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Assets and Liabilities Measured at Fair Value | 12 Months Ended
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Dec. 31, 2022
Fair Value Disclosures [Abstract] |
Assets and Liabilities Measured at Fair Value | Note P – Assets and Liabilities Measured at Fair Value 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 December 31, 2022 and 2021 are presented in the following table.
| December 31, 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 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonqualified employee savings plan | $ | 15,135 |  |  | $ | — |  |  | $ | — |  |  | $ | 15,135 |  |  | $ | 16,962 |  |  | $ | — |  |  | $ | — |  |  | $ | 16,962 |
Commodity collars | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 19,533 |  |  | — |  |  | 19,533 |
Contingent consideration | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 196,151 |  |  | 196,151 |
Commodity swaps | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 239,882 |  |  | — |  |  | 239,882 |
| $ | 15,135 |  |  | $ | — |  |  | $ | — |  |  | $ | 15,135 |  |  | $ | 16,962 |  |  | $ | 259,415 |  |  | $ | 196,151 |  |  | $ | 472,528 |
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. As of December 31, 2022, there were no outstanding commodity (WTI crude oil) swaps and collars contracts subject to fair value measurement. The liabilities associated with these contracts have been finalized as of December 31, 2022 and were based on realized WTI pricing. The commodity swaps and collars liability as of December 31, 2022 was $19.6 million and $2.3 million, respectively, and recorded as “Accounts payable” in the Consolidated Balance Sheet. The fair value of the commodity (WTI crude oil) swaps in 2021 was based on active market quotes for WTI crude oil. The fair value of commodity (WTI crude oil) collars in 2021 was determined using an option pricing model based on inputs that include (i) the contracted notional volumes, (ii) independent active market price quotes, (iii) the applicable estimated risk-free rate yield curve and (iv) the implied rate of volatility inherent in the collar contract. The before tax income effect of changes in fair value of crude oil derivative contracts is recorded in “(Loss) Gain on derivative instruments” 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 has an obligation to pay additional contingent consideration of up to $200 million in the event that certain revenue thresholds are 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 has an obligation to pay additional contingent consideration of up to $150 million if certain price and production thresholds are 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 are 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 at December 31, 2022, the Company’s liabilities with PAI and LLOG were based on realized inputs of volumes and pricing as a result of contractual thresholds and time durations being achieved. As a result, the related liability as at December 31, 2022, of $192.7 million, is no longer subject to fair value measurement. The liability is included in “Other accrued liabilities” in the Consolidated Balance Sheets and the changes in fair value of the contingent consideration during 2022 were recorded in “Other income (expense)” in the Consolidated Statements of Operations. For 2021 the Company’s contingent consideration liabilities with PAI and LLOG were measured at fair value on a recurring basis and were categorized as Level 3 in the fair value hierarchy as at December 31, 2021. The contingent consideration liabilities were valued using a Monte Carlo simulation model, which used the following assumptions as of December 31, 2021: (i) the remaining expected life of 1 year for LLOG and 4 years for PAI, (ii) West Texas Intermediate forward strip pricing with historical volatility of 9.9% and (iii) a risk-free interest rate of 1.49%. 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 December 31, 2022 and 2021. The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at December 31, 2022 and 2021. 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. 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, was nominal.
| December 31,
| 2022 |  | 2021
(Thousands of dollars) | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Financial assets (liabilities): |  |  |  |  |  |  |
Current and long-term debt | $ | (1,823,139) |  |  | $ | (1,668,216) |  |  | $ | (2,466,068) |  |  | $ | (2,666,773) |
Fair Values – Nonrecurring There was no impairment expense incurred in 2022. In 2021, an impairment charge of $171.3 million was triggered when the operator at Terra Nova provided notice of abandonment in the first quarter of 2021, before a commercial resolution in the third quarter of 2021 led Murphy to acquire an additional 7.525% in a commercial settlement with the other partners. The commercial resolution would have meant the Terra Nova impairment charge was not required. In the fourth quarter of 2021, a further impairment charge of $25 million was recorded on non-core assets. The fair value information associated with the 2021 impaired properties is presented in the following table.
| Year Ended December 31,
|  |  |  |  |  |  | Net Book Value Prior to Impairment |  | Total Pretax Impairment
| Fair Value |  |
(Thousands of dollars) | Level 1 |  | Level 2 |  | Level 3 |  |
2021 |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |
Impaired proved properties |  |  |  |  |  |  |  |  |
U.S. Offshore | $ | — |  |  | $ | — |  |  | $ | 156,185 |  |  | $ | 327,481 |  |  | $ | 171,296 |
Other Foreign | — |  |  | — |  |  | 25,739 |  |  | 43,739 |  |  | 18,000 |
Corporate | — |  |  | — |  |  | 36,994 |  |  | 43,994 |  |  | 7,000 |

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI https://asc.fasb.org/topic&trid=2155941 + Details
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