What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 71 added, 54 removed, 103 unchanged (55% of the section changed)

4 unchanged sentences

Results of Operations

Three Months Ended March 31,

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net Production Data:

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$ 858,838 $ 321,520 $ 1,381,795 $ 645,480

2,504 22,173 4,388 38,698

Total oil and gas sales

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Lease operating $ 25,079 $ 26,011 $ 51,265 $ 50,574

Depreciation, depletion and amortization

$ 2,342 $ — $ 3,363 $ —

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Lease operating $ 0.20 $ 0.21 $ 0.21 $ 0.21

Depreciation, depletion and amortization

$ 0.93 $ 0.95

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.

Oil and natural gas sales of $861.3 million for the second quarter of 2022 increased by $517.6 million (151%) as compared to $343.7 million for the second quarter of 2021.

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

Our natural gas production for the second quarter of 2022 was 124.0 billion cubic feet ("Bcf") (1.4 Bcf per day), and was sold at an average price of $6.93 per Mcf as compared to 124.1 Bcf (1.4 Bcf per day) sold at an average price of $2.59 per Mcf in the second quarter of 2021.

In October 2021, we sold our Bakken shale properties, which accounted for most of our oil production.

Oil and natural gas sales of $1.4 billion for the six months ended June 30, 2022 increased by $702.0 million (103%) as compared to $684.2 million for the six months ended June 30, 2021, which also was primarily due to higher prices received for our natural gas production.

Our natural gas production for the first six months of 2022 increased 1% to 238.9 Bcf (1.3 Bcf per day), and was sold at an average price of $5.79 per Mcf as compared to 237.4 Bcf (1.3 Bcf per day) sold at an average price of $2.72 in the first six months of 2021.

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 June 30, Six Months Ended June 30,

2022 2021 2022 2021

Average Realized Natural Gas Price:

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Price per Bbl, including cash settlements on derivative financial instruments $ 104.33 $ 55.82 $ 97.51 $ 52.06

Gas service revenues of $84.9 million and $129.5 million for the three months and six months ended June 30, 2022, respectively, included sales of natural gas purchased from unaffiliated third parties for resale and fees received from unaffiliated third parties for natural gas transportation and treating services.

Costs and Expenses –

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.

Our production and ad valorem taxes increased $11.6 million (114%) to $21.7 million for the second quarter of 2022 from $10.1 million in the second quarter of 2021.

Production and ad valorem taxes increased $15.8 million (80%) to $35.5 million for the first six months of 2022 from $19.8 million in the first six months 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.

Gathering and transportation costs for the second quarter of 2022 increased $5.2 million (16%) to $37.0 million as compared to $31.7 million in the second quarter of 2021.

Gathering and transportation costs for the first six months of 2022 increased $7.9 million (13%) to $69.1 million as compared to $61.2 million for the first six months of 2021.

The increase is due to additional transportation costs related to our operated natural gas production.

Our lease operating expense of $25.1 million ($0.20 per Mcfe) for the second quarter of 2022 decreased $0.9 million (4%) from lease operating expense of $26.0 million ($0.21 per Mcfe) for the second quarter of 2021.

Lease operating expense of $51.3 million ($0.21 per Mcfe) for the first six months of 2022 increased $0.7 million (1%) from lease operating expense of $50.6 million ($0.21 per Mcfe) for the first six months of 2021.

Gas service expenses were $82.8 million and $123.5 million for the three months and six months ended June 30, 2022 and include the cost of unaffiliated third party natural gas purchased for resale and the operating expenses of the pipeline and natural gas treating plant acquired in April 2022.

Depreciation, depletion and amortization ("DD&A") decreased $2.2 million (2%) to $119.2 million in the second quarter of 2022 from $121.4 million in the second quarter of 2021.

Our DD&A per equivalent Mcf produced was $0.96 per Mcfe for both the quarter ended June 30, 2022 and 2021.

DD&A decreased $4.6 million (2%) to $225.9 million in the first six months of 2022 from $230.6 million in the first six months of 2021.

Our DD&A per equivalent Mcf produced decreased $0.01 to $0.94 per Mcfe for the first six months of 2022 from $0.95 per Mcfe for the first six months of 2021.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $9.1 million for the second quarter of 2022 as compared to $7.9 million in the second quarter of 2021.

General and administrative expenses increased to $17.3 million for the first six months of 2022 from $15.9 million in the first six months of 2021.

The increases were primarily related to higher compensation expense.

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

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.

During the quarter ended June 30, 2022, we had losses related to our derivative financial instruments of $72.8 million, as compared to net losses on derivative financial instruments of $224.0 million during the quarter ended June 30, 2021.

Realized net losses from our oil and natural gas price risk management program were $257.4 million for the quarter ended June 30, 2022 as compared to realized net losses of $18.8 million for the quarter ended June 30, 2021.

Net losses on derivative financial instruments were $510.3 million for the first six months of 2022 as compared to net losses of $245.7 million for the first six months of 2021.

Realized net losses from our oil and natural gas price risk management program were $374.5 million for the first six months of 2022 as compared to realized net losses of $27.3 million for the first six months of 2021.

Interest expense was $44.3 million and $56.9 million for the quarters ended June 30, 2022 and 2021, respectively, and $90.8 million and $120.7 million for the six months ended June 30, 2022 and 2021, respectively.

The decrease in interest expense is due primarily to the refinancing of our senior notes in 2021 and the early retirements of senior notes in May and June 2022.

Loss on extinguishment of debt was $46.8 million and $114.1 million for the quarter ended June 30, 2022 and 2021, respectively, and $46.8 million and $352.6 million for the six months ended June 30, 2022 and 2021, respectively.

In May and June 2022, we retired $244.4 million and $26.1 million, respectively, principal amount of our 7.5% senior notes due in 2025 and 6.75% senior notes due in 2029.

In March and June 2021, we redeemed all of our outstanding 9.75% senior notes due in 2026 and $375.0 million principal amount of our 7.5% senior notes due in 2025.

Income taxes for the quarter ended June 30, 2022 and 2021 were an expense of $108.4 million and a benefit of $68.2 million, respectively.

Income taxes for the six months ended June 30, 2022 and 2021 were an expense of $76.8 million and a benefit of $98.1 million, respectively.

Income tax expense for the three months and six months ended June 30, 2022 reflect an effective tax rate of 22.3% and 22.4%, respectively.

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

The difference between the federal statutory tax rate of 21% and our effective rate is primarily attributable to revisions to the estimated future utilization of federal and state net operating loss carryforwards ("NOL") and the impact of state income taxes.

We reported net income available to common stockholders of $372.5 million or $1.36 per diluted share, for the quarter ended June 30, 2022 which included a $72.8 million net loss from derivative financial instruments and a $46.8 million loss on early retirement of debt.

Income from operations for the second quarter of 2022 was $649.1 million and we had interest expense of $44.3 million and $4.4 million in preferred stock dividends.

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.

In the first six months of 2022, we reported net income available to common stockholders of $256.8 million or $0.96 per diluted share, which included a $510.3 million net loss from derivative financial instruments and a $46.8 million loss on early retirement of debt.

Income from operations for the first six months of 2022 was $989.8 million and we had interest expense of $90.8 million and $8.7 million in preferred stock dividends.

We reported net loss available to common stockholders of $322.5 million or $1.39 per share for the six months ended June 30, 2021.

Cash Flows, Liquidity and Capital Resources

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

Three Months Ended

Six Months Ended

(In thousands)

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Operating activities $ 685,933 $ 385,583

Issuance of new senior notes — 1,237,438

Issuance of new senior notes, net of costs — 2,187,098

Borrowings on bank credit facility, net of repayments 115,000 —

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Uses of cash and cash equivalents:

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

Capital expenditures $ 515,454 $ 338,779

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

Retirement of senior notes 273,920 2,210,626

Repayments of bank credit facility, net of borrowings — 25,000

Preferred stock dividends 8,678 8,678

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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.

Net cash provided by our operating activities increased $300.4 million (78%) to $685.9 million in the first six months of 2022 from $385.6 million in the same period in 2021.

The increase is primarily due to higher realized 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.

In May 2022, we retired all of our outstanding 7.5% senior notes due in 2025 for $248.9 million, which included premiums paid over face value of $4.5 million.

During June 2022, we retired $26.1 million principal amount of our 6.75% senior notes for $24.9 million.

In 2021, we issued $1.25 billion principal amount of 6.75% senior notes due in 2029 and $965.0 million principal amount of 5.875% senior notes due in 2030.

The proceeds from the note offerings were used to redeem $2,025.0 million principal amount of outstanding senior notes for $2,198.1 million, including premiums paid over face value and costs related to a 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 increase in capital expenditures of $176.7 million is primarily due to our higher drilling and completion activity in 2022 and the acquisition of undeveloped Haynesville shale acreage and a high pressure natural gas pipeline and treating plant from an unaffiliated third party.

The following table summarizes our capital expenditure activity:

Three Months Ended

Six Months Ended

(In thousands)

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Development leasehold costs

Exploratory drilling and completion costs 11,557 —

Development drilling and completion costs

189,048 155,239

Drilling and completion costs 444,816 312,887

Other development costs

1 unchanged sentence

Total exploration and development 513,243 341,280

Other property and equipment 18,079 46

Total capital expenditures

$ 531,322 $ 341,326

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

Change in accrued capital expenditures and other (13,842) (1,692)

Change in asset retirement obligations (2,026) (855)

Total cash capital expenditures $ 515,454 $ 338,779

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.

We drilled 61 (30.5 net) wells and completed 61 (30.3 net) Haynesville and Bossier shale wells during the first six months of 2022.

We currently expect to spend an additional $440 million to $490 million in the remaining six months of 2022 to drill 42 (28.9 net) additional wells, to complete 33 (27.0 net) wells and for other development activity.

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.

As of June 30, 2022, we had $1.1 billion of liquidity, comprised of unused borrowing capacity under our bank credit facility and $32.3 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.

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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 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.

At June 30, 2022, we had $350.0 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.

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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, 2022.

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

We were in compliance with the covenants as of June 30, 2022.

At June 30, 2022, we had $897.4 million in U.S.

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

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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