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.

• Government take and investor returns are balanced through fiscal terms that vary by basin maturity, with PSCs remaining competitive and able to deliver attractive returns even with high government take.

• Contractors recover eligible costs first, then share remaining profits with the government, with government take increasing as profitability improves.

• PSCs provide a stable fiscal framework, incentivizing continued investment and development.

Vietnam PSC structure and mechanics

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

• Cost recovery is capped annually as a percentage of gross revenue, and all terms are block-level and contractually stabilized.

• Contractors pay royalties, taxes, and environmental charges, with stabilization clauses protecting against adverse fiscal changes.

• Block-level structuring allows costs from one field to offset profits from another, accelerating cash flow and value realization.

• 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.

Project cash flow and development strategy

• Revenue flows in a PSC 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, with profit share becoming dominant after costs are recovered.

• Entitlement production for contractors is determined by the ratio of cost recovery and profit share, varying year by year over the project life.

• Hub-and-spoke strategy enables faster cost recovery and cash flow by aggregating costs and revenues at the block level.

• Multi-field developments within a block allow new project costs to be recovered from existing production, accelerating returns.