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Financial Instruments and Risk Management | 9 Months Ended
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Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments and Risk Management | Note L – Financial Instruments and Risk Management Murphy uses derivative instruments, such as swap and zero-cost commodity price collar contracts, 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. Commodity Price Risks The Company has entered into crude oil swap and collar contracts. 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. Under the collar contracts, which also mature monthly, the Company purchased a put option and sold a call option with no net premiums paid to or received from counterparties. Upon maturity, collar contracts require payments by the Company if the NYMEX average closing price is above the ceiling price or payments to the Company if the NYMEX average closing price is below the floor price. At September 30, 2022, volumes per day associated with outstanding crude oil derivative contracts and the weighted average prices for these contracts are as follows:
|  |  |  | 2022
NYMEX WTI swap contracts: |  |  |  |
Volume per day (Bbl): |  |  |  | 20,000 |
Price per Bbl: |  |  |  | $ | 44.88 |
NYMEX WTI collar contracts: |  |  |  |
Volume per day (Bbl): |  |  |  | 25,000 |
Price per Bbl: |  |  |  |
Average Ceiling: |  |  |  | $ | 75.20 |
Average Floor: |  |  |  | $ | 63.24 |
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, 2022 and 2021. At September 30, 2022 and December 31, 2021, 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 Contract |  | Balance Sheet Location |  | September 30, 2022 |  | December 31, 2021
Commodity swaps |  | Accounts payable |  | $ | (84,933) |  |  | (239,882) |
Commodity collars |  | Accounts payable |  | (20,954) |  |  | (19,533) |
Commodity collars |  | Accounts receivable |  | — |  |  | 4,280 |
For the three-month and nine-month periods ended September 30, 2022 and 2021, 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 September 30, |  | Nine Months Ended September 30,
Type of Derivative Contract |  |  | 2022 |  | 2021 |  | 2022 |  | 2021
Commodity swaps |  | Gain (Loss) on derivative instruments |  | $ | 50,089 |  |  | (43,235) |  |  | $ | (152,822) |  |  | (483,865) |
Commodity collars |  | Gain (Loss) on derivative instruments |  | 65,102 |  |  | (15,929) |  |  | (155,832) |  |  | (15,929) |
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 September 30, 2022 and December 31, 2021, are presented in the following table.
|  | September 30, 2022 |  | December 31, 2021
(Thousands of dollars) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity collars |  | $ | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,280 |  |  | — |  |  | 4,280 |
|  | $ | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,280 |  |  | — |  |  | 4,280 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity swaps |  | $ | — |  |  | 84,933 |  |  | — |  |  | 84,933 |  |  | — |  |  | 239,882 |  |  | — |  |  | 239,882 |
Commodity collars |  | — |  |  | 20,954 |  |  | — |  |  | 20,954 |  |  | — |  |  | 19,533 |  |  | — |  |  | 19,533 |
Contingent consideration |  | — |  |  | — |  |  | 212,860 |  |  | 212,860 |  |  | — |  |  | — |  |  | 196,151 |  |  | 196,151 |
Nonqualified employee savings plan |  | 15,642 |  |  | — |  |  | — |  |  | 15,642 |  |  | 16,962 |  |  | — |  |  | — |  |  | 16,962 |
|  | $ | 15,642 |  |  | 105,887 |  |  | 212,860 |  |  | 334,389 |  |  | 16,962 |  |  | 259,415 |  |  | 196,151 |  |  | 472,528 |
The fair value of commodity (WTI crude oil) swaps was based on active market quotes for WTI crude oil. The fair value of commodity (WTI crude oil) collars was determined using an option pricing model. The before tax income effect of changes in the fair value of crude oil derivative contracts is recorded in Gain (Loss) on derivative instruments in the Consolidated Statements of Operations. The contingent consideration, related to 2018 and 2019 U.S. Gulf of Mexico acquisitions, is valued using a Monte Carlo simulation model. For the nine months ended September 30, 2022 and 2021, the pre-tax income effect of changes in the fair value of the contingent consideration was an expense of $98.5 million and $105.1 million respectively and is recorded in Other operating (income) expense in the Consolidated Statements of Operations. In the nine months ended September 30, 2022, the pre-tax income effect of changes in the fair value of the contingent consideration exclude cash payments of $81.7 million, which reduced the value of the contingent consideration liability. Contingent consideration is payable annually in years 2022 to 2026. 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 pre-tax 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 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, 2022 and December 31, 2021.

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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 https://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 https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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