Property, Plant and Equipment

3 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

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 March 31, 2020, the Company had total capitalized exploratory well costs for continuing operations pending the determination of proved reserves of $178.4 million.  The following table reflects the net changes in capitalized exploratory well costs during the three-month periods ended March 31, 2020 and 2019.

(Thousands of dollars)	2020			2019
Beginning balance at January 1	$	217,326		207,855
Additions pending the determination of proved reserves	816			32,416
Capitalized exploratory well costs charged to expense	(39,709		)	(13,145	)
Balance at March 31	$	178,433		227,126

The capitalized well costs charged to expense during 2020 represent a charge for asset impairments (see below). 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 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,
	2020				2019
(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	$	24,637	3	3	$	78,016	3	2
One to two years	31,541		2	2	—		—	—
Two to three years	—		—	—	27,270		1	1
Three years or more	122,255		6	—	121,840		5	1
	$	178,433	11	5	$	227,126	9	4

Of the $153.8 million of exploratory well costs capitalized more than one year at March 31, 2020, $86.0 million is in Vietnam, $27.3 million is in the U.S., $24.2 million is in Brunei, and $16.4 million is in Mexico.  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 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.

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 March 31, 2020, all of the carried interest had been fully utilized.  

Impairments

In the first quarter of 2020, declines in future oil and natural gas prices (principally driven by increased supply from foreign oil producers and reduced demand in response to the COVID-19 pandemic - see Risk Factors on page 33) led to impairments in certain of the Company’s U.S. Offshore and Other Foreign properties. The Company recorded pretax noncash impairment charges of $967.5 million to reduce the carrying values to their estimated fair values at select properties.

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

The following table reflects the recognized impairments for the three months ended March 31, 2020.

	Three Months Ended
(Thousands of dollars)	March 31, 2020
U.S.	$	927,821
Other Foreign	39,709
	$	967,530