What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 67 added, 38 removed, 85 unchanged (55% of the section changed)

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Results of Operations

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net Production Data:

16 unchanged sentences

$ 121,446 $ 103,347 $ 230,574 $ 213,772

$ — $ — $ — $ 27

Average Sales Price:

12 unchanged sentences

$ 0.96 $ 0.87 $ 0.95 $ 0.88

Oil and natural gas sales of $340.5 million increased by $114.6 million (51%) in the first quarter of 2021 as compared to $225.9 million for the first quarter of 2020, which increase was primarily due to higher prices received for our oil and natural gas production.

Our natural gas production for the first quarter of 2021 was 113.3 billion cubic feet ("Bcf") (1.3 Bcf per day), which was sold at an average price of $2.86 per Mcf as compared to 122.8 Bcf (1.3 Bcf per day) sold at an average price of $1.69 per Mcf in the first quarter of 2020.

Oil production of 326 MBbls (3,617 Bbls per day) was sold at an average price of $50.69 per Bbl in the first quarter of 2021 as compared to 454 MBbls (4,994 Bbls per day) sold at an average price of $41.01 per Bbl in the first quarter of 2020.

We utilize natural gas and oil price derivative financial instruments to manage our exposure to changes in natural gas and oil prices and to protect returns on investment from our drilling activities.

Oil and natural gas sales of $343.7 million increased by $164.2 million (91%) in the second quarter of 2021 as compared to $179.5 million for the second quarter of 2020.

The increase was primarily due to higher prices received for our oil and natural gas production as well as increased natural gas production.

Our natural gas production for the second quarter of 2021 was 124.1 billion cubic feet ("Bcf") (1.4 Bcf per day), which was sold at an average price of $2.59 per Mcf as compared to 116.5 Bcf (1.3 Bcf per day) sold at an average price of $1.48 per Mcf in the second quarter of 2020.

Oil production of 362 MBbls (3,978 Bbls per day) was sold at an average price of $61.25 per Bbl in the second quarter of 2021 as compared to 360 MBbls (3,956 Bbls per day) sold at an average price of $19.97 per Bbl in the second quarter of 2020.

Oil and natural gas sales of $684.2 million increased by $278.8 million (69%) for the six months ended June 30, 2021 compared to $405.4 million for the six months ended June 30, 2020, which was primarily due to higher prices received for our oil and natural gas production.

Our natural gas production for the first six months of 2021 was 237.4 Bcf (1.3 Bcf per day) was sold at an average price of $2.72 per Mcf as compared to 239.3 Bcf (1.3 Bcf per day) sold at an average price of $1.59 per Mcf in the first six months of 2020.

Oil production of 688 Mbbls (3,801 Bbls per day) was sold at an average price of $56.25 per Bbl in the first six months of 2021 as compared to 814 Mbbls (4,473 Bbls per day) sold at an average price of $31.72 per Bbl in the first six months of 2020.

We utilize natural gas and oil price derivative financial instruments to manage our exposure to changes in prices of natural gas and oil and to protect returns on investment from our drilling activities.

The following table presents our natural gas and oil prices before and after the effect of cash settlements of our derivative financial instruments:

Three Months Ended March 31,

Three Months Ended Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Average Realized Natural Gas Price:

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Costs and Expenses –

Our production and ad valorem taxes in creased $1.3 million (15%) to $9.7 million for the first quarter of 2021 from $8.4 million in the first quarter of 2020.

The increase was primarily due to higher oil and natural gas prices in 2021.

Gathering and transportation costs for the first quarter of 2021 increased $1.0 million (4%) to $29.5 million as compared to $28.4 million in the first quarter of 2020 due primarily to higher gathering and transportation rates on our natural gas production.

Our lease operating expense of $24.6 million for the first quarter of 2021 decreased $1.3 million (5%) from lease operating expense of $25.9 million for the first quarter of 2020.

This decrease relates to lower oil and natural gas production in the first quarter of 2021.

Depreciation, depletion and amortization ("DD&A") decreased $1.3 million (1%) to $109.1 million in the first quarter of 2021 from $110.4 million in the first quarter of 2020.

Our DD&A per equivalent Mcf produced increased $0.07 (8%) to $0.95 per Mcfe for the three months ended March 31, 2021 from $0.88 per Mcfe for the three months ended March 31, 2020.

General and administrative expenses, which are reported net of overhead reimbursements, decreased to $8.0 million for the first quarter of 2021 from $8.7 million in the first quarter of 2020.

Our production and ad valorem taxes in creased $0.6 million (6%) to $10.1 million for the second quarter of 2021 from $9.6 million in the second quarter of 2020.

Production and ad valorem taxes increased $1.8 million (10%) to $19.8 million for the first six months of 2021 from $18.0 million in the first six months of 2020.

The increase was primarily due to the higher oil and natural gas sales in 2021.

Gathering and transportation costs for the second quarter of 2021 increased $5.1 million (19%) to $31.7 million as compared to $26.6 million in the second quarter of 2020.

Gathering and transportation costs for the first six months of 2021 increased $6.2 million (11%) to $61.2 million as compared to $55.0 million for the first six months of 2020.

The increase is due primarily to higher average rates in 2021 in addition to the higher production in the second quarter of 2021.

Our lease operating expense of $26.0 million ($0.21 per Mcfe) for the second quarter of 2021 decreased $1.8 million (7%) from lease operating expense of $27.8 million ($0.24 per Mcfe) for the second quarter of 2020.

Our lease operating expense of $50.6 million ($0.21 per Mcfe) for the first six months of 2021 decreased $3.1 million (6%) from lease operating expense of $53.7 million ($0.22 per Mcfe) for the first six months of 2020.

The decrease in average per unit cost is related to the growth in our lower cost natural gas production where much of the operating costs are fixed in nature.

Depreciation, depletion and amortization ("DD&A") increased $18.1 million (18%) to $121.4 million in the second quarter of 2021 from $103.3 million in the second quarter of 2020.

Our DD&A per equivalent Mcf produced increased $0.09 (10%) to $0.96 per Mcfe for the three months ended June 30, 2021 from $0.87 per Mcfe for the three months ended June 30, 2020.

DD&A increased $16.8 million (8%) to $230.6 million in the first six months of 2021 from $213.8 million in the first six months of 2020.

Our DD&A per equivalent Mcf produced increased $0.07 (8%) to $0.95 per Mcfe for the first six months of 2021 from $0.88 per Mcfe for the first six months of 2020.

General and administrative expenses, which are reported net of overhead reimbursements, decreased to $7.9 million for the second quarter of 2021 from $8.3 million in the second quarter of 2020.

General and administrative expenses decreased to $15.9 million for the first six months of 2021 from $17.0 million in the first six months of 2020.

The decreases were primarily related to increased overhead reimbursements in 2021.

We use derivative financial instruments as part of our price risk management program to protect our capital investments.

During the three months ended March 31, 2021, we had net losses on derivative financial instruments of $21.7 million, as compared to net gains on derivative financial instruments of $61.9 million during the three months ended March 31, 2020.

Realized net losses from our oil and natural gas price risk management program were $8.4 million for the three months ended March 31, 2021 as compared to realized net gains of $45.4 million for the three months ended March 31, 2020.

Realized losses from our interest rate risk management program were $269 thousand for the three months ended March 31, 2021.

Interest expense was $63.8 million and $52.8 million for the three ended March 31, 2021 and 2020, respectively.

The increase in interest expense is due to the issuance of $800.0 million principal amount of 9.75% senior notes in the second and third quarters of 2020.

Income taxes for the three months ended March 31, 2021 and 2020 were a benefit of $30.0 million and a provision of $11.4 million, respectively.

The benefit and provision for income taxes for the three months ended March 31, 2021 and 2020 reflect an effective tax rate of 18.3% and 21.3%, respectively.

The difference between the federal statutory rate of 21% and our effective rate is primarily due to the impact of state income taxes.

We reported net loss available to common stockholders of $138.4 million or $0.60 per share, for the three months ended March 31, 2021 primarily due to the $238.5 million pre-tax loss on early retirement of our 7.50% senior notes and 9.75% senior notes.

Income from operations was $159.7 million and we had $21.7 million in losses from derivative financial instruments, interest expense of $63.8 million and $4.3 million in preferred stock dividends.

We reported net income available to common stockholders of $30.0 million or $0.15 per diluted share for the three months ended March 31, 2020.

During the three months ended June 30, 2021, we had net losses on derivative financial instruments of $224.0 million, as compared to net losses on derivative financial instruments of $12.3 million during the three months ended June 30, 2020.

Realized net losses from our oil and natural gas price risk management program were $18.8 million for the three months ended June 30, 2021 as compared to realized net gains of $53.2 million for the three months ended June 30, 2021.

Realized losses from our interest rate risk management program were $292 thousand for the three months ended June 30, 2021 as compared to net gains of $63 thousand for the three months ended June 30, 2020.

During the six months ended June 30, 2021, we had net losses on derivative financial instruments of $245.7 million, as compared to net gains on derivative financial instruments of $49.6 million during the the first six months of 2020.

Realized net losses from our oil and natural gas price risk management program were $27.3 million and net gains of $98.6 million for the six months ended June 30, 2021 and 2020, respectively.

Realized losses from our interest rate risk management program were $561 thousand for the six months ended June 30, 2021 as compared to net gains of $63 thousand for the six months ended June 30, 2020.

Interest expense was $56.9 million and $52.1 million for the three months ended June 30, 2021 and 2020, respectively.

Interest expense was $120.7 million and $104.9 million for the six months ended June 30, 2021 and 2020, respectively.

The increase in interest expense is due primarily to the issuance of additional 9.75% senior notes in 2020.

Income taxes for the three months ended June 30, 2021 and 2020 were a benefit of $68.2 million and $11.4 million, respectively.

Income taxes for the six months ended June 30, 2021 and 2020 were a benefit of $98.1 million and $0.1 million, respectively.

The benefit for income taxes for the three months and six months ended June 30, 2021 reflect an effective tax rate of 27.5% and 23.8%, respectively.

The benefit for income taxes for the three months and six months ended June 30, 2020 reflect an effective tax rate of 18.7% and 0.7%, respectively.

The difference between the federal statutory rate of 21% and our effective rate is primarily due to the impact of state income taxes, including changes to Louisiana state tax law enacted in the second quarter of 2021.

We reported net loss available to common stockholders of $184.1 million or $0.80 per share, for the three months ended June 30, 2021 due primarily to the $224.0 million in losses from derivative financial instruments and the $114.1 million loss on early retirement of our 9.75% senior notes.

Income from operations was $146.5 million and we had interest expense of $56.9 million and $4.4 million in preferred stock dividends.

We reported net loss available to common stockholders of $60.0 million or $0.29 per share for the three months ended June 30, 2020.

In the first six months of 2021, we reported net loss available to common stockholders of $322.5 million or $1.39 per share.

Our net loss during this period includes income from operations of $306.2 million, which were offset by losses on derivative financial instruments of $245.7 million, interest expense of $120.7 million and $352.6 million in losses on early retirement of debt.

We reported net loss of $30.0 million or $0.15 per share for the six months ended June 30, 2020.

Liquidity and Capital Resources

Funding for our activities has historically been provided by our operating cash flow, debt or equity financings or proceeds from asset sales.

For the three months ended March 31, 2021, we generated $193.3 million in cash flow from operating activities as compared to $150.1 million in cash flow from operating activities for the three months ended March 31, 2020.

For the six months ended June 30, 2021, we generated $385.6 million in cash flow from operating activities as compared to $266.1 million in cash flow from operating activities for the six months ended June 30, 2020.

The following table summarizes our capital expenditure activity:

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

7 unchanged sentences

$ 341,280 $ 205,234

We drilled 25 (19.6 net) wells and completed 14 (9.5 net) Haynesville shale wells during the first three months of 2021.

We expect to spend an additional $350 million to $390 million in the remaining nine months of 2021 to drill 46 (37 net) additional wells, to complete 45 (40 net) wells and for other development activity.

We drilled 50 (34.4 net) wells and completed 35 (24.5 net) Haynesville shale wells during the first six months of 2021.

We expect to spend an additional $200 million to $240 million in the remaining six months of 2021 to drill 25 (21.7 net) additional wells, to complete 29 (24.3 net) wells and for other development activity.

We expect to fund our future development and exploration activities with future operating cash flow.

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Lack of access to the debt or equity markets due to general economic conditions could impede our ability to complete acquisitions.

On March 4, 2021, we issued $1.25 billion principal amount of 6.75% senior notes due 2029 in a private placement and received net proceeds after offering costs of $1.24 billion, which were used to repurchase a portion of our 7.50% senior notes due 2025 and 9.75% senior notes due 2026 pursuant to a tender offer.

The new senior notes mature on March 1, 2029 and accrue interest at a rate of 6.75% per annum, payable semi-annually on March 1 and September 1 of each year.

Under the tender offer, we repurchased $375 million principal amount of our 7.50% senior notes and $777.1 million principal amount of our 9.75% senior notes for an aggregate amount of $1.26 billion, which included premiums paid over face value of $97.9 million, accrued interest of $12.5 million and $1.1 million of costs related to the tender offer.

As a result of the early retirement of the senior notes repurchased in the tender offer, we recognized a $238.5 million loss on early retirement of debt in the three months ended March 31, 2021.

At March 31, 2021, we had $550.0 million outstanding under our bank credit facility with a $1.4 billion committed borrowing base, which is re-determined on a semi-annual basis and upon the occurrence of certain other events, and matures on July 16, 2024.

On March 4, 2021, we issued $1.25 billion principal amount of our 6.75% senior notes due in 2029 (the "2029 Notes") in a private placement and received net proceeds after offering costs of $1.24 billion, which were used to repurchase a portion of our 7.5% senior notes due in 2025 (the "2025 Notes") and 9.75% senior notes due in 2026 (the "2026 Notes") pursuant to a tender offer.

The 2029 Notes mature on March 1, 2029 and accrue interest at a rate of 6.75% per annum, payable semi-annually on March 1 and September 1 of each year.

Pursuant to the tender offer, we repurchased $375.0 million principal amount of the 2025 Notes and $777.1 million principal amount of the 2026 Notes for an aggregate amount of $1.26 billion, which included premiums paid over face value of $97.9 million, accrued interest of $12.5 million and $1.1 million of costs related to the tender offer.

On June 28, 2021, we issued $965.0 million principal amount of our 5.875% senior notes due in 2030 (the "2030 Notes") in a private placement and received net proceeds after offering costs of $949.5 million, which were used along with cash on hand to redeem all outstanding 2026 Notes.

The 2030 Notes mature on January 15, 2030 and accrue interest at a rate of 5.875% per annum, payable semi-annually on January 15 and July 15 of each year.

On June 29, 2021, we completed the redemption of all outstanding 2026 Notes for $978.6 million, which included premiums paid over face value of $74.0 million and accrued interest of $31.7 million.

As a result of the early retirement of the senior notes repurchased in the tender offer and the redemption of the 2026 Notes, we recognized a loss of $114.1 million and $352.6 million on early retirement of debt for the three months and six months ended June 30, 2021, respectively.

At June 30, 2021, we had $475.0 million outstanding under our bank credit facility with a $1.4 billion committed borrowing base, which is re-determined on a semi-annual basis and upon the occurrence of certain other events, and matures on July 16, 2024.

The borrowing base was redetermined at $1.4 billion on April 16, 2021.

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The only financial covenants are the maintenance of a leverage ratio of less than 4.0 to 1.0 and an adjusted current ratio of at least 1.0 to 1.0.

We were in compliance with the covenants as of March 31, 2021.

Federal Taxation

At March 31, 2021, we had $1.0 billion in U.S.

We were in compliance with the covenants as of June 30, 2021.

In April 2021, we entered into a well stimulation agreement that extends to 2024 for exclusive use of a natural gas powered pressure pumping fleet.

The minimum commitment under this contract is $19.2 million per year from 2022 through 2024.

At June 30, 2021, we had $946.1 million in U.S.

federal net operating loss ("NOL") carryforwards and $1.5 billion in certain state NOL carryforwards.

3 unchanged sentences

Based on the fair market value of our common stock immediately prior to the ownership change, we believe that we have a net unrealized built-in gain which will increase the Section 382 limitation during the five-year recognition period from 2018 to 2023 by $117 million.

Effective June 30, 2021, Louisiana state tax law was amended to provide that all NOL deductions claimed on any corporate income tax return filed on or after January 1, 2022 for NOLs relating to loss years on or after January 1, 2001 may be carried forward indefinitely until such losses are fully recovered, subject to other limitations.

NOLs that exceed the Section 382 limitation in any year continue to be allowed as carryforwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year.

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We estimate that $800.5 million of the U.S.

federal NOL carryforwards and $1.4 billion of the estimated state NOL carrforwards will expire unused.

federal NOL carryforwards and $1.2 billion of the estimated state NOL carryforwards will expire unused.

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