Property, Plant and Equipment

9 Months Ended

Sep. 30, 2019

Property, Plant and Equipment [Abstract]

Exploratory Wells

Under 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, 2019, the Company had total capitalized exploratory well costs for continuing operations pending the determination of proved reserves of $280.7 million. The following table reflects the net changes in capitalized exploratory well costs during the nine-month periods ended September 30, 2019 and 2018.



(Thousands of dollars)	2019			2018
Beginning balance at January 1	$	207,855		155,103
Additions pending the determination of proved reserves	86,025			41,560
Reclassifications to proved properties based on the determination of proved reserves	—			(2,214	)
Capitalized exploratory well costs charged to expense	(13,145		)	(4,521	)
Balance at September 30	$	280,735		189,928

The capitalized well costs charged to expense during 2019 included the CM-1X and the CT-1X wells in Vietnam Block 11-2/11. The wells were originally drilled in 2017. The capitalized well costs charged to expense in 2018 included the Julong East well in Block CA-1, offshore Brunei in which further development of the well was not sanctioned by the operator and the contract term for development sanctions expired. This well was originally drilled in 2012.

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,
	2019				2018

(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	$	64,711	5	5	$	46,813	1	1
One to two years	63,615		1	1	41,051		3	2
Two to three years	27,500		1	—	5,208		1	1
Three years or more	124,909		5	—	96,856		4	1
	$	280,735	12	6	$	189,928	9	5

Of the $216.0 million of exploratory well costs capitalized more than one year at September 30, 2019, $57.4 million is in Brunei, $67.5 million is in Vietnam, $63.6 million is in the Gulf of Mexico and $27.5 million is in the U.S. 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 July 2019, the Company completed a divestiture of its two subsidiaries conducting Malaysian operations, Murphy Sabah Oil Co., Ltd. and Murphy Sarawak Oil Co., Ltd., in a transaction with PTT Exploration and Production Public Company Limited (PTTEP) which was effective January 1, 2019. Total cash consideration received upon closing was $2.0 billion. A gain on sale of $960.0 million was recorded as part of discontinued operations on the Consolidated Statement of Operations during the third quarter 2019. The Company does not anticipate tax liabilities related to the sales proceeds. Murphy is entitled to receive a $100.0 million bonus payment contingent upon certain future exploratory drilling results prior to October 2020.

In 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. Total cash consideration received upon closing was $414.1 million. A gain on sale of approximately $187.0 million was deferred, up to December 31, 2018, and prior to 2019 was being recognized straight line over the life of the contract in the Canadian operating segment. The remaining deferred gain of $116.8 million, net of tax, was included as a component of Deferred credits and other liabilities in

the Company’s Consolidated Balance Sheet as of December 31, 2018. As required by ASC 842, effective January 1, 2019, the previously deferred gain related to the sale and leaseback transaction has been transferred to equity upon adoption, lowering liabilities but increasing retained earnings by approximately $116.8 million, net of tax. The Company amortized approximately $5.7 million of the deferred gain during the first nine months of 2018.

Acquisitions

In 2016, a Canadian subsidiary of Murphy Oil acquired a 70% operated working interest (WI) in Athabasca Oil Corporation’s (Athabasca) production, acreage, infrastructure and facilities in the Kaybob Duvernay lands, and a 30% non-operated WI in Athabasca’s production, acreage, infrastructure and facilities in the liquids rich Placid Montney lands in Alberta, the majority of which was unproved. As part of the transaction, Murphy agreed to pay an additional $168.0 million in the form of a carried interest on the Kaybob Duvernay property. As of September 30, 2019, $131.6 million of the carried interest had been paid. The remaining carry is to be paid over a period through 2020.