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Financial Instruments and Risk Management | 6 Months Ended
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Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments and Risk Management | Note L – Financial Instruments and Risk Management Murphy 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. Certain interest rate derivative contracts were previously accounted for as hedges and the gain or loss associated with recording the fair value of these contracts was deferred in Accumulated other comprehensive loss and amortized to the income statement over time. During the six-month period ended June 30, 2021, the Company redeemed all of the remaining notes due 2022 and expensed the remainder of the previously deferred loss on the interest rate swap of $2.1 million to Interest expense in the Consolidated Statement of Operations. Commodity Price Risks At June 30, 2021, the Company had 45,000 barrels per day in WTI crude oil swap financial contracts maturing through December 2021 at an average price of $42.77, and 20,000 barrels per day in WTI crude oil swap financial contracts maturing from January to December of 2022 at an average price of $44.88. Under these contracts, which mature monthly, the Company pays the average monthly price in effect and receives the fixed contract price. At June 30, 2020, the Company had 45,000 barrels per day in WTI crude oil swap financial contracts maturing through the end of December 2020 at an average price of $56.42, and 2,000 barrels per day in WTI crude oil swap contracts maturing from January through December 2021 at an average price of $41.54. 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 short-term derivatives outstanding at June 30, 2021 and 2020. At June 30, 2021 and December 31, 2020, the fair value of derivative instruments not designated as hedging instruments are presented in the following table.
|  | June 30, 2021 |  | December 31, 2020
(Thousands of dollars) |  | Asset (Liability) Derivatives |  | Asset (Liability) Derivatives
Type of Derivative Contract |  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Commodity |  | Accounts receivable |  | $ | — |  |  | Accounts receivable |  | $ | 13,050 |
|  | Accounts payable |  | (354,366) |  |  | Accounts payable |  | (89,842) |
|  | Deferred credits and other liabilities |  | (71,259) |  |  | Deferred credits and other liabilities |  | (12,833) |
For the three-month and six-month periods ended June 30, 2021 and 2020, 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) |  | Statement of Operations Location |  | Three Months Ended June 30, |  | Six months ended June 30,
Type of Derivative Contract |  |  | 2021 |  | 2020 |  | 2021 |  | 2020
Commodity |  | (Loss) gain on crude contracts |  | $ | (226,245) |  |  | (75,880) |  |  | $ | (440,630) |  |  | 324,792 |
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 carrying value of assets and liabilities recorded at fair value on a recurring basis at June 30, 2021 and December 31, 2020, are presented in the following table.
|  | June 30, 2021 |  | December 31, 2020
(Thousands of dollars) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivative contracts |  | $ | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 13,050 |  |  | — |  |  | 13,050 |
|  | $ | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 13,050 |  |  | — |  |  | 13,050 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonqualified employee savings plan |  | $ | 17,188 |  |  | — |  |  | — |  |  | 17,188 |  |  | 14,988 |  |  | — |  |  | — |  |  | 14,988 |
Commodity derivative contracts |  | — |  |  | 425,625 |  |  | — |  |  | 425,625 |  |  | — |  |  | 102,675 |  |  | — |  |  | 102,675 |
Contingent consideration |  | — |  |  | — |  |  | 209,682 |  |  | 209,682 |  |  | — |  |  | — |  |  | 133,004 |  |  | 133,004 |
|  | $ | 17,188 |  |  | 425,625 |  |  | 209,682 |  |  | 652,495 |  |  | 14,988 |  |  | 102,675 |  |  | 133,004 |  |  | 250,667 |
The fair value of commodity (WTI crude oil) derivative contracts in 2021 and 2020 were based on active market quotes for WTI crude oil. The before tax income effect of changes in the fair value of crude oil derivative contracts is recorded in Gain (loss) on crude contracts in the Consolidated Statements of Operations. 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. The contingent consideration, related to two acquisitions in 2019 and 2018, is valued using a Monte Carlo simulation model. The income effect of changes in the fair value of the contingent consideration is recorded in Other expense (benefit) in the Consolidated Statements of Operations. Contingent consideration is payable annually in years 2022 to 2026. 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 June 30, 2021 and December 31, 2020.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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