# Dear Stockholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_MUR_2018/NYSE_MUR_2018.mmd` · pages 2-8_

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Dear Stockholders,

Over the last several years, we have taken deliberate steps that have successfully transformed Murphy into a more competitive energy company. This change demonstrates the commitment to our long-term strategy to be an oil-weighted exploration and production company with assets both onshore and offshore that are able to generate reliable cash flow.

The successful closing of an accretive, oil-weighted Gulf of Mexico transaction demonstrates our ability to execute portfolio changes that generate value. We remain committed to rewarding shareholders with returns including a longstanding dividend, while maintaining capital investments in line with cash flows. Here are some key accomplishments from 2018.

## GROWING OUR OIL-WEIGHTED PORTFOLIO

In 2018, we produced 171 thousand barrels of oil equivalent per day (Mboepd), over a four percent increase from 2017. It's comprised of 95 Mboepd from onshore unconventional assets and 76 Mboepd from offshore assets.

Our proved reserves increased to 816 million barrels of oil equivalent (Mmbboe), a 17 percent increase from the previous year. More importantly, the company's proved oil reserves increased by 24 percent. We continue to replace reserves with finding and development costs tracking below \(11 per barrel of oil equivalent (Boe) and maintaining a reserve life index of over 10 years. We have been able to lower our three-year average finding and development costs by 50 percent since 2014. The development and appraisal drilling of onshore assets, along with the Gulf of Mexico transaction, led to a total reserve replacement of 287 percent.

## EXECUTING IN GLOBAL OFFSHORE

In Murphy's offshore business, we executed a significant transaction in the Gulf of Mexico, increasing our footprint in the region and adding world-class assets. The production from these accretive assets complements our current portfolio and leverages our deep water operating expertise.

The transaction led to a 70 Mmboe increase in our Gulf of Mexico reserves, of which proved oil reserves in this asset increased approximately 150 percent. Additionally, we gained operatorship of the Chinook and Cascade fields that will add value through streamlined and enhanced operations.

We have maintained our ability to execute deep water offshore projects as demonstrated by a recent project at the Dalmatian field in the Gulf of Mexico. Our team installed a record-breaking length, multi-phase subsea pump tie-back.

Our Malaysia assets continue to generate free cash flow. The Kikeh DTU gas lift project was completed, with the next focus on a field-wide subsea gas lift project. The Block H Rotan FLNG project remains on track for first production in mid-2020.

We returned to offshore exploration with the successful Samurai project, where we have approximately 90 Mmboe of gross discovered resource. We are looking forward to our 2019 exploration plan, which calls for three wells across our global portfolio, enabling us to test over 100 Mmboe of net resource potential. In Vietnam we worked closely with PetroVietnam to obtain operatorship and increase Murphy's working interest, along with receiving the Declaration of Commerciality for the LDV field, in the Cuu Long Basin. These opportunities fit the exploration strategy of targeting low-cost entries with appropriate working interest, in focus areas that provide us with drilling opportunities over both the near and long-term. This continued attention on strategic exploration gives us yet another opportunity to create upside for our shareholders.

## DEVELOPING UNCONVENTIONAL ONSHORE ASSETS

We continued growing our onshore business in 2018, adding over 50 Mmboe to onshore reserves. Over 50 percent of our future oil-weighted onshore locations have a break-even of less than $40 per barrel.

In the Eagle Ford Shale, we continued driving down drilling and completion costs, with the cost per completed lateral foot decreasing over 10 percent from 2017. The lower completion costs are now approaching levels from 2015, while sand-per-foot volumes are up over 41 percent during the same time frame.

In Canada, the Kaybob Duvernay continued showing strong well performance, increasing production over two times year-over-year. Fourth quarter production exceeded 11,000 barrels of oil equivalent per day. We reduced lease operating expenses by over 20 percent as compared to 2017. The appraisal of the play is complete, except for the Two Creeks area, which is in the early stages with encouraging results.

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Our Tupper Montney wells continue to deliver reliable well performance along with low operating costs that are currently registering below \(0.65 per thousand cubic feet (Mcf). Even while experiencing challenging natural gas pricing, the asset was able to generate free cash flow. This is due primarily to our hedges and market diversification strategy. For the year, we realized C\)2.39 per Mcf, well above break-even levels.

Murphy remains committed to carrying out our operations safely. In 2018 the Total Recordable Incident Rate (TRIR) was unchanged from the previous year. We believe our safety record places us in top quartile performance when compared to peers. We also exceeded the goal of protecting the environment as our actual performance was favorable relative to our International Oil and Gas Producers' (IOCP) spill rate targets. Likewise, there was a modest improvement in emissions in 2017 as disclosed in our annual Emissions Inventory report. There was a reduction in emissions in our base production operations, especially following the sale of the Seal Lake assets in Canada. There are still opportunities to cost-effectively reduce emissions from our existing and future operations. As always, we continue taking the appropriate steps to make improvements in safety and environmental performance.

## MAINTAINING FINANCIAL DISCIPLINE & DELIVERING CAPITAL EFFICIENCY

The company maintained its shareholder-focused strategy by achieving the goal of spending within cash flow while preserving the company's competitive dividend yield. Our disciplined capital allocation enabled us to return 14 percent of annual operating cash flow to shareholders. The company's diversified assets drive a competitive Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) per Boe over \(25, with EBITDA per average capital employed a notable 21 percent.

Murphy's solid balance sheet underpins our financial strength. We closed on a new $1.6 billion senior unsecured revolving credit facility, with more favorable covenants than the previous credit facility. We also received rating upgrades from Moody's and Fitch. We view these upgrades as a clear indication of improved financial strength and another step in the right direction to again being investment grade.

## POSITIONING THE COMPANY FOR LONG-TERM VALUE CREATION

As we plan for 2019, we are focusing on increasing high-value production, particularly in the Eagle Ford Shale and Gulf of Mexico. We also remain dedicated to strengthening Murphy's financial position by lowering costs and repaying debt where appropriate.

Over the long term, we plan to increase production in our valuable, oil-weighted assets while continuing to generate free cash flow and return cash to shareholders through our longstanding dividend. This flexible plan enables us to endure commodity price downturns, but affords us considerable upside should oil prices move higher.

## LIVING OUR PURPOSE

Murphy is committed to the communities in which we operate. For more than half a century the company has demonstrated its dedication to positively impacting lives by supporting social development programs. Murphy has built a legacy of contributing to educational programs and institutions. In El Dorado, Arkansas for example, the company encourages academic success through the Murphy Education Program and the El Dorado Promise Scholarship Program. Also, Murphy has over half a century partnership with the United Way in the United States and Canada, with active participation in employee-led campaigns that raise funds for local communities.

## THANK YOU

In closing, I would like to thank Gene Coleman for the meaningful contributions he has made over his lengthy career at Murphy, starting as Subsea Systems Manager and culminating in his role as Executive Vice President. We wish him all the best in his retirement. I would also like to offer my sincere appreciation to our Board of Directors for their support and guidance throughout the year and thank our dedicated employees for their collective efforts to think beyond possible, bringing our strategy to life. Most of all, thank you to our loyal shareholders for supporting Murphy Oil Corporation as we envision a future where we continue to positively impact lives by working toward an inspiring future.

![](images/3_0.jpg)

Roger W. Jenkins

President and Chief Executive Officer