Note C – Revenue from Contracts with Customers

Significant Accounting Policy

Revenue is recognized when the Company satisfies a performance obligation by transferring control over a commodity to a customer; the amount of revenue recognized reflects the consideration expected in exchange for those commodities. The Company measures revenue based on consideration specified in a contract and excludes taxes and other amounts collected on behalf of third parties.

Revenue is presented as the Company’s share net of certain costs associated with generation of Revenue. Examples of costs that reduce revenue include transportation, gathering, compression, and processing fees in U.S. and Canada, as well as certain required payments associated with production sharing contracts (PSCs) and export taxes in Malaysia.

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

Nature of Goods and Services

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

For operated oil and gas production where the non-operated working interest owner does not take-in-kind its proportionate interest in the produced commodity, the Company acts as an agent for the working interest owner and recognizes revenue only for its own share of the commingled production.

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

Canada- Primarily all long-term contracts in Canada, except for certain natural gas physical forward sales fixed-price contracts, are floating commodity index priced. For the Onshore business in Canada, the recorded revenue is net of transportation and any gain or loss on spot purchases made to meet committed volumes on sales contracts for the month. For the Offshore business in Canada, contracts are based on index prices and revenue is recognized at the time of vessel load based on the volumes on the bill of lading and point of custody transfer.

Malaysia- In Malaysia, the Company has interests in nine separate PSCs. The Company serves as the operator of all these areas except for the unitized Gumusut-Kakap field. Crude oil contracts in Malaysia share similar features of largely fixed cargo quantities, variable index-based pricing, and potential discounts at the point of meeting the performance obligation when the vessel is loaded. Malaysia also has three long term Gas Sales Agreements (GSA) with terms until the end of the field life, economic life, or PSC term.

Disaggregation of Revenue

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

For the three months ended September 30, 2018 and 2017, the Company recognized $659.8 million and $511.2 million, respectively, from contracts with customers for the sales of oil, natural gas liquids and natural gas. For the nine months ended September 30, 2018 and 2017, the Company recognized $1,921.9 million and $1,498.1 million, respectively, from contracts with customers for the sales of oil, natural gas liquids and natural gas.

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


		Three Months Ended		Nine Months Ended
		September 30,		September 30,
(Thousands of dollars)		2018	2017	2018	2017
Net crude oil and condensate revenue
United States – Onshore	$	224,714	143,527	606,186	437,504
– Offshore		93,206	43,658	259,128	145,139
Canada – Onshore		32,818	12,351	82,537	33,129
– Offshore		34,789	31,639	137,420	107,516
Malaysia – Sarawak		55,592	63,558	218,494	189,100
– Block K		102,149	122,460	298,330	287,032
Other		3,156	–	3,156	–
Total crude oil and condensate revenue		546,424	417,193	1,605,251	1,199,420

Net natural gas liquids revenue
United States – Onshore		16,993	11,114	42,363	29,838
– Offshore		3,438	1,679	7,998	4,804
Canada – Onshore		4,137	1,323	11,053	2,636
Malaysia – Sarawak		4,960	4,985	15,153	13,526
Total natural gas liquids revenue		29,528	19,101	76,567	50,804

Net natural gas revenue
United States – Onshore		6,872	6,031	19,934	21,072
– Offshore		3,306	2,541	9,068	7,922
Canada – Onshore		35,373	36,974	103,055	114,772
Malaysia – Sarawak		38,236	29,166	107,616	103,584
– Block K		67	186	419	519
Total natural gas revenue		83,854	74,898	240,092	247,869
Total revenue from contracts with customers		659,806	511,192	1,921,910	1,498,093

Gain (loss) on crude contracts		(2,223)	(13,573)	(69,349)	50,365
Other operating income		17,090	583	26,029	4,015
Gain on sale of assets		124	117	6	130,765
Total revenue	$	674,797	498,319	1,878,596	1,683,238

Contract Balances and Asset Recognition

As of September 30, 2018, and December 31, 2017, receivables from contracts with customers, net of royalties and associated payables, on the balance sheet, were $187.3 million and $203.4 million, respectively. Payment terms for the Company’s sales vary across contracts and geographical regions, with the majority of the cash receipts required within 30 days of billing. Based on historical collections and ability of customers to pay, the Company did not recognize any impairment losses on receivables or contract assets arising from customer contracts during the reporting periods.

The Company has not entered into any upstream oil and gas sale contracts that have financing components as at September 30, 2018.

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

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

Performance Obligations

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

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

The Company has entered into several long-term, fixed-price contracts in Canada. The underlying reason for entering a fixed price contract is generally unrelated to anticipated future prices or other observable data and serves a particular purpose in the company’s long-term strategy. The contractually stated price for each unit of commodity transferred under these contracts represents the stand-alone selling price of the commodity.

As at September 30, 2018, the Company had the following sales contracts in place which are expected to generate revenue from sales to customers for a period of 12 months or more starting at the inception of the contract:


Current Long-Term Contracts Outstanding at September 30, 2018
Location	Commodity	End Date	Description	Approximate Volumes
U.S. Onshore	Oil	Q2 2019	Fixed quantity delivery in Eagle Ford	4,000 BOE/Day
U.S. Onshore	Oil	Q3 2019	Fixed quantity delivery in Eagle Ford	2,000 BOE/Day
U.S. Onshore	Oil	Q4 2021	Fixed quantity delivery in Eagle Ford	2018: 19,000 BOE/Day 2019-2021: 13,000 BOE/Day
U.S. Onshore	Gas and NGL	Q2 2026	Deliveries from dedicated acreage in Eagle Ford	As produced
Canada Onshore	Gas	Q4 2020	Contracts to sell natural gas at Alberta AECO Cdn dollar 2.81/MCF	59 MMCF/Day
Canada Onshore	Gas	Q4 2020	Contracts to sell natural gas at USD Index pricing	60 MMCF/Day
Canada Onshore	Gas	Q4 2024	Contracts to sell natural gas at USD Index pricing	30 MMCF/Day
Canada Onshore	Gas	Q4 2026	Contracts to sell natural gas at USD Index pricing	38 MMCF/Day