What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-25 compared with 2023-07-26 · 160 added, 154 removed, 388 unchanged (45% of the section changed)

14 unchanged sentences

Our drilling opportunities are focused in the Appalachian Basin.

As of June 30, 2023, we held approximately 516,000 net acres in the Appalachian Basin.

As of September 30, 2023, we held approximately 515,000 net acres in the Appalachian Basin.

Market Conditions and Business Trends

1 unchanged sentence

Prices for natural gas, NGLs and oil that we produce significantly impact our revenues and cash flows.

Natural gas, NGLs and oil benchmark prices decreased significantly during the three and six months ended June 30, 2023 as compared to the same periods of 2022.

As a result, we experienced a decrease in price realizations during the three and six months ended June 30, 2023.

We monitor the economic factors that impact natural gas, NGLs and oil prices, including domestic and foreign supply and demand indicators, domestic and foreign commodity inventories, the actions of Organization of Petroleum Exporting Countries and other large producing nations and the current Russia-Ukraine conflict, among others.

Natural gas, NGLs and oil benchmark prices decreased significantly during the three and nine months ended September 30, 2023 as compared to the same periods of 2022.

As a result, we experienced a decrease in price realizations during the three and nine months ended September 30, 2023.

In the current economic environment, we expect that commodity prices for some or all of the commodities we produce could remain volatile.

1 unchanged sentence

The following table details the average benchmark natural gas and oil prices:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Henry Hub (1) ($/Mcf)

7 unchanged sentences

Due to our improved liquidity and leverage position as compared to past levels, the percentage of our expected production that we hedge has decreased.

For the three and six months ended June 30, 2022, 34% and 35%, respectively, of our production was hedged through fixed price commodity swaps as compared to 1% and 2% for the three and six months ended June 30, 2023, respectively.

For the three and nine months ended September 30, 2022, 31% and 34%, respectively, of our production was hedged through fixed price commodity swaps as compared to 1% for both the three and nine months ended September 30, 2023, respectively.

Assuming our 2023 production is the same as our production in 2022, 1% of our production for 2023 will be hedged through fixed price commodity swaps.

The tables and narrative below exclude derivative instruments attributable to Martica, our consolidated VIE, since all gains or losses from such contracts are fully attributable to the noncontrolling interests in Martica.

As of June 30, 2023, our fixed price natural gas swap positions excluding Martica were as follows:

As of September 30, 2023, our fixed price natural gas swap positions excluding Martica were as follows:

Commodity / Settlement Period

Contracted Volume

July-December 2023

As of June 30, 2023, our natural gas basis swap positions settle on the pricing index to basis differential of the Columbia Gas Transmission pipeline (“TCO”) to the NYMEX Henry Hub natural gas price were as follows:

October-December 2023

As of September 30, 2023, our natural gas basis swap positions settle on the pricing index to basis differential of the Columbia Gas Transmission pipeline (“TCO”) to the NYMEX Henry Hub natural gas price were as follows:

Weighted Average

3 unchanged sentences

Hedged Differential

July-December 2023

October-December 2023

January-December 2024

We have a call option and an embedded put option tied to NYMEX pricing for the production volumes associated with the Company’s retained interest in the VPP properties.

As of June 30, 2023, our call option and embedded put option arrangements were as follows:

As of September 30, 2023, our call option and embedded put option arrangements were as follows:

Commodity / Settlement Period

Contracted Volume

July-December 2023

October-December 2023

January-December 2024

3 unchanged sentences

In January 2023, we executed an early settlement of this swaption agreement and made a cash payment of $202 million, which was funded by cash flows from operations and borrowings under our Credit Facility.

As of June 30, 2023, the estimated fair value of our commodity derivative contracts, excluding Martica, was a net liability of $67 million.

As of September 30, 2023, the estimated fair value of our commodity derivative contracts, excluding Martica, was a net liability of $60 million.

See Note 11—Derivative Instruments to the unaudited condensed consolidated financial statements for more information.

1 unchanged sentence

As such, all gains and losses attributable to Martica’s derivative portfolio are fully attributable to the noncontrolling interests in Martica.

As of June 30, 2023, Martica’s fixed price natural gas, NGLs and oil swap positions were as follows:

As of September 30, 2023, Martica’s fixed price natural gas, NGLs and oil swap positions were as follows:

Commodity / Settlement Period

Contracted Volume

July-December 2023

October-December 2023

January-December 2024

1 unchanged sentence

Natural Gasoline

July-December 2023

October-December 2023

Mont Belvieu Natural Gasoline-OPIS Non-TET

July-December 2023

October-December 2023

West Texas Intermediate

3 unchanged sentences

West Texas Intermediate

As of June 30, 2023, the estimated fair value of Martica’s commodity derivative contracts was a net liability of $17 million.

As of September 30, 2023, the estimated fair value of Martica’s commodity derivative contracts was a net liability of $15 million.

See Note 11—Derivative Instruments to the unaudited condensed consolidated financial statements for more information.

Economic Indicators

The economy experienced elevated inflation levels as a result of global supply and demand imbalances, where global demand outpaced supplies beginning in 2021 and continuing through the first half of 2023.

For example, the Consumer Price Index (“CPI”) for all urban consumers increased 9% from June 2021 to June 2022 and an additional 3% from June 2022 to June 2023 as compared to the Federal Reserve’s stated goal of 2%.

For example, the Consumer Price Index (“CPI”) for all urban consumers increased 8% from September 2021 to September 2022 and an additional 4% from September 2022 to September 2023 as compared to the Federal Reserve’s stated goal of 2%.

In order to manage the inflation risk present in the United States’ economy, the Federal Reserve utilized monetary policy in the form of interest rate increases beginning in March 2022 in an effort to bring the inflation rate in line with its stated goal of 2% on a long-term basis.

Between March 2022 and May 2023, the Federal Reserve increased the federal funds interest rate by 5.0%.

Between March 2022 and July 2023, the Federal Reserve increased the federal funds interest rate by 5.25%.

While inflationary pressures in the United States’ economy have begun to subside, we continue to be impacted by the increased federal funds interest rate.

13 unchanged sentences

All intersegment transactions were eliminated upon consolidation, including revenues from water handling services provided by Antero Midstream , which we capitalized as proved property development costs.

Marketing revenues are primarily derived from

Marketing revenues were primarily derived from

activities to purchase and sell third-party natural gas and NGLs and to market and utilize excess firm transportation capacity.

See Note 16—Reportable Segments to the unaudited condensed consolidated financial statements for more information.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2023

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2023

The operating results of our reportable segments were as follows (in thousands):

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Equity Method

22 unchanged sentences

Accretion of asset retirement obligations

Contract termination and other operating expenses

Contract termination, loss contingency and other operating expenses

Loss (gain) on sale of assets

2 unchanged sentences

Equity in earnings of unconsolidated affiliates

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Equity Method

23 unchanged sentences

Loss (gain) on sale of assets

Contract termination and other operating expenses

Contract termination, loss contingency and other operating expenses

Total operating expenses

4 unchanged sentences

Three Months Ended

September 30,

Production data (1) (2) :

24 unchanged sentences

Depletion, depreciation, amortization and accretion

* Not meaningful.

(1) Production data excludes volumes related to the VPP.

3 unchanged sentences

Our calculation of such after effects includes gains (losses) on settlements of commodity derivatives, which do not qualify for hedge accounting because we do not designate or document them as hedges for accounting purposes.

(4) The average realized price for the three months ended June 30, 2023 includes $1 million of proceeds related to a take-or-pay contract.

(4) The average realized price for the three months ended September 30, 2023 includes $6 million of proceeds related to a take-or-pay contract.

Excluding the effect of these proceeds, the average realized price for ethane before and after the effects of derivatives would have been $10.88 per Bbl.

Natural gas sales .

Revenues from sales of natural gas decreased from $1.6 billion for the three months ended June 30, 2022 to $437 million for the three months ended June 30, 2023, a decrease of $1.2 billion, or 72%.

Lower commodity prices (excluding the effects of derivative settlements) during the three months ended June 30, 2023 accounted for an approximate $1.2 billion decrease in year-over-year natural gas sales revenue (calculated as the change in the year-to-year average price times current year production volumes).

Revenues from sales of natural gas decreased from $1.7 billion for the three months ended September 30, 2022 to $516 million for the three months ended September 30, 2023, a decrease of $1.2 billion, or 70%.

Lower commodity prices (excluding the effects of derivative settlements) during the three months ended September 30, 2023 accounted for an approximate $1.3 billion decrease in year-over-year natural gas sales revenue (calculated as the change in the year-to-year average price times current year production volumes).

Higher natural gas production volumes accounted for an approximate $71 million increase in year-over-year natural gas sales revenue (calculated as the change in year-to-year volumes times the prior year average price).

Revenues from sales of NGLs decreased from $702 million for the three months ended June 30, 2022 to $398 million for the three months ended June 30, 2023, a decrease of $304 million, or 43%.

Lower commodity prices (excluding the effects of derivative settlements) during the three months ended June 30, 2023 accounted for an approximate $359 million decrease in year-over-year revenues (calculated as the change in the year-to-year average price times current year production volumes).

Revenues from sales of NGLs decreased from $621 million for the three months ended September 30, 2022 to $483 million for the three months ended September 30, 2023, a decrease of $138 million, or 22%.

Lower commodity prices (excluding the effects of derivative settlements) during the three months ended September 30, 2023 accounted for an approximate $230 million decrease in year-over-year revenues (calculated as the change in the year-to-year average price times current year production volumes).

Higher NGLs production volumes accounted for an approximate $92 million increase in year-over-year NGLs revenues (calculated as the change in year-to-year volumes times the prior year average price).

Revenues from sales of oil decreased from $89 million for the three months ended June 30, 2022 to $58 million for the three months ended June 30, 2023, a decrease of $31 million, or 35%.

Revenues from sales of oil decreased from $67 million for the three months ended September 30, 2022 to $63 million for the three months ended September 30, 2023, a decrease of $4 million, or 7%.

Lower oil prices, excluding the effects of derivative settlements, accounted for an approximate $14 million decrease in year-over-year oil revenues (calculated as the change in the year-to-year average price times current year production volumes).

Higher oil production volumes during the three months ended June 30, 2023 accounted for an approximate $7 million increase in year-over-year oil revenues (calculated as the change in year-to-year volumes times the prior year average price).

Higher oil production volumes during the three months ended September 30, 2023 accounted for an approximate $10 million increase in year-over-year oil revenues (calculated as the change in year-to-year volumes times the prior year average price).

Commodity derivative fair value gains (losses).

2 unchanged sentences

Consequently, all mark-to-market gains or losses, as well as cash receipts or payments on settled derivative instruments, are recognized in our statements of operations.

For the three months ended June 30, 2022 and 2023, our commodity hedges resulted in derivative fair value losses of $266 million and fair value gains of $8 million, respectively.

For the three months ended June 30, 2022, commodity derivative fair value losses included $559 million of cash payments on settled commodity derivatives losses.

For the three months ended June 30, 2023, commodity derivative fair value gains included $3 million of cash proceeds on settled commodity derivative gains.

For the three months ended September 30, 2022 and 2023, our commodity hedges resulted in derivative fair value losses of $531 million and fair value gains of $3 million, respectively.

For the three months ended September 30, 2022, commodity derivative fair value losses included $640 million of cash payments on settled commodity derivatives losses.

For the three months ended September 30, 2023, commodity derivative fair value gains included $6 million of cash payments on settled commodity derivatives losses.

Commodity derivative fair value gains or losses vary based on future commodity prices and have no cash flow impact until the derivative contracts are settled or monetized prior to settlement.

2 unchanged sentences

Amortization of deferred revenue, VPP.

Amortization of deferred revenues associated with the VPP decreased from $9 million for the three months ended June 30, 2022 to $8 million for the three months ended June 30, 2023, a decrease of $1 million, or 19%, primarily due to lower production volumes attributable to the VPP properties between periods.

Amortization of deferred revenues associated with the VPP decreased from $9 million for the three months ended September 30, 2022 to $8 million for the three months ended September 30, 2023, a decrease of $1 million, or 19%, primarily due to lower production volumes attributable to the VPP properties between periods.

Amortization of the deferred revenues associated with the VPP are recognized as the production volumes are delivered at $1.61 per MMBtu over the contractual term.

Lease operating expense .

Lease operating expense increased from $25 million, or $0.09 per Mcfe, for the three months ended June 30, 2022 to $29 million, or $0.09 per Mcfe, for the three months ended June 30, 2023, an increase of $4 million, primarily due to higher water disposal costs and workover expense.

On a per unit basis, our higher costs during the three months ended June 30, 2023 were fully offset by increased production volumes during the period.

Lease operating expense increased from $27 million, or $0.09 per Mcfe, for the three months ended September 30, 2022 to $33 million, or $0.10 per Mcfe, for the three months ended September 30, 2023, an increase of $6 million, primarily due to higher water disposal costs and workover expense between periods.

Gathering, compression, processing and transportation expense.

Gathering, compression, processing and transportation expense increased from $656 million for the three months ended June 30, 2022 to $664 million for the three months ended June 30, 2023, an increase of $8 million, or 1%.

Gathering, compression, processing and transportation expense decreased from $716 million for the three months ended September 30, 2022 to $672 million for the three months ended September 30, 2023, a decrease of $44 million, or 6%.

This fluctuation primarily resulted from the following:

● Gathering and compression costs decreased from $0.76 per Mcfe for the three months ended June 30, 2022 to $0.68 per Mcfe for the three months ended June 30, 2023, primarily due to due to lower fuel costs as a result of decreased commodity prices, partially offset by annual CPI-based adjustments between periods.

● Processing costs increased from $0.75 per Mcfe for the three months ended June 30, 2022 to $0.85 per Mcfe for the three months ended June 30, 2023, primarily due to increased costs for NGLs processing, which includes an annual CPI-based adjustment during the first quarter of 2023, and higher NGLs transportation fees.

● Transportation costs decreased from $0.73 per Mcfe for the three months ended June 30, 2022 to $0.61 per Mcfe for the three months ended June 30, 2023 primarily due to lower fuel costs as a result of lower commodity prices and demand fees between periods.

● Gathering and compression costs decreased from $0.81 per Mcfe for the three months ended September 30, 2022 to $0.68 per Mcfe for the three months ended September 30, 2023, primarily due to due to lower fuel costs as a result of decreased commodity prices, partially offset by annual CPI-based adjustments between periods.

● Processing costs increased from $0.82 per Mcfe for the three months ended September 30, 2022 to $0.83 per Mcfe for the three months ended September 30, 2023, primarily due to increased costs for NGLs processing, which includes an annual CPI-based adjustment during the first quarter of 2023, and higher NGLs transportation fees.

● Transportation costs decreased from $0.80 per Mcfe for the three months ended September 30, 2022 to $0.60 per Mcfe for the three months ended September 30, 2023 primarily due to lower fuel costs as a result of lower commodity prices and demand fees between periods.

Production and ad valorem tax expense.

Total production and ad valorem taxes decreased from $82 million for the three months ended June 30, 2022 to $36 million for the three months ended June 30, 2023, a decrease of $46 million, or 56%, primarily due to lower commodity prices between periods.

Production and ad valorem taxes as a percentage of natural gas revenues increased from 5% for the three months ended June 30, 2022 to 8% for the three months ended June 30, 2023, primarily as a result of higher ad valorem taxes, which 2023 West Virginia ad valorem taxes are based on commodity prices during 2021.

Total production and ad valorem taxes decreased from $93 million for the three months ended September 30, 2022 to $32 million for the three months ended September 30, 2023, a decrease of $61 million, or 65%, primarily due to lower commodity prices between periods, partially offset by higher production volumes between periods.

Production and ad valorem taxes as a percentage of natural gas revenues increased from 5% for the three months ended September 30, 2022 to 6% for the three months ended September 30, 2023, primarily as a result of higher ad valorem taxes, which 2023 West Virginia ad valorem taxes are based on commodity prices during 2021.

General and administrative expense .

General and administrative expense (excluding equity-based compensation expense) increased from $36 million for the three months ended June 30, 2022 to $40 million for the three months ended June 30, 2023, an increase of $4 million, or 11% , primarily due to higher salary and wage expense and software license costs

between periods.

We had 530 and 604 employees as of June 30, 2022 and 2023, respectively.

General and administrative expense on a per unit basis (excluding equity-based compensation) increased from $0.12 per Mcfe for the three months ended June 30, 2022 to $0.13 per Mcfe for the three months ended June 30, 2023 as a result of our higher overall general and administrative costs, partially offset by increased production volumes between periods.

General and administrative expense (excluding equity-based compensation expense) increased from $33 million for the three months ended September 30, 2022 to $40 million for the three months ended

September 30, 2023, an increase of $7 million, or 23% , primarily due to higher salary and wage expense and software license costs between periods.

We had 554 and 605 employees as of September 30, 2022 and 2023, respectively.

General and administrative expense on a per unit basis (excluding equity-based compensation) increased from $0.11 per Mcfe for the three months ended September 30, 2022 to $0.13 per Mcfe for the three months ended September 30, 2023 as a result of our higher overall general and administrative costs, partially offset by increased production volumes between periods.

Equity-based compensation expense .

Noncash equity-based compensation expense increased from $8 million for the three months ended June 30, 2022 to $14 million for the three months ended June 30, 2023, an increase of $6 million, or 65%, primarily due to an increase in the annual equity awards granted during the fourth quarter of 2022 and the first half of 2023 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program.

Noncash equity-based compensation expense increased from $10 million for the three months ended September 30, 2022 to $18 million for the three months ended September 30, 2023, an increase of $8 million, or 77%, primarily due to an increase in the annual equity awards granted during the fourth quarter of 2022 and the first half of 2023 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program.

Our equity awards vest over three or four year service periods, and our equity incentive program began returning to normal levels during 2021.

See Note 9—Equity Based Compensation and Cash Awards to the unaudited condensed consolidated financial statements for more information.

Depletion, depreciation, and amortization expense .

DD&A expense remained relatively consistent at $173 million, or $0.59 per Mcfe, and $171 million, or $0.56 per Mcfe, for the three months ended June 30, 2022 and 2023, respectively.

This decrease in DD&A expense per Mcfe between periods was primarily due to higher reserve volumes during the three months ended June 30, 2023.

Depletion, depreciation, and amortization expense (“DD&A expense”) .

DD&A expense increased from $170 million, or $0.58 per Mcfe, to $176 million, or $0.55 per Mcfe, for the three months ended September 30, 2022 and 2023, respectively.

This increase in DD&A expense was primarily due to higher production volumes between periods, partially offset by higher reserve volumes during the three months ended September 30, 2023.

Impairment of property and equipment .

Impairment of oil and gas properties decreased from $23 million for the three months ended June 30, 2022 to $16 million for the three months ended June 30, 2023, a decrease of $7 million, or 33%, primarily related to lower impairments of expiring leases between periods.

Impairment of oil and gas properties decreased from $34 million for the three months ended September 30, 2022 to $13 million for the three months ended September 30, 2023, a decrease of $21 million, or 60%, primarily related to lower impairments of expiring leases between periods.

During both periods, we recognized impairments primarily related to expiring leases as well as design and initial costs related to pads we no longer plan to place into service.

Contract termination, loss contingency and other operating expenses .

Contract termination, loss contingency and other operating expenses of $18 million for the three months ended September 30, 2022 were primarily due to a payment for the cancellation of the Smithburg 2 gas processing plant.

Contract termination, loss contingency and other operating expenses of $14 million for the three months ended September 30, 2023 were primarily due to a loss contingency .

Marketing Segment

1 unchanged sentence

We have entered into long-term firm transportation agreements for a significant portion of our current and expected future production in order to secure guaranteed capacity to favorable markets.

Net marketing expense decreased from $25 million, or $0.09 per Mcfe, for the three months ended June 30, 2022 to $22 million, or $0.07 per Mcfe, for the three months ended June 30, 2023, primarily due to lower firm transportation commitments, partially offset by lower marketing margins between periods.

Net marketing expense decreased from $25 million, or $0.09 per Mcfe, for the three months ended September 30, 2022 to $16 million, or $0.05 per Mcfe, for the three months ended September 30, 2023, primarily due to lower firm transportation commitments.

Marketing revenue.

Marketing revenue decreased from $106 million for the three months ended June 30, 2022 to $44 million for the three months ended June 30, 2023, a decrease of $62 million, or 59%.

Marketing revenue decreased from $160 million for the three months ended September 30, 2022 to $53 million for the three months ended September 30, 2023, a decrease of $107 million, or 67%.

This fluctuation primarily resulted from the following:

● Natural gas marketing revenue decreased by $41 million between periods primarily due to lower natural gas prices, partially offset by higher natural gas marketing volumes.

Lower natural gas prices accounted for a $47 million decrease in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes), and higher natural gas marketing volumes accounted for an approximate $6 million increase in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price).

● Oil marketing revenue decreased by $1 million between periods primarily due to lower oil prices, partially offset by higher oil marketing volumes.

Lower oil prices accounted for an approximate $8 million decrease in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes), and higher oil marketing volumes accounted for a $7 million increase in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price).

● Ethane marketing revenues were $20 million for the three months ended June 30, 2022.

There were no ethane marketing revenues for the three months ended June 30, 2023.

● Natural gas marketing revenue decreased by $102 million between periods primarily due to lower natural gas prices and marketing volumes.

Lower natural gas prices accounted for a $100 million decrease in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes), and lower natural gas marketing volumes accounted for an approximate $2 million decrease in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price).

● Ethane marketing revenues were $5 million for the three months ended September 30, 2022.

There were no ethane marketing revenues for the three months ended September 30, 2023.

Marketing expense.

Marketing expense decreased from $131 million for the three months ended June 30, 2022 to $66 million for the three months ended June 30, 2023, a decrease of $65 million, or 50%.

Marketing expense decreased from $185 million for the three months ended September 30, 2022 to $70 million for the three months ended September 30, 2023, a decrease of $115 million, or 62%.

Marketing expense includes the cost of third-party purchased natural gas, NGLs and oil as well as firm transportation costs, including costs related to current excess firm capacity.

The cost of third-party natural gas, ethane and oil purchases decreased $100 million, $5 million and $1 million, respectively, between periods.

The total cost of third-party commodity purchases decreased primarily due to lower commodity prices, partially offset by higher marketing volumes between periods.

Firm transportation costs were $35 million for the three

months ended June 30, 2022 and $27 million for the three months ended June 30, 2023, a decrease of $8 million due to the reduction in firm transportation commitments and higher third-party marketing volumes between periods.

The total cost of third-party commodity purchases decreased primarily

due to lower commodity prices and marketing volumes between periods.

Firm transportation costs were $35 million for the three months ended September 30, 2022 and $26 million for the three months ended September 30, 2023, a decrease of $9 million due to the reduction in firm transportation commitments between periods.

Antero Midstream Segment

Antero Midstream revenue.

Revenue from the Antero Midstream segment increased from $229 million for the three months ended June 30, 2022 to $258 million for the three months ended June 30, 2023, an increase of $29 million, primarily due to higher low pressure gathering, compression and high pressure gathering delivery revenues due to annual CPI-based adjustments and increased throughput between periods.

Revenue from the Antero Midstream segment increased from $231 million for the three months ended September 30, 2022 to $264 million for the three months ended September 30, 2023, an increase of $33 million, primarily due to higher low pressure gathering, compression and fresh water delivery revenues as a result of increased throughput and higher rates from annual CPI-based adjustments between periods.

Antero Midstream operating expense.

Total operating expense related to the Antero Midstream segment increased from $101 million for the three months ended June 30, 2022 to $113 million for the three months ended June 30, 2023, an increase of $12 million, primarily due to 12 compressor stations that were acquired during the fourth quarter of 2022 and higher wastewater trucking costs and equity-based compensation expense between periods.

Total operating expense related to the Antero Midstream segment increased from $93 million for the three months ended September 30, 2022 to $102 million for the three months ended September 30, 2023, an increase of $9 million.

This increase was primarily due to gathering, compression and water handling expenses (“direct operating expenses”) for 12 compressor stations that were acquired during the fourth quarter of 2022 and higher fresh water delivery volumes between periods.

Discussion of Items Not Allocated to Segments

Interest expense.

Interest expense decreased from $34 million for the three months ended June 30, 2022 to $28 million for the three months ended June 30, 2023, a decrease of $6 million, or 18%, primarily due to the reduction in debt as a result of the repurchase of certain of our unsecured senior notes between periods and lower Credit Facility borrowings between periods, partially offset by higher benchmark interest rates during the three months ended June 30, 2023.

Interest expense increased from $28 million for the three months ended September 30, 2022 to $32 million for the three months ended September 30, 2023, an increase of $4 million, or 12%, primarily due to higher benchmark interest rates during the three months ended September 30, 2023 and higher Credit Facility borrowings between periods, partially offset by the reduction in debt as a result of the repurchase of certain of our unsecured senior notes between periods.

Loss on early extinguishment of debt.

During the three months ended June 30, 2022, we repurchased $50 million of our 2029 Notes and $13 million of our 2026 Notes, which resulted in a loss on early debt extinguishment of $4 million.

There were no debt redemptions or repurchases during the three months ended June 30, 2023.

During the three months ended September 30, 2022, we repurchased $208 million of our 2026 Notes at a weighted average of 109% of the principal amount thereof, plus accrued and unpaid interest, and $118 million of our 2029 Notes at a weighted average of 107% of the principal amount thereof, plus accrued and unpaid interest, which resulted in a loss on early debt extinguishment of $30 million.

There were no debt redemptions or repurchases during the three months ended September 30, 2023.

See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information .

Income tax benefit (expense) .

For the three months ended June 30, 2022, we had an income tax expense of $226 million, with an effective tax rate of 22%, due to income before income taxes of $1.0 billion.

For the three months ended June 30, 2023, we had an income tax benefit of $30 million, with an effective tax rate of 31%, due to a loss before income taxes of $98 million.

The increase in the effective tax rate between periods was primarily due to the net loss before income taxes during the three months ended June 30, 2023 that when taken together with net income before taxes during the three months ended March 31, 2023 results in a 14% effective tax rate for the six months ended June 30, 2023.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2023

Income tax expense .

For the three months ended September 30, 2022, we had an income tax expense of $136 million, with an effective tax rate of 19%, due to income before income taxes of $730 million.

For the three months ended September 30, 2023, we had an income tax expense of $14 million, with an effective tax rate of 30%, due to income before income taxes of $46 million.

The increase in the effective tax rate between periods was primarily due to the net loss before income taxes during the three months ended June 30, 2023 that, when taken together with net income before taxes during each of the three months ended March 31, 2023 and September 30, 2023, resulted in a 17% effective tax rate for the nine months ended September 30, 2023.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2023

The operating results of our reportable segments were as follows (in thousands):

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Equity Method

22 unchanged sentences

Accretion of asset retirement obligations

Contract termination and other operating expenses

Loss on sale of assets

Contract termination, loss contingency and other operating expenses

Loss (gain) on sale of assets

Total operating expenses

1 unchanged sentence

Equity in earnings of unconsolidated affiliates

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Equity Method

5 unchanged sentences

Natural gas liquids sales

Commodity derivative fair value losses

Commodity derivative fair value gains

Gathering, compression and water handling

15 unchanged sentences

Loss (gain) on sale of assets

Contract termination and other operating expenses

Contract termination, loss contingency and other operating expenses

Total operating expenses

3 unchanged sentences

The following table sets forth selected operating data of the exploration and production segment:

Six Months Ended June 30,

Nine Months Ended

September 30,

Production data (1) (2) :

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(4) The average realized price for the six months ended June 30, 2023 includes $7 million of proceeds related to a take-or-pay contract.

(4) The average realized price for the nine months ended September 30, 2023 includes $13 million of proceeds related to a take-or-pay contract.

Excluding the effect of these proceeds, the average realized price for ethane before and after the effects of derivatives would have been $9.77 per Bbl.

Natural gas sales .

Revenues from sales of natural gas decreased from $2.6 billion for the six months ended June 30, 2022 to $1.1 billion for the six months ended June 30, 2023, a decrease of $1.5 million, or 57%.

Lower commodity prices (excluding the effects of derivative settlements) during the six months ended June 30, 2023 accounted for an approximate $1.4 billion decrease in year-over-year natural gas sales revenue (calculated as the change in the year-to-year average price times current year production volumes).

Lower natural gas production volumes accounted for an approximate $27 million decrease in year-over-year natural gas sales revenue (calculated as the change in year-to-year volumes times the prior year average price).

Revenues from sales of NGLs decreased from $1.4 billion for the six months ended June 30, 2022 to $893 million for the six months ended June 30, 2023, a decrease of $470 million, or 34%.

Lower commodity prices (excluding the effects of derivative settlements) during the six months ended June 30, 2023 accounted for an approximate $573 million decrease in year-over-year revenues (calculated as the change in the year-to-year average price times current year production volumes).

Revenues from sales of natural gas decreased from $4.3 billion for the nine months ended September 30, 2022 to $1.6 billion for the nine months ended September 30, 2023, a decrease of $2.7 million, or 62%.

Lower commodity prices (excluding the effects of derivative settlements) during the nine months ended September 30, 2023 accounted for an approximate $2.7 billion decrease in year-over-year natural gas sales revenue (calculated as the change in the year-to-year average price times current year production volumes).

Higher natural gas production volumes accounted for an approximate $29 million increase in year-over-year natural gas sales revenue (calculated as the change in year-to-year volumes times the prior year average price).

Revenues from sales of NGLs decreased from $2.0 billion for the nine months ended September 30, 2022 to $1.4 billion for the nine months ended September 30, 2023, a decrease of $0.6 billion, or 31%.

Lower commodity prices (excluding the effects of derivative settlements) during the nine months ended September 30, 2023 accounted for an approximate $811 million decrease in year-over-year revenues (calculated as the change in the year-to-year average price times current year production volumes).

Higher NGLs production volumes accounted for an approximate $203 million increase in year-over-year NGLs revenues (calculated as the change in year-to-year volumes times the prior year average price).

Revenues from sales of oil decreased from $152 million for the six months ended June 30, 2022 to $110 million for the six months ended June 30, 2023, a decrease of $42 million, or 28%.

Revenues from sales of oil decreased from $220 million for the nine months ended September 30, 2022 to $172 million for the nine months ended September 30, 2023, a decrease of $48 million, or 21%.

Lower oil prices, excluding the effects of derivative settlements, accounted for an approximate $73 million decrease in year-over-year oil revenues (calculated as the change in the year-to-year average price times current year production volumes).

Higher oil production volumes during the six months ended June 30, 2023 accounted for an approximate $16 million increase in year-over-year oil revenues (calculated as the change in year-to-year volumes times the prior year average price).

Higher oil production volumes during the nine months ended September 30, 2023 accounted for an approximate $25 million increase in year-over-year oil revenues (calculated as the change in year-to-year volumes times the prior year average price).

Commodity derivative fair value gains (losses).

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Consequently, all mark-to-market gains or losses, as well as cash receipts or payments on settled derivative instruments, are recognized in our statements of operations.

For the six months ended June 30, 2022 and 2023, our commodity hedges resulted in derivative fair value losses of $1.3 billion and fair value gains of $134 million, respectively.

For the six months ended June 30, 2022, commodity derivative fair value losses included $845 million of cash payments on settled commodity derivative losses.

For the six months ended June 30, 2023, commodity derivative fair value gains included $11 million of cash payments on settled commodity derivative losses and a $202 million cash payment for the early settlement of our swaption.

For the nine months ended September 30, 2022 and 2023, our commodity hedges resulted in derivative fair value losses of $1.8 billion and fair value gains of $138 million, respectively.

For the nine months ended September 30, 2022, commodity derivative fair value losses included $1.5 billion of cash payments on settled commodity derivative losses.

For the nine months ended September 30, 2023, commodity derivative fair value gains included $17 million of cash payments on settled commodity derivative losses and a $202 million cash payment for the early settlement of our swaption.

Commodity derivative fair value gains or losses vary based on future commodity prices and have no cash flow impact until the derivative contracts are settled or monetized prior to settlement.

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Amortization of deferred revenue, VPP.

Amortization of deferred revenues associated with the VPP decreased from $19 million for the six months ended June 30, 2022 to $15 million for the six months ended June 30, 2023, a decrease of $4 million or 19%, primarily due to lower production volumes attributable to the VPP properties between periods.

Amortization of deferred revenues associated with the VPP decreased from $28 million for the nine months ended September 30, 2022 to $23 million for the nine months ended September 30, 2023, a decrease of $5 million or 19%, primarily due to lower production volumes attributable to the VPP properties between periods.

Amortization of the deferred revenues associated with the VPP are recognized as the production volumes are delivered at $1.61 per MMBtu over the contractual term.

Lease operating expense .

Lease operating expense increased from $43 million, or $0.07 per Mcfe, for the six months ended June 30, 2022 to $58 million, or $0.10 per Mcfe for the six months ended June 30, 2023, an increase of $15 million or $0.03 per Mcfe, primarily due to higher oilfield service and produced water handling costs.

Lease operating expense increased from $70 million, or $0.08 per Mcfe, for the nine months ended September 30, 2022 to $92 million, or $0.10 per Mcfe for the nine months ended September 30, 2023, an increase of $22 million or $0.02 per Mcfe, primarily due to higher oilfield service, workover and produced water handling costs.

Gathering, compression, processing and transportation expense.

Gathering, compression, processing and transportation expense increased from $1.2 billion for the six months ended June 30, 2022 to $1.3 billion for the six months ended June 30, 2023, an increase of $0.1 billion, or 5%.

This fluctuation primarily resulted from the following:

● Gathering and compression costs on a per unit basis decreased from $0.73 per Mcfe for the six months ended June 30, 2022 to $0.70 per Mcfe for the six months ended June 30, 2023, primarily due to lower fuel costs as a result of decreased commodity prices, partially offset by annual CPI-based based adjustments between periods.

● Processing costs on a per unit basis increased from $0.71 per Mcfe for the six months ended June 30, 2022 to $0.83 per Mcfe for the six months ended June 30, 2023, primarily due to increased costs for NGLs processing and transportation, which include annual CPI-based and commodity based adjustments, as well as higher terminal fees and ethane transportation.

● Transportation costs on a per unit basis decreased from $0.71 per Mcfe for the six months ended June 30, 2022 to $0.64 per Mcfe for the six months ended June 30, 2023 primarily due to lower fuel costs as a result of lower commodity prices between periods.

Gathering, compression, processing and transportation expense remained consistent at $2.0 billion for each of the nine months ended September 30, 2022 and 2023.

This was primarily a result of the following:

● Gathering and compression costs on a per unit basis decreased from $0.76 per Mcfe for the nine months ended September 30, 2022 to $0.69 per Mcfe for the nine months ended September 30, 2023, primarily due to lower fuel costs as a result of decreased commodity prices, partially offset by annual CPI-based based adjustments between periods.

● Processing costs on a per unit basis increased from $0.75 per Mcfe for the nine months ended September 30, 2022 to $0.83 per Mcfe for the nine months ended September 30, 2023, primarily due to increased costs for NGLs processing and transportation, which include annual CPI-based and commodity based adjustments, as well as higher terminal fees and ethane transportation.

● Transportation costs on a per unit basis decreased from $0.74 per Mcfe for the nine months ended September 30, 2022 to $0.62 per Mcfe for the nine months ended September 30, 2023 primarily due to lower fuel costs as a result of lower commodity prices between periods.

Production and ad valorem tax expense.

Production and ad valorem taxes decreased from $135 million for the six months ended June 30, 2022 to $85 million for the six months ended June 30, 2023, a decrease of $50 million, or 37%, primarily due to lower commodity prices between periods, partially offset by higher production volumes between periods.

Production and ad valorem taxes as a percentage of natural gas revenues increased from 5% for the six months ended June 30, 2022 to 8% for the six months ended June 30, 2023 primarily as a result of higher ad valorem taxes, which 2023 West Virginia ad valorem taxes are based on commodity prices during 2021.

Production and ad valorem taxes decreased from $228 million for the nine months ended September 30, 2022 to $118 million for the nine months ended September 30, 2023, a decrease of $110 million, or 48%, primarily due to lower commodity prices between periods, partially offset by higher production volumes between periods.

Production and ad valorem taxes as a percentage of natural gas revenues increased from 5% for the nine months ended September 30, 2022 to 7% for the nine months ended September 30, 2023 primarily as a result of higher ad valorem taxes, which 2023 West Virginia ad valorem taxes are based on commodity prices during 2021.

General and administrative expense .

General and administrative expense (excluding equity-based compensation expense) increased from $67 million for the six months ended June 30, 2022 to $85 million for the six months ended June 30, 2023, an increase of $18 million, or 26%, primarily due to higher salary and wage expense, software license costs, office operating costs and professional service fees between periods.

We had 530 and 604 employees as of June 30, 2022 and 2023, respectively.

General and administrative expense on a per unit basis (excluding equity-based compensation) increased from $0.12 per Mcfe for the six months ended June 30, 2022 to $0.14 per Mcfe for the six months ended June 30, 2023 as a result of our higher overall general and administrative costs, partially offset by increased production volumes between periods.

General and administrative expense (excluding equity-based compensation expense) increased from $100 million for the nine months ended September 30, 2022 to $125 million for the nine months ended September 30, 2023, an increase of $25 million, or 25%, primarily due to higher salary and wage expense, professional service fees, software license costs and office operating costs between periods.

We had 554 and 605 employees as of September 30, 2022 and 2023, respectively.

General and administrative expense on a per unit basis (excluding equity-based compensation) increased from $0.11 per Mcfe for the nine months ended September 30, 2022 to $0.13 per Mcfe for the nine months ended September 30, 2023 as a result of our higher overall general and administrative costs, partially offset by increased production volumes between periods.

Equity-based compensation expense .

Noncash equity-based compensation expense increased from $13 million for the six months ended June 30, 2022 to $27 million for the six months ended June 30, 2023, an increase of $14 million, primarily due to an increase in the annual equity awards granted during the fourth quarter of 2022 and first half of 2023 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program.

Noncash equity-based compensation expense increased from $23 million for the nine months ended September 30, 2022 to $45 million for the nine months ended September 30, 2023, an increase of $22 million, primarily due to an increase in the annual equity awards granted during the fourth quarter of 2022 and first three quarters of 2023 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program.

Our equity awards vest over three or four year service periods, and our equity incentive program began returning to normal levels in 2021.

See Note 9—Equity Based Compensation and Cash Awards to the unaudited condensed consolidated financial statements for more information on equity-based compensation awards.

Depletion, depreciation and amortization expense (“DD&A expense”) .

DD&A expense remained relatively consistent at $342 million, or $0.60 per Mcfe, and $339 million, or $0.56 per Mcfe, for the six months ended June 30, 2022 and 2023, respectively.

This decrease in DD&A expense per Mcfe between periods was primarily due to higher reserve volumes during the six months ended June 30, 2023.

Depletion, depreciation and amortization expense.

DD&A expense remained relatively consistent at $511 million, or $0.59 per Mcfe, and $515 million, or $0.56 per Mcfe, for the nine months ended September 30, 2022 and 2023, respectively.

This decrease in DD&A expense per Mcfe between periods was primarily due to higher reserve volumes during the nine months ended September 30, 2023.

Impairment of property and equipment .

Impairment of oil and gas properties decreased from $46 million for the six months ended June 30, 2022 to $31 million for the six months ended June 30, 2023, a decrease of $15 million, or 32%, primarily related to lower impairments of expiring leases between periods.

Impairment of oil and gas properties decreased from $80 million for the nine months ended September 30, 2022 to $45 million for the nine months ended September 30, 2023, a decrease of $35 million, or 44%, primarily related to lower impairments of expiring leases between periods.

During both periods, we recognized impairments primarily related to expiring leases as well as design and initial costs related to pads we no longer plan to place into service.

Contract termination, loss contingency and other operating expenses .

Contract termination, loss contingency and other operating expenses attributable to our exploration and production segment of $20 million for the nine months ended September 30, 2022 were primarily due to a payment for the cancellation of the Smithburg 2 gas processing plant.

Contract termination, loss contingency and other operating expenses attributable to our exploration and production segment of $24 million for the nine months ended September 30, 2023 were primarily due to a loss contingency and the early termination of certain completion contracts.

Marketing Segment

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We have entered into long-term firm transportation agreements for a significant portion of our current and expected future production in order to secure guaranteed capacity to favorable markets.

Net marketing expense (calculated as marketing revenues less marketing expense) decreased from $55 million, or $0.10 per Mcfe, for the six months ended June 30, 2022 to $45 million, or $0.07 per Mcfe, for the six months ended June 30, 2023, primarily due to lower firm transportation commitments partially offset by lower marketing margins between periods.

Net marketing expense (calculated as marketing revenues less marketing expense) decreased from $80 million, or $0.09 per Mcfe, for the nine months ended September 30, 2022 to $62 million, or $0.07 per Mcfe, for the nine months ended September 30, 2023, primarily due to lower firm transportation commitments, partially offset by lower marketing margins between periods.

M arketing revenue.

Marketing revenue decreased from $175 million for the six months ended June 30, 2022 to $102 million for the six months ended June 30, 2023, a decrease of $73 million, or 42%.

Marketing revenue decreased from $335 million for the nine months ended September 30, 2022 to $155 million for the nine months ended September 30, 2023, a decrease of $180 million, or 54%.

This fluctuation primarily resulted from the following:

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Lower natural gas prices accounted for an approximate $156 million decrease in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes), and higher natural gas marketing volumes accounted for a $11 million increase in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price).

● Ethane marketing revenues were $37 million for the nine months ended September 30, 2022.

There were no third-party ethane marketing revenues for the nine months ended September 30, 2023.

● Oil marketing revenue increased by $2 million between periods primarily due to higher marketing volumes, partially offset by lower oil prices.

Higher oil marketing volumes accounted for a $19 million increase in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price), and lower oil prices accounted for an approximate $17 million decrease in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes).

● Ethane marketing revenues were $34 million for the six months ended June 30, 2022.

There were no third-party ethane marketing revenues for the six months ended June 30, 2023.

Marketing expense.

Marketing expense decreased from $230 million for the six months ended June 30, 2022 to $148 million for the six months ended June 30, 2023, a decrease of $82 million, or 36%.

Marketing expense includes the cost of third-party purchased natural gas, NGLs and oil as well as firm transportation costs, including costs related to current excess

firm capacity.

Marketing expense decreased from $415 million for the nine months ended September 30, 2022 to $217 million for the nine months ended September 30, 2023, a decrease of $198 million, or 48%.

Marketing expense includes the cost of third-party purchased natural gas, NGLs and oil as well as firm transportation costs, including costs related to current excess firm capacity.

The cost of third-party natural gas and ethane purchases decreased $150 million and $24 million, respectively, partially offset by oil purchase increases of $3 million.

The total cost of third-party commodity purchases decreased primarily due to lower commodity prices between periods, partially offset by higher third-party natural gas and oil marketing volumes.

Firm transportation costs were $73 million for the six months ended June 30, 2022 and $55 million for the six months ended June 30, 2023, a decrease of $18 million due to the reduction in firm transportation commitments and higher third-party marketing volumes between periods.

Contract termination and other operating expenses .

Our marketing segment did not incur any contract termination and other operating expenses for the six months ended June 30, 2022.

Contract termination and other operating expenses attributable to our marketing segment for the six months ended June 30, 2023, are due to a $24 million payment for the early termination of our firm transportation commitment of 200,000 MMBtu per day on the Equitrans pipeline.

The total cost of third-party commodity purchases decreased primarily due to lower commodity prices between periods, partially offset by higher third-party natural gas and oil marketing volumes during the nine months ended September 30, 2023.

Firm transportation costs were $109 million for the nine months ended September 30, 2022 and $82 million for the nine months ended September 30, 2023, a decrease of $27 million due to the reduction in firm transportation commitments and higher third-party marketing volumes between periods.

Contract termination, loss contingency and other operating expenses .

Our marketing segment did not incur any contract termination, loss contingency and other operating expenses for the nine months ended September 30, 2022.

Contract termination, loss contingency and other operating expenses attributable to our marketing segment for the nine months ended September 30, 2023, relate to a $24 million payment for the early termination of our firm transportation commitment of 200,000 MMBtu per day on the Equitrans pipeline.

Antero Midstream Segment

Antero Midstream revenue.

Revenue from the Antero Midstream segment increased from $447 million for the six months ended June 30, 2022 to $518 million for the six months ended June 30, 2023, an increase of $71 million, primarily due to increased throughput and water handling volumes between periods as well as higher low pressure, compression, high pressure and fresh water handling fees primarily as a result of an annual CPI-based adjustments and higher water handling fees primarily due to increased costs.

Revenue from the Antero Midstream segment increased from $678 million for the nine months ended September 30, 2022 to $782 million for the nine months ended September 30, 2023, an increase of $104 million, primarily due to increased throughput and water handling volumes between periods, as well as higher gathering, compression and fresh water delivery fees primarily as a result of an annual CPI-based adjustments and higher other fluid handling fees primarily due to increased costs partially due to inflationary pressures between periods that impact the cost plus 3% and cost of service rates.

Antero Midstream operating expense.

Total operating expense related to the Antero Midstream segment increased from $190 million for the six months ended June 30, 2022 to $224 million for the six months ended June 30, 2023, an increase of $34 million, primarily due to increased direct operating costs, depreciation expense and equity-based compensation expense during the six months ended June 30, 2023, partially offset by lower general and administrative (excluding equity-based compensation) costs between periods Direct operating costs increased between periods primarily as a result of 12 compressors that were acquired during the fourth quarter of 2022, increased heavy maintenance expense and higher wastewater trucking expense between periods.

The increase in depreciation expense is primarily a result of the 12 compressors that were acquired during the fourth quarter of 2022 and a phased early retirement of an underutilized compressor station, which allowed Antero Midstream to relocate and reuse the compressor units and equipment to (i) expand an existing compressor station and (ii) contribute to a new compressor station.

There were certain costs associated with the underutilized compressor station that could not be relocated or reused that were fully depreciated over the first half of 2023.

Antero Midstream also had incremental depreciation expense related to gathering and compression assets acquired or placed in service between periods.

Total operating expense related to the Antero Midstream segment increased from $283 million for the nine months ended September 30, 2022 to $325 million for the nine months ended September 30, 2023, an increase of $42 million, primarily due to increased direct operating and equity-based compensation expenses, partially offset by lower general and administrative expenses (excluding equity-based compensation) between periods.

Direct operating expenses increased between periods primarily due to 12 compressors that were acquired during the fourth quarter of 2022 and increased heavy maintenance expense between periods.

Equity-based compensation increased between periods primarily due to an increase in the annual equity awards granted during the first half of 2023 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program.

Antero Midstream’s equity awards vest over three or four year service periods, and its equity incentive program began returning to normal levels in 2021.

General and administrative expenses (excluding equity-based compensation expense) decreased between periods primarily due to lower legal costs.

Items Not Allocated to Segments

Interest expense.

Interest expense decreased from $72 million for the six months ended June 30, 2022 to $54 million for the six months ended June 30, 2023, a decrease of $18 million or 25%, primarily due to the reduction in debt as a result of the repurchase of certain of our unsecured senior notes between periods and lower Credit Facility borrowings between periods, partially offset by higher benchmark interest rates during the six months ended June 30, 2023.

Interest expense decreased from $100 million for the nine months ended September 30, 2022 to $85 million for the nine months ended September 30, 2023, a decrease of $15 million or 15%, primarily due to the reduction in debt as a result of the repurchase of certain of our unsecured senior notes between periods, partially offset by higher benchmark interest rates during the nine months ended September 30, 2023 and higher Credit Facility borrowings between periods.

Loss on early extinguishment of debt.

During the six months ended June 30, 2022 , we redeemed the remaining $585 million aggregate principal amount of our 2025 Notes at a redemption price of 101.25% of par, plus accrued and unpaid interest and (ii) repurchased $50 million of our 2029 notes and $13 million of our 2026 Notes, which resulted in a loss on early debt extinguishment of $15 million.

There were no debt redemptions or repurchases during the six months ended June 30, 2023.

During the nine months ended September 30, 2022, we (i) redeemed the remaining $585 million aggregate principal amount of our 2025 Notes at a redemption price of 101.25% of par, plus accrued and unpaid interest and (ii) repurchased $221 million of our 2026 Notes at a weighted average of 109% of the principal amount thereof, plus accrued and unpaid interest, and $168 million of our 2029 notes at a weighted average of 107% of the principal amount thereof, plus accrued and unpaid interest, which resulted in a loss on early debt extinguishment of $45 million.

There were no debt redemptions or repurchases during the nine months ended September 30, 2023.

See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information .

Income tax expense.

For the six months ended June 30, 2022, we had an income tax expense of $172 million, with an effective tax rate of 21%, due to income before income taxes of $810 million.

For the six months ended June 30, 2023, we had income tax expense of $32 million, with an effective tax rate of 14%, due to income before income taxes of $226 million.

For the nine months ended September 30, 2022, we had an income tax expense of $308 million, with an effective tax rate of 20%, due to income before income taxes of $1.5 billion.

For the nine months ended September 30, 2023, we had income tax expense of $46 million, with an effective tax rate of 17%, due to income before income taxes of $272 million.

The decrease in the effective tax rate between periods was primarily due to lower income before income taxes and the effects of noncontrolling interests.

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Our primary use of cash has been for the exploration, development and acquisition of oil and natural gas properties.

As we develop our reserves, we continually monitor what capital resources, including equity and debt financings,

are available to meet our future financial obligations, planned capital expenditure activities and liquidity requirements.

As we develop our reserves, we continually monitor what capital resources, including equity and debt financings, are available to meet our future financial obligations, planned capital expenditure activities and liquidity requirements.

Our future success in growing our proved reserves and production will be highly dependent on net cash provided by operating activities and the capital resources available to us.

Based on strip prices as of June 30, 2023, we believe that net cash provided by operating activities and available borrowings under the Credit Facility will be sufficient to meet our cash requirements, including normal operating needs, debt service obligations, capital expenditures and commitments and contingencies for at least the next 12 months.

Based on strip prices as of September 30, 2023, we believe that net cash provided by operating activities and available borrowings under the Credit Facility will be sufficient to meet our cash requirements, including normal operating needs, debt service obligations, capital expenditures and commitments and contingencies for at least the next 12 months.

The following table summarizes our cash flows (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash provided by operating activities

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Operating activities.

Net cash provided by operating activities was $1.5 billion and $499 million for the six months ended June 30, 2022 and 2023, respectively.

Net cash provided by operating activities decreased primarily due to lower commodity prices, a $202 million payment for early settlement of our swaption agreement and increased gathering compression, processing and transportation expenses, contract termination expense, general and administrative expenses (excluding equity-based compensation expense) and lease operating expenses, partially offset by increased production and decreased net marketing expense, production and ad valorem taxes and interest expense between periods.

Net cash provided by operating activities was $2.6 billion and $682 million for the nine months ended September 30, 2022 and 2023, respectively.

Net cash provided by operating activities decreased primarily due to lower commodity prices, a $202 million payment for early settlement of our swaption agreement and higher contract termination expenses, general and administrative expenses (excluding equity-based compensation expense) and lease operating expenses.

These operating cash flow decreases were partially offset by higher production and changes in working capital and lower payments for commodity derivative settlements, net marketing expense and interest expense between periods.

Our net operating cash flows are sensitive to many variables, the most significant of which is the volatility of natural gas, NGLs and oil prices, as well as volatility in the cash flows attributable to settlement of our commodity derivatives.

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Investing activities.

Net cash used in investing activities increased from $475 million for the six months ended June 30, 2022 to $638 million for the six months ended June 30, 2023, primarily due to an increase in capital expenditures of $160 million between periods.

The increase in capital expenditures between periods is primarily due to increased drilling and completions activity and land purchases, as well as higher drilling and water costs between periods.

Net cash used in investing activities increased from $718 million for the nine months ended September 30, 2022 to $914 million for the nine months ended September 30, 2023, primarily due to an increase in capital expenditures of $191 million between periods.

The increase in capital expenditures between periods was primarily due to increased drilling and completions activity and land purchases, as well as higher drilling and water costs between periods.

Financing activities.

Net cash flows used in financing activities for the six months ended June 30, 2022 were $1.0 billion, as compared to $139 million in net cash flows provided by financing activities for the six months ended June 30, 2023.

During the six months ended June 30, 2022, we redeemed $585 million aggregate principal amount of our 2025 Notes, repurchased $50 million of our 2029 Notes and $13 million of our 2026 Notes, repurchased approximately 9 million shares of our common stock at a total cost of approximately $293 million, distributed $67 million to the noncontrolling interest in Martica and paid $65 million in employee withholding taxes for vested equity-based awards.

Additionally, we borrowed $71 million, net, on our Credit Facility during the six months ended June 30, 2022.

During the six months ended June 30, 2023, we borrowed $325 million, net, on our Credit Facility, partially offset by distributions to the noncontrolling interests in Martica of $83 million, repurchases of approximately 3 million shares of our common stock at a total cost of $75 million and payments for employee withholding taxes for vested equity-based awards of $27 million.

Net cash used in financing activities was $1.9 billion during the nine months ended September 30, 2022, as compared to net cash provided by financing activities of $232 million during the nine months ended September 30, 2023.

During the nine months ended September 30, 2022, we redeemed $585 million aggregate principal amount of our 2025 Notes, repurchased $221 million aggregate principal amount of our 2026 Notes and $168 million aggregate principal amount of our 2029 Notes at a total cost of $1.0 billion.

We also repurchased approximately 19 million shares of our common stock at a total cost of approximately $675 million, distributed $114 million to the noncontrolling interest in Martica and paid $65 million in employee withholding taxes for vested equity-based awards.

Additionally, we borrowed $9 million, net, on our Credit Facility during the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, we

borrowed $439 million, net, on our Credit Facility, partially offset by distributions to the noncontrolling interests in Martica of $104 million, repurchases of approximately 3 million shares of our common stock at a total cost of $75 million and payments for employee withholding taxes for vested equity-based awards of $27 million.

2023 Capital Budget and Capital Spending

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We periodically review our capital expenditures and adjust our budget and its allocation based on liquidity, drilling results, leasehold acquisition opportunities and commodity prices.

For the three months ended June 30, 2023, our total consolidated capital expenditures were $287 million, including drilling and completion costs of $247 million, leasehold acquisitions of $36 million and other capital expenditures of $4 million.

For the six months ended June 30, 2023, our total consolidated capital expenditures were $628 million, including

drilling and completion costs of $514 million, leasehold acquisitions of $107 million and other capital expenditures of $7 million.

For the three months ended September 30, 2023, our total consolidated capital expenditures were $262 million, including drilling and completion costs of $231 million, leasehold acquisitions of $27 million and other capital expenditures of $4 million.

For the nine months ended September 30, 2023, our total consolidated capital expenditures were $890 million, including drilling and completion costs of $745 million, leasehold acquisitions of $134 million and other capital expenditures of $11 million.

Debt Agreements

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Under GAAP for successful efforts accounting, if the carrying amount exceeds the estimated undiscounted future net cash flows (measured using future prices), we estimate the fair value of our proved properties and record an impairment charge for any excess of the carrying amount of the properties over the estimated fair value of the properties.

Based on future prices as of June 30, 2023, the estimated undiscounted future net cash flows exceeded the carrying amount and no further evaluation was required.

We have not recorded any impairment expenses associated with our proved properties during the three and six months ended June 30, 2022 and 2023.

Based on future prices as of September 30, 2023, the estimated undiscounted future net cash flows exceeded the carrying amount and no further evaluation was required.

We have not recorded any impairment expenses associated with our proved properties during the three and nine months ended September 30, 2022 and 2023.

Estimated undiscounted future net cash flows are sensitive to commodity price swings and a decline in prices could result in the carrying amount exceeding the estimated undiscounted future net cash flows at the end of a future reporting period, which would require us to further evaluate if an impairment charge would be necessary.

If future prices decline from June 30, 2023, the fair value of our properties may be below their carrying amounts and an impairment charge may be necessary.

If future prices decline from September 30, 2023, the fair value of our properties may be below their carrying amounts and an impairment charge may be necessary.

We are unable, however, to predict future commodity prices with any reasonable certainty.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis