Property, Plant and Equipment

6 Months Ended

Jun. 30, 2020

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

Note D – 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 June 30, 2020, the Company had total capitalized exploratory well costs for continuing operations pending the determination of proved reserves of $180.1 million.  The following table reflects the net changes in capitalized exploratory well costs during the six-month periods ended June 30, 2020 and 2019.

(Thousands of dollars)	2020		2019
Beginning balance at January 1	$	217,326	207,855
Additions pending the determination of proved reserves	2,328		50,307
Capitalized exploratory well costs charged to expense	(39,519)		(13,145)
Balance at June 30	$	180,135	245,017

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.

	June 30,
	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	$	24,429	3	3	33,125	3	2
One to two years	30,691		2	2	61,293	1	1
Two to three years	—		—	—	27,266	1	1
Three years or more	125,015		6	—	123,333	5	—
	$	180,135	11	5	245,017	10	4

Of the $155.7 million of exploratory well costs capitalized more than one year at June 30, 2020, $87.6 million is in Vietnam, $27.4 million is in the U.S., $25.2 million is in Brunei, and $15.5 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 June 30, 2020, all of the carried interest had been fully utilized.  

Impairments

In 2020, declines in future oil and natural gas prices (principally driven by reduced demand in response to the COVID-19 pandemic and increased supply in the first quarter of 2020 from foreign oil producers and - see Risk Factors on page 39) led to impairments in certain of the Company’s U.S. Offshore and Other Foreign properties. The Company recorded pretax noncash impairment charges of $987.1 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 six months ended June 30, 2020.

	Six Months Ended
(Thousands of dollars)	June 30, 2020
U.S.	$	947,437
Other Foreign	39,709
	$	987,146