10-Q 1 mur-20170930x10q.htm 10-Q Q3 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 September 30, 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 an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

                       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.

[  ]



Number of shares of Common Stock, $1.00 par value, outstanding at October 31, 2017 was 172,572,873.





 


 



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)





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

997,207 

 

 

872,797 

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

 

 

– 

 

 

111,542 

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

 

 

267,209 

 

 

357,099 

Inventories, at lower of cost or market

 

 

120,066 

 

 

127,071 

Prepaid expenses

 

 

39,427 

 

 

63,604 

Assets held for sale

 

 

23,248 

 

 

27,070 

Total current assets

 

 

1,447,157 

 

 

1,559,183 

Property, plant and equipment, at cost less accumulated depreciation,
   depletion and amortization of $12,027,902 in 2017 and $12,607,815 in 2016

 

 

8,283,738 

 

 

8,316,188 

Deferred income taxes

 

 

406,703 

 

 

365,935 

Deferred charges and other assets

 

 

55,161 

 

 

54,554 

Total assets

 

$

10,192,759 

 

 

10,295,860 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Current maturities of long-term debt

 

$

9,781 

 

 

569,817 

Accounts payable

 

 

584,025 

 

 

784,975 

Income taxes payable

 

 

57,687 

 

 

13,920 

Other taxes payable

 

 

30,160 

 

 

28,167 

Other accrued liabilities

 

 

146,607 

 

 

102,777 

Liabilities associated with assets held for sale

 

 

3,270 

 

 

2,776 

Total current liabilities

 

 

831,530 

 

 

1,502,432 

Long-term debt, including capital lease obligation

 

 

2,908,285 

 

 

2,422,750 

Deferred income taxes

 

 

108,756 

 

 

69,081 

Asset retirement obligations

 

 

747,602 

 

 

681,528 

Deferred credits and other liabilities

 

 

616,452 

 

 

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

 

 

910,936 

 

 

916,799 

    Retained earnings

 

 

5,575,175 

 

 

5,729,596 

    Accumulated other comprehensive loss

 

 

(425,504)

 

 

(628,212)

    Treasury stock

 

 

(1,275,529)

 

 

(1,296,560)

Total stockholders’ equity

 

 

4,980,134 

 

 

4,916,679 

Total liabilities and stockholders’ equity

 

$

10,192,759 

 

 

10,295,860 



See Notes to Consolidated Financial Statements, page 7.



The Exhibit Index is on page 38.

2


 

 

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Thousands of dollars, except per share amounts)







 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



September 30,

 

September 30,



2017

 

2016*

 

2017

 

2016*



 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

     Sales and other operating revenues

$

498,202 

 

486,276 

 

1,552,473 

 

1,326,587 

     Gain (loss) on sale of assets

 

117 

 

(730)

 

130,765 

 

3,101 

Total revenues

 

498,319 

 

485,546 

 

1,683,238 

 

1,329,688 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

     Lease operating expenses

 

112,751 

 

119,663 

 

346,072 

 

435,296 

     Severance and ad valorem taxes

 

10,816 

 

9,592 

 

32,771 

 

35,668 

     Exploration expenses

 

28,492 

 

19,866 

 

77,356 

 

83,910 

     Selling and general expenses

 

56,672 

 

55,523 

 

168,259 

 

196,143 

     Depreciation, depletion and amortization

 

243,636 

 

255,900 

 

714,782 

 

797,288 

     Accretion of asset retirement obligations

 

10,654 

 

11,043 

 

31,638 

 

35,514 

     Impairment of assets

 

– 

 

– 

 

– 

 

95,088 

     Other expense (benefit)

 

2,454 

 

6,486 

 

10,988 

 

(1,446)

Total costs and expenses

 

465,475 

 

478,073 

 

1,381,866 

 

1,677,461 



 

 

 

 

 

 

 

 

Operating income (loss) from continuing operations

 

32,844 

 

7,473 

 

301,372 

 

(347,773)



 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

     Interest and other income (loss)

 

(47,721)

 

14,987 

 

(93,524)

 

38,602 

     Interest expense, net

 

(48,681)

 

(39,219)

 

(138,423)

 

(103,889)

Total other loss

 

(96,402)

 

(24,232)

 

(231,947)

 

(65,287)



 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

(63,558)

 

(16,759)

 

69,425 

 

(413,060)

Income tax expense (benefit)

 

2,760 

 

(2,176)

 

95,602 

 

(201,897)

Loss from continuing operations

 

(66,318)

 

(14,583)

 

(26,177)

 

(211,163)

Income (loss) from discontinued operations,
    net of income taxes

 

425 

 

(1,593)

 

1,177 

 

(885)



 

 

 

 

 

 

 

 

NET LOSS

$

(65,893)

 

(16,176)

 

(25,000)

 

(212,048)



 

 

 

 

 

 

 

 

INCOME (LOSS) PER COMMON SHARE – BASIC

 

 

 

 

 

 

 

 

     Continuing operations

$

(0.38)

 

(0.08)

 

(0.15)

 

(1.23)

     Discontinued operations

 

 -

 

(0.01)

 

0.01 

 

(0.01)

         Net loss

$

(0.38)

 

(0.09)

 

(0.14)

 

(1.24)



 

 

 

 

 

 

 

 

INCOME (LOSS) PER COMMON SHARE – DILUTED

 

 

 

 

 

 

 

 

     Continuing operations

$

(0.38)

 

(0.08)

 

(0.15)

 

(1.23)

     Discontinued operations

 

 -

 

(0.01)

 

0.01 

 

(0.01)

         Net loss

$

(0.38)

 

(0.09)

 

(0.14)

 

(1.24)



 

 

 

 

 

 

 

 

Cash dividends per Common share

 

0.25 

 

0.25 

 

0.75 

 

0.95 



 

 

 

 

 

 

 

 

Average Common shares outstanding (thousands)

 

 

 

 

 

 

 

 

     Basic

 

172,573 

 

172,199 

 

172,509 

 

172,165 

     Diluted

 

172,573 

 

172,199 

 

172,509 

 

172,165 



See Notes to Consolidated Financial Statements, page 7.



*Reclassified to conform to current presentation (see Note A). 

3


 

 

Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(Thousands of dollars)









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended

 



September 30,

 

September 30,

 



2017

 

2016

 

2017

 

2016

 



 

 

 

 

 

 

 

 

 

Net loss

$

(65,893)

 

(16,176)

 

(25,000)

 

(212,048)

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

Net gain (loss) from foreign currency translation

 

101,210 

 

(37,369)

 

194,094 

 

124,522 

 

Retirement and postretirement benefit plans

 

2,396 

 

2,515 

 

7,169 

 

7,544 

 

Deferred loss on interest rate hedges reclassified to interest
  expense

 

482 

 

482 

 

1,445 

 

1,445 

 

Other comprehensive income (loss)

 

104,088 

 

(34,372)

 

202,708 

 

133,511 

 

COMPREHENSIVE INCOME (LOSS)

$

38,195 

 

(50,548)

 

177,708 

 

(78,537)

 



See Notes to Consolidated Financial Statements, page 7.

 

4


 

 



Murphy Oil Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Thousands of dollars)





 

 

 

 

 



 

 

 

 

 



Nine Months Ended

 



September 30,

 



2017

 

2016

 

Operating Activities

 

 

 

 

 

Net loss

$

(25,000)

 

(212,048)

 

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

 

 

 

 

 

(Income) loss from discontinued operations

 

(1,177)

 

885 

 

Depreciation, depletion and amortization

 

714,782 

 

797,288 

 

Impairment of assets

 

– 

 

95,088 

 

Amortization of deferred major repair costs

 

– 

 

3,794 

 

Dry hole costs (credits)

 

(1,139)

 

15,226 

 

Amortization of undeveloped leases

 

40,859 

 

35,828 

 

Accretion of asset retirement obligations

 

31,638 

 

35,514 

 

Deferred and noncurrent income tax benefits

 

(3,567)

 

(345,157)

 

Pretax gains from disposition of assets

 

(130,765)

 

(3,101)

 

Net (increase) decrease in noncash operating working capital

 

1,070 

 

(152,618)

1

Other operating activities, net

 

192,867 

 

9,651 

 

Net cash provided by continuing operations activities

 

819,568 

 

280,350 

 



 

 

 

 

 

Investing Activities

 

 

 

 

 

Property additions and dry hole costs

 

(706,417)

 

(781,668)

2

Proceeds from sales of property, plant and equipment

 

69,146 

 

1,154,623 

 

Purchases of investment securities3

 

(212,661)

 

(651,218)

 

Proceeds from maturity of investment securities3

 

320,828 

 

712,863 

 

Other investing activities, net

 

– 

 

(7,229)

 

Net cash (required) provided by investing activities

 

(529,104)

 

427,371 

 



 

 

 

 

 

Financing Activities

 

 

 

 

 

Borrowings of debt, net of issuance costs

 

541,772 

 

541,444 

 

Repayments of debt

 

(550,000)

 

(600,000)

 

Capital lease obligation payments

 

(14,687)

 

(7,808)

 

Withholding tax on stock-based incentive awards

 

(7,151)

 

(1,138)

 

Issue cost of debt facility

 

– 

 

(13,971)

 

Cash dividends paid

 

(129,421)

 

(163,586)

 

Other financing activities, net

 

– 

 

(20)

 

Net cash required by financing activities

 

(159,487)

 

(245,079)

 



 

 

 

 

 

Cash Flows from Discontinued Operations

 

 

 

 

 

Operating activities

 

12,134 

 

2,830 

 

Changes in cash included in current assets held for sale

 

(12,904)

 

(2,830)

 

Net change in cash and cash equivalents of discontinued operations

 

(770)

 

– 

 

Effect of exchange rate changes on cash and cash equivalents

 

(5,797)

 

7,268 

 

Net increase in cash and cash equivalents

 

124,410 

 

469,910 

 

Cash and cash equivalents at beginning of period

 

872,797 

 

283,183 

 

Cash and cash equivalents at end of period

$

997,207 

 

753,093 

 







12016 balance includes payments for deepwater rig contract exit of $266.6 million.

2Includes costs of $206.7 million associated with acquisition of Kaybob Duvernay and Placid Montney.

3Investments 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)





 

 

 

 

 



 

 

 

 

 



 

 

 

 

 



Nine Months Ended



September 30,



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 September 30, 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

 

(26,553)

 

 

(10,078)

Stock-based compensation

 

20,767 

 

 

21,918 

Other

 

(77)

 

 

(239)

Balance at end of period

 

910,936 

 

 

921,675 

Retained Earnings

 

 

 

 

 

Balance at beginning of period

 

5,729,596 

 

 

6,212,201 

Net loss for the period

 

(25,000)

 

 

(212,048)

Cash dividends

 

(129,421)

 

 

(163,586)

Balance at end of period

 

5,575,175 

 

 

5,836,567 

Accumulated Other Comprehensive Loss

 

 

 

 

 

Balance at beginning of period

 

(628,212)

 

 

(704,542)

Foreign currency translation gain, net of income taxes

 

194,094 

 

 

124,522 

Retirement and postretirement benefit plans, net of income taxes

 

7,169 

 

 

7,544 

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

 

1,445 

 

 

1,445 

Balance at end of period

 

(425,504)

 

 

(571,031)

Treasury Stock

 

 

 

 

 

Balance at beginning of period

 

(1,296,560)

 

 

(1,306,061)

Sale of stock under employee stock purchase plan

 

145 

 

 

389 

Awarded restricted stock, net of forfeitures

 

20,886 

 

 

8,993 

Balance at end of period – 22,482,851 shares of Common Stock in
   2017 and 22,855,649 shares of Common Stock in 2016, at cost

 

(1,275,529)

 

 

(1,296,679)

Total Stockholders’ Equity

$

4,980,134 

 

 

5,085,588 



See Notes to Consolidated Financial Statements, page 7.



 

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 September 30, 2017 and December 31, 2016, and the results of operations, cash flows and changes in stockholders’ equity for the interim periods ended September 30, 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 and nine-month periods ended September 30, 2017 are not necessarily indicative of future results.

 

Beginning in the period ended September 30, 2017, certain reclassifications in presentation have been made to the Consolidated Statements of Operations.  The Company now presents a separate “Operating income (loss) from continuing operations” subtotal on the Consolidated Statements of Operations.  Additionally, “Interest and other income (loss), which includes foreign exchange gains and losses, has been reclassified from a component of total revenues and is now presented below Operating income (loss) from continuing operations.  “Interest expense” and “Capitalized interest” have also been combined into the “Interest expense, net” line item and is now presented below Operating income (loss) from continuing operations.  Previously reported periods have been changed to conform to the current period presentation.  These reclassifications did not impact previously reported Income (loss) from continuing operations before income taxes, Loss from continuing operations, or Net Loss.



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 September 30, 2017, the Company had total capitalized exploratory well costs pending the determination of proved reserves of $178.4 million.  The following table reflects the net changes in capitalized exploratory well costs during the nine-month periods ended September 30, 2017 and 2016.







 

 

 

 

 



 

 

 

 

 

(Thousands of dollars)

2017

 

 

2016

Beginning balance at January 1

$

148,500 

 

 

130,514 

Additions pending the determination of proved reserves

 

51,614 

 

 

847 

Reclassifications to proved properties based on the determination of proved reserves

 

(13,370)

 

 

– 

Capitalized exploratory well costs charged to expense

 

(8,360)

 

 

– 

Other adjustments

 

– 

 

 

(3,205)

Balance at September 30

$

178,384 

 

 

128,156 





The capitalized well costs charged to expense during the first nine months of 2017 included the Marakas-01 well in Block SK314A, 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 commodity prices.

6


 

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.





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

September 30,



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

$

41,609 

 

 

 

$

10,563 

 

 

One to two years

 

8,430 

 

 

 

 

53,101 

 

 

Two to three years

 

43,197 

 

 

 

 

31,627 

 

 

– 

Three years or more

 

85,148 

 

 

 

 

32,865 

 

 

– 



$

178,384 

 

13 

 

 

$

128,156 

 

11 

 



Of the $136.8 million of exploratory well costs capitalized more than one year at September 30, 2017, $70.4 million is in Brunei, $43.2 million is in Vietnam and $23.2 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. 



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 2017, a U.S. subsidiary of the Company completed its disposition of certain non-core properties in the Eagle Ford Shale area.  Total cash consideration to Murphy upon closing of the transaction was approximately $19.4 million.  There were no gains or losses recorded related to these sales.  



During the second quarter 2016, a Canadian subsidiary of the Company completed the sale of its five percent, non-operated working interest in Syncrude Canada Ltd. (“Syncrude”) asset to Suncor Energy Inc. (“Suncor”).  The Company received net cash proceeds of $739.1 million and recorded an after-tax gain of $71.7 million in the nine-month period ended September 30, 2016 associated with the Syncrude divestiture.



During the second quarter 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 19 years in the Canadian operating segment.  The Company amortized approximately $5.3 million and $3.4 million of the deferred gain during the nine-month periods ended September 30, 2017 and 2016, respectively.  The remaining deferred gain of $185.0 million was included as a component of deferred credits and other liabilities in the Company’s Consolidated Balance Sheet as of September 30, 2017.



Acquisitions



During the second quarter 2016, a Canadian subsidiary acquired 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 Placid Montney lands in Alberta, the majority of which was unproved.  Under the terms of the joint venture, the total consideration amounts to approximately $375.0 million of which Murphy paid $206.7 million in cash at closing, subject to normal closing adjustments, and an additional $168.0 million in the form of a carried interest on the Kaybob Duvernay property.  As of September 30, 2017, $32.0 million of the carried interest had been paid.  The carry is to be paid over a period of up to five years from 2016.

7


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

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



Impairments



Declines in future oil and gas prices in early 2016 led to impairments in certain of the Company’s producing properties and the nine-month period in 2016 included pretax non-cash 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.  See also Note J.



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.  As required by the agreements governing the field, a redetermination (unitization) review was required in 2016.  In the fourth quarter 2016, the Company recorded $39.1 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 reduced the Company’s working interest from 8.6% to approximately 6.7% effective April 1, 2017.  The Company partially settled $21.8 million of the redetermination expense in cash in the second quarter of 2017.  The Company currently expects to settle the remainder of the redetermination costs in future periods.  It is possible that the final adjustment amount could be different than the current estimate.  Due to the change in working interest, the future payments under a capital lease of a floating, production and storage facility in the Kakap field are lower and the Company reduced the total debt recorded on the Consolidated Balance Sheet in the second quarter 2017 by approximately $56.7 million, with a similar reduction to Property, plant and equipment.



Note C – Discontinued Operations and Assets Held for Sale



The Company has accounted for its former U.K. and U.S. refining and marketing 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, 2017 and 2016 were as follows:







 

 

 

 

 

 

 

 



Three Months

 

Nine Months



Ended September 30,

 

Ended September 30,

(Thousands of dollars)

 

2017

 

2016

 

2017

 

2016

Revenues (costs)

$

598 

 

 

853 

 

1,454 

Income (loss) before income taxes

 

425 

 

(1,593)

 

1,177 

 

(885)

Income tax benefit

 

– 

 

– 

 

– 

 

– 

Income (loss) from discontinued operations

$

425 

 

(1,593)

 

1,177 

 

(885)



Certain reclassifications have been made to 2016 Revenues to align with current period presentation (see Note A).



The following table presents the carrying value of the major categories of assets and liabilities of U.K. refining and marketing operations and Seal operations in Canada reflected as held for sale on the company’s Consolidated Balance Sheets at September 30, 2017 and December 31, 2016.



 

 

 

 



 

 

 

 



 

September 30,

 

December 31,

(Thousands of dollars)

 

2017

 

2016

Current assets

 

 

 

 

Cash

$

17,030 

 

4,126 

Accounts receivable

 

6,218 

 

22,944 

Total current assets held for sale

$

23,248 

 

27,070 

Current liabilities

 

 

 

 

Accounts payable

$

605 

 

270 

Refinery decommissioning cost

 

2,665 

 

2,506 

Total current liabilities associated with assets held for sale

$

3,270 

 

2,776 

Non-current liabilities

 

 

 

 

Asset retirement obligation - Seal asset

$

– 

 

85,900 







Note C – Discontinued Operations and Assets Held for Sale (Contd.)



The asset retirement obligation at December 31, 2016 relates to well and facility abandonment obligations at the Seal field in Canada which were assumed by the purchasing company upon the sale in January 2017. 





Note D – Financing Arrangements and Debt



At September 30, 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 September 30, 2017, the Company had no outstanding borrowings under the 2016 facility, however, there were $84.8 million of outstanding letters of credit, which reduce the borrowing capacity of the 2016 facility.  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.  Had there been any amounts borrowed under the 2016 facility at September 30, 2017, the applicable base interest rate would have been 4.50%.  At September 30, 2017, the Company was in compliance with all covenants related to the 2016 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.



In August 2017, the Company sold $550 million of new notes that bear interest at the rate of 5.75% and mature on August 15, 2025.  The Company incurred transaction costs of $8.2 million on the issue of these new notes.  The new notes pay interest semi-annually on February 15 and August 15 of each year.  The initial interest payment will be paid on February 15, 2018.  The proceeds of the $550 million notes were used to redeem the Company’s 2.50% notes in September 2017.  The 2.50% notes had an original maturity of December 2017.



In August 2016, the Company reduced its then existing $2.0 billion unsecured revolving credit facility (2011 facility) to $630 million (facility has since expired) and entered into a separate $1.2 billion senior unsecured guaranteed credit facility (2016 facility, subsequently reduced to $1.1 billion),  with a major banking consortium that expires in August 2019.  The Company incurred transaction costs of approximately $14.0 million to place the 2016 facility which were included in financing activities in the Consolidated Statement of Cash Flows.  Also in August 2016, the Company sold $550 million of notes that bear interest at the rate of 6.875% and mature on August 15, 2024.  The proceeds of the $550 million notes were used for general corporate purposes.



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 March 2029.  Current maturities of long-term debt and long-term debt on the Consolidated Balance Sheet included $9.8 million and $136.5 million, respectively, associated with this lease at September 30, 2017.

8


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note E – Other Financial Information



Additional disclosures regarding cash flow activities are provided below.





 

 

 

 

 



Nine Months Ended September 30,

 

(Thousands of dollars)

2017

 

2016

 

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

 

 

 

 

 

Decrease in accounts receivable

$

90,614 

 

75,841 

 

Decrease (increase) in inventories

 

5,869 

 

(15,768)

 

Decrease in prepaid expenses

 

25,285 

 

122,399 

 

Decrease in other

 

– 

 

720 

 

Decrease in accounts payable and accrued liabilities

 

(115,977)

 

(376,310)

*

(Decrease) increase in current income tax liabilities

 

(4,721)

 

40,500 

 

Net (increase) decrease in noncash operating working capital

$

1,070 

 

(152,618)

 

Supplementary disclosures:

 

 

 

 

 

Cash income taxes paid, net of refunds

$

25,118 

 

(3,911)

 

Interest paid, net of amounts capitalized of $3,338 in 2017
  and $3,318 in 2016

 

95,899 

 

52,287 

 



 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

Asset retirement costs capitalized

$

38,992 

 

13,959 

 

Decrease in capital expenditure accrual

 

42,403 

 

179,203 

 





*2016 balance included payments for deepwater rig contract exit of $266.6 million. 



9


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note F – Employee and Retiree Benefit Plans



The Company has defined benefit pension plans that are principally noncontributory and cover most North American full-time employees.  All pension plans are funded except for the U.S. nonqualified supplemental 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.  The health care benefits are contributory; the life insurance benefits are noncontributory.



The table that follows provides the components of net periodic benefit expense for the three-month and nine-month periods ended September 30, 2017 and 2016.







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended September 30,



Pension Benefits

 

Other Postretirement Benefits

(Thousands of dollars)

 

2017

 

 

2016

 

2017

 

2016

Service cost

$

2,037 

 

 

2,610 

 

 

427 

 

 

674 

Interest cost

 

7,261 

 

 

5,913 

 

 

966 

 

 

1,109 

Expected return on plan assets

 

(8,070)

 

 

(6,626)

 

 

– 

 

 

– 

Amortization of prior service cost (credit)

 

259 

 

 

323 

 

 

(18)

 

 

(21)

Amortization of transitional asset

 

– 

 

 

– 

 

 

– 

 

 

Recognized actuarial loss

 

3,610 

 

 

3,617 

 

 

– 

 

 

38 

Net periodic benefit expense

$

5,097 

 

 

5,837 

 

 

1,375 

 

 

1,802 



 

 

 

 

 

 

 

 

 

 

 



Nine Months Ended September 30,



Pension Benefits

 

Other Postretirement Benefits

(Thousands of dollars)

 

2017

 

 

2016

 

2017

 

2016

Service cost

$

6,099 

 

 

8,533 

 

 

1,276 

 

 

2,022 

Interest cost

 

20,267 

 

 

20,386 

 

 

2,899 

 

 

3,324 

Expected return on plan assets

 

(21,730)

 

 

(21,709)

 

 

– 

 

 

– 

Amortization of prior service cost (credit)

 

767 

 

 

963 

 

 

(55)

 

 

(62)

Amortization of transitional asset

 

– 

 

 

– 

 

 

– 

 

 

Recognized actuarial loss

 

10,673 

 

 

10,864 

 

 

– 

 

 

113 

Curtailments

 

– 

 

 

822 

 

 

– 

 

 

(19)

Net periodic benefit expense

$

16,076 

 

 

19,859 

 

 

4,120 

 

 

5,382 



Curtailment expense for the nine months ended September 30, 2016, shown in the table above, relates to restructuring activities in the U.S. undertaken by the Company in the first quarter of 2016.



During the nine-month period ended September 30, 2017, the Company made contributions of $24.0 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 $6.8 million. 

10


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

Note G – Incentive Plans



The costs resulting from all share-based and cash-based incentive plans 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 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.



The Company had an Employee Stock Purchase Plan (ESPP) that permitted the issuance of Company shares during 2016 and the first six months of 2017.  The ESPP terminated on June 30, 2017 and was not renewed by the Company.



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 (RSUC) to certain employees.  The SAR and RSUC 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 RSUC 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.



For all periods presented, 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:







 

 

 

 



 

 

 

 



Nine Months Ended



September 30,

(Thousands of dollars)

 

2017

 

2016

Compensation charged against income (loss) before tax benefit

$

28,264 

 

35,948 

Related income tax benefit recognized in income

 

8,695 

 

11,796 

11


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 



Note H – Earnings per Share



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

three-month and nine-month periods ended September 30, 2017 and 2016.  The following table reconciles the weighted-average shares outstanding used for these computations.





 

 

 

 

 

 

 



 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



September 30,

 

September 30,

(Weighted-average shares)

2017

 

2016

 

2017

 

2016

Basic method

172,572,873 

 

172,199,350 

 

172,509,418 

 

172,164,683 

Dilutive stock options and restricted stock units*

– 

 

– 

 

– 

 

– 

   Diluted method

172,572,873 

 

172,199,350 

 

172,509,418 

 

172,164,683 





     *Due to net losses recognized by the Company for all periods presented, 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

 

Nine Months Ended



 

September 30,

 

September 30,



 

2017

 

2016

 

2017

 

2016

Antidilutive stock options excluded from diluted shares

 

5,257,718 

 

 

5,884,201 

 

 

5,578,495 

 

 

5,822,036 

Weighted average price of these options

$

46.46 

 

$

49.00 

 

$

46.86 

 

$

49.82 

 



 

Note I – Income Taxes



The Company’s effective income tax rate is calculated as the amount of income tax expense (benefit) divided by income (loss) before income tax expense.  For the three-month and nine-month periods ended September 30, 2017 and 2016, the Company’s effective income tax rates were as follows:





 

 

 

 



 

 

 

 



2017

 

2016

 

Three months ended September 30

(4.3%)

 

13.0%

 

Nine months ended September 30

137.7%

 

48.9%

 



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 September 30, 2017 was below the U.S. statutory tax rate of 35% primarily due to the tax effect of expenses in foreign jurisdictions not fully deductible from losses at the U.S. statutory tax rate, an estimated U.S. tax charge for undistributed foreign earnings and Canadian foreign exchange losses not fully deductible at 35%.  These impacts were partially offset by the U.S. tax benefit recognized from the reversal of an uncertain tax position for federal tax years 2011-2013.



The effective tax rate for the nine-month period ended September 30, 2017 was above the U.S. statutory tax rate of 35% primarily due to an estimated U.S. tax charge for undistributed foreign earnings and Canadian foreign exchange losses.  These impacts were partially offset by the U.S. tax benefit recognized from the reversal of an uncertain tax position for federal tax years 2011-2013 and other items.  During the first nine-months of 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 $65.2 million in the nine-month period 2017 associated with the estimated tax consequence of the future repatriation of these subsidiaries earnings during the first nine months 2017.  This decision provides greater financial flexibility as it considers future domestic investment opportunities.  The Company expects to incur further tax charges in the fourth quarter 2017 for additional 2017 foreign earnings as they arise. 









Note I – Income Taxes (Contd.)



The effective tax rate for the three-month period ended September 30, 2016 was less than the U.S. statutory tax rate primarily due to expenses in foreign jurisdictions for which no tax benefits were recognized.  The effective tax rate for the nine-month period ended September 30, 2016 was above the U.S. statutory tax rate primarily due to deferred tax benefits recognized related to the Canadian asset dispositions and income tax benefits on investments in foreign areas. 



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 September 30, 2017, the earliest years remaining open for audit and/or settlement in our major taxing jurisdictions are as follows: United States – 2014; Canada – 2012; Malaysia – 2010; and United Kingdom – 2015.

 

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, net 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 nine months 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 September 30, 2017, the Company had 22,000 barrels per day in WTI crude oil swap financial contracts maturing ratably during the remainder of 2017 at an average price of $50.41 and 6,000 barrels per day in WTI crude oil swap financial contracts maturing ratably during 2018 at an average price of $51.83.  At September 30, 2017, the fair value of WTI contracts of $3.2 million was included in Accounts Payable.  The impact of marking to market these commodity derivative contracts increased the loss before income taxes by $3.2 million for the nine-month period ended September 30, 2017.



At September 30, 2016, the Company had 25,000 barrels per day in WTI crude oil swap financial contracts maturing ratably during 2016.  At September 30, 2016, the fair value of WTI contracts of $0.2 million was included in Accounts Receivable.  The impact of marking to market these 2016 commodity derivative contracts decreased the loss before income taxes by $3.9 million for the nine-month period ended September 30, 2016.

12


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

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



Foreign Currency Exchange Risks



The Company is subject to foreign currency exchange risk associated with operations in countries outside the U.S. The Company had no foreign currency exchange short-term derivatives outstanding at September 30, 2017.



At September 30, 2016, short-term derivative instruments were outstanding in Canada for approximately $25.2 million, to manage the currency risks of certain U.S. dollar accounts receivable associated with sale of Canadian crude oil.  The fair values of open foreign currency derivative contracts were assets of $0.1 million at September 30, 2016.



At September 30, 2017 and December 31, 2016, the fair value of derivative instruments not designated as hedging instruments are presented in the following table.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

September 30, 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

 

$

(3,226)

 

Accounts payable

 

$

(48,864)

Foreign exchange

 

Accounts receivable

 

 

– 

 

Accounts payable

 

 

(73)



For the three-month and nine-month periods ended September 30, 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

 

Nine Months Ended

(Thousands of dollars)

 

 

 

September 30,

 

September 30,

Type of Derivative Contract

 

Statement of Operations Location

 

 

2017

 

2016

 

2017

 

2016

Commodity

 

Sales and other operating revenues

 

$

(13,573)

 

11,871 

 

50,365 

 

(22,678)

Foreign exchange

 

Interest and other income (loss)

 

 

– 

 

143 

 

73 

 

26,929 



 

 

 

$

(13,573)

 

12,014 

 

50,438 

 

4,251 

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 nine-month periods ended September 30, 2017 and 2016, $2.2 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 September 30, 2017 was $8.9 million, which is recorded, net of income taxes of $4.8 million, in Accumulated other comprehensive loss in the Consolidated Balance Sheet.  The Company expects to charge approximately $0.7 million of this deferred loss to Interest expense, net in the Consolidated Statement of Operations during the remaining three months of 2017.

13


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 



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



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.



The carrying value of assets and liabilities recorded at fair value on a recurring basis at September 30, 2017 and December 31, 2016 are presented in the following table.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



September 30, 2017

 

December 31, 2016

(Thousands of dollars)

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

 

Level 2

 

Level 3

 

Total

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Nonqualified employee
        savings plans

$

15,161 

 

– 

 

– 

 

15,161 

 

13,904 

 

 

– 

 

– 

 

13,904 

     Commodity derivative contracts

 

– 

 

3,226 

 

– 

 

3,226 

 

– 

 

 

48,864 

 

– 

 

48,864 

      Foreign currency exchange
        derivative contracts

 

– 

 

– 

 

– 

 

– 

 

– 

 

 

73 

 

– 

 

73 



$

15,161 

 

3,226 

 

– 

 

18,387 

 

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 September 30, 2017 and December 31, 2016.

14


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

 

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



Fair Values – Nonrecurring



As a result of the fall in forward commodity prices during the first nine-month period ended September 30, 2016, the Company recognized approximately $95.1 million in pretax non-cash impairment charges related to producing properties.  The fair value information associated with these impaired properties is presented in the following table.







 

 

 

 

 

 

 

 

 

 

 



 

Nine-months ended September 30, 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.



Note K – Accumulated Other Comprehensive Loss



The components of Accumulated Other Comprehensive Loss on the Consolidated Balance Sheets at December 31, 2016 and September 30, 2017 and the changes during the nine-month period ended September 30, 2017 are presented net of taxes in the following table.



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

 

 

Deferred