contract

 

Statement of Operations Location

 

 

2017

 

2016

Commodity

 

Sales and other operating revenues

 

$

37,077 

 

13,189 

Foreign exchange

 

Interest and other income

 

 

225 

 

305 



 

 

 

$

37,302 

 

13,494 



Interest Rate Risks



Under hedge accounting rules, the Company deferred the net cost associated with derivative contracts purchased to manage interest rate risk associated with 10-year notes sold in May 2012 to match the payment of interest on these notes through 2022.  During each of the three-month periods ended March 31, 2017 and 2016,  $0.7 million of the deferred loss on the interest rate swaps was charged to Interest expense in the Consolidated Statement of Operations.  The remaining loss deferred on these matured contracts at March 31, 2017 was $9.9 million, which is recorded, net of income taxes of $5.3 million, in Accumulated other comprehensive loss in the Consolidated Balance Sheet.  The Company expects to charge approximately $2.1 million of this deferred loss to Interest expense in the Consolidated Statement of Operations during the remaining nine months of 2017.





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.

14


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note J – Financial Instruments and Risk Management (Contd.)



The carrying value of assets and liabilities recorded at fair value on a recurring basis at March 31, 2017 and December 31, 2016 are presented in the following table.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



March 31, 2017

 

December 31, 2016

(Thousands of dollars)

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

 

Level 2

 

Level 3

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Foreign currency exchange
        derivative contracts

$

– 

 

152 

 

– 

 

152 

 

– 

 

 

– 

 

– 

 

– 



$

– 

 

152 

 

– 

 

152 

 

– 

 

 

– 

 

– 

 

– 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Nonqualified employee
        savings plans

$

14,074 

 

– 

 

– 

 

14,074 

 

13,904 

 

 

– 

 

– 

 

13,904 

     Commodity derivative contracts

 

– 

 

7,753 

 

– 

 

7,753 

 

– 

 

 

48,864 

 

– 

 

48,864 

      Foreign currency exchange
        derivative contracts

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

73 

 

– 

 

73 



$

14,074 

 

7,753 

 

– 

 

21,827 

 

13,904 

 

 

48,937 

 

– 

 

62,841 





The fair value of WTI crude oil derivative contracts in 2017 and 2016 was based on active market quotes for WTI crude oil.  The fair value of foreign exchange derivative contracts in each year was based on market quotes for similar contracts at the balance sheet dates.  The income effect of changes in the fair value of crude oil derivative contracts is recorded in Sales and other operating revenues in the Consolidated Statements of Operations,  while the effects of changes in fair value of foreign exchange derivative contracts is recorded in Interest and other income.  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 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.



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 March 31, 2017 and December 31, 2016.



Fair Values – Nonrecurring



As a result of significantly lower commodity prices during the first quarter of 2016, the Company recognized approximately $95.1 million in pretax noncash impairment charges related to producing properties.  The fair value information associated with these impaired properties is presented in the following table.







 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2016



 

 

 

 

 

 

 

 

 

 

Total



 

 

 

 

 

 

 

 

Net Book

 

Pretax



 

 

 

 

 

 

 

 

Value

 

(Noncash)



 

Fair Value

 

Prior to

 

Impairment



 

 

Level 1

 

Level 2

 

Level 3

 

Impairment

 

Expense

(Thousands of dollars)

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

  Impaired proved properties

 

 

 

 

 

 

 

 

 

 

 

      Canada

 

$

– 

 

– 

 

71,967 

 

167,055 

 

95,088 



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

15


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note K – Accumulated Other Comprehensive Loss



The components of Accumulated Other Comprehensive Loss on the Consolidated Balance Sheets at December 31, 2016 and March 31, 2017 and the changes during the three-month period ended March 31, 2017 are presented net of taxes in the following table.



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

 

 

Deferred

 

 



 

 

 

 

 

Loss on

 

 



 

Foreign

 

Retirement and

 

Interest

 

 



 

Currency

 

Postretirement

 

Rate

 

 



 

Translation

 

Benefit Plan

 

Derivative

 

 

(Thousands of dollars)

 

Gains (Losses)1

 

Adjustments1

 

Hedges1

 

Total1

Balance at December 31, 2016

$

(446,555)

 

(171,305)

 

(10,352)

 

(628,212)

2017 components of other comprehensive income (loss):

 

 

 

 

 

 

 

 

Before reclassifications to income

 

22,664 

 

– 

 

– 

 

22,664 

Reclassifications to income

 

– 

 

2,387 

2

482 

3

2,869 

Net other comprehensive income

 

22,664 

 

2,387 

 

482 

 

25,533 

Balance at March 31, 2017

$

(423,891)

 

(168,918)

 

(9,870)

 

(602,679)



1All amounts are presented net of income taxes.

2Reclassifications before taxes of $3,678 for the three-month period ended March 31, 2017 are included in the computation of net periodic benefit expense.  See Note  F for additional information.  Related income taxes of $1,291 for the three-month period ended March 31, 2017 are included in Income tax expense.

3Reclassifications before taxes of $741 for the three-month period ended March 31, 2017 are included in Interest expense.  Related income taxes of $259 for the three-month period ended March 31, 2017 are included in Income tax expense.

 

Note L – 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 increases, 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 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.  Because governmental actions are often motivated by political considerations, may be taken without full consideration of their consequences, and may be taken in response to actions of other governments, it is not practical to attempt to predict the likelihood of such actions, the form the actions may take or the effect such actions may have on the Company.



Murphy and other companies in the oil and gas industry are subject to numerous federal, state, local and foreign laws and regulations dealing with the environment. Violation of federal or state environmental 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 regulations and claims by neighboring landowners and other third parties for any personal injury and property damage that might result.



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. Although the Company has used operating and disposal practices that were standard in the industry at the time, 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 remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators), to 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.  The Company has not retained any environmental exposure associated with Murphy’s former U.S. marketing operations.  The Company believes costs related to these sites will not have a material adverse affect on Murphy’s net income, financial condition or liquidity in a future period.

16


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 



Note L – Environmental and Other Contingencies  (Contd.)



During 2015, the Company’s subsidiary in Canada identified a leak or leaks at an infield condensate transfer pipeline at the Seal field in a remote area of Alberta.  The pipeline was immediately shut down and the Company’s emergency response plan was activated.  In cooperation with local governmental regulators, and with the assistance of qualified consultants, an investigation and remediation plan is progressing as planned and the Company’s insurers were notified.  The Company has not yet established a complete estimate of the costs to remediate the site.  Based on the assessments done, the Company recorded $43.9 million in Other expense during 2015 associated with the estimated costs of remediating the site.  As of March 31, 2017, the Company has a remaining accrued liability of $7.1 million associated with this event.    During the first quarter of 2017, the Company’s Canadian subsidiary paid approximately $130.0 thousand as the complete and final resolution of administrative penalties assessed by the Alberta Energy Regulator regarding this matter.  Further refinements in the estimated total cost to remediate the site are anticipated in future periods including possible insurance recoveries.  It is possible that the ultimate net remediation costs to the Company associated with the condensate leak or leaks will exceed the amount of liability recorded.  The Company retained the responsibility for this remediation upon sale of the Seal field in the first quarter of 2017.



There is the possibility that environmental expenditures could be required at currently unidentified sites, and new or revised regulations could require additional expenditures at known sites. However, based on information currently available to the Company, the amount of future 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.



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 M – Commitments



The Company has entered into forward sales contracts to mitigate the price risk for a portion of its 2017 to 2020 natural gas sales volumes in Western Canada.  During the period from April to December 2017 the natural gas sales contracts call for deliveries of approximately 124 million cubic feet per day at Cdn $2.97 per MCF.  Additional contracts call for deliveries from January 2018 through December 2020 of approximately 59 million cubic feet per day at Cdn $2.81 per MCF.  These natural gas contracts have been accounted for as normal sales for accounting purposes.







Note N – Business Segments





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

Three Months Ended

 

Three Months Ended



Total Assets

 

March 31, 2017

 

March 31, 2016



at March 31,

 

External

 

Income

 

External

 

Income

(Millions of dollars)

2017

 

Revenues

 

(Loss)

 

Revenues

 

(Loss)

Exploration and production*

 

 

 

 

 

 

 

 

 

 

United States

$

5,332.6 

 

261.3 

 

23.0 

 

174.7 

 

(65.6)

Canada

 

1,601.1 

 

218.0 

 

100.6 

 

106.1 

 

(87.3)

Malaysia

 

1,972.2 

 

197.3 

 

58.6 

 

148.2 

 

22.3 

Other

 

127.4 

 

– 

 

(7.1)

 

0.1 

 

(26.2)

Total exploration and production

 

9,033.3 

 

676.6 

 

175.1 

 

429.1 

 

(156.8)

Corporate

 

1,213.2 

 

(12.0)

 

(117.6)

 

1.2 

 

(42.7)

Assets/revenue/income (loss) from continuing operations

 

10,246.5 

 

664.6 

 

57.5 

 

430.3 

 

(199.5)

Discontinued operations, net of tax

 

25.5 

 

– 

 

1.0 

 

– 

 

0.7 

Total

$

10,272.0 

 

664.6 

 

58.5 

 

430.3 

 

(198.8)



*Additional details about results of oil and gas operations are presented in the table on page 25.



17


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note O – New Accounting Principles



Business Combinations



In January 2017, the FASB issued an ASU update to clarify the definition of a business with the objective of adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  The standard is intended to narrow the definition of a business by specifying the minimum inputs and processes and by narrowing the definition of outputs.  The update is effective for annual and interim periods beginning in 2018 and is required to be adopted using a prospective approach, with early adoption permitted for transactions not previously reported in issued financial statements.  The Company adopted this guidance in 2017 and it did not have a material impact on its consolidated financial statements and footnote disclosures.



Compensation-Stock Compensation



In March 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) intended to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification within the statement of cash flows.  The amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  The Company