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Financial Instruments and Risk Management
 9 Months Ended
Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments and Risk Management
Note L – Financial Instruments and Risk Management
Murphy, at times, 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 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. 
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 derivatives outstanding at September 30, 2024 and 2023.
Commodity Price Risks
During the third quarter of 2024, the Company entered into natural gas swap contracts that will be effective in 2025. Under the swaps contracts, which mature monthly, the Company pays the average monthly price in effect and receives the fixed contract price on a notional amount of sales volume, thereby fixing the price for the commodity sold. During the third quarter of 2023, the Company did not have any crude oil or natural gas derivative contracts.
At September 30, 2024, volumes per day associated with outstanding natural gas derivative contracts and the weighted average prices for these contracts are as follows:
2025
NYMEX HENRY HUB swap contracts:
     Volumes (MMCF/d):20 
     Price per MCF:$3.20 
At September 30, 2024 and December 31, 2023, the fair value of derivative instruments not designated as hedging instruments are presented in the following table:
(Thousands of dollars)Asset (Liability) Derivatives Fair Value
Type of Derivative ContractBalance Sheet LocationSeptember 30, 2024December 31, 2023
Commodity swapsAccounts payable$(1,344)$– 
For the three-month and nine-month periods ended September 30, 2024 and 2023, the gains and losses recognized in the Consolidated Statements of Operations for derivative instruments not designated as hedging instruments are presented in the following table:
Gain (Loss)Gain (Loss)
(Thousands of dollars)Three Months Ended September 30,Nine Months Ended September 30,
Type of Derivative ContractStatement of Operations Location2024202320242023
Commodity swaps(Loss) on derivative instruments$(1,344)$– $(1,344)$– 
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 fair value measurements for these assets and liabilities at September 30, 2024 and December 31, 2023, are shown in the following table:
September 30, 2024December 31, 2023
(Thousands of dollars)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Liabilities:
Commodity swaps$– $1,344 $– $1,344 $– $– $– $– 
Nonqualified employee savings plan19,225 – – 19,225 17,785 – – 17,785 
$19,225 $1,344 $– $20,569 $17,785 $– $– $17,785 
The fair value of commodity (Henry Hub natural gas) swaps was based on active market quotes for Henry Hub (HH) natural gas. The before tax income effect of changes in the fair value of natural gas derivative contracts is recorded in “(Loss) on derivative instruments” in the Consolidated Statements of Operations.
As of December 31, 2023, there were no outstanding commodity WTI crude oil or HH natural gas swaps and collars contracts subject to fair value measurement, nor were there any commodity swaps and collars liabilities.
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.
In 2019, the Company acquired strategic deepwater Gulf of Mexico assets from LLOG Exploration Offshore L.L.C. and LLOG Bluewater Holdings, L.L.C. (LLOG). Under the terms of the transaction, in addition to the consideration paid, Murphy had an obligation to pay additional contingent consideration of up to $200 million in the event that certain revenue thresholds were exceeded between 2019 and 2022; and $50 million following first oil from certain development projects. The revenue threshold was not exceeded for 2019 or 2020; however, the threshold was met in 2021 and 2022.
In 2018, the Company, through a subsidiary, acquired Gulf of Mexico producing assets from Petrobras America Inc. (PAI), a subsidiary of Petróleo Brasileiro S.A. Under the terms of the transaction, in addition to the consideration paid, Murphy had an obligation to pay additional contingent consideration of up to $150 million if certain price and production thresholds were exceeded beginning in 2019 through 2025; and $50 million carry for PAI development costs in the St. Malo field if certain enhanced oil recovery projects were undertaken. The price and production thresholds were not exceeded for 2019 and 2020; however, the thresholds were met in 2021 and 2022. As of December 31, 2021, Murphy had completely funded the carried interest.
As of the end of the second quarter of 2023, the Company had no remaining liabilities relating to prior acquisitions from PAI and LLOG. During the nine months ended September 30, 2023, the Company paid a total of $199.8 million in contingent consideration payments. In the Consolidated Statements of Cash Flows, $139.6 million is shown in “Operating Activities” and $60.2 million is shown in “Financing Activities”.
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, 2024 and December 31, 2023.
The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at September 30, 2024 and December 31, 2023. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The table excludes cash and cash equivalents, trade accounts receivable, trade accounts payable and accrued expenses, all of which had fair values approximating carrying amounts. The fair value of current and long-term debt was estimated based on rates offered to the Company at that time for debt of the same maturities. Substantially all of the Company’s long-term debt is actively traded in open markets, and accordingly, is classified as Level 1 in the fair value hierarchy. The Company has off-balance sheet exposures relating to certain letters of credit. The fair value of these, which represents fees associated with obtaining the instruments, were minimal.
September 30,December 31,
20242023
(Thousands of dollars)Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Financial liabilities:
Current and long-term debt
$1,280,072 $1,288,682 $1,329,075 $1,265,185