What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-04 · 79 added, 78 removed, 78 unchanged (67% of the section changed)

4 unchanged sentences

Results of Operations

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Net Production Data:

7 unchanged sentences

$ 522,957 $ 323,960

22,873 9,637 61,571 35,449

Total oil and gas sales

6 unchanged sentences

$ 106,728 $ 109,128

$ — $ — $ — $ 27

Average Sales Price:

12 unchanged sentences

$ 0.93 $ 0.95

Oil and natural gas sales of $511.2 million for the third quarter of 2021 increased by $333.2 million (187%) as compared to $178.0 million for the third quarter of 2020.

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

Our natural gas production for the third quarter of 2021 increased 26% to 128.9 billion cubic feet ("Bcf") (1.4 Bcf per day), and was sold at an average price of $3.79 per Mcf as compared to 102.6 Bcf (1.1 Bcf per day) sold at an average price of $1.64 per Mcf in the third quarter of 2020.

Oil production of 346 MBbls (3,761 Bbls per day) was sold at an average price of $66.11 per Bbl in the third quarter of 2021 as compared to 354 MBbls (3,851 Bbls per day) sold at an average price of $27.20 per Bbl in the third quarter of 2020.

Oil and natural gas sales of $1.2 billion increased by $611.9 million (105%) for the nine months ended September 30, 2021 compared to $583.4 million for the nine months ended September 30, 2020, due primarily to higher prices received for our oil and natural gas production.

Our natural gas production for the first nine months of 2021 was 366.3 Bcf (1.3 Bcf per day), which was sold at an average price of $3.10 per Mcf as compared to 341.8 Bcf (1.2 Bcf per day) sold at an average price of $1.60 per Mcf in the first nine months of 2020.

Oil production of 1,034 Mbbls (3,788 Bbls per day) was sold at an average price of $59.55 per Bbl in the first nine months of 2021 as compared to 1,168 Mbbls (4,263 Bbls per day) sold at an average price of $30.35 per Bbl in the first nine months of 2020.

Oil and natural gas sales of $524.8 million for the first quarter of 2022 increased by $184.4 million (54%) as compared to $340.5 million for the first quarter of 2021.

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

Our natural gas production for the first quarter of 2022 increased 1% to 114.9 billion cubic feet ("Bcf") (1.3 Bcf per day), and was sold at an average price of $4.55 per Mcf as compared to 113.3 Bcf (1.3 Bcf per day) sold at an average price of $2.86 per Mcf in the first quarter of 2021.

In October 2021, the Company sold its Bakken shale properties, which accounted for most of its oil production.

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 Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Average Realized Natural Gas Price:

7 unchanged sentences

Costs and Expenses –

Our production and ad valorem taxes in creased $6.9 million (70%) to $16.7 million for the third quarter of 2021 from $9.8 million in the third quarter of 2020.

Production and ad valorem taxes increased $8.7 million (31%) to $36.5 million for the first nine months of 2021 from $27.8 million in the first nine months of 2020.

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

Gathering and transportation costs for the third quarter of 2021 increased $13.0 million (58%) to $35.4 million as compared to $22.4 million in the third quarter of 2020.

Gathering and transportation costs for the first nine months of 2021 increased $19.2 million (25%) to $96.6 million as compared to $77.4 million for the first nine months of 2020.

The increase is due primarily to higher average rates and higher production in the third quarter and the first nine months of 2021.

Our lease operating expense of $26.6 million ($0.20 per Mcfe) for the third quarter of 2021 increased $1.2 million (5%) from lease operating expense of $25.4 million ($0.25 per Mcfe) for the third quarter of 2020.

Our lease operating expense of $77.2 million ($0.21 per Mcfe) for the first nine months of 2021 decreased $2.0 million (2%) from lease operating expense of $79.1 million ($0.23 per Mcfe) for the first nine months of 2020.

The decrease in average per unit cost is related to the growth in our lower cost natural gas production.

Depreciation, depletion and amortization ("DD&A") increased $29.7 million (30%) to $128.7 million in the third quarter of 2021 from $99.1 million in the third quarter of 2020 due to higher production and an increase in the average rate.

Our DD&A per equivalent Mcf produced increased $0.03 (3%) to $0.98 per Mcfe for the three months ended September 30, 2021 from $0.95 per Mcfe for the three months ended September 30, 2020.

DD&A increased $46.5 million (15%) to $359.3 million in the first nine months of 2021 from $312.8 million in the first nine months of 2020.

Our DD&A per equivalent Mcf produced increased $0.06 (7%) to $0.96 per Mcfe for the first nine months of 2021 from $0.90 per Mcfe for the first nine months of 2020.

General and administrative expenses, which are reported net of overhead reimbursements, decreased to $8.1 million for the third quarter of 2021 as compared to $9.0 million in the third quarter of 2020.

General and administrative expenses decreased to $24.0 million for the first nine months of 2021 from $26.0 million in the first nine months of 2020.

The decreases primarily resulted from higher overhead reimbursements that we received in 2021.

Our production and ad valorem taxes increased $4.2 million (43%) to $13.8 million for the first quarter of 2022 from $9.7 million in the first quarter of 2021.

The increase was primarily related to higher natural gas sales in 2022.

Gathering and transportation costs for the first quarter of 2022 increased $2.6 million (9%) to $32.1 million as compared to $29.5 million in the first quarter of 2021 due to additional transportation costs related to the Company's operated natural gas production.

Our lease operating expense of $26.2 million ($0.23 per Mcfe) for the first quarter of 2022 increased $1.6 million (7%) from lease operating expense of $24.6 million ($0.21 per Mcfe) for the first quarter of 2021 due to higher field-level costs incurred during the first quarter.

Depreciation, depletion and amortization ("DD&A") decreased $2.4 million (2%) to $106.7 million in the first quarter of 2022 from $109.1 million in the first quarter of 2021 primarily due to a decrease in the average amortization rate.

Our DD&A per equivalent Mcf produced decreased $0.02 (2%) to $0.93 per Mcfe for the three months ended March 31, 2022 from $0.95 per Mcfe for the three months ended March 31, 2021.

General and administrative expenses, which are reported net of overhead reimbursements, were $8.2 million for the first quarter of 2022 and were comparable to the $8.0 million in the first quarter of 2021.

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

During the quarter ended September 30, 2021, we had substantial losses related to our derivative financial instruments of $510.3 million, as compared to net losses on derivative financial instruments of $121.6 million during the quarter ended September 30, 2020.

Realized net losses from our oil and natural gas price risk management program were $117.1 million for the quarter ended September 30, 2020 as compared to realized net gains of $34.2 million for the quarter ended September 30, 2021.

During the nine months ended September 30, 2021, we had total net losses on derivative financial instruments of $756.0 million, as compared to net losses on derivative financial instruments of $72.0 million during the the first nine months of 2020.

Realized net losses from our oil and natural gas price risk management program were $144.4 million and net gains of $132.9 million for the nine months ended September 30, 2021 and 2020, respectively.

Interest expense was $50.0 million and $63.9 million for the quarter ended September 30, 2021 and 2020, respectively.

The 22% decrease in interest expense is due primarily to the retirement of our 9.75% and 7.50% senior notes

during the first six months of 2021.

Interest expense was $170.6 million and $168.8 million for the nine months ended September 30, 2021 and 2020, respectively.

Income taxes for the quarter ended September 30, 2021 and 2020 were a provision of $24.0 million and a benefit of $46.1 million, respectively.

Income taxes for the nine months ended September 30, 2021 and 2020 were a benefit of $74.2 million and $46.2 million, respectively.

The provision and benefit for income taxes for the three months and nine months ended September 30, 2021 reflect an effective tax rate of (9.1)% and 11.0%, respectively.

The income tax provision for the three months ended September 30, 2021 is attributable to revisions to the estimated future utilization of federal and state net operating loss carryforwards resulting from the loss from derivative financial instruments that was recognized in the period.

The benefit for income taxes for the three months and nine months ended September 30, 2020 reflect an effective tax rate of 26.7% and 25.6%, respectively.

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

We reported net loss available to common stockholders of $292.7 million or $1.26 per share, for the quarter ended September 30, 2021 which was caused by the $510.3 million net loss from derivative financial instruments.

Income from operations for the third quarter of 2021 was $295.7 million and we had interest expense of $50.0 million and $4.4 million in preferred stock dividends.

We reported net loss available to common stockholders of $130.9 million or $0.57 per share for the three months ended September 30, 2020.

In the first nine months of 2021, we reported net loss available to common stockholders of $615.2 million or $2.66 per share.

Our income from operations for the first nine months of 2021 was $602.0 million, which was offset by losses on derivative financial instruments of $756.0 million, $352.6 million in losses on early retirement of debt and interest expense of $170.6 million.

We reported net loss of $160.9 million or $0.77 per share for the nine months ended September 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 nine months ended September 30, 2021, we generated $618.6 million in cash flow from operating activities as compared to $390.0 million in cash flow from operating activities for the nine months ended September 30, 2020.

During the quarter ended March 31, 2022, we had substantial losses related to our derivative financial instruments of $437.5 million, as compared to net losses on derivative financial instruments of $21.7 million during the quarter ended March 31, 2021.

Realized net losses from our oil and natural gas price risk management program were $117.2 million for the quarter ended March 31, 2022 as compared to realized net losses of $8.4 million for the quarter ended March 31, 2021.

Interest expense was $46.5 million and $63.8 million for the quarter ended March 31, 2022 and 2021, respectively.

The 27% decrease in interest expense is due primarily to the refinancing of our senior notes in 2021.

We expect interest expense to decrease further with the planned redemption of our 7.50% senior notes due 2025 on May 15, 2022.

Income taxes for the quarter ended March 31, 2022 and 2021 were a benefit of $31.6 million and $30.0 million, respectively.

The benefit for income taxes for the three months ended March 31, 2022 reflect an effective tax rate of 22.1%.

The income tax benefit for the three months ended March 31, 2022 is attributable to revisions to the estimated future utilization of federal and state net operating loss carryforwards ("NOL") and the impact of state income taxes.

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

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 $115.7 million or $0.50 per share, for the quarter ended March 31, 2022 which was caused by the $437.5 million net loss from derivative financial instruments.

Income from operations for the first quarter of 2022 was $336.8 million and we had interest expense of $46.5 million and $4.3 million in preferred stock dividends.

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.

Cash Flows, Liquidity and Capital Resources

The following table summarizes sources and uses of cash and cash equivalents:

Three Months Ended

(In thousands)

Sources of cash and cash equivalents:

Operating activities $ 284,039 $ 193,272

Issuance of new senior notes — 1,237,438

Borrowings on bank credit facility, net of repayments — 50,000

Proceeds from asset sales 45 200

Total $ 284,084 $ 1,480,910

Uses of cash and cash equivalents:

Retirement of senior notes $ — $ (1,263,651)

Capital expenditures (213,277) (165,751)

Repayments on bank credit facility, net of borrowings (85,000) —

Preferred stock dividends (4,315) (4,315)

Other (18) (30)

Total $ (302,610) $ (1,433,747)

Cash flows from operating activities.

Net cash provided by our operating activities increased $90.8 million (47%) to $284.0 million in 2022 from $193.3 million in 2021.

The increase is primarily due to higher natural gas prices in 2022.

Issuance of new senior notes and retirement of senior notes.

In March 2021, we issued $1.25 billion principal amount of 6.75% senior notes due 2029 in a private placement offering and received net proceeds after offering costs of $1.24 billion.

The new 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.

The proceeds from the offering were used to repurchase $375.0 million principal amount of our 7.50% senior notes due 2025 and $777.1 million principal amount of our 9.75% senior notes due 2026 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.

Capital expenditures.

The increase in capital expenditures of $47.5 million is primarily due to higher drilling and completion activity in 2022.

The following table summarizes our capital expenditure activity:

Nine Months Ended September 30,

Three Months Ended

(In thousands)

Acquisitions:

Proved property $ 274 $ —

Unproved property 3,631 5,776

Exploration and development:

Exploratory leasehold costs $ 18,649 $ 1,457

Development leasehold costs

Exploratory drilling and completion costs 11,557 —

Development drilling and completion costs

1 unchanged sentence

Other development costs

28,455 26,463

Change to asset retirement obligations 381 328

Total exploration and development 228,135 168,851

Total capital expenditures

$ 228,157 $ 168,857

We drilled 81 (46.9 net) wells and completed 68 (47.2 net) Haynesville shale wells during the first nine months of 2021.

We expect to spend an additional $115 million to $135 million in the remaining three months of 2021 to drill 9 (7.4 net) additional wells, to complete 10 (8.8 net) wells and for other development activity.

Change in accrued capital expenditures (14,499) (2,778)

Change in asset retirement obligations (381) (328)

Total cash capital expenditures $ 213,277 $ 165,751

We drilled 29 (13.7 net) wells and completed 33 (15.2 net) Haynesville and Bossier shale wells during the first three months of 2022.

We expect to spend an additional $650 million to $700 million in the remaining nine months of 2022 to drill 57 (44.4 net) additional wells, to complete 54 (45.1 net) wells and for other development activity.

The Company also could spend an additional $100 million on bolt-on acquisitions and leasing activities in 2022.

Liquidity and Capital Resources

As of March 31, 2022, we had $1.26 billion of liquidity, comprised of $1.25 billion of unused borrowing capacity under our bank credit facility and $12.1 million of cash and cash equivalents on hand.

Our short and long-term capital requirements consist primarily of funding our development and exploration activities, acquisitions, payments of contractual obligations and debt service.

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

1 unchanged sentence

Consequently, we have a significant degree of flexibility to adjust the level of our capital expenditures as circumstances warrant.

If our plans or assumptions change or our assumptions prove to be inaccurate, we may be required to seek additional capital, including additional equity or debt financings.

If our plans or assumptions change or our assumptions prove to be inaccurate, we may be required to seek additional capital, including debt or equity financing.

We cannot provide any assurance that we will be able to obtain such capital, or if such capital is available, that we will be able to obtain it on acceptable terms.

1 unchanged sentence

We intend to use our cash flows from operations, borrowings under our bank credit facility, or other debt or equity financings to the extent available, to finance such acquisitions.

The availability and attractiveness of these sources of financing will depend upon a number of factors, some of which will relate to our financial condition and performance and some of which will be

beyond our control, such as prevailing interest rates, oil and natural gas prices and other market conditions.

The availability and attractiveness of these sources of financing will depend upon a number of factors, some of which will relate to our financial condition and performance and some of which will be beyond our control, such as prevailing interest rates, oil and natural gas prices and other market conditions.

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 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 $352.6 million on early retirement of debt for the nine months ended September 30, 2021.

At September 30, 2021, we had $425.0 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 October 22, 2021.

On April 14, 2022, we announced the early redemption of the remaining outstanding amount of our 7.50% senior notes due 2025 in aggregate principal amount of $244.4 million on May 15, 2022.

In accordance with the terms and conditions set forth in the indenture, we will pay the redemption price of 101.875% of the principal amount plus any accrued and unpaid interest.

We expect to fund this redemption by using cash on hand and borrowings under its bank credit facility.

At March 31, 2022, we had $150.0 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 on April 15, 2022.

Borrowings under the bank credit facility are secured by substantially all of our assets and those of our subsidiaries and bear interest at our option, at either LIBOR plus 2.25% to 3.25% or a base rate plus 1.25% to 2.25%, in each case depending on the utilization of the borrowing base.

2 unchanged sentences

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 September 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.

On October 6, 2021, we entered into an agreement to sell certain wells producing from the Bakken shale for $154 million in cash, subject to adjustment and customary closing conditions.

The sale is expected to close in the fourth quarter of 2021 and has an effective date of October 1, 2021.

At September 30, 2021, we had $960.3 million in U.S.

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

We were in compliance with the covenants as of March 31, 2022.

At March 31, 2022, we had $897.4 million in U.S.

federal NOL carryforwards and $1.5 billion in certain state NOL carryforwards.

As a result of the change of control in August 2018, our ability to use NOLs to reduce taxable income is generally limited to an annual amount based on the fair market value of our stock immediately prior to the ownership change multiplied by the long-term tax-exempt interest rate.

2 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 $117.0 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.

incurred prior to 2018 generally have a 20-year life until they expire.

NOLs incurred prior to 2018 generally have a 20-year life until they expire.

NOLs generated in 2018 and after would be carried forward indefinitely.

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