Murphy Oil (MUR) Status update summary

Overview of production sharing contracts (PSCs)

• PSCs balance risk and reward between governments and contractors, offering cost recovery and profit sharing mechanisms that evolve as projects mature, and were introduced as an alternative to concession agreements to attract foreign investment, first implemented in Indonesia in the 1960s and now used by about a quarter of oil-producing countries.

• PSCs reduce early-stage risk for investors by prioritizing cost recovery, allowing contractors to recoup costs before profit sharing with the government.

• Contractors recover eligible costs first, then share profits with the government, with government take increasing as project profitability rises, and fiscal terms are negotiated at the block level and include royalties, cost recovery ceilings, profit splits, and taxes.

• PSCs provide a stable contractual framework, incentivizing continued investment and development, and remain competitive, able to deliver attractive returns even with high government take.

• PSCs are widely used globally, especially in emerging petroleum provinces, and are designed to attract investment while ensuring government participation in upside.

Vietnam PSC structure and value optimization

• Vietnam PSCs use sliding scale royalties and profit shares based on production tiers, with all costs recoverable over the project life, and fiscal mechanisms at the block level include royalties, cost recovery, profit sharing, export taxes, environmental charges, and corporate tax.

• Cost recovery and profit share are calculated annually, with unrecovered costs carried forward, and block-level accounting allows new developments to recover costs from existing production, accelerating cash flow.

• Multi-field development under Vietnam's PSC enables accelerated cost recovery, earlier free cash flow, and improved project economics by leveraging cash flows from mature assets to support new developments.

• Hub-and-spoke strategy leverages block-level cost recovery to optimize free cash flow and shareholder value.

• PSCs in Vietnam include stabilization clauses to protect contractors from adverse fiscal changes.

Financial modeling, cash flow, and project economics

• Example PSC model assumes 5% royalty, 50% cost recovery ceiling, and 50/50 profit split, with costs recovered over time, and revenue flows involve deducting exploration, development, and operating costs, followed by royalty, cost recovery, profit share, and income tax allocations.

• Early project years focus on cost recovery, shifting to profit share as costs are recovered, with entitlement production determined by the ratio of cost recovery and profit share, varying year by year.

• Entitlement production is stable year-over-year, with reporting to begin for Vietnam in Q4.

• PSCs dampen cash flow volatility across commodity cycles, providing resilience compared to concession regimes, with tiered profit sharing and prioritized cost recovery limiting project value variability.

• Portfolio strategy combines PSC and concession assets for balanced returns and durability.