What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-04 · 148 added, 82 removed, 151 unchanged (60% of the section changed)

2 unchanged sentences

Exploration and Production

First quarter 2022 vs.

Second quarter 2022 vs.

All amounts include amount attributable to a noncontrolling interest in MP GOM, unless otherwise noted.

United States E&P operations reported earnings of $252.9 million in the first quarter of 2022 compared to earnings of $119.0 million in the first quarter of 2021.

Results were $133.9 million favorable in the 2022 period compared to the 2021 period, driven by higher revenues ($217.1 million), lower DD&A ($23.1 million), lower lease operating expenses (LOE:

$16.2 million), partially offset by higher income tax expense ($29.7 million) and higher other operating expense ($81.3 million).

United States E&P operations reported earnings of $491.5 million in the second quarter of 2022 compared to income of $194.7 million in the second quarter of 2021.

Results were $296.8 million favorable in the 2022 quarter compared to the 2021 period primarily due to higher revenues ($328.9 million), lower depreciation, depletion and amortization (DD&A, $26.3 million) and other operating expense ($37.6 million), partially offset by higher income tax expense ($76.4 million), and lease operating expense ($19.0 million).

Higher revenues were primarily due to higher commodity prices, partially off-set by lower volumes.

Lower DD&A is a result of lower production volumes and lower rates driven by positive reserve revisions primarily in the Eagle Ford Shale.

Lower other operating expense is primarily due to lower unfavorable mark to market revaluations on contingent consideration (as a result of commodity prices) related to prior Gulf of Mexico (GOM) acquisitions that occurred in the second quarter of 2021.

Higher income tax expense is a result of pre-tax profits principally due to the recovering oil price.

Higher lease operating expense is due to cost increases from inflationary pressures (mainly at our onshore businesses), higher severance taxes at Eagle Ford (due to higher commodity prices) and costs related to first production at the Khaleesi asset flowing to the King’s Quay facility.

Canadian E&P operations reported earnings of $47.2 million in the second quarter 2022 compared to income of $12.7 million in the second quarter of 2021.

Results were favorable $34.5 million compared to the 2021 period primarily due to higher revenues from production ($36.2 million) and lower DD&A ($7.9 million), partially offset by higher tax expense ($12.9 million).

Higher revenue is primarily attributable to higher oil and gas prices and higher natural gas volumes at Tupper Montney.

Lower DD&A is due primarily to lower production volumes at Kaybob Duvernay due to normal well decline.

Higher income tax expense is a result of pre-tax profits principally due to the recovering oil price.

Other international E&P operations reported a loss from continuing operations of $3.5 million in the second quarter of 2022 compared to a loss of $10.4 million in the second quarter of 2021.

The result was $6.9 million favorable in the 2022 period versus 2021 primarily due to higher revenue from Brunei.

Six months 2022 vs.

All amounts include amount attributable to a noncontrolling interest in MP GOM, unless otherwise noted.

United States E&P operations reported earnings of $744.4 million in the first six months of 2022 compared to earnings of $313.7 million in the first six months of 2021.

Results were $430.7 million favorable in the 2022 period compared to the 2021 period, driven by higher revenues ($546.0 million) and lower DD&A ($49.4 million), partially offset by higher income tax expense ($106.1 million) and higher other operating expense ($43.7 million).

Higher revenues are primarily attributable to higher realized prices (oil and condensate, natural gas and NGLs) in 2022 compared to 2021, offset by lower oil sales and production volumes driven primarily by a focused effort to reduce capital expenditures to prioritize corporate debt reduction.

Lower DD&A is a result of lower production volumes and lower rates driven by positive reserve revisions.

Lower lease operating expenses were primarily due to higher GOM workover costs in the prior year at St.

Higher income tax expense is a result of higher pre-tax income principally due to higher oil price and lower DD&A and LOE.

Higher other operating expense is primarily due to an unfavorable mark to market revaluation on contingent consideration ($98.1 million;

Higher income tax expense is a result of higher pre-tax income.

Higher other operating expense is primarily due to a higher unfavorable mark to market revaluation on contingent consideration ($129.8 million;

as a result of higher commodity prices) from prior GOM acquisitions.

Canadian E&P operations reported earnings of $22.7 million in the first quarter of 2022 compared to a loss of $124.3 million in the first quarter of 2021.

Canadian E&P operations reported earnings of $69.9 million in the first six months of 2022 compared to a loss of $111.6 million in the first six months of 2021.

Results were $181.5 million favorable compared to the 2021 period.

Prior year results included an impairment charge ($171.3 million) recorded in the first quarter of 2021 following notice from the operator of asset abandonment at Terra Nova at the time of the assessment, and prior to the sanctioning of an asset life extension project in the third quarter of 2021.

The current year results also include higher revenue from production ($25.3 million) and lower DD&A ($10.6 million) offset by higher income tax expense ($49.7 million), lease operating expenses ($6.1 million) and transportation, gathering and processing expenses ($3.3 million).

Higher revenue is primarily attributable to higher oil prices at Hibernia and Kaybob Duvernay and higher natural gas prices and volumes at Tupper Montney.

Lower DD&A is primarily due to lower production volumes at Kaybob Duvernay following reduced capital expenditures throughout 2020 and 2021.

Prior year results included an impairment charge ($171.3 million) recorded in the first quarter of 2021 following notice from the operator of asset abandonment at Terra Nova at the time of the assessment and prior to the subsequent sanctioning of an asset life extension project in the third quarter of 2021.

The current year results also include higher revenue from production ($61.5 million) and lower DD&A ($18.5 million) offset by higher income tax expense ($62.6 million), lease operating expenses ($7.2 million) and transportation, gathering and processing costs ($4.8 million).

Higher revenue is primarily attributable to higher realized prices (oil and condensate, natural gas and NGLs).

Lower DD&A is primarily due to lower production volumes at Kaybob Duvernay due to normal well decline.

Higher income tax expense is a result of higher pre-tax income principally due to higher revenue and no repeat of the impairment charge.

Higher lease oper ating expenses and transportation, gathering and processing costs are due to higher gas processing and downstream transportation rates and capacity.

Higher lease operating expenses and transportation, gathering and processing costs are due to higher gas processing and downstream transportation rates and capacity.

Higher capacity is expected to be utilized by growth at Tupper Montney in the future.

Other international E&P operations reported a loss of $44.2 million in the first quarter of 2022 compared to a loss of $6.9 million in the prior year.

Results were $37.3 million unfavorable compared to the 2021 period primarily due to the Cutthroat-1 exploration well in block SEAL-M-428 in the Sergipe-Alagoas Basin offshore Brazil being expensed because no hydrocarbons were discovered.

First quarter 2022 vs.

Corporate activities, which include interest expense and income, foreign exchange effects, realized and unrealized gains/losses on derivative instruments (forward swaps and collars to hedge the price of oil sold) and corporate overhead not allocated to Exploration and Production, reported a loss of $296.3 million in the first quarter of 2022 compared to a loss of $254.8 million in the first quarter of 2021.

The $41.5 million unfavorable variance is primarily due to higher realized and unrealized losses on derivative instruments in 2022 compared to 2021 (2022:

Other international E&P operations reported a loss of $47.7 million in the first six months of 2022 compared to a loss of $17.3 million in the prior year.

Results were $30.4 million unfavorable compared to the 2021 period primarily due to the Cutthroat-1

MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.)

Results of Operations (contd.)

exploration well in block SEAL-M-428 in the Sergipe-Alagoas Basin offshore Brazil being expensed because no hydrocarbons were discovered.

Second quarter 2022 vs.

Corporate activities, which include interest expense and income, foreign exchange effects, realized and unrealized gains/losses on derivative instruments (forward swaps and collars to hedge/fix the price of oil sold) and corporate overhead not allocated to Exploration and Production, reported a loss of $124.8 million in the second quarter of 2022 compared to a loss of $223.9 million in the second quarter of 2021.

The $99.1 million favorable variance is principally due to lower losses on derivative instruments in 2022 ($123.2 million) compared to the 2021 period (2022:

$103.1 million loss;

$214.4 million loss), partially offset by lower interest expense ($56.0 million) and higher tax benefits ($7.8 million).

$226.2 million loss), partially offset by higher tax expense ($27.3 million).

Realized and unrealized losses on derivative instruments are due to an increase in oil prices for current (realized) and future (unrealized) periods whereby the swap contracts provide the Company with a fixed price and the collar contracts provide for a minimum (floor) and a maximum (ceiling) price.

As of March 31, 2022, the average forward NYMEX WTI price for the remainder of 2022 was $94.52 (versus swap contract fixed hedge price of $44.88).

Interest charges are lower in the first quarter of 2022 primarily due the prior year redemption premium ($34.2 million) incurred by the Company upon the early retirement of the notes originally due June and December 2022, lower overall debt and higher capitalized interest on GOM capital projects.

Higher income tax benefit is a result of pre-tax losses driven by the higher realized and unrealized losses on derivative instruments.

As of June 30, 2022, the average forward NYMEX WTI price for the remainder of 2022 was $100.49 (versus swap contract fixed hedge price of $44.88).

The swap contracts provide the Company with a fixed price and the collar contracts provide for a minimum (floor) and a maximum (ceiling) price.

Higher income tax benefit is a result of higher pre-tax loss driven by the higher realized and unrealized losses on derivative instruments.

Six months 2022 vs.

Corporate activities, which include interest expense and income, foreign exchange effects, realized and unrealized gains/losses on derivative instruments (forward swaps and collars to hedge the price of oil sold) and corporate overhead not allocated to Exploration and Production, reported a loss of $421.1 million in the first six months of 2022 compared to a loss of $478.8 million in the first six months of 2021.

The $57.7 million favorable variance is primarily due to lower interest expense ($60.1 million) and lower losses on derivative instruments in 2022 ($16.8 million) compared to 2021 (2022:

$423.8 million loss;

$440.6 million loss), partially offset by lower tax benefits ($19.5 million).

Interest charges are lower in the first six months of 2022 primarily due to lower debt redemption premiums ($3.4 million in 2022;

$34.2 million in 2021) incurred by the Company and lower overall debt.

In the first six months of 2022 the Company redeemed $200.0 million of notes compared to the 2021 redemption of $576.4 million.

As of June 30, 2022, the average forward NYMEX WTI price for the remainder of 2022 was $100.49 (versus swap contract fixed hedge price of $44.88).

Lower income tax benefit is a result of lower pre-tax losses.

Production Volumes and Prices

Second quarter 2022 vs.

Total hydrocarbon production from continuing operations averaged 173,173 barrels of oil equivalent per day in the second quarter of 2022, which was 5% lower than the 182,050 barrels per day produced in second quarter 2021.

The decrease in production is principally due to an ongoing focused effort to reduce capital expenditures that began in 2020 to prioritize corporate debt reduction and return funds to shareholders;

partially offset by first oil from the Khaleesi, Mormont, Samurai field development project in the second quarter.

Average crude oil and condensate production from continuing operations was 98,661 barrels per day in the second quarter of 2022 compared to 109,327 barrels per day in the second quarter of 2021.

The decrease of 10,666 barrels per day was associated with lower volumes in the Gulf of Mexico (5,041 barrels per day) principally due to the focused effort to reduce capital expenditures and several planned downtime events at St.

Malo and Chinook, partially offset by first production from the first four wells at the Khaleesi, Mormont, Samurai development.

Canada production is lower (1,700 barrels per day) primarily attributable to Kaybob Duvernay well decline and temporary operational issues at Hibernia.

Eagle Ford Shale production is lower (4,949 barrels per day) due to normal well decline.

On a worldwide basis, the Company’s crude oil and condensate prices averaged $109.25 per barrel in the second quarter 2022 compared to $65.57 per barrel in the 2021 period, an increase of 67% quarter over quarter.

Total production of natural gas liquids (NGL) from continuing operations was 10,950 barrels per day in the second quarter 2022 compared to 11,252 barrels per day in the 2021 period.

The average sales price for U.S.

NGL was $39.37 per barrel in the 2022 quarter compared to $22.18 per barrel in 2021.

The average sales price for NGL in Canada was $63.99 per barrel in the 2022

MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.)

Results of Operations (contd.)

Production Volumes and Prices

First quarter 2022 vs.

Total hydrocarbon production from Exploration and Production averaged 149,854 barrels of oil equivalent per day in the first quarter of 2022, which represented a 9% decrease from the 165,382 barrels per day produced in the first quarter of 2021.

The decrease in production is principally due to an ongoing focused effort to reduce capital expenditures that began in 2020 to prioritize corporate debt reduction.

Average crude oil and condensate production was 83,560 barrels per day in the first quarter of 2022 compared to 97,475 barrels per day in the first quarter of 2021.

The decrease of 13,915 barrels per day was principally due to lower Gulf of Mexico production (9,110 barrels per day) due to the focused effort to reduce capital expenditures and several planned downtime events including a facility upgrade which lowered current production at Neidermeyer and Marmalard as well as maintenance operations at Front Runner, Habanero and Chinook.

Canada production is lower (3,176 barrels per day) due to normal field decline at Kaybob coupled with temporary operational issues at Hibernia.

Eagle Ford Shale production is lower (1,835 barrels per day) due to normal well decline and temporary operational issues impacting production in the first quarter of 2022.

On a worldwide basis, the Company’s crude oil and condensate prices averaged $95.17 per barrel in the first quarter of 2022 compared to $58.08 per barrel in the 2021 period, an increase of 64% year over year.

Total production of natural gas liquids (NGL) was 9,342 barrels per day in the first quarter of 2022 compared to 9,845 barrels per day in the 2021 period.

quarter compared to $30.63 per barrel in 2021.

NGL prices are higher in Canada due to the higher value of the product at the Kaybob Duvernay and Placid Montney assets.

Natural gas production volumes from continuing operations averaged 381.4 million cubic feet per day (MMCFD) in the second quarter 2022 compared to 368.8 MMCFD in 2021.

The increase of 12.5 MMCFD was a result of higher volumes in Canada (20.8 MMCFD), partially offset by lower volumes in the Gulf of Mexico (8.3 MMCFD).

Higher natural gas volumes in Canada are primarily due to bringing online 15 new wells at Tupper Montney in the second quarter of 2022.

Natural gas prices for the total Company averaged $3.90 per thousand cubic feet (MCF) in the 2022 quarter, versus $2.34 per MCF average in the same quarter of 2021.

Average natural gas prices in the U.S.

and Canada in the quarter were $7.37 and $2.78 per MCF, respectively.

Six months 2022 vs.

Total hydrocarbon production from Exploration and Production averaged 161,579 barrels of oil equivalent per day in the first six months of 2022, which represented a 7.0% decrease from the 173,762 barrels per day produced in the first six months of 2021.

The decrease in production is principally due to an ongoing focused effort to reduce capital expenditures that began in 2020 to prioritize corporate debt reduction and return funds to shareholders.

Average crude oil and condensate production was 91,154 barrels per day in the first six months of 2022 compared to 103,434 barrels per day in the first six months of 2021.

The decrease of 12,280 barrels per day was principally due to lower Gulf of Mexico production (7,064 barrels per day) due to the focused effort to reduce capital expenditures and several planned downtime events including a facility upgrade which lowered current production at Neidermeyer and Marmalard as well as maintenance operations at St.

Malo, Front Runner, Habanero and Chinook.

Canada production is lower (2,434 barrels per day) due to normal field decline at Kaybob and temporary operational issues at Hibernia.

Eagle Ford Shale production is lower (3,400 barrels per day) due to normal well decline.

On a worldwide basis, the Company’s crude oil and condensate prices averaged $102.86 per barrel in the first six months of 2022 compared to $62.14 per barrel in the 2021 period, an increase of 65.5% year over year.

Total production of natural gas liquids (NGL) was 10,150 barrels per day in the first six months of 2022 compared to 10,552 barrels per day in the 2021 period.

The average sales price for U.S.

2 unchanged sentences

NGL prices are higher in Canada due to the higher value of the product at the Kaybob Duvernay and Placid Montney assets.

Natural gas production volumes averaged 341.7 million cubic feet per day (MMCFD) in the first quarter of 2022 compared to 348.4 MMCFD in 2021.

The decrease of 6.7 MMCFD was primarily the result of lower volumes in the Gulf of Mexico (16.6 MMCFD) partially offset by higher volumes at Eagle Ford Shale (5.3 MMCFD) and Canada (4.6 MMCFD).

The lower natural gas volumes in the Gulf of Mexico are principally due to planned facility and maintenance downtime.

Natural gas prices for the total Company averaged $3.13 per thousand cubic feet (MCF) in the first quarter of 2022, versus $2.56 per MCF average in the same period of 2021.

Natural gas production volumes averaged 361.7 million cubic feet per day (MMCFD) in the first six months of 2022 compared to 358.7 MMCFD in 2021.

The increase of 3.0 MMCFD was primarily the result of higher volumes in Canada 12.7 MMCFD) and Eagle Ford Shale (2.7 MMCFD), partially offset by the Gulf of Mexico (12.4 MMCFD).

The higher natural gas volumes in Canada was the result of new wells on production in the first half of the year.

Natural gas prices for the total Company averaged $3.54 per thousand cubic feet (MCF) in the first six months of 2022, versus $2.44 per MCF average in the same period of 2021.

Average realized natural gas prices in the U.S.

and Canada in the quarter were $5.00 and $2.52, respectively.

and Canada in the quarter were $6.26 per MCF and $2.66 per MCF, respectively.

Average realized gas prices in Canada are lower as a result of certain fixed price sales volume contracts.

Additional details about results of oil and natural gas operations are presented in the tables on page 24.

Additional details about results of oil and natural gas operations are presented in the tables on pages 25 and 26.

MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.)

Results of Operations (contd.)

The following table reports hydrocarbons produced during the three-month periods ended March 31, 2022 and 2021.

The following table reports hydrocarbons produced during the three-month and six-month periods ended June 30, 2022 and 2021.

Three Months Ended

June 30, Six Months Ended

Barrels per day unless otherwise noted 2022 2021 2022 2021

5 unchanged sentences

Offshore 3,128 3,689 3,224 4,137

Other 1,383 359 833 215

Total net crude oil and condensate - continuing operations 98,661 109,327 91,154 103,434

2 unchanged sentences

Gulf of Mexico 1

4,913 4,763 4,223 4,721

Canada Onshore 859 1,162 921 1,197

21 unchanged sentences

Results of Operations (contd.)

The following table reports the weighted average sales prices excluding transportation cost deduction and sales of purchased natural gas for the three-month periods ended March 31, 2022 and 2021.

The following table reports the weighted average sales prices excluding transportation cost deduction and sales of purchased natural gas for the three-month and six-month periods ended June 30, 2022 and 2021.

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Weighted average Exploration and Production sales prices

3 unchanged sentences

Gulf of Mexico 1

109.55 65.95 102.76 62.56

Onshore 100.51 60.69 96.84 56.55

Offshore 115.65 73.20 113.46 67.51

Other 86.51 — 86.51 —

Natural gas liquids – dollars per barrel

1 unchanged sentence

Gulf of Mexico 1

40.46 24.84 41.95 24.36

Onshore 63.99 30.63 59.23 33.34

2 unchanged sentences

Gulf of Mexico 1

7.52 2.64 6.43 3.01

Onshore 2.78 2.23 2.66 2.25

3 unchanged sentences

Cash Provided by Operating Activities

Net cash provided by continuing operating activities was $338.3 million for the first three months of 2022 compared to $237.8 million during the same period in 2021.

The increased cash from operating activities is primarily attributable to higher revenue from production ($242.0 million), offset by the timing of working capital settlements ($80.9 million;

Net cash provided by continuing operating activities was $959.2 million for the first six months of 2022 compared to $686.3 million during the same period in 2021.

The increased cash from operating activities of $273.0 million is primarily attributable to higher revenue from production ($629.5 million), offset by the timing of working capital settlements ($148.2 million;

primarily higher revenue received in cash following the end of the quarter), and higher realized losses on derivative instruments ($167.2 million).

Cash Required by Investing Activities

Net cash required by investing activities was $244.9 million for the first three months of 2022 compared to net cash provided by investing activities of $9.7 million during the same period in 2021.

Net cash required by investing activities was $599.3 million for the first six months of 2022 compared to net cash provided by investing activities of $193.7 million during the same period in 2021.

In the second quarter of 2022, the Company acquired an 11.0% additional working interest in Kodiak for $46.5 million (also see Note D).

Property additions and dry hole costs (excluding King’s Quay), which includes amounts expensed, were $552.8 million and $422.8 million in the first six months of 2022 and 2021, respectively.

The first quarter of 2021 included sales proceeds for the King’s Quay FPS of $267.7 million, which was sold to ArcLight Capital Partners, LLC (ArcLight).

Property additions and dry hole costs (excluding King’s Quay), which includes amounts expensed, were $244.9 million and $240.5 million in the first three months of 2022 and 2021, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS (contd.)

Financial Condition (contd.)

Total accrual basis capital expenditures were as follows:

Three Months Ended

Six Months Ended

(Millions of dollars) 2022 2021

4 unchanged sentences

A reconciliation of property additions and dry hole costs in the Consolidated Statements of Cash Flows to total capital expenditures for continuing operations follows.

MANAGEMENT’S DISCUSSION AND ANALYSIS (contd.)

Financial Condition (contd.)

Three Months Ended

Six Months Ended

(Millions of dollars) 2022 2021

Property additions and dry hole costs per cash flow statements 1

$ 552.8 422.8

Property additions King's Quay per cash flow statements — 17.7

Acquisition of oil and gas properties 1

Geophysical and other exploration expenses 16.3 12.4

1 unchanged sentence

Total capital expenditures $ 621.9 458.2

The increase in capital expenditures in the exploration and production business in 2022 compared to 2021 is primarily attributable to expenditures related to the Cutthroat-1 exploration well in Brazil, capital invested at the Khaleesi, Mormont, Samurai field development project and higher development drilling activities in Tupper Montney and Kaybob Duvernay assets.

1 Certain prior-period amounts have been reclassified to conform to the current period presentation

The increase in capital expenditures in the exploration and production business in 2022 compared to 2021 is primarily attributable to expenditures related to the Kodiak acquisition in Gulf of Mexi co ($46.5 million), Cutthroat-1 exploration well in Brazil ($24.3 million), capital invested at the Khaleesi, Mormont, Samurai field development project and higher development drilling activities in Tupper Montney and Kaybob Duvernay assets.

Cash Required by Financing Activities

Net cash required by financing activities was $133.9 million for the first three months of 2022 compared to $327.8 million during the same period in 2021.

In 2022, the cash used in financing activities was principally for payment of contingent consideration related prior Gulf of Mexico acquisitions ($55.2 million), distributions to the non-controlling interest (NCI) in the Gulf of Mexico ($39.9 million), and cash dividends to shareholders of $0.15 per share ($23.3 million).

Net cash required by financing activities was $447.5 million for the first six months of 2022 compared to $386.7 million during the same period in 2021.

In 2022, the cash used in financing activities was principally for the early redemption of the notes due 2024 ($200.0 million), payment of contingent consideration related to prior Gulf of Mexico acquisitions ($81.7 million), distributions to the non-controlling interest (NCI) in the Gulf of Mexico ($94.9 million), and cash dividends to shareholders of $0.325 per share ($50.5 million).

Subsequent to quarter end, the Company declared a quarterly cash dividend of $0.25 per share, or $1.00 per share on an annualized basis.

This amount represents a 43% increase from the first quarter of 2022 and a 100% increase from fourth quarter 2021.

As of March 31, 2022 and in the event it is required to fund investing activities from borrowings, the Company has $1,568.6 million available on its committed RCF.

In first three months of 2021, the cash used in financing activities was principally for the early redemption of the notes due 2022 ($576.4 million ), early redemption cost of the notes due 2022 ($34.2 million), repayment of the previously outstanding balance on the Company’s unsecured RCF ($200.0 million), distributions to the non-controlling interest (NCI) in the Gulf of Mexico ($36.0 million), and cash dividends to shareholders ($19.3 million), partially offset by the issuance of new notes due 2028, net of debt issuance cost ($542.0 million).

Additionally, the Company announced a capital allocation framework, approved by the Board of Directors, that allows for further capital to be returned to the shareholders beyond the current dividend, while still advancing the Company’s long-term debt reduction goals.

Details of the framework can be found as part of the Company’s Form 8-K filed on August 4, 2022.

As of June 30, 2022 and in the eve nt it is required to fund investing activities from borrowings, the Company has $1,572.4 million available on its committed RCF.

In first six months of 2021, the cash used in financing activities was principally for the early redemption of the notes due 2022 ($576.4 million ), early redemption cost (make whole payment) of the notes due 2022 ($34.2 million), repayment of the previously outstanding balance on the Company’s unsecured RCF ($200.0 million), distributions to the non-controlling interest (NCI) in the Gulf of Mexico ($75.2 million), and cash dividends to shareholders ($38.6 million), partially offset by the issuance of new notes due 2028, net of debt issuance cost ($542.0 million).

Working Capital

Working capital (total current assets less total current liabilities, excluding assets and liabilities held for sale) as of March 31, 2022 was a deficit of $654.5 million, $355.7 million lower than December 31, 2021, with the decrease p rimarily attributable to higher accounts payable ($316.8 million), higher other accrued liabilities ($80.5 million), a lower cash balance ($40.6 million) and higher operating lease liabilities ($34.5 million), partially offset by higher accounts receivable ($113.7 million).

Higher accounts payable is primarily due to the increase in unrealized losses on derivative instruments (commodity price swaps and collars) maturing over the remainder of 2022.

Higher other accrued liabilities are associated with higher contingent consideration obligations due to higher commodity prices (from prior Gulf of Mexico acquisitions).

Higher operating lease liabilities are associated with a rig contract to support the Khaleesi, Mormont, Samurai field development project which will utilize the King’s Quay FPS.

Working capital (total current assets less total current liabilities, excluding assets and liabilities held for sale) as of June 30, 2022 was a deficit of $566.9 million, $268.0 million lower than December 31, 2021, with the decrease p rimarily attributable to higher accounts payable ($286.9 million), higher other accrued liabilities ($122.6 million), a lower cash balance ($89.2 million) and higher operating lease liabilities ($28.5 million), partially offset by higher accounts receivable ($263.9 million).

Higher accounts

MANAGEMENT’S DISCUSSION AND ANALYSIS (contd.)

Financial Condition (contd.)

payable is primarily due to the increase in unrealized losses on derivative instruments (commodity price swaps and collars) maturing (payable) over the remainder of 2022 as well as higher trade payables principally r elated to the Khaleesi, Mormont and Samurai field development project.

Higher other accrued liabilities are associated with higher contingent consideration obligations (from prior Gulf of Mexico acquisitions), due to higher commodity prices.

Higher operating lease liabilities are associated with a rig contract to support the Khaleesi, Mormont, Samurai field development project.

Higher accounts receivable are principally due to higher crude oil pricing.

Capital Employed

At March 31, 2022, long-term debt of $2,466.1 million had increased by $0.7 million compared to December 31, 2021, primarily as a result of normal debt issuance cost amortization.

At June 30, 2022, long-term debt of $2,267.9 million had decreased by $197.5 million compared to December 31, 2021, primarily as a result of the partial redemption of notes due 2024 ($200.0 million).

The total of the fixed-rate notes had a weighted average maturity of 7.4 years and a weighted average coupon of 6.2%.

MANAGEMENT’S DISCUSSION AND ANALYSIS (contd.)

Financial Condition (contd.)

A summary of capital employed at March 31, 2022 and December 31, 2021 follows.

March 31, 2022 December 31, 2021

A summary of capital employed at June 30, 2022 and December 31, 2021 follows.

June 30, 2022 December 31, 2021

(Millions of dollars) Amount % Amount %

4 unchanged sentences

Cash and invested cash are maintained in several operating locations outside the United States.

As of March 31, 2022, Cash and cash equivalents held outside the U.S.

As of June 30, 2022, Cash and cash equivalents held outside the U.S.

included U.S.

dollar equivalents of approximately $82.7 million in Canada.

In addition, approximately $28.4 million of cash was held in Brazil.

In addition, approximately $21.8 million of cash was held in Brunei, $17.7 million of cash was held in Mexico and $13.6 million of cash was held in Brazil.

In certain cases, the Company could incur cash taxes or other costs should these cash balances be repatriated to the U.S.

2 unchanged sentences

Accounting changes and recent accounting pronouncements – see Note B to the Consolidated Financial Statements

As discussed in the Summary section on page 21, several factors continue to provide upward pressure to the average crude oil price, which directly impacts the Company’s product revenue from sales (Q1 2022:

As of close on May 2, 2022, the NYMEX WTI forward curve price for the remainder of 2022 and 2023 were $99.44 and $86.38 per barrel, respectively;

however we cannot predict what impact economic factors (including the ongoing COVID-19 pandemic, exploration and production sector investment and the Russia/Ukraine conflict) may have on future commodity prices.

As discussed in the Summary section on page 22, several factors have continued to contribute to the higher average crude oil price during the second quarter, which directly impacts the Company’s product revenue from sales (Q2 2022;

$108.41 Q1 2022;

Currently, recessionary concerns have placed some downward pressure on average crude oil prices.

As of close on August 2, 2022, the NYMEX WTI forward curve price for the remainder of 2022 and 2023 were lower at $92.82 and $86.14 per barrel, respectively;

however, we cannot predict what impact economic factors (including the ongoing COVID-19 pandemic, exploration and production sector investment, inflation and the Russia/Ukraine conflict) may have on future commodity prices.

Lower prices, should they occur, will result in lower profits and operating cash-flows.

For the second quarter, production is expected to average between 156.0 and 164.0 MBOEPD, excluding noncontrolling interest (NCI).

The Company’s capital expenditure spend for 2022 is expected to be between $900.0 million and $950.0 million.

The increase from the original 2022 guidance of $840.0 million to $890.0 million is principally a result of inflationary pressures, scope changes and rig standby costs related to the Cutthroat-1 exploration well in Brazil.

For the third quarter, production is expected to average between 180.0 and 188.0 MBOEPD, excluding noncontrolling interest (NCI).

The Company’s capital expenditure spend for 2022 is expected to be between $900.0 million and $950.0 million, excluding acquisitions and noncontrolling interest.

Capital expenditures and other expenditures are routinely reviewed and planned capital expenditures may be adjusted to reflect differences between budgeted and forecast cash flow during the year.

4 unchanged sentences

The Company continues to monitor the impact of commodity prices on its financial position and is currently in compliance with the covenants related to the revolving credit facility (see Note F).

As of May 2, 2022, the Company has entered into derivative or forward fixed-price delivery contracts to manage risk associated with certain future oil and natural gas sales prices as follows:

MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.)

As of August 2, 2022, the Company has entered into derivative or forward fixed-price delivery contracts to manage risk associated with certain future oil and natural gas sales prices as follows:

Commodity Type Volumes

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1 West Texas Intermediate

MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.)

(MMcf/d) Price/Mcf Remaining Period

Area Commodity Type Start Date End Date

Montney Natural Gas Fixed price forward sales 176 C$2.34 4/1/2022 4/30/2022

Montney Natural Gas Fixed price forward sales 205 C$2.34 5/1/2022 5/31/2022

Montney Natural Gas Fixed price forward sales 247 C$2.34 6/1/2022 10/31/2022

Montney Natural Gas Fixed price forward sales 266 C$2.36 11/1/2022 12/31/2022

Montney Natural Gas Fixed price forward sales 269 C$2.36 1/1/2023 3/31/2023

Montney Natural Gas Fixed price forward sales 250 C$2.35 4/1/2023 12/31/2023

Montney Natural Gas Fixed price forward sales 162 C$2.39 1/1/2024 12/31/2024

Montney Natural Gas Fixed price forward sales 45 US$2.05 4/1/2022 12/31/2022

Montney Natural Gas Fixed price forward sales 25 US$1.98 1/1/2023 10/31/2024

Montney Natural Gas Fixed price forward sales 15 US$1.98 11/1/2024 12/31/2024

Canada Natural Gas Fixed price forward sales 247 C$2.34 7/1/2022 10/31/2022

Canada Natural Gas Fixed price forward sales 266 C$2.36 11/1/2022 12/31/2022

Canada Natural Gas Fixed price forward sales 269 C$2.36 1/1/2023 3/31/2023

Canada Natural Gas Fixed price forward sales 250 C$2.35 4/1/2023 12/31/2023

Canada Natural Gas Fixed price forward sales 162 C$2.39 1/1/2024 12/31/2024

Canada Natural Gas Fixed price forward sales 45 US$2.05 7/1/2022 12/31/2022

Canada Natural Gas Fixed price forward sales 25 US$1.98 1/1/2023 10/31/2024

Canada Natural Gas Fixed price forward sales 15 US$1.98 11/1/2024 12/31/2024

Forward-Looking Statements

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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