Item 1. BUSINESS

Summary

Murphy Oil Corporation is a worldwide oil and gas exploration and production company with refining and marketing operations in the United States and the United Kingdom. As used in this report, the terms Murphy, Murphy Oil, we, our, its and Company may refer to Murphy Oil Corporation or any one or more of its consolidated subsidiaries.

The Company was originally incorporated in Louisiana in 1950 as Murphy Corporation. It was reincorporated in Delaware in 1964, at which time it adopted the name Murphy Oil Corporation, and was reorganized in 1983 to operate primarily as a holding company of its various businesses. Its operations are classified into two business activities: (1) “Exploration and Production” and (2) “Refining and Marketing.” For reporting purposes, Murphy’s exploration and production activities are subdivided into six geographic segments, including the United States, Canada, Malaysia, the United Kingdom, Republic of the Congo and all other countries. Murphy’s refining and marketing activities are subdivided into segments for United States Manufacturing, United States Marketing and the United Kingdom. Additionally, “Corporate” activities include interest income, interest expense, foreign exchange effects and administrative costs not allocated to the segments.

The information appearing in the 2010 Annual Report to Security Holders (2010 Annual Report) is incorporated in this Form 10-K report as Exhibit 13 and is deemed to be filed as part of this Form 10-K report as indicated under Items 1, 2 and 7.

In addition to the following information about each business activity, data about Murphy’s operations, properties and business segments, including revenues by class of products and financial information by geographic area, are provided on pages 19 through 36, F-16 and F-17, F-41 through F-50 and F-52 of this Form 10-K report and on pages 5 and 6 of the 2010 Annual Report.

At December 31, 2010, Murphy had 8,994 employees, including 3,460 full-time and 5,534 part-time.

Interested parties may obtain the Company’s public disclosures filed with the Securities and Exchange Commission (SEC), including Form 10-K, Form 10-Q, Form 8-K and other documents, by accessing the Investor Relations section of Murphy Oil Corporation’s Web site at www.murphyoilcorp.com.

Exploration and Production

The Company’s exploration and production business explores for and produces crude oil, natural gas and natural gas liquids worldwide. The Company’s exploration and production management team in Houston, Texas, directs the Company’s worldwide exploration and production activities.

During 2010, Murphy’s principal exploration and production activities were conducted in the United States by wholly owned Murphy Exploration & Production Company – USA (Murphy Expro USA), in Malaysia, Republic of the Congo, Indonesia, Suriname, Australia, Brunei and the Kurdistan region of Iraq by wholly owned Murphy Exploration & Production Company – International (Murphy Expro International) and its subsidiaries, in Western Canada and offshore Eastern Canada by wholly owned Murphy Oil Company Ltd. (MOCL) and its subsidiaries, and in the U.K. North Sea and the Atlantic Margin by wholly owned Murphy Petroleum Limited. Murphy’s crude oil and natural gas liquids production in 2010 was in the United States, Canada, Malaysia, the United Kingdom and Republic of the Congo; its natural gas was produced and sold in the United States, Canada, Malaysia and the United Kingdom. MOCL owns a 5% undivided interest in Syncrude Canada Ltd. in northern Alberta, one of the world’s largest producers of synthetic crude oil.

Unless otherwise indicated, all references to the Company’s oil and gas production volumes and proved oil and gas reserves are net to the Company’s working interest excluding applicable royalties.

Murphy’s worldwide crude oil, condensate and natural gas liquids production in 2010 averaged 126,927 barrels per day, a decrease of 4% compared to 2009. The decrease was primarily due to lower 2010 oil production at the Kikeh field, offshore Sabah Malaysia. The Company’s worldwide sales volume of natural gas averaged almost 357 million cubic feet (MMCF) per day in 2010, up more than 90% from 2009 levels. The higher natural gas sales volume in 2010 was primarily attributable to increased natural gas production in three areas, the most significant of which was in Blocks SK 309/311,

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offshore Sarawak Malaysia. The other two primary growth areas for natural gas production in 2010 were at Tupper in British Columbia, Canada, and at the Kikeh field, offshore Sabah Malaysia. Total worldwide 2010 production on a barrel of oil equivalent basis (six thousand cubic feet of natural gas equals one barrel of oil) was 186,394 barrels per day, an increase of 14% compared to 2009.

Total production in 2011 is currently expected to average between 200,000 and 210,000 barrels of oil equivalent per day. The projected production increase of between 7% and 13% in 2011 is primarily related to new natural gas production at the Tupper West area in Western Canada that commenced in February 2011. These volumes will more than offset anticipated production declines in 2011 at fields in the Gulf of Mexico, and lower volumes associated with downtime for well maintenance at the Kikeh field, offshore Malaysia, and downtime for equipment maintenance at Terra Nova, offshore Newfoundland. Production levels in the Gulf of Mexico for Murphy, and likely many other companies, are being adversely affected by the inability to obtain government permits for drilling and well maintenance operations following the Macondo well blowout and oil spill by another company in 2010.

United States

In the United States, Murphy has production of oil and/or natural gas from six fields operated by the Company and five fields operated by others. The U.S. producing fields at December 31, 2010 include eight in the deepwater Gulf of Mexico, two onshore in Louisiana, and the Eagle Ford Shale area of South Texas. The Company produced approximately 20,100 barrels of oil per day and 53 million cubic feet of natural gas per day in the U.S. in 2010. These amounts represented 16% of the Company’s total worldwide oil and 15% of worldwide natural gas production volumes. During 2010, over 60% of total U.S. hydrocarbon production was produced at two operated Gulf of Mexico fields – Thunder Hawk and Medusa. Murphy has a 37.5% working interest in the Thunder Hawk field in Mississippi Canyon Block 734. Oil and natural gas production commenced at Thunder Hawk in July 2009 and during 2010 averaged about 9,800 barrels of oil per day and 9 MMCF per day. Production in 2011 at Thunder Hawk is expected to average approximately 5,500 barrels of oil per day and 8 MMCF per day. The lower 2011 production at Thunder Hawk is due to well decline and the inability to perform drilling operations since the Macondo incident in 2010. Proved oil and natural gas reserves at Thunder Hawk at year-end 2010 were 4.7 million barrels and 7.3 billion cubic feet, respectively. The Company holds a 60% interest at Medusa in Mississippi Canyon Blocks 538/582, which produced total daily oil and natural gas of about 5,500 barrels and 5 MMCF, respectively, in 2010. Production from Medusa is expected to continue to decline in 2011 and should average 4,300 barrels of oil and about 4 MMCF of natural gas on a daily basis. At December 31, 2010, the Medusa field has total proved oil and natural gas reserves of approximately 5.7 million barrels and 8.7 billion cubic feet, respectively. The Company has acquired rights to significant acreage in South Texas in the Eagle Ford Shale unconventional oil and gas play. The Company has drilled 17 wells through year-end 2010 of which 11 wells are capable of producing and the remaining six wells are pending completion. Initial well results in the Eagle Ford play have been encouraging. Current plans are to drill approximately 40 wells here in 2011. Total daily net production in 2011 in the Eagle Ford area is expected to amount to 4,300 barrels of oil and 13 MMCF of gas. Total U.S. oil and natural gas reserves at December 31, 2010 were 26.6 million barrels and 90.8 billion cubic feet, respectively.

Subsequent to the Macondo incident in April 2010, the process for obtaining drilling and other operational permits in the Gulf of Mexico has become uncertain. The changes to the permitting process, as well as operational procedures, are expected to cause delays and more expense associated with drilling operations in the Gulf of Mexico. Therefore, the Company anticipates that its production, and likely many other companies’ production, will decline in the Gulf of Mexico during 2011 and possibly into 2012. The Company is unable to predict to what extent these delays and new processes will ultimately impact its operations in the Gulf of Mexico.

Canada

In Canada, the Company owns an interest in three significant nonoperated assets – the Hibernia and Terra Nova fields offshore Newfoundland in the Jeanne d’Arc Basin and Syncrude Canada Ltd. in northern Alberta. In addition, the Company owns interests in one heavy oil area, two significant natural gas areas and light oil prospective acreage in the Western Canadian Sedimentary Basin (WCSB).

Murphy has a 6.5% working interest in Hibernia, while at Terra Nova the Company’s working interest has historically been 12.0%. The joint agreement between owners of Terra Nova required a one-time redetermination of working interests based on an analysis of reservoir quality among fault separated areas where varying ownership interests exist. The redetermination process was essentially completed in 2010 and the Company’s working interest was reduced to 10.475% effective January 1, 2011. The Company has recorded cumulative expense of $102.1 million through 2010 based on the anticipated settlement of the working interest reduction. The Company made a settlement payment to certain Terra Nova partners in January 2011 for the value of oil sold since about December 2004 related to the difference between the Company’s 10.475% ultimate working interest and its original 12.0% interest.

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Oil production in 2010 was about 6,300 barrels of oil per day at Hibernia and 5,200 barrels per day at Terra Nova. Hibernia production increased slightly in 2010 due to higher gross production mostly offset by a higher royalty rate, while production at Terra Nova declined primarily due to lower gross production. Oil production for 2011 at Hibernia is anticipated to be approximately 5,900 barrels per day and production at Terra Nova is expected to decline to approximately 3,000 barrels per day due to a scheduled 105 day turnaround. Total proved oil reserves at December 31, 2010 at Hibernia and Terra Nova were approximately 9.5 million barrels and 6.4 million barrels, respectively.

Murphy owns a 5% undivided interest in Syncrude Canada Ltd., a joint venture located about 25 miles north of Fort McMurray, Alberta. Syncrude utilizes its assets, which include three coking units, to extract bitumen from oil sand deposits and to upgrade this bitumen into a high-value synthetic crude oil. Production in 2010 was about 13,300 barrels of synthetic crude oil per day and is expected to average about 14,000 barrels per day in 2011. The SEC issued revised reserve rules in 2009 that permitted the reporting of proved reserves for synthetic oil operations beginning at year-end 2009. Prior to that time, the SEC considered Syncrude to be a mining operation rather than a conventional oil operation and therefore, did not allow the Company to include Syncrude’s reserves in its total proved oil reserves. Total proved reserves for Syncrude at year-end 2010 were 129.2 million barrels.

Daily production in 2010 in the WCSB averaged about 6,000 barrels of mostly heavy oil and about 85 MMCF of natural gas. Through 2010, the Company has acquired approximately 130,000 net acres of mineral rights in northeastern British Columbia in areas named Tupper and Tupper West. First production of natural gas occurred at Tupper in December 2008. The Company’s Board of Directors sanctioned development of Tupper West in 2009 and first production of natural gas occurred in February 2011. Oil and natural gas daily production for 2011 in Western Canada, excluding Syncrude, is expected to be about 8,600 barrels and 180 MMCF, respectively, with the increase in natural gas volumes primarily due to start-up of production at Tupper West in February 2011. Total Western Canada proved oil and natural gas reserves at December 31, 2010, excluding Syncrude, were 16.9 million barrels and 321.7 billion cubic feet, respectively.

During 2010, the Company added approximately 147,000 gross acres of land in Southern Alberta that is prospective for light oil. The Company began drilling operations on this acreage in early 2011. Additional wells are planned throughout 2011 to test various formations.

Malaysia

In Malaysia, the Company has majority interests in six separate production sharing contracts (PSCs). The Company serves as the operator of all these areas, which cover approximately 6.7 million gross acres. Murphy has an 85% interest in discoveries made in two shallow-water blocks, SK 309 and SK 311, offshore Sarawak. In January 2010, Murphy relinquished all other acreage in Blocks SK 309 and SK 311, while retaining the acreage surrounding its producing oil and gas fields as well as areas surrounding its other discoveries planned for future development. About 5,300 barrels of oil per day were produced in 2010 at Block SK 309/311, mostly at the West Patricia field. Oil production in 2011 at fields in Blocks SK 309/311 is anticipated to total about 5,300 barrels of oil per day. The Company has a gas sales contract for the Sarawak area with PETRONAS, the Malaysian state-owned oil company, and has prepared a multi-phase development plan for several natural gas discoveries on these blocks. The gas sales contract allows for gross sales volumes of up to 250 million cubic feet per day through 2014, with an option to extend for seven years at 250 million cubic feet per day or for ten years at 350 million cubic feet per day. Total natural gas sales volume offshore Sarawak was about 155 MMCF per day during 2010 (gross 210 MMCF per day) following gas production start-up in September 2009. Sarawak natural gas sales volumes are anticipated to be approximately 171 MMCF per day in 2011. Total proved reserves of oil and natural gas at December 31, 2010 for Blocks SK 309/311 were 5.8 million barrels and 348.1 billion cubic feet, respectively.

The Company made a major discovery at the Kikeh field in deepwater Block K, offshore Sabah, in 2002 and added another important discovery at Kakap in 2004. Several additional discoveries have been made in Block K at other areas. In 2006, the Company relinquished a portion of Block K and was granted a 60% interest in an extension of a portion of Block K. Total gross acreage held by the Company in Block K as of December 31, 2010 was 1.01 million acres. The Company retained its 80% interest at Kikeh, Kakap and other discoveries in Block K. First oil production from Kikeh began in August 2007, less than five years after the initial discovery. Production volumes at Kikeh averaged 61,600 barrels of oil per day during 2010. Oil production at Kikeh is anticipated to average approximately 57,000 barrels per day for 2011. In February 2007, the Company signed a Kikeh field natural gas sales contract with PETRONAS that calls for gross sales volumes of up to 120 million cubic feet per day through June 2012. Natural gas production at Kikeh began in late 2008,

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and 2010 production totaled approximately 58 MMCF per day. Daily gas production in 2011 at Kikeh is expected to be similar to 2010 levels. The Kakap field in Block K is operated by another company. This field is being jointly developed with the Gumusut field owned by others. Kakap development activities continued during 2010 and first production is anticipated in 2013. The Siakap North oil discovery was made in 2009; the field will be a unitized development and appraisal commenced in 2010. Total proved reserves booked in Block K as of year-end 2010 were 92.6 million barrels of oil and 85.9 billion cubic feet of natural gas.

In early 2006, the Company added a 60% interest in a PSC covering Block P, which includes 1.05 million gross acres of the previously relinquished Block K area, offshore Sabah. The Company also has an interest in deepwater Block H offshore Sabah. In early 2007, the Company announced a significant natural gas discovery at the Rotan well in Block H. In early 2008, the Company followed up Rotan with a discovery at Biris. In March 2008, the Company renewed the contract for Block H at a 60% interest while retaining 80% interest in the Rotan and Biris discoveries. In 2010 another natural gas discovery was made in Block H at Dolfin. Total gross acreage held at year-end 2010 by the Company in Block H was 1.99 million acres.

Murphy has a 75% interest in gas holding agreements for Kenarong and Pertang discoveries made in Block PM 311, located offshore peninsular Malaysia. Development options are being studied for these discoveries. Murphy relinquished its remaining interests in Block PM 311 and all of adjacent Block PM 312 in 2007.

The Company was awarded interests in two PSCs covering deepwater Blocks L (60%) and M (70%) in 2003. On April 7, 2010, the PSCs for Blocks L and M were terminated following execution of an Exchange of Letters between Malaysia and the Sultanate of Brunei on March 16, 2009. See further discussion about this exploration area in the Brunei section on page 5.

United Kingdom

Murphy produces oil and natural gas in the United Kingdom sector of the North Sea. Total 2010 production in the U.K. amounted to about 3,300 barrels of oil per day and 5 MMCF of natural gas per day. Total 2011 daily production levels in the U.K. are anticipated to average about 4,000 barrels of oil and 5 MMCF of natural gas. Total proved reserves in the U.K. at December 31, 2010 were 10.9 million barrels of oil and 31.4 billion cubic feet of natural gas.

Republic of the Congo

The Company has interests in Production Sharing Agreements (PSA) covering two offshore blocks in Republic of the Congo – Mer Profonde Sud (MPS) and Mer Profonde Nord (MPN). The Company’s interests cover approximately 1.33 million gross acres with water depths ranging from 490 to 6,900 feet, and the Company serves as operator of both blocks. In 2005, Murphy made an oil discovery at Azurite Marine #1 in the southern block, MPS. The Company successfully followed up the Azurite discovery with other appraisal wells. First oil production occurred at the Azurite field in August 2009. Total oil production in 2010 averaged 5,800 barrels per day at Azurite. Anticipated production in 2011 is 8,300 barrels per day, with the increase caused by additional producing wells in late 2010. Total proved oil reserves at the Azurite field as of December 31, 2010 were 10.1 million barrels. In late 2007, the Company sold down its interest in the MPS block, including the Azurite field, from 85% to 50%. Sale proceeds received were $94.5 million, including contingent amounts earned in 2009 upon achieving certain financial and operating goals for Azurite field development. In addition, the Company received a partial carry for costs for two exploration wells in MPS that were drilled in 2009, one of which was a discovery known as Turquoise Marine. Two subsequent wells at Turquoise and one at another prospect were unsuccessful. Further drilling activities are being planned for the Turquoise discovery area. A wildcat well drilled at Titane Marine in 2010 in the MPN block found accumulations of crude oil for which appraisal plans are pending. Development options are currently being studied. Other prospects in the MPN and MPS blocks are being evaluated and exploration wells are planned for 2011 and 2012.

In late 2010, the Company successfully negotiated an amendment to the PSA covering the MPS block. The new terms were officially approved in February 2011 and are effective retroactive to October 1, 2010. Essentially, the PSC amendment calls for revised terms that will permit additional levels of crude oil production to be allocated to the accounts of the Company and its non-government partners in future periods. The Company is also required to pay a bonus to Republic of the Congo in connection with the PSA amendment.

Suriname

In June 2007, Murphy entered into a production sharing contract covering Block 37, offshore Suriname. Murphy operates this block and has a 100% working interest, subject to a potential reduction to 80% should the state oil company exercise

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its option. Block 37 covers approximately 2.16 million gross acres and has water depths ranging from 160 to 1,000 feet. In the acreage table on page 8, the Company has reflected net acreage for Suriname as if the state company’s option will be exercised. The contract provides for a six-year exploration period with two phases. Phase I has a four-year period that requires the acquisition of 3D seismic and the drilling of two wells. The 3D seismic was shot in late 2008 and early 2009, and interpretation of this data occurred in 2009. The first exploration well was drilled in late 2010 and was unsuccessful. A second exploration well will be drilled in early 2011.

Australia

The Company acquired a 40% interest and operatorship of an exploration permit covering approximately 1.00 million gross acres in Block AC/P36 in the Browse Basin offshore northwestern Australia in November 2007. Three-dimensional seismic data was obtained in late 2007 and drilling of a commitment exploration well in late 2008 was unsuccessful. In November 2008, the Company acquired a 70% working interest and operatorship of a second Browse Basin exploration permit in Block WA-423-P. Murphy farmed down its interest in WA-423-P to 40% in the first quarter of 2009. This permit covers approximately 1.43 million gross acres and calls for a 3D seismic survey and one exploration well, which is expected to be drilled in 2011. In June 2009, the Company acquired a 70% interest and operatorship of Block NT/P80 in the Bonaparte Basin, offshore northwestern Australia. The block covers approximately 1.21 million gross acres and reprocessing of seismic covering the area has been completed. In 2010, the Company sold down its interest in this block to 40%.

Indonesia

In May 2008, the Company entered into a production sharing contract in Indonesia covering a 100% interest in the South Barito block in south Kalimantan on the island of Borneo. The block covers approximately 1.24 million gross acres. The contract permits a six-year exploration term with an optional four-year extension. The work commitment calls for geophysical work, 2D seismic acquisition and processing, and two exploration wells. The contract requires relinquishment of 25% of acreage after three years and an additional 55% after six years. In November 2008, Murphy entered into a production sharing contract in the Semai II Block offshore West Papua. The Company has a 28% interest in the block which covers about 835,000 gross acres. The permit calls for a 3D seismic program and three exploration wells. The first exploration well in the Semai II Block was being drilled in early 2011. In December 2010, Murphy entered into a production sharing contract in the Wokam II Block offshore West Papua, Moluccas and Papua. Murphy has a 100% interest in the block which covers 1.22 million gross acres. The three-year work commitment calls for geophysical and 3D seismic acquisition and processing. Murphy is the operator of the South Barito, Semai II and Wokam II concessions.

Brunei

In late 2010, the Company entered into two production sharing agreements for properties offshore Brunei. The Company has a 5% working interest in Block CA-1 and a 30% working interest in Block CA-2. These blocks cover a significant portion of acreage formerly held by the Company in Malaysia Blocks L and M. The Malaysian Production Sharing Contracts covering Blocks L and M were terminated in early 2010. The CA-1 and CA-2 blocks cover 1.45 million and 1.49 million gross acres, respectively.

Kurdistan region of Iraq

In late 2010, the Company finalized an agreement with the Kurdistan Regional Government in Iraq to acquire an interest in the Central Dohuk Block. The Company will operate and hold a 50% interest in the block. The Central Dohuk block covers approximately 153 thousand gross acres and is located in the Dohuk area of the Kurdistan region in Iraq. The Company plans to shoot seismic in 2011 with an exploration well to follow in 2012.

Ecuador

Murphy sold its 20% working interest in Block 16, Ecuador in March 2009. The Company has accounted for all Ecuador operations as discontinued operations. In October 2007, the government of Ecuador passed a law that increased its share of revenue for sales prices that exceed a base price (about $23.36 per barrel at December 31, 2008) from 50% to 99%. The government had previously enacted a 50% revenue sharing rate in April 2006. The Company has initiated arbitration proceedings against the government claiming that they did not have the right under the contract to enact the revenue sharing provision. In 2010, the arbitration panel determined that it lacked jurisdiction over the claim due to technicalities. The arbitration is expected to be refiled in 2011 and is likely to take many months to reach conclusion. The Company’s total claim in the arbitration process is approximately $118 million.

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Total proved oil and gas reserves as of December 31, 2010 are presented in the following table.

Proved Undeveloped Reserves

Murphy’s proved undeveloped reserves at December 31, 2010 increased 7.0 million barrels of oil equivalent (MMBOE) from a year earlier. Approximately 33.6 MMBOE of proved undeveloped reserves were converted to proved developed reserves during 2010. The majority of the proved undeveloped reserves migration to the proved developed category occurred at the Sarawak gas fields and in the Tupper and Tupper West gas areas, as these areas had active development work ongoing during the year. The conversion of non-proved reserves to newly reported proved undeveloped reserves occurred at several areas including, but not limited to, the Tupper, Tupper West and Eagle Ford Shale areas and the Kikeh field. During 2010, there were 15.9 MMBOE of positive revisions for proved undeveloped reserves. The majority of proved undeveloped reserves additions associated with revisions of previous estimates were the result of development drilling and well performance at the Kikeh field in Malaysia. The Company spent $399 million in 2010 to convert proved undeveloped reserves to proved developed reserves. The Company expects to spend about $961 million in 2011, $346 million in 2012 and $136 million in 2013 to move currently undeveloped proved reserves to the developed category. The higher level of spend in 2011 is caused by significant drilling in the year at Kikeh field and in the Tupper and Tupper West areas. In computing MMBOE, natural gas is converted to equivalent barrels of oil using a ratio of six thousand cubic feet (MCF) to one barrel of oil.

At December 31, 2010, proved reserves are included for several development projects that are ongoing, including natural gas developments at the Tupper West area in British Columbia and offshore Sarawak in Malaysia, and an oil development at Kakap, offshore Sabah Malaysia. Total proved undeveloped reserves associated with various development projects at December 31, 2010 were approximately 109 million barrels of oil equivalents, which is 24% of the Company’s total proved reserves. Certain of these development projects have proved undeveloped reserves that will take more than five years to bring to production. Two such projects have significant levels of such proved undeveloped reserves. The Company operates a deepwater field in the Gulf of Mexico that has two undeveloped locations that exceed this five-year window. Total reserves associated with the two wells amount to less than 2% of the Company’s total proved reserves at year-end 2010. The development of certain of this field’s reserves stretches beyond five years due to limited well slots available on the production platform, thus making it necessary to wait for depletion of other wells prior to initiating further development of these two locations. The Kakap field oil development project has undeveloped proved reserves that make up approximately 3% of the Company’s total proved reserves at year-end 2010. This non-operated project will take longer than five years to develop due to long lead-time equipment required to complete the development process.

Murphy Oil’s Reserves Processes and Policies

Murphy provides annual training to all company reserve estimators to ensure SEC requirements associated with reserve estimation and associated Form 10-K reporting are fulfilled. The training includes a Company manual provided to each participant that outlines the latest guidance from the SEC as well as best practices for many engineering and geologic matters related to reserve estimation.

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The Company employs a Manager of Corporate Reserves (Manager) who is independent of the Company’s oil and gas management. The Manager reports to a Senior Vice President of Murphy Oil Corporation, who in turn reports directly to the President of the Company. The Manager makes presentations to the Board of Directors periodically about the Company’s reserves. The Manager reviews and discusses reserves estimates directly with the Company’s reservoir engineering staff in order to make every effort to ensure compliance with the rules and regulations of the SEC and industry. The Manager coordinates and oversees internal reserves audits. These audits are performed annually and target coverage of approximately one-third of Company reserves each year. The audits are performed by the Manager and qualified engineering staff from areas of the Company other than the area being audited. The Manager may also utilize qualified independent reserves consultants to assist with the internal audits or to perform separate audits as considered appropriate. The Company does not rely on independent reserves consultants to determine its proved reserves reported in this Form 10-K.

Each significant exploration and production office maintains one or more Qualified Reserve Estimators (QRE) on staff. The QRE is responsible for estimating and evaluating reserves and other reserves information for his or her assigned area. The QRE may personally make the estimates and evaluations of reserves or may supervise and approve the estimation and evaluation thereof by others. A QRE is professionally qualified to perform these reserves estimates due to having sufficient educational background, professional training and professional experience to enable him or her to exercise prudent professional judgment. Normally, this requires a minimum of three years practical experience in petroleum engineering or petroleum production geology, with at least one year of such experience being in the estimation and evaluation of reserves, and either a bachelors or advanced degree in petroleum engineering, geology or other discipline of engineering or physical science from a college or university of recognized stature, or the equivalent thereof from an appropriate government authority or professional organization.

Larger Company offices also employ a Regional Reserves Coordinator (RRC) who supervises the local QREs. The RRC is usually a senior QRE that has the primary responsibility for coordinating and submitting reserves information to senior management.

The Company’s QREs maintain files containing pertinent data regarding each significant reservoir. Each file includes sufficient data to support the calculations or analogies used to develop the values. Examples of data included in the file, as appropriate, include: production histories; pertinent drilling and workover histories; bottom hole pressure data; volumetric, material balance, analogy or other pertinent reserve estimation data; production performance curves; narrative descriptions of the methods and logic used to determine reserves values; maps and logs; and a signed copy of the conclusion of the QRE stating, that in their opinion, the reserves have been calculated, reviewed, documented and reported in compliance with the regulations and guidelines contained in the reserves training manual. The Company’s reserves are maintained in an industry recognized reservoir engineering software system, which has adequate access controls to avoid the possibility of improper manipulation of data.

When reserves calculations are completed by QREs and appropriately reviewed by RRCs and the Manager, the conclusions are reviewed and discussed with the head of the Company’s exploration and production business and other senior management as appropriate. The Company’s Controller’s department is responsible for preparing and filing reserves schedules within Form 10-K.

Qualifications of Manager of Corporate Reserves

The Company believes that it has qualified employees generating oil and gas reserves. Mr. Brad Gouge serves as Manager of Corporate Reserves after joining the Company in mid-2008. Prior to that time, Mr. Gouge was Vice President of a major petroleum engineering consulting firm. He previously was a reservoir and production engineer with a major integrated oil company. Mr. Gouge earned a Bachelors of Science degree in Petroleum Engineering from Texas A&M University and has attended numerous industry training courses. Mr. Gouge is a registered Professional Engineer in the state of Texas and is an instructor for a Society of Petroleum Engineers (SPE) Petroleum Reserves course. He is also co-author of two papers on reservoir engineering which have been published by the SPE.

More information regarding Murphy’s estimated quantities of proved oil and gas reserves for the last three years are presented by geographic area on pages F-46 and F-47 of this Form 10-K report. Murphy has not filed and is not required to file any estimates of its total proved oil or gas reserves on a recurring basis with any federal or foreign governmental regulatory authority or agency other than the U.S. Securities and Exchange Commission. Annually, Murphy reports gross reserves of properties operated in the United States to the U.S. Department of Energy; such reserves are derived from the same data from which estimated proved reserves of such properties are determined.

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Crude oil, condensate and gas liquids production and sales, and natural gas sales by geographic area with weighted average sales prices for each of the seven years ended December 31, 2010 are shown on page 5 of the 2010 Annual Report. In 2010, the Company’s production of oil and natural gas represented approximately 0.1% of worldwide totals.

Production expenses for the last three years in U.S. dollars per equivalent barrel are discussed beginning on page 26 of this Form 10-K report. For purposes of these computations, natural gas sales volumes are converted to equivalent barrels of oil using a ratio of six MCF of natural gas to one barrel of oil.

Supplemental disclosures relating to oil and gas producing activities are reported on pages F-44 through F-52 of this Form 10-K report.

At December 31, 2010, Murphy held leases, concessions, contracts or permits on developed and undeveloped acreage as shown by geographic area in the following table. Gross acres are those in which all or part of the working interest is owned by Murphy. Net acres are the portions of the gross acres attributable to Murphy’s interest.

Certain acreage held by the Company will expire in the next three years. Scheduled expirations in 2011 include 401 thousand net acres in Block AC/P36, Australia; 279 thousand acres in South Barito and 75 thousand net acres in Semai II in Indonesia; 346 thousand net acres in Block 37 Suriname; 563 thousand net acres in Block K Malaysia; 356 thousand net acres in Block H Malaysia; and 448 thousand net acres in Blocks MPS and MPN in Republic of the Congo. In 2012, 82 thousand net acres expire in Blocks SK 309 and SK 311 Malaysia; 36 thousand net acres expire in Block PM 311 in Malaysia; and 182 thousand net acres expire in the United States. In 2013, 841 thousand net acres expire in Block H Malaysia; 627 thousand net acres expire in Block P Malaysia; and 161 thousand net acres expire in the United States.

As used in the three tables that follow, “gross” wells are the total wells in which all or part of the working interest is owned by Murphy, and “net” wells are the total of the Company’s fractional working interests in gross wells expressed as the equivalent number of wholly owned wells.

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The following table shows the number of oil and gas wells producing or capable of producing at December 31, 2010.

Murphy’s net wells drilled in the last three years are shown in the following table.

Murphy’s drilling wells in progress at December 31, 2010 are shown below.

Refining and Marketing

The Company’s refining and marketing businesses are located in the United States and the United Kingdom, and primarily consist of operations that refine crude oil and other feedstocks into petroleum products such as gasoline and distillates, buy and sell crude oil and refined products, and transport and market petroleum products. The Company has announced its intention to sell its U.S. refineries and U.K. refining and marketing operations in 2011. The Company acquired an ethanol production facility in North Dakota during 2009, and also purchased an unfinished ethanol production facility in Texas in 2010.

Murphy Oil USA, Inc. (MOUSA), a wholly owned subsidiary of Murphy Oil Corporation, owns and operates two refineries in the United States. The larger of its U.S. refineries is at Meraux, Louisiana, on the Mississippi River approximately 10 miles southeast of New Orleans. The Company owns a smaller refinery at Superior, Wisconsin. Both U.S. refineries are located on fee land. Murco Petroleum Limited (Murco), a wholly owned U.K. subsidiary, owns 100% interest in a refinery at Milford Haven, Wales, which is primarily located on fee land. Murco acquired the remaining 70% of the Milford Haven refinery that it did not already own on December 1, 2007.

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Refinery capacities at December 31, 2010 are shown in the following table.

In 2003, Murphy expanded the refinery at Meraux, Louisiana. The expansion included a new hydrocracker unit; an increase of the crude oil processing capacity to 125,000 barrels per stream day (b/sd); an increase to the naphtha hydrotreating capacity to 35,000 b/sd; an increase to the catalytic reforming capacity to 32,000 b/sd; construction of a new sulfur recovery complex, with amine regeneration, sour water stripping and high efficiency sulfur recovery; a new central control room; and two new utility boilers. In 2010, a new laboratory was completed and various units were debottlenecked at Meraux. The Meraux refinery underwent a full plant turnaround in early 2010. At the Superior, Wisconsin, refinery, the Company completed the addition of a fluid catalytic cracking gasoline hydrotreater unit in 2004. In 2006, the isomerization unit at the Superior refinery was converted to a hydrotreater and one of two existing naptha hydrotreaters was converted to a kerosine hydrotreater. In 2010, Superior completed an ultra-low sulfur diesel revamp on its distillate hydrotreaters, which expanded capability of distillate production. Both U.S. refineries are capable of meeting mandatory low-sulfur gasoline and distillate products specifications.

In late August 2005, the Meraux refinery and associated assets were severely damaged by flooding and high winds caused by Hurricane Katrina. The majority of costs to repair the Meraux refinery were covered by insurance. The Company recorded expenses for repair costs not expected to be recoverable from insurance of $50.7 million in 2006 and a further $3.0 million in 2007. The final insurance settlement related to the property damages and repairs was completed in 2009 and income of $12.7 million was recorded in 2009 associated with actual insurance recoveries that exceeded amounts estimated in prior years to be recoverable.

MOUSA markets refined products through a network of retail gasoline stations and branded and unbranded wholesale customers in a 26-state area, primarily in the Southern and Midwestern United States. Murphy’s retail stations are located in 22 states and are primarily located in the parking lots of Walmart Supercenters using the brand name Murphy USA ^® . The Company’s stations also include stand-alone locations using the Murphy Express ^® brand. Branded wholesale customers use the brand name SPUR ^® . At December 31, 2010, the Company marketed products through 1,099 Murphy owned and operated stations and 116 branded wholesale SPUR stations. Of the Company stations, 1,001 are located on parking lots of Walmart Supercenters and 98 are stand-alone Murphy Express locations. MOUSA plans to build additional retail gasoline stations at Walmart Supercenters and other stand-alone locations in 2011 and beyond. Refined products are supplied from 12 terminals that are wholly owned and operated by MOUSA, two terminals that are leased by Murphy and numerous terminals owned by others. Three of the wholly owned terminals are supplied by marine transportation, three are supplied by truck, four are supplied by pipeline and two are adjacent to MOUSA’s refineries. MOUSA also receives products at terminals owned by others either in exchange for deliveries from the Company’s terminals or by outright purchase. Six owned terminals and the rights to use two leased terminals are included as a component of the refinery assets held for sale in the U.S.

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The Company owns land underlying 873 of the stations on Walmart parking lots. No rent is payable to Walmart for the owned locations. For the remaining gasoline stations located on Walmart property that are not owned, Murphy has master agreements that allow the Company to rent land from Walmart. The master agreements contain general terms applicable to all rental sites in the United States. The terms of the agreements range from 10-15 years at each station, with Murphy holding two successive five-year extension options at each site. The agreements permit Walmart to terminate the agreements in their entirety, or only as to affected sites, at its option for the following reasons: Murphy vacates or abandons the property; Murphy improperly transfers the rights under this agreement to another party; an agreement or a premises is taken upon execution or by process of law; Murphy files a petition in bankruptcy or becomes insolvent; Murphy fails to pay its debts as they become due; Murphy fails to pay rent or other sums required to be paid within 90 days after written notice; or Murphy fails to perform in any material way as required by the agreements. Sales from the Company’s U.S. retail marketing stations represented 45.9% of consolidated Company revenues in 2010, 45.7% in 2009 and 42.7% in 2008. As the Company continues to expand the number of retail operated gasoline stations, total revenue generated by this business is expected to grow.

In October 2009, MOUSA acquired an ethanol production facility located in Hankinson, North Dakota. The $92 million purchase price was primarily financed by $82 million of seller-provided nonrecourse debt. The Company chose in 2010 to pay off the nonrecourse debt early. The facility is designed to produce 110 million gallons of corn-based ethanol per year. Ethanol production in 2010, the first full year of operation, totaled more than 115 million gallons at Hankinson. The Company acquired a partially constructed ethanol production facility in Hereford, Texas, in late 2010. The Company paid $40 million for the facility at purchase and expects to spend approximately $25 million to complete construction of the facility. The facility is designed with production capacity of 105 million gallons of corn-based ethanol per year, and it is expected to be in operation near the end of the first quarter of 2011.

Murphy owns a 20% interest in a 120-mile refined products pipeline, with a capacity of 165,000 barrels per day, that transports products from the Meraux refinery to two common carrier pipelines serving the southeastern United States. The Company also owns a 3.2% interest in the Louisiana Offshore Oil Port LLC (LOOP), which provides deepwater unloading accommodations off the Louisiana coast for oil tankers and onshore facilities for storage of crude oil. A crude oil pipeline with a diameter of 24 inches connects LOOP storage at Clovelly, Louisiana, to the Meraux refinery. Murphy owns a 40.1% interest in the first 22 miles of this pipeline from Clovelly to Alliance, Louisiana, and 100% of the remaining 24 miles from Alliance to Meraux.

The Milford Haven, Wales, refinery was shut down for a plant-wide turnaround in early 2010. During the downtime, the Company completed an expansion project that increased the plant’s crude oil throughput capacity from 108,000 barrels per day to 135,000 barrels per day.

At the end of 2010, Murco distributed refined products in the United Kingdom from the wholly-owned Milford Haven refinery, three wholly owned terminals supplied by rail, six terminals owned by others where products are received in exchange for deliveries from the Company’s terminals and eight terminals owned by others where products are purchased for delivery. At December 31, 2010, there were 234 Company stations, 209 of which were branded MURCO with the remainder under various third party brands. The Company owns the freehold under 151 of the sites and leases the remainder. The Company supplies 217 MURCO branded dealer stations.

In 2010, Murphy owned approximately 1.0% of the crude oil refining capacity in the United States and 7.5% of the refining capacity in the United Kingdom. The Company’s market share of U.S. retail gasoline sales was approximately 2.7% in 2010 and in the U.K. Murphy’s fuel sales represented 2.1% of the total market share.

A statistical summary of key operating and financial indicators for each of the seven years ended December 31, 2010 are reported on page 6 of the 2010 Annual Report.

Environmental

Murphy’s businesses are subject to various U.S. federal, state and local environmental, health and safety laws and regulations, and are also subject to similar laws and regulations in other countries in which it operates. These regulatory requirements continue to change and increase in number and complexity, and the requirements govern the manner in which the company conducts its operations and the products it sells. The Company anticipates more environmental regulations in the future in the countries where it has operations.

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Further information on environmental matters and their impact on Murphy are contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 33 through 36.

Web site Access to SEC Reports

Our Internet Web site address is http://www.murphyoilcorp.com. Information contained on our Web site is not part of this report on Form 10-K.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our Web site, free of charge, as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. Alternatively, you may access these reports at the SEC’s Web site at http://www.sec.gov.

Item 1A. RISK FACTORS

Murphy Oil’s businesses operate in highly competitive environments, which could adversely affect it in many ways, including its profitability, its ability to grow, and its ability to manage its businesses.

Murphy operates in the oil and gas industry and experiences intense competition from other oil and gas companies, which include state-owned foreign oil companies, major integrated oil companies, independent producers of oil and natural gas and independent refining and marketing companies. Virtually all of the state-owned and major integrated oil companies and many of the independent producers and refiners that compete with the Company have substantially greater resources than Murphy. In addition, the oil industry as a whole competes with other industries in supplying energy requirements around the world. Murphy competes, among other things, for valuable acreage positions, exploration licenses, drilling equipment and human resources.

If Murphy cannot replace its oil and natural gas reserves, it will not be able to sustain or grow its business.

Murphy continually depletes its oil and natural gas reserves as production occurs. In order to sustain and grow its business, the Company must successfully replace the crude oil and natural gas it produces with additional reserves. Therefore, it must create and maintain a portfolio of good prospects for future reserve additions and production by obtaining rights to explore for, develop and produce hydrocarbons in promising areas. In addition, it must find, develop and produce and/or purchase reserves at a competitive cost structure to be successful in the long-term. Murphy’s ability to operate profitably in the exploration and production segments of its business, therefore, is dependent on its ability to find, develop and produce and/or purchase oil and natural gas reserves at costs that are less than the realized sales price for these products and at costs competitive with competing companies in the industry.

Murphy’s proved reserves are based on the professional judgment of its engineers and may be subject to revision.

Proved oil and natural gas reserves included in this report on pages F-46 and F-47 have been prepared by Company personnel based on an unweighted average of oil and natural gas prices in effect at the beginning of each month in 2010 as well as other conditions and information available at the time the estimates were prepared. Estimation of reserves is a subjective process that involves professional judgment by engineers about volumes to be recovered in future periods from underground crude oil and natural gas reservoirs. Estimates of economically recoverable crude oil and natural gas reserves and future net cash flows depend upon a number of variable factors and assumptions, and consequently, different engineers could arrive at different estimates of reserves and future net cash flows based on the same available data and using industry accepted engineering practices and scientific methods. Under existing Securities and Exchange Commission rules, reported proved reserves must be reasonably certain of recovery in future periods.

Actual future crude oil and natural gas production may vary substantially from the reported quantity of our proved reserves due to a number of factors, including:

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The Company’s proved undeveloped reserves represent significant portions of total proved reserves. As of December 31, 2010, approximately 19% of the Company’s proved oil reserves and 34% of proved natural gas reserves are undeveloped. The ability of the Company to reclassify these undeveloped proved reserves to the proved developed classification is generally dependent on the successful completion of one or more operations, which might include further development drilling, construction of facilities or pipelines, and well workovers.

The discounted future net revenues from our proved reserves should not be considered as the market value of the reserves attributable to our properties. As required by generally accepted accounting principles, the estimated discounted future net revenues from our proved reserves are based on an unweighted average of the oil and natural gas prices in effect at the beginning of each month during the year. Actual future prices and costs may be materially higher or lower than those used in the reserves computations. In addition, the 10 percent discount factor that is required to be used to calculate discounted future net revenues for reporting purposes under generally accepted accounting principles is not necessarily the most appropriate discount factor based on our cost of capital and the risks associated with our business and the crude oil and natural gas business in general.

The volatility in the global prices of oil, natural gas and petroleum products significantly affects the Company’s operating results.

The most significant variables affecting the Company’s results of operations are the sales prices for crude oil, natural gas and refined products that it produces. West Texas Intermediate (WTI) crude oil prices averaged about $80 per barrel in 2010, $62 per barrel in 2009 and $99 per barrel in 2008. The Company had overall record net income in 2008 due to high oil sales prices. Earnings for the exploration and production business declined in 2009 from the prior year due to lower oil prices, and then rose in 2010 with higher oil prices compared to 2009. The Company’s net income is also significantly affected by changes in the sales price of natural gas and margins on refining and marketing operations. The Company cannot predict how changes in the sales prices of oil and natural gas and changes in refining and marketing margins will affect its results of operations in future periods. Except in limited cases, the Company typically does not seek to hedge any significant portion of its exposure to the effects of changing prices of crude oil, natural gas and refined products. Certain of the Company’s crude oil production is heavy and more sour than WTI quality crude; therefore, this crude oil usually sells at a discount to WTI and other light and sweet crude oils. In addition, the sales prices for heavy and sour crude oils do not always move in relation to price changes for WTI and lighter/sweeter crude oils.

The results of exploration drilling can significantly affect the Company’s operating results.

The Company generally drills numerous wildcat wells each year which subjects its exploration and production operating results to significant exposure to dry holes expense, which have adverse effects on, and create volatility for, the Company’s net income. In 2010, significant wildcat wells were primarily drilled offshore Malaysia, Republic of the Congo and Suriname. The Company’s 2011 budget calls for wildcat drilling primarily onshore in Western Canada and Kurdistan, and in waters offshore Brunei, Republic of the Congo, Suriname and Indonesia.

Capital financing may not always be available to fund Murphy’s activities.

Murphy usually must spend and risk a significant amount of capital to find and develop reserves before revenue is generated from production. Although most capital needs are funded from operating cash flow, the timing of cash flows from operations and capital funding needs may not always coincide, and the levels of cash flow may not fully cover capital funding requirements. Therefore, the Company maintains financing arrangements with lending institutions to meet certain funding needs. The Company must periodically renew these financing arrangements based on foreseeable financing needs or as they expire. The Company’s primary bank financing facility expires in June 2012. Although not considered likely, there is the possibility that financing arrangements may not always be available at sufficient levels required to fund the Company’s activities in future periods. The Company has a shelf registration statement on file with the U.S. Securities and Exchange Commission that permits the offer and sale of debt and/or equity securities through September 2012. Outstanding notes of $350 million mature in April 2012. Although not considered likely, the Company may not be able in the future to sell notes at reasonable rates in the marketplace.

Murphy has limited or virtually no control over several factors that could adversely affect the Company.

The ability of the Company to successfully manage development and operating costs is important because virtually all of the products it sells are energy commodities such as crude oil, natural gas and refined products, for which the Company has little or no influence on the sales prices or regional and worldwide consumer demand for these products. An economic slowdown in late 2008 and 2009 had a detrimental effect on the worldwide demand for these energy commodities, which effectively led to reduced prices for oil, natural gas and refined products. Lower prices for crude oil and natural gas inevitably led to lower earnings in the Company’s exploration and production operations. Murphy is a net purchaser of

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crude oil and other refinery feedstocks, and also purchases refined products, particularly gasoline, needed to supply its retail marketing stations. Therefore, its most significant costs are subject to volatility of prices for these commodities. The Company also often experiences pressure on its operating and capital expenditures in periods of strong crude oil, natural gas and refined product prices because an increase in exploration and production activities due to high oil and gas sales prices generally leads to higher demand for, and consequently higher costs for, goods and services in the oil and gas industry.

Many of the Company’s major oil and natural gas producing properties are operated by others. During 2010, approximately 20% of the Company’s total production was at fields operated by others, while at December 31, 2010, approximately 42% of the Company’s total proved reserves were at fields operated by others. Therefore, Murphy does not fully control all activities at certain of its significant revenue generating properties.

The operations and earnings of Murphy have been and will continue to be affected by worldwide political developments.

Many governments, including those that are members of the Organization of Petroleum Exporting Countries (OPEC), unilaterally intervene at times in the orderly market of crude oil and natural gas produced in their countries through such actions as setting prices, determining rates of production, and controlling who may buy and sell the production. As of December 31, 2010, approximately 40% of proved reserves, as defined by the U.S. Securities and Exchange Commission, were located in countries other than the U.S., Canada and the U.K. Certain of the reserves held outside these three countries could be considered to have more political risk. In addition, prices and availability of crude oil, natural gas and refined products could be influenced by political unrest and by various governmental policies to restrict or increase petroleum usage and supply. Other governmental actions that could affect Murphy’s operations and earnings include tax changes, royalty increases and regulations concerning: currency fluctuations, protection and remediation of the environment (See the caption “Environmental Matters” beginning on page 33 of this Form 10-K report for additional discussion of this risk), preferential and discriminatory awarding of oil and gas leases, restrictions on drilling and/or production, restraints and controls on imports and exports, safety, and relationships between employers and employees. Because these and other factors too numerous to list are subject to changes caused by governmental and political considerations and are often made in response to changing internal and worldwide economic conditions and to actions of other governments or specific events, it is not practical to attempt to predict the effects of such factors on Murphy’s future operations and earnings.

Murphy’s business is subject to operational hazards and risks normally associated with the exploration for and production of oil and natural gas and the refining and marketing of crude oil and petroleum products.

The Company operates in urban and remote, and often inhospitable, areas around the world. The occurrence of an event, including but not limited to acts of nature such as hurricanes, floods, earthquakes and other forms of severe weather, and mechanical equipment failures, industrial accidents, fires, explosions, acts of war and intentional terrorist attacks could result in the loss of hydrocarbons and associated revenues, environmental pollution or contamination, and personal injury, including death, for which the Company could be deemed to be liable, and which could subject the Company to substantial fines and/or claims for punitive damages.

In April 2010, a drilling accident and subsequent oil spill occurred in the Gulf of Mexico at the Macondo well owned by other companies. In May 2010, the U.S. President placed a temporary moratorium on new drilling in the Gulf of Mexico that forced the Company to defer planned exploration drilling in the Gulf of Mexico, and to renegotiate a drilling contract to move a deepwater drilling rig to Republic of the Congo. Further impacts of the accident and oil spill include added delays in deepwater Gulf of Mexico drilling activities, and additional future regulations covering offshore drilling operations, plus expected higher costs for future drilling operations and offshore insurance. The restrictions associated with drilling and similar operations in the Gulf of Mexico are expected to have an adverse affect on the Company’s, and likely many other companies’, volume of oil and natural gas production in this area.

The location of many of Murphy’s key assets causes the Company to be vulnerable to severe weather, including hurricanes and tropical storms. A number of significant oil and natural gas fields lie in offshore waters around the world. Probably the most vulnerable of the Company’s offshore fields are in the U.S. Gulf of Mexico, where severe hurricanes and tropical storms have often led to shutdowns and damages. The U.S. hurricane season runs from June through November, but the most severe storm activities usually occur in late summer, such as with Hurricanes Katrina and Rita in 2005. Additionally, the Company’s largest refinery is located about 10 miles southeast of New Orleans, Louisiana. In August 2005, Hurricane Katrina passed near the refinery causing major flooding and significant wind damage. The gradual loss of coastal wetlands in southeast Louisiana increases the risk of future flooding should storms such as Katrina recur. Other assets such as gasoline terminals and certain retail gasoline stations also lie near the Gulf of Mexico

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coastlines and are vulnerable to storm damages. During the repairs at Meraux following Hurricane Katrina, the refinery took steps to try to reduce the potential for damages from future storms of similar magnitude. For example, certain key equipment such as motors and pumps were raised above ground level when feasible. These steps may somewhat reduce the damages associated with high winds and flooding that could occur with a future storm similar in strength to Katrina, but the risks from such a storm are not eliminated. Although the Company also maintains insurance for such risks as described below, due to policy deductibles and possible coverage limits, weather-related risks are not fully insured.

There can be no assurance that Murphy’s insurance will be adequate to offset costs associated with certain events or that insurance coverage will continue to be available in the future on terms that justify its purchase.

Murphy maintains insurance against certain, but not all, hazards that could arise from its operations. The Company maintains liability insurance sufficient to cover its share of gross insured claim costs up to approximately $775 million per occurrence and in the annual aggregate. These policies have up to $10 million in deductibles. Generally, this insurance covers various types of claims including those related to personal injury, death, property damage, loss of use and cleanup of hazardous materials discharged into the environment due to a “sudden and accidental” event. The Company also maintains insurance coverage with an additional limit of $250 million per occurrence ($600 million for Gulf of Mexico operations not related to a named windstorm), all or part of which could be applicable to certain sudden and accidental pollution events. The occurrence of an event that is not insured or not fully insured could have a material adverse effect on the Company’s financial condition and results of operations in the future. During 2005, damages from hurricanes caused a temporary shut-down of certain U.S. oil and gas production operations as well as the Meraux, Louisiana, refinery. The Company repaired the Meraux refinery and it restarted operations in mid-2006, but the Company did not fully recover repair costs incurred at Meraux under its insurance policies. Damages incurred by the Company from 2008 hurricanes did not exceed deductible limits under the insurance policies. See Notes P and R in the consolidated financial statements for further discussion.

Lawsuits against Murphy and its subsidiaries could adversely affect its operating results.

The Company is involved in numerous lawsuits seeking cash settlements for alleged personal injuries, property damages and other business-related matters. The most significant of these matters are addressed in more detail in Item 3 beginning on page 16 of this Form 10-K report.

The Company is exposed to credit risks associated with sales of certain of its products to third parties.

Although Murphy limits its credit risk by selling its products to numerous entities worldwide, it still, at times, carries substantial credit risk from its customers. For certain oil and gas properties operated by the Company, other companies which own partial interests may not be able to meet their financial obligation to pay for their share of capital and operating costs as they come due.

The costs and funding requirements related to the Company’s retirement plans are affected by several factors.

A number of actuarial assumptions impact funding requirements for the Company’s retirement plans. The most significant of these assumptions include return on assets, long-term interest rates and mortality. If the actual results for the plans vary significantly from the actuarial assumptions used, or if laws regulating such retirement plans are changed, Murphy could be required to make significant funding payments to one or more of its retirement plans in the future and/or it could be required to record a larger liability for future obligations in its Consolidated Balance Sheet.