What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 57 added, 88 removed, 89 unchanged (62% of the section changed)

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net Production Data:

7 unchanged sentences

$ 378,032 $ 522,957

1,936 22,873 6,324 61,571

Total oil and gas sales

$ 996,915 $ 511,176 $ 2,383,098 $ 1,195,354

Total natural gas and oil sales $ 379,974 $ 524,841

Production and ad valorem taxes $ 14,906 $ 13,820

15 unchanged sentences

Lease operating $ 0.27 $ 0.23

Oil and natural gas sales of $996.9 million for the third quarter of 2022 increased by $485.7 million (95%) as compared to $511.2 million for the third quarter of 2021.

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

Our natural gas production for the third quarter of 2022 was 128.9 billion cubic feet ("Bcf") (1.4 Bcf per day), and was sold at an average price of $7.72 per Mcf.

Our natural gas production for the third quarter of 2021 was also 128.9 Bcf (1.4 Bcf per day) but was sold at an average price of $3.79 per Mcf.

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

Oil and natural gas sales of $2.4 billion for the nine months ended September 30, 2022 increased by $1.2 billion (99%) as compared to $1.2 billion for the nine months ended September 30, 2021, which also was primarily due to higher prices received for our natural gas production.

Our natural gas production for the first nine months of 2022 was 367.8 Bcf (1.3 Bcf per day), and was sold at an average price of $6.46 per Mcf as compared to 366.3 Bcf (1.3 Bcf per day) sold at an average price of $3.10 in the first nine 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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Gas services revenue $ 109,604 $ —

Gas services expense $ 101,295 $ —

Natural gas and oil sales of $380.0 million for the first quarter of 2023 decreased by $144.9 million (28%) as compared to $524.8 million for the first quarter of 2022.

The decrease was primarily due to lower natural gas prices.

Our natural gas production for the first quarter of 2023 increased 11% to 127.1 billion cubic feet ("Bcf") (1.4 Bcf per day), and was sold at an average price of $2.98 per Mcf.

Our natural gas production for the first quarter of 2022 was 114.9 Bcf (1.3 Bcf per day) and was sold at an average price of $4.55 per Mcf.

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

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

Three Months Ended March 31,

Average Realized Natural Gas Price:

2 unchanged sentences

Price per Mcf, including cash settlements on derivative financial instruments $ 3.06 $ 3.53

Average Realized Oil Price:

Oil, per Bbl $ 92.19 $ 66.11 $ 95.82 $ 59.55

Cash settlements on derivative financial instruments, per Bbl — (7.53) — (5.31)

Price per Bbl, including cash settlements on derivative financial instruments $ 92.19 $ 58.58 $ 95.82 $ 54.24

Gas service revenues of $193.1 million and $322.6 million for the three months and nine months ended September 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.

Gas service revenues of $109.6 million for the three months ended March 31, 2023 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.

These activities commenced in April 2022 with the acquisition of a pipeline and gas treating plant and the opportunity to utilize our excess transport capacity in North Louisiana.

Costs and Expenses –

Our production and ad valorem taxes increased $7.9 million (47%) to $24.5 million for the third quarter of 2022 from $16.7 million in the third quarter of 2021.

Production and ad valorem taxes increased $23.6 million (65%) to $60.1 million for the first nine months of 2022 from $36.5 million in the first nine months of 2021.

The increase was primarily related to higher natural gas sales and higher production tax rates enacted in the state of Louisiana during 2022.

Gathering and transportation costs for the third quarter of 2022 increased $9.3 million (26%) to $44.7 million as compared to $35.4 million in the third quarter of 2021.

Gathering and transportation costs for the first nine months of 2022 increased $17.2 million (18%) to $113.8 million as compared to $96.6 million for the first nine months of 2021.

The increase is due to higher average transportation rates including higher value of fuel used to transport our natural gas.

Our lease operating expense of $28.6 million ($0.22 per Mcfe) for the third quarter of 2022 increased $2.0 million (8%) from lease operating expense of $26.6 million ($0.20 per Mcfe) for the third quarter of 2021.

Lease operating expense of $79.9 million ($0.22 per Mcfe) for the first nine months of 2022 increased $2.7 million (4%) from lease operating expense of $77.2 million ($0.21 per Mcfe) for the first nine months of 2021.

Gas service expenses were $181.8 million and $305.3 million for the three months and nine months ended September 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") increased $0.3 million to $129.1 million in the third quarter of 2022 from $128.7 million in the third quarter of 2021.

Our DD&A per equivalent Mcf produced was $1.00 per Mcfe for the quarter ended September 30, 2022 as compared to $0.98 for the quarter ended September 30, 2021.

DD&A decreased $4.3 million (1%) to $355.0 million in the first nine months of 2022 from $359.3 million in the first nine months of 2021.

Our DD&A per equivalent Mcf produced of $0.96 per Mcfe was the same for the first nine months of 2022 and 2021.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $10.2 million for the third quarter of 2022 as compared to $8.1 million in the third quarter of 2021.

General and administrative expenses increased to $27.5 million for the first nine months of 2022 from $24.0 million in the first nine months of 2021.

Our production and ad valorem taxes increased $1.1 million (8%) to $14.9 million for the first quarter of 2023 from $13.8 million in the first quarter of 2022.

The increase was primarily related to higher production tax rates enacted in Louisiana during the second half of 2022 and the 11% increase in production in the first quarter of 2023.

Gathering and transportation costs for the first quarter of 2023 increased $13.5 million (42%) to $45.6 million as compared to $32.1 million in the first quarter of 2022.

The increase is due to production growth in areas with higher average gathering and transportation rates.

Our lease operating expense of $34.8 million ($0.27 per Mcfe) for the first quarter of 2023 increased $8.6 million (33%) from lease operating expense of $26.2 million ($0.23 per Mcfe) for the first quarter of 2022.

The increase was due primarily to increased personnel and other production costs.

Gas service expenses were $101.3 million for the three months ended March 31, 2023, which 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") increased $27.3 million to $134.0 million in the first quarter of 2023 from $106.7 million in the first quarter of 2022.

Our DD&A per equivalent Mcf produced was $1.05 per Mcfe for the quarter ended March 31, 2023 as compared to $0.93 for the quarter ended March 31, 2022.

The increase in the DD&A rate was primarily due to higher drilling and completion costs incurred for wells turned to sales in the first quarter of 2023.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $12.4 million for the first quarter of 2023 as compared to $8.2 million in the first quarter of 2022.

The increases were primarily related to higher personnel costs.

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

During the three months ended September 30, 2022, we had net losses related to our derivative financial instruments of $271.3 million, as compared to net losses on derivative financial instruments of $510.3 million during the quarter ended September 30, 2021.

Realized net losses from our oil and natural gas price risk management program were $304.5 million for the quarter ended September 30, 2022 as compared to realized net losses of $117.1 million for the quarter ended September 30, 2021.

Net losses on derivative financial instruments were $781.7 million for the first nine months of 2022 as compared to net losses of $756.0 million for the first nine months of 2021.

Realized net losses from our oil and natural gas price risk management program were $679.0 million for the first nine months of 2022 as compared to realized net losses of $144.4 million for the first nine months of 2021.

Interest expense was $41.4 million and $50.0 million for the quarters ended September 30, 2022 and 2021, respectively, and $132.2 million and $170.6 million for the nine months ended September 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 $352.6 million for the nine months ended September 30, 2022 and 2021, respectively.

In May 2022, we retired $244.4 million principal amount of our 7.5% senior notes due in 2025 in June 2022 we retired $26.1 million principal amount of our 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 September 30, 2022 and 2021 were a provision of $102.8 million and $24.0 million, respectively.

Income taxes for the nine months ended September 30, 2022 and 2021 were a provision of $179.6 million and a benefit of $74.2 million, respectively.

Income tax expense for the three months and nine months ended September 30, 2022 reflect an effective tax rate of 22.4% and 22.5%, respectively.

The income tax (provision) benefit for the three months and nine months ended September 30, 2021 reflect an effective tax rate of (9.1)% and 11.0%, 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 $351.2 million or $1.28 per diluted share, for the quarter ended September 30, 2022 which included a $271.3 million net loss from derivative financial instruments.

Income from operations for the third quarter of 2022 was $771.1 million and we had interest expense of $41.4 million and $4.4 million in preferred stock dividends.

We reported net loss available to common stockholders of $292.7 million or $1.26 per share for the three months ended September 30, 2021.

In the first nine months of 2022, we reported net income available to common stockholders of $608.0 million or $2.24 per diluted share, which included a $781.7 million net loss from derivative financial instruments and a $46.8 million loss on early retirement of debt.

Income from operations for the first nine months of 2022 was $1.76 billion and we had interest expense of $132.2 million and $13.1 million in preferred stock dividends.

We reported net loss available to common stockholders of $615.2 million or $2.66 per share for the nine months ended September 30, 2021.

During the quarter ended March 31, 2023, we had net gains related to our derivative financial instruments of $66.4 million, as compared to net losses on derivative financial instruments of $437.5 million during the quarter ended March 31, 2022.

Realized net gains from our oil and natural gas price risk management program were $10.4 million for the quarter ended March 31, 2023 as compared to realized net losses of $117.2 million for the quarter ended March 31, 2022.

Interest expense was $38.3 million and $46.5 million for the quarters ended March 31, 2023 and 2022, respectively.

The decrease in interest expense is due primarily to the early retirements of senior notes in May and June 2022 and the repayment of outstanding borrowings under the bank credit facility in 2022.

Income taxes for the quarter ended March 31, 2023 and 2022 were a provision of $39.7 million and a benefit of $31.6 million, respectively.

Income tax expense for the three months ended March 31, 2023 reflects an effective tax rate of 22.9% and the income tax benefit for the three months ended March 31, 2022 reflects an effective tax rate of 22.1%.

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

We reported net income available to common stockholders of $134.5 million or $0.49 per diluted share, for the quarter ended March 31, 2023 which included a $66.4 million net gain from derivative financial instruments.

Income from operations for the first quarter of 2023 was $145.6 million.

We reported net loss available to common stockholders of $115.7 million or $0.50 per share for the quarter ended March 31, 2022.

Cash Flows, Liquidity and Capital Resources

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

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

1 unchanged sentence

Operating activities $ 386,364 $ 285,618

Issuance of new senior notes, net of costs — 2,187,089

Proceeds from asset sales 130 45

2 unchanged sentences

Capital expenditures $ 372,637 $ 214,856

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

Repayments of bank credit facility, net of borrowings — 85,000

Common stock dividends 34,688 —

Preferred stock dividends — 4,315

Other 6,255 1,568

Total $ 407,469 $ 304,189

Cash flows from operating activities.

Net cash provided by our operating activities increased $585.9 million (95%) to $1.2 billion in the first nine months of 2022 from $618.6 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 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.

Net cash provided by our operating activities increased $100.7 million (35%) to $386.4 million in the first three months of 2023 from $285.6 million in the same period in 2022.

Capital expenditures.

The increase in capital expenditures of $260.3 million is primarily due to our higher drilling and completion activity in 2022 and acquisitions of undeveloped Haynesville shale acreage and the acquisition of a natural gas pipeline and treating plant from an unaffiliated third party.

The following table summarizes our capital expenditure activity:

Nine Months Ended

September 30,

The increase in capital expenditures of $157.8 million is primarily due to our higher drilling and completion activity in the first quarter of 2023 and $40.7 million of unproved property acquisitions.

Our capital expenditures are summarized in the following table:

Three Months Ended

(In thousands)

4 unchanged sentences

Development leasehold costs

Exploratory drilling and completion costs 29,690 11,557

Drilling and completion costs 280,176 189,048

Other development costs

52,500 26,795

Asset retirement obligations 30 381

3 unchanged sentences

$ 369,974 $ 228,157

Change in accrued capital expenditures and other (16,052) 1,220

Change in accrued capital expenditures 1,009 (14,499)

Prepaid drilling costs 1,684 1,579

Change in asset retirement obligations (30) (381)

Total cash capital expenditures $ 372,637 $ 214,856

We drilled 91 (44.4 net) wells and completed 100 (46.2 net) Haynesville and Bossier shale wells during the first nine months of 2022.

We currently expect to spend an additional $225 million to $275 million in the remaining three months of 2022 to drill 21 operated (14.4 net) additional wells, to complete 11 (8.7 net) wells and for other development activity.

We drilled 44 (16.3 net) wells and completed 29 (12.8 net) Haynesville and Bossier shale wells during the first three months of 2023.

We currently expect to spend an additional $750 million to $850 million in the remaining nine months of 2023 on drilling, completion, infrastructure and other activity.

Liquidity and Capital Resources

As of September 30, 2022, we had $1.3 billion of liquidity, comprised of unused borrowing capacity under our bank credit facility and $38.6 million of cash and cash equivalents on hand.

As of March 31, 2023, we had $1.5 billion of liquidity, comprised of unused borrowing capacity under our bank credit facility and $33.7 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.

The timing of most of our future capital expenditures is discretionary because we have no material long-term capital expenditure commitments.

We expect to fund our future development and exploration activities with future operating cash flow and borrowings under our bank credit facility.

The timing of most of our future capital expenditures is discretionary because of the limited number of material long-term capital expenditure commitments.

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

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We do not have a specific acquisition budget for the remainder of 2023 because the timing and size of acquisitions are unpredictable.

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.

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, natural gas and oil 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.

At September 30, 2022, we had $100.0 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.

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.

At March 31, 2023, we had no borrowings outstanding under our bank credit facility.

Aggregate commitments under our bank credit facility are $1.5 billion, which matures on November 15, 2027.

Borrowings under the bank credit facility are subject to a borrowing base, which was redetermined on April 20, 2023 and currently set at $2.0 billion.

The borrowing base is re-determined on a semi-annual basis and upon the occurrence of certain other events.

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 adjusted SOFR plus 1.75% to 2.75% or an alternate base rate plus 0.75% to 1.75%, in each case depending on the utilization of the borrowing base.

We also pay a commitment fee of 0.375% to 0.50% on the unused portion of the borrowing base.

1 unchanged sentence

The only financial covenants are the maintenance of a leverage ratio of less than 3.5 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, 2022.

At September 30, 2022, we had $909.9 million in U.S.

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

We were in compliance with the covenants as of March 31, 2023.

At March 31, 2023, we had $767.5 million in U.S.

federal net operating loss ("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.

10 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