This report contains forward-looking statements that involve risks and uncertainties that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those anticipated in our forward-looking statements due to many factors. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this report and in our annual report filed on Form 10-K for the year endedDecember 31, 2021 . Results of Operations Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net Production Data: (In thousands except per unit amounts) Natural gas (MMcf) 128,902 128,896 367,758 366,272 Oil (MBbls) 21 346 66 1,034 Natural gas equivalent (MMcfe) 129,025 130,968 368,152 372,474 Revenues: Natural gas sales$ 994,979 $ 488,303 $ 2,376,774 $ 1,133,783 Oil sales 1,936 22,873 6,324 61,571 Total oil and gas sales$ 996,915 $ 511,176 $ 2,383,098 $ 1,195,354 Expenses:
Production and ad valorem taxes
Gathering and transportation$ 44,740 $ 35,402 $ 113,797 $ 96,596 Lease operating$ 28,608 $ 26,576 $ 79,873 $ 77,150 Exploration $ - $ -$ 3,363 $ - Average Sales Price: Natural gas (per Mcf)$ 7.72 $ 3.79 $ 6.46 $ 3.10 Oil (per Bbl)$ 92.19 $ 66.11 $ 95.82 $ 59.55
Average equivalent (Mcfe)
Expenses ($ per Mcfe):
Production and ad valorem taxes
Gathering and transportation$ 0.35 $ 0.27 $ 0.31 $ 0.26 Lease operating$ 0.22 $ 0.20 $ 0.22 $ 0.21 Revenues - 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. InOctober 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 endedSeptember 30, 2022 increased by$1.2 billion (99%) as compared to$1.2 billion for the nine months endedSeptember 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$3.10 in the first nine months of 2021. 19 -------------------------------------------------------------------------------- We utilize natural gas and oil price derivative financial instruments to manage our exposure to changes in prices of natural gas and oil and to protect returns on investment from our drilling activities. The following table presents our natural gas and oil prices before and after the effect of cash settlements of our derivative financial instruments: Three Months Ended September Nine Months Ended September 30, 30, 2022 2021 2022 2021 Average Realized Natural Gas Price: Natural gas, per Mcf$ 7.72 $
3.79
(2.36) (0.89) (1.84) (0.38) Price per Mcf, including cash settlements on derivative financial instruments$ 5.36 $ 2.90 $ 4.62 $ 2.72 Average Realized Oil Price: Oil, per Bbl$ 92.19 $
66.11
- (7.53) - (5.31) Price per Bbl, including cash settlements on derivative financial instruments$ 92.19 $
58.58
Gas service revenues of
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 ofLouisiana 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 endedSeptember 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 inApril 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 endedSeptember 30, 2022 as compared to$0.98 for the quarter endedSeptember 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. 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 endedSeptember 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 endedSeptember 30, 2021 . Realized net losses from our oil and natural gas price risk management program were$304.5 million for the quarter endedSeptember 30, 2022 as compared to realized net losses of$117.1 million for the quarter endedSeptember 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. 20 -------------------------------------------------------------------------------- Interest expense was$41.4 million and$50.0 million for the quarters endedSeptember 30, 2022 and 2021, respectively, and$132.2 million and$170.6 million for the nine months endedSeptember 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 andJune 2022 . Loss on extinguishment of debt was$46.8 million and$352.6 million for the nine months endedSeptember 30, 2022 and 2021, respectively. InMay 2022 , we retired$244.4 million principal amount of our 7.5% senior notes due in 2025 inJune 2022 we retired$26.1 million principal amount of our 6.75% senior notes due in 2029. In March andJune 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 endedSeptember 30, 2022 and 2021 were a provision of$102.8 million and$24.0 million , respectively. Income taxes for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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$2.66 per share for the nine months endedSeptember 30, 2021 .
Cash Flows, Liquidity and Capital Resources
Cash Flows
The following table summarizes sources and uses of cash and cash equivalents: Nine Months EndedSeptember 30, 2022 2021 (In thousands)
Sources of cash and cash equivalents: Operating activities$ 1,204,483 $ 618,553 Issuance of new senior notes, net of costs - 2,187,089 Proceeds from asset sales 93 261 Total$ 1,204,576 $ 2,805,903 Uses of cash and cash equivalents: Capital expenditures$ 768,327 $ 508,051 Retirement of senior notes 273,920 2,210,626 Repayments of bank credit facility, net of borrowings 135,000 75,000 Preferred stock dividends 13,089 13,089 Other 6,255 1,568 Total$ 1,196,591 $ 2,808,334 21
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Cash flows from operating activities. Net cash provided by our operating
activities increased
Issuance of new senior notes and retirement of senior notes. InMay 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 . DuringJune 2022 , we retired$26.1 million principal amount of our 6.75% senior notes for$24.9 million . In 2021, we issued$1.25 billion principal amount of 6.75% senior notes due in 2029 and$965.0 million principal amount of 5.875% senior notes due in 2030. The proceeds from the note offerings were used to redeem$2,025.0 million principal amount of outstanding senior notes for$2,198.1 million , including premiums paid over face value and costs related to a tender offer. Capital expenditures. The increase in capital expenditures of$260.3 million is primarily due to our higher drilling and completion activity in 2022 and acquisitions of undevelopedHaynesville shale acreage and the acquisition of a natural gas pipeline and treating plant from an unaffiliated third party.
The following table summarizes our capital expenditure activity:
Nine Months Ended September 30, 2022 2021 (In thousands) Acquisitions: Proved property$ 205 $ - Unproved property 37,396 18,649
Exploration and development:
Development leasehold costs 8,298
6,794
Drilling and completion costs 668,376
454,524
Other development costs 52,500
26,795
Asset retirement obligations 1,223
1,660
Total exploration and development 767,998
508,422
Other property and equipment 18,815
69
Total capital expenditures$ 786,813 $
508,491
Change in accrued capital expenditures and other (16,052)
1,220
Change in asset retirement obligations (2,434)
(1,660)
Total cash capital expenditures$ 768,327 $
508,051
We drilled 91 (44.4 net) wells and completed 100 (46.2 net)Haynesville andBossier 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.
Liquidity and Capital Resources
As ofSeptember 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. 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. Consequently, we have a significant degree of flexibility to adjust the level of our capital expenditures as circumstances warrant. If our plans or assumptions change or our assumptions prove to be inaccurate, we may be required to seek additional capital, including debt or equity financing. We cannot provide any assurance that we will be able to obtain such capital, or if such capital is available, that we will be able to obtain it on acceptable terms. We do not have a specific acquisition budget for the remainder of 2022 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 22 -------------------------------------------------------------------------------- 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. Lack of access to the debt or equity markets due to general economic conditions could impede our ability to complete acquisitions. AtSeptember 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 onJuly 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. We also pay a commitment fee of 0.375% to 0.50% on the unused portion of the borrowing base. The bank credit facility places certain restrictions upon our and our subsidiaries' ability to, among other things, incur additional indebtedness, pay cash dividends, repurchase common stock, make certain loans, investments and divestitures and redeem the senior notes. The only financial covenants are the maintenance of a leverage ratio of less than 4.0 to 1.0 and an adjusted current ratio of at least 1.0 to 1.0. We were in compliance with the covenants as ofSeptember 30, 2022 . Income Taxes AtSeptember 30, 2022 , we had$909.9 million inU.S. federal NOL carryforwards and$1.5 billion in certain state NOL carryforwards. As a result of the change of control inAugust 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. Our NOLs are estimated to be limited to$3.3 million a year as a result of this limitation. In addition to this limitation, IRC Section 382 provides that a corporation with a net unrealized built-in gain immediately before an ownership change may increase its limitation by the amount of recognized built-in gain recognized during a recognition period, which is generally the five-year period immediately following an ownership change. Based on the fair market value of our common stock immediately prior to the ownership change, we believe that we have a net unrealized built-in gain which will increase the Section 382 limitation during the five-year recognition period from 2018 to 2023 by$147.7 million . NOLs that exceed the Section 382 limitation in any year continue to be allowed as carryforwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. NOLs incurred prior to 2018 generally have a 20-year life until they expire. NOLs generated in 2018 and after would be carried forward indefinitely. Our use of new NOLs arising after the date of an ownership change would not be affected by the 382 limitation. If we do not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carryforward periods, then we will lose the ability to apply those NOLs as offsets to future taxable income. We estimate that$767.3 million of theU.S. federal NOL carryforwards and$1.2 billion of the estimated state NOL carryforwards will expire unused.
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