What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 127 added, 119 removed, 180 unchanged (58% of the section changed)

2 unchanged sentences

Exploration and Production

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 $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).

Third quarter 2022 vs.

All amounts include amount attributable to a noncontrolling interest in MP Gulf of Mexico, LLC (MP GOM), unless otherwise noted.

United States E&P operations reported earnings of $481.5 million in the third quarter of 2022 compared to income of $168.1 million in the third quarter of 2021.

Results were $313.4 million favorable in the 2022 quarter compared to the 2021 period primarily due to higher revenues ($408.6 million), lower exploration expenses ($17.1 million) and other operating expense ($66.8 million), partially offset by higher lease operating expenses ($62.1 million), higher depreciation, depletion and amortization (DD&A, $22.4 million) and higher income tax expense ($82.3 million).

Higher revenues were primarily due to higher commodity prices, higher production volumes from the Khaleesi and Mormont fields and lower weather related downtime.

Lower exploration expenses are due to no repeat of 2021 dry hole costs related to Silverback.

Lower other operating expense is primarily due to favorable mark to market revaluations on contingent consideration (as a result of commodity prices) related to prior Gulf of Mexico (GOM) acquisitions.

Higher lease operating expense is due to higher production volumes, cost increases from inflationary pressures related to the onshore business, and higher production at the Khaleesi and Mormont assets flowing to the King’s Quay facility.

Higher DD&A is a result of higher production volumes, partially offset by lower rates driven by positive reserve revisions primarily in the Eagle Ford Shale.

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

Canadian E&P operations reported earnings of $41.4 million in the third quarter 2022 compared to income of $73.9 million in the third quarter of 2021.

Results were unfavorable $32.5 million compared to the 2021 period primarily due to a credit of $71.8 million reported in 2021 in other operating expense as a result of the deferral of an asset retirement obligation at Terra Nova following the sanction of an asset life extension project.

The current year results also include higher revenues from production ($39.5 million), partially offset by higher lease operating expenses ($6.2 million) and higher tax expense ($9.9 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.

Higher lease operating expenses is primarily the result of higher volumes and related gas processing costs.

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

Other international E&P operations reported a loss from continuing operations of $5.8 million in the third quarter of 2022 compared to a loss of $5.2 million in the third quarter of 2021.

The result was $0.6 million unfavorable in the 2022 period versus 2021 primarily due to higher exploration expenses and higher taxes partially offset by higher revenue from Brunei.

Nine 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.

United States E&P operations reported earnings of $1,225.9 million in the first nine months of 2022 compared to earnings of $481.8 million in the first nine months of 2021.

Results were $744.1 million favorable in the 2022 period compared to the 2021 period, driven by higher revenues ($954.6 million) and lower DD&A ($27.0 million), other operating expense ($23.1 million) and exploration expenses ($16.9 million) partially offset by higher income tax expense ($188.4 million), lease operating expenses ($64.9 million) and severance and ad valorem taxes ($15.8 million).

Higher revenues are primarily attributable to higher realized prices in 2022 compared to 2021.

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

Lower other operating expenses is primarily due to a lower unfavorable mark to market revaluation on contingent consideration ($98.5 million;

as a result of commodity prices increasing less drastically) from prior GOM acquisitions and no repeat of rig standby charges.

Lower exploration expenses are due to no repeat of 2021 dry hole costs related to Silverback.

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 $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.

Higher lease operating expenses relate to higher production volumes, cost increases from inflationary pressures related to the onshore business, and higher production at the Khaleesi and Mormont assets flowing to the King’s Quay facility.

Higher severance and ad valorem taxes are due to higher revenues at Eagle Ford Shale.

Canadian E&P operations reported earnings of $111.3 million in the first nine months of 2022 compared to a loss of $37.7 million in the first nine months of 2021.

Results were $149.0 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 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).

Prior year results included an impairment charge ($171.3 million) recorded in the first quarter following an asset abandonment notice from the operator of Terra Nova at the time of the assessment and a partially offsetting credit of $71.8 million as of September 30, 2021 reported in other operating expense as a result of the deferral of an asset retirement obligation at Terra Nova following the sanction of an asset life extension project.

The current year results also include higher revenue from production ($101.0 million) and lower DD&A ($17.3 million) offset by higher income tax expense ($52.7 million) and lease operating expenses ($13.4 million).

Higher revenue is primarily attributable to higher realized prices and higher gas volumes (new wells added in 2022).

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 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 $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;

$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 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:

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 operating expenses are due to higher gas volumes and higher processing rates.

Other international E&P operations reported a loss of $53.5 million in the first nine months of 2022 compared to a loss of $22.5 million in the prior year.

Results were $31.0 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.

Third 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 income of $57.4 million in the third quarter of 2022 compared to a loss of $98.8 million in the third quarter of 2021.

The $156.2 million favorable variance is principally due to current period gains on derivative instruments in the third quarter of 2022 compared to losses in the same 2021 period (2022:

$115.2 million gain;

$59.2 million loss) for a favorable variance of $174.4 million.

In addition, favorable variances were recorded due to lower interest expense ($10.9 million) and favorable exchange rate gains ($18.3 million) partially offset by higher tax expense ($47.1 million).

Realized and unrealized gains on derivative instruments are due to a decrease in oil prices for current (realized) and/or 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 September 30, 2022, the average forward NYMEX WTI price for the remainder of 2022 was $79.11 (versus swap contract fixed hedge price of $44.88).

Interest charges are lower in the third quarter of 2022 due to lower overall debt in the period.

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

Nine 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 $363.7 million in the first nine months of 2022 compared to a loss of $577.6 million in the first nine months of 2021.

The $213.9 million favorable variance is primarily due to lower losses on derivative instruments in 2022 ($191.1 million) compared to 2021 (2022:

$308.7 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.

$499.8 million loss), lower interest expense ($62.4 million) and foreign exchange gains ($31.0 million), partially offset by lower tax benefits ($66.6 million).

Interest charges are lower in the first nine months of 2022 primarily due to lower overall debt and lower debt redemption premiums ($5.4 million in 2022;

$36.8 million in 2021) incurred by the Company in the period.

In the first nine months of 2022 the Company reduced debt by $447.6 million compared to the 2021 reduction of $726.4 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).

As of September 30, 2022, the average forward NYMEX WTI price for the remainder of 2022 was $79.11 (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

Third quarter 2022 vs.

Total hydrocarbon production from continuing operations averaged 196,243 barrels of oil equivalent per day in the third quarter of 2022, which was 20% higher than the 163,224 barrels per day produced in third quarter 2021.

The increase in production is principally due to production from the Khaleesi, Mormont and Samurai field development project that started production in the second quarter of 2022, new well production at Tupper Montney and lower weather related downtime in the third quarter of 2022.

Average crude oil and condensate production from continuing operations was 103,386 barrels per day in the third quarter of 2022 compared to 88,245 barrels per day in the third quarter of 2021.

The increase of 15,141 barrels per day was associated with higher volumes in the Gulf of Mexico (15,304 barrels per day) principally due to the increased production from the Khaleesi, Mormont, Samurai development as well as lower weather related downtime in the third quarter of 2022.

Canada production is lower (2,680 barrels per day) primarily attributable to Kaybob Duvernay well decline and planned downtime at Hibernia.

Eagle Ford Shale production is higher (2,329 barrels per day) due to new wells at Karnes and Catarina.

On a worldwide basis, the Company’s crude oil and condensate prices averaged $93.56 per barrel in the third quarter 2022 compared to $68.88 per barrel in the 2021 period, an increase of 36% quarter over quarter.

MANAGEMENT’S DISCUSSION AND ANALYSIS (Contd.)

Results of Operations (contd.)

quarter compared to $30.63 per barrel in 2021.

Total production of natural gas liquids (NGL) from continuing operations was 11,548 barrels per day in the third quarter 2022 compared to 10,391 barrels per day in the 2021 period.

The increase of 1,157 barrels per day was associated with higher volumes in the Gulf of Mexico principally due to the increased production from the Khaleesi, Mormont, Samurai development as well as lower weather related downtime in the third quarter of 2022.

The average sales price for U.S.

NGL was $35.37 per barrel in the 2022 quarter compared to $32.01 per barrel in 2021.

The average sales price for NGL in Canada was $54.40 per barrel in the 2022 quarter compared to $45.12 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 production volumes from continuing operations averaged 487.9 million cubic feet per day (MMCFD) in the third quarter 2022 compared to 387.5 MMCFD in 2021.

The increase of 100.3 MMCFD was a result of higher volumes in Canada (82.8 MMCFD) as well as higher volumes in the Gulf of Mexico (19.0 MMCFD).

Higher natural gas volumes in Canada are primarily due to bringing online 20 new wells at Tupper Montney since the second quarter of 2022.

Natural gas prices for the total Company averaged $3.84 per thousand cubic feet (MCF) in the 2022 quarter, versus $2.78 per MCF average in the same quarter of 2021.

1 unchanged sentence

and Canada in the quarter were $8.34 and $2.75 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.

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

Nine months 2022 vs.

Total hydrocarbon production from Exploration and Production averaged 173,260 barrels of oil equivalent per day in the first nine months of 2022, which represented a 1.8% increase from the 170,209 barrels per day produced in the first nine months of 2021.

The increase is principally due to production from the Khaleesi, Mormont, Samurai field development project that started production in the second quarter of 2022, new wells at Tupper Montney and lower weather related downtime in 2022.

Average crude oil and condensate production was 95,275 barrels per day in the first nine months of 2022 compared to 98,314 barrels per day in the first nine months of 2021.

The decrease of 3,039 barrels per day was principally due to normal declines partially offset by new production from the Khaleesi, Mormont, Samurai field development project.

In addition, Canada production is lower (2,517 barrels per day) due to normal field decline at Kaybob and temporary operational issues at Hibernia.

Eagle Ford Shale production is lower (1,470 barrels per day) due to normal well decline partially offset by 2022 new well production.

Higher Gulf of Mexico production (475 barrels per day) due to production from the Khaleesi, Mormont, Samurai field development project that started production in the second quarter of 2022, and lower weather related downtime in 2022 partially offset by normal declines.

On a worldwide basis, the Company’s crude oil and condensate prices averaged $99.38 per barrel in the first nine months of 2022 compared to $64.19 per barrel in the 2021 period, an increase of 54.8% year over year.

Total production of natural gas liquids (NGL) was 10,621 barrels per day in the first nine months of 2022 compared to 10,498 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 361.7 million cubic feet per day (MMCFD) in the first six months of 2022 compared to 358.7 MMCFD in 2021.

Natural gas production volumes averaged 404.2 million cubic feet per day (MMCFD) in the first nine months of 2022 compared to 368.4 MMCFD in 2021.

The increase of 35.8 MMCFD was primarily the result of higher volumes in Canada 36.3 MMCFD) and Eagle Ford Shale (1.3 MMCFD), partially offset by the Gulf of Mexico (1.8 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.

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

Natural gas prices for the total Company averaged $3.66 per thousand cubic feet (MCF) in the first nine months of 2022, versus $2.56 per MCF average in the same period of 2021.

Average realized natural gas prices in the U.S.

4 unchanged sentences

Results of Operations (contd.)

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

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Barrels per day unless otherwise noted 2022 2021 2022 2021

29 unchanged sentences

188,487 155,046 164,797 160,470

1 Includes net volumes attributable to a noncontrolling interest in MP Gulf of Mexico, LLC (MP GOM).

1 Includes net volumes attributable to a noncontrolling interest in MP GOM.

2 Natural gas converted on an energy equivalent basis of 6:1

2 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 and six-month periods ended June 30, 2022 and 2021.

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

21 unchanged sentences

Financial Condition

The Company’s primary sources of liquidity are cash on hand, net cash provided by continuing operations activities and available borrowing capacity under its senior unsecured revolving credit facility.

The Company’s liquidity requirements consist primarily of capital expenditures, debt maturity, retirement and interest payments, working capital requirements, dividend payments, and, as applicable, share repurchases.

See below for additional discussion and analysis of the Company’s cash flows.

Cash Provided by Operating Activities

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.

Net cash provided by continuing operating activities was $1,678.7 million for the first nine months of 2022 compared to $1,091.3 million during the same period in 2021.

The increased cash from operating activities of $587.4 million is primarily attributable to higher revenue from production ($1,062.8 million), offset by the timing of working capital settlements ($177.2 million;

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

primarily higher revenue received in cash following the end of the quarter), offset by higher realized losses on derivative instruments ($176.1 million).

Cash Required by Investing Activities

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).

Net cash required by investing activities was $928.6 million for the first nine months of 2022 compared to $311.9 million during the same period in 2021.

In the first nine months of 2022, the Company acquired additional working interest in Kodiak (11.0%) and Lucius (3.4%) for $48.5 million and $77.1 million, respectively (also see Note D).

Property additions and dry hole costs (excluding King’s Quay), which include amounts expensed, were $800.9 million and $541.3 million in the first nine 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS (contd.)

Financial Condition (contd.)

Total accrual basis capital expenditures were as follows:

Six Months Ended

Total accrual basis capital expenditures are shown below.

Nine Months Ended

September 30,

(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.

Six Months Ended

Nine Months Ended

September 30,

(Millions of dollars) 2022 2021

7 unchanged sentences

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.

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 and Lucius acquisition in Gulf of Mexi co ($125.6 million), Cutthroat-1 exploration well in Brazil ($25.3 million), higher capital invested at the Khaleesi, Mormont, Samurai field development project in Gulf of Mexico, higher development drilling activities in Eagle Ford Shale and Tupper Montney assets and higher expenditures related to the asset life extension at Terra Nova.

Cash Required by Financing Activities

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).

Net cash required by financing activities was $785.6 million for the first nine months of 2022 compared to $585.6 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, 2025, 2028 and 2042 ($446.0 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 ($145.3 million), and cash dividends to shareholders of $0.575 per share ($89.4 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.

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).

As of September 30, 2022 and in the eve nt it is required to fund investing activities from borrowings, the Company has $1,546.1 million available on its committed RCF.

In first nine months of 2021, the cash used in financing activities was principally for the early redemption of the notes due 2022 and 2024 ($726.4 million ), early redemption cost (make whole payment) of the notes due 2022 ($36.8 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 ($100.9 million), and cash dividends to shareholders ($57.9 million), partially offset by the issuance of new notes due 2028, net of debt issuance cost ($541.9 million).

Working Capital

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

Working capital (total current assets less total current liabilities, excluding assets and liabilities held for sale) as of September 30, 2022 was a deficit of $268.5 million, $30.4 million lower than December 31, 2021, with the decrease primarily attributable to higher accounts receivable ($127.0 million) and lower accounts payable ($83.6 million), partially offset by higher other accrued liabilities ($74.9 million), a lower cash balance ($55.2 million) and higher operating lease liabilities ($27.5 million).

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

Lower accounts payable is primarily due to the decrease in unrealized losses on derivative instruments (commodity price swaps and collars) maturing (payable) over the

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.

remainder of 2022 partially offset by higher revenue payables principally due to higher crude oil and gas pricing.

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

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 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).

At September 30, 2022, long-term debt of $2,023.0 million had decreased by $442.4 million compared to December 31, 2021, primarily as a result of the partial repayment of notes due 2024, 2025, 2028 and 2042 ($447.6 million).

The total of the fixed-rate notes had a weighted average maturity of 7.5 years and a weighted average coupon of 6.1%.

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

June 30, 2022 December 31, 2021

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

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

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

included U.S.

dollar equivalents of approximately $95.3 million in Canada.

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 addition, approximately $25.5 million of cash was held in Brunei, $20.9 million of cash was held in Mexico and $12.5 million of cash was held in the U.K..

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

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

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;

As discussed in the Summary section on page 22, several factors have contributed to a lower average crude oil price during the third quarter, which directly impacts the Company’s product revenue from sales (Q3 2022 $91.55;

Q2 2022 $108.41;

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;

Q3 2021 $70.56).

As of close on November 1, 2022, the NYMEX WTI forward curve price for the remainder of 2022 and 2023 were lower at $88.37 and $81.53 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 third quarter, production is expected to average between 180.0 and 188.0 MBOEPD, excluding noncontrolling interest (NCI).

Lower prices will result in lower profits and operating cash-flows.

For the fourth quarter, production is expected to average between 173.5 and 181.5 MBOEPD, excluding noncontrolling interest (NCI).

The Company’s capital expenditure spend for 2022 is expected to be between $975.0 million and $1,025.0 million, excluding acquisitions and noncontrolling interest.

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If oil and/or natural gas prices weaken, actual cash flow generated from operations could be reduced such that capital spending reductions are required and/or borrowings under available credit facilities might be required during the year to maintain funding of the Company’s ongoing development projects.

The Company plans to utilize surplus cash (not planned to be used by operations, investing activities, dividends or payment to noncontrolling interests) to repay outstanding debt.

The Company plans to utilize surplus cash (not planned to be used by operations, investing activities, dividends or payment to noncontrolling interests) in accordance with the Company’s capital allocation framework.

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

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).

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:

As of November 1, 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

39 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