Prompt:
Human: I know that we're reporting on the second quarter 2021 today.
But we're super excited about what we see for the second half of this year.
We advertised that we were front-end loading our capex in 2021 through the first half of the year, which we did.
And now we see and actually have it today, corporate record high natural gas production and Comstock that we are selling at high natural gas prices.
Global demand for natural gas is very strong for industrial power generation as well as electrical demand for cooling and heating, while supply is low-to-moderate in part due to the disciplined use of capital expenditure dollars across the entire oil and gas sector, as you are all aware of in this earnings season.
Our corporate strength lies in our best-in-class, low-cost structure, which creates our high margins as well as the 1,900 plus net drilling locations within our 3000 to 323,000 net acre Haynesville/Bossier footprint, which we operate 91% of.
One of the major tasks in 2021 was reduce our cost of capital, which we took mighty steps forward with our 5.875% senior notes being issued in the second quarter 2021.
We do feel the wind in our sails as we look at the third and fourth quarter of 2021 and 2022 and want to recommit to you with our goal of reducing our leverage ratio to less than two times at the end of 2022 or before if possible.
With the refinancing in place, we reduced our interest costs per mcfe by 25% this quarter to $0.36 and are committed to continue working to reduce that number by year-end 2021, if possible.
The denominator of Comstock is our consistent drilling results quarter after quarter after quarter in a Tier one Haynesville/Bossier region, which speaks volumes about all of our departments, especially our operations department.
And through our quality Haynesville/Bossier rock, that we have decades of that quality rock lift to drill.
I know that, that denominator is why Jerry Jones and his family invested $1 billion in Comstock since August 2018, and we believe that is why you, the bondholders, banks and equity owners buy Comstock, proven rock quality, proven results over many, many years.
Now I'll start the formal second quarter 2021 results.
I am Jay Allison, Chief Executive Officer of Comstock.
And with me is Roland Burns, our present office -- Operating Officer; and Ron Mills, our VP of Finance and Investor Relations.
While we believe the expectations and such statements to be reasonable, there could be no assurance that such expectations will prove to be correct.
Now if we'll go over to the second quarter 2021 highlights.
We cover the highlights of the second quarter on slide three.
In the second quarter, we reported adjusted net income of $55 million or $0.22 per diluted share.
Production for the quarter averaged approximately 1.4 bcfe a day and was 98% natural gas.
Our average daily production for the quarter was 8% higher than the first quarter of 2021 and 6% higher than the second quarter of 2020.
Revenues, including realized hedging losses were $325 million, 40% higher than the second quarter of 2020.
Adjusted EBITDAX of $251 million was 55% higher than the second quarter of 2020.
Operating cash flow for the quarter was $196 million or $0.71 per diluted share.
For the quarter, we generated $20 million of free cash flow as the preferred dividends, increasing our year-to-year free cash flow to $53 million.
That's a good start toward reaching our annual free cash flow generation goal of over $200 million.
With the stronger commodity prices we're seeing in the second half of the year, we now expect free cash flow to come in well above that goal of $200 million.
And lastly, we completed the task of refinancing all of our higher coupon senior notes in the second quarter, which substantially reduced our cost of capital going forward.
If you turn over to slide four, we recap the refinancing transaction, which closed on June 28.
We issued $965 million of new 5.875% senior notes, which are due in 2030.
The proceeds from the offering were used to redeem the remainder of our 9.75 quarter bonds.
The refinancing transaction reduced our reported annual interest expense by $33 million, and we will save $28 million in annual cash interest payments.
Combined with the March refinancing that we did, our annual interest payments were reduced by $48 million.
The lower cash interest expense will also drive significant improvements in our cash interest costs per mcfe produced, as I mentioned earlier, on a pro forma basis, assuming the refinancing was completed at the beginning of the quarter.
Our second quarter interest cost for mcfe would have been $0.36 per mcfe as compared to a $0.48 rate in the first quarter.
In addition to lowering our cost of capital, we also improved our weighted average maturity of our senior notes to 7.6 years, up from 6.3 years.
On slide five, we summarize our reported financial results for this recently completed second quarter.
We had a solid quarter, and it was driven by that 6% production increase in combination with stronger oil and gas prices than we had last year.
Ore production for the second quarter totaled 100 -- our total production for the second quarter totaled 124 bcf of natural gas and 362,000 barrels of oil.
Like Jay said, this was 6% higher than we had in the second quarter of 2020, and it's an 8% increase over where we were in the first quarter of this year.
Our oil and gas sales, as a result, including the realized losses from our hedging program, increased by 40% to $325 million.
Oil prices averaged $55.82 per barrel, and our gas price averaged $2.46 per mcfe; both of those numbers, including the impact of our hedges.
Natural gas prices were 31% better than we realized last year in the same second quarter of last year.
Remember that NYMEX -- the NYMEX contract for the quarter only averaged $2.83.
So I know the recent run-up in gas prices is really -- you'll really see those numbers starting in July forward.
Looking at the cost side, our production costs were up about 6%, kind of matching the increase in production.
Our G&A was down 5%, and our noncash depreciation, depletion and amortization was up 18% in the quarter.
Our adjusted EBITDAX came in at $251 million; it's 55% higher than the second quarter of last year.
Operating cash flow was $196 million, 67% higher than the second quarter of 2020.
We did report a net loss of $184 million in the second quarter or $0.80 per share, but that was all due to a very large mark-to-market loss on our hedge contracts of $205 million and a $114 million charge related to the early retirement of the senior notes from our June 28 refinancing transaction.
Adjusted net income, excluding the mark-to-market unrealized hedging loss and the loss on early retirement of debt and certain other unusual items, was a profit of $55 million or $0.22 per fully diluted share.
On slide six, we summarize the financial results for the first half of this year.
For the first six months of the year, production totaled 241.5 bcfe.
That includes 688,000 barrels of oil, and that's about 1% lower than our production for the first half of 2020.
But our oil and gas sales, including any realized hedging losses were $657 million, which is 30% higher than the first half of 2020.
Oil prices for the first half of this year have averaged $52.06 per barrel.
That's 22% higher than last year, and our realized gas prices averaged $2.62 per mcf; both of those numbers, including the impact of our hedging, and that's up 34% over last year.
For the first half of this year, we've reported adjusted EBITDAX of $513 million, 41% higher than the same period last year.
Operating cash flow was $403 million, 47% higher than last year.
And then overall, for this period, we reported a loss of $322.5 million or $1.39 per share.
Again, this was due to the charges for the early extinguishment of debt related to both the March and June refinancings and that mark-to-market unrealized loss on our hedge position.
Excluding those items, our adjusted net income would be $118 million profit or $0.46 per diluted share.
slide seven, we recap our hedging program.
During the second quarter, we had 68% of our gas volumes hedged.
That reduced our realized gas price that $2.46 per mcfe from the actual $2.59 for mcfe we realized from selling our gas production.
We also had about 38% of our oil volumes hedged, which decreased our realized oil price to $55.82 per barrel versus the $61.25 we actually realized.
Overall, our hedging program resulted in realized losses of $18.8 million in the quarter.
For the remainder of this year, we have natural gas hedges covering 976 million cubic feet per day, which is around 70% of our expected production in the second half of this year.
59% of those hedges are fixed price swaps, but 41% are collars, which give us exposure to the higher prices we're now seeing.
For 2022 or next year, we have about 40% to 45% of our expected production hedged.
And almost half of those or 49% are in the form of collars, which give us substantial exposure to the higher prices that we're kind of now seeing for next year.
On slide eight, we summarized the shut-in activity during the second quarter.
And we had a good quarter on this front.
We had only 52 million a day shut-in during the second quarter, which is 3.8% of our production, and that came down substantially from the 6.4% we had shut-in, in the first quarter.
There really were no significant disruptions due to storms or other matters in the quarter and the shut-ins that we had were very routine and related primarily to production we shut-in to conduct offset frac activity.
On slide nine, we detail our operating cost per mcfe.
We had a good quarter there.
Our operating cost per mcfe averaged $0.54 in the second quarter, and that was $0.01 lower than the first quarter rate.
Gathering costs were $0.25, taxes $0.08 and the other lifting cost in the field were $0.21, very comparable to the first quarter rates.
Slide 10, on corporate overhead per mcfe.
That, again, came in at $0.05 in the second quarter.
It's one of the lowest in the industry.
And again, very, very consistent to what we expected and what we've had in the past.
We do expect cash G&A to remain in this $0.05 to $0.07 range kind of going forward.
That's the depreciation, depletion and amortization per mcfe produced.
That came in at $0.96 in the second quarter.
It was $0.01 higher than the $0.95 rate we had in the first quarter of this year.
It's a picture of our balance sheet at the end of the second quarter, and it reflects our June 28 refinancing transaction, which closed right at the end of the month -- right at the end of the quarter.
So we ended the quarter with $475 million drawn on our revolving credit facility, which is a $1.4 billion borrowing base.
And we expect to continue to reduce that as we generate free cash flow the rest of the year.
That's really -- free cash flow is being really designated to continue to reduce our debt.
We now have in total about $2.459 billion of senior notes outstanding.
They're comprised of $244 million of the 7.5% senior notes, which are due in 2025.
We assumed as part of the Covey Park acquisition, $1.25 billion of new 6.75% senior notes due in 2029 that we issued in March.
And then the new $965 million of new 5.875 senior notes due in 2030 that were issued right at the end of the second quarter.
We currently plan to retire the 2025 7.5% bonds, probably sometime early next year, just using -- targeting the free cash flow that's generated and using that as a permanent debt reduction moved by the company.
We do -- on Slide 12, you can see our new revised maturity schedule.
And so you can see now that our weighted average maturity of our senior notes is now 7.6 years after the recent refinancing, right at the end of the second quarter.
So we're in great shape on the maturity schedule.
And as Jay pointed out, have substantially improved our cost of capital and generated substantial annual interest savings on what otherwise would be dollars that would have to go for fixed charges on our debt service.
So we did end the quarter with about $20 million in cash on the balance sheet.
So our current liquidity is at $945 million.
Slide 13, we recapped the second quarter capital expenditures.
So in the second quarter, we spent $165 million on our development activities and $154 million of that relates to our operated Haynesville shale properties.
So we drilled 21 or 15.7 net operated horizontal Haynesville wells, and then we returned 16 or 14.2 net operated Haynesville wells to sales in the recently completed second quarter.
We also spent about $10.9 million on nonoperated activity and other development activity.
In addition to funding our development program, we've also invested $7.6 million on leasing new exploratory acreage.
Given the tremendous success of that leasing program, we have decided to increase our budget up to a maximum of $20 million to spend on putting new leases in to support our Haynesville shale drilling program in the future.
As we're seeing very good opportunities to do that at attractive terms.
So right now, as Dan will go over in a minute, we're currently operating five operated drilling rigs for our 2021 program, and we see kind of maintaining those five as we look ahead into 2022.
So we're at a very good consistent level, we think, which is right for the company.
So based on this current operating plan, we expect to spend about $525 million to $560 million on this year's drilling plan, which will drill 55 net wells and turned to sales about 48 net wells.
This is a small increase from what we expected at the beginning of the year.
Most of that is really due to changes in the timing of when completions happen and then also higher-than-expected nonoperated activity.
We definitely are very focused on generating significant free cash flow.
And with the current gas prices, we now anticipate significantly exceeding our original target of $200 million of free cash flow for this year.
We'll use that incremental free cash flow to accelerate the delevering of our balance sheet.
Flip over on slide 14.
You'll see the map outlined in the summary of our new well completions.
Since the last call, we've turned 21 new additional wells to sales.
The 21 wells were tested at rates ranging from 15 million cubic feet a day up to 32 million cubic feet a day with a 22 million cubic feet per day average IP rate.
The wells at lateral lengths ranging from 4,580 feet all the way up to 11,388 feet, and we had an average for the quarter of -- or for this list of 8,251 feet.
So in addition to the wells we have listed here, we currently have 13 additional wells that we have in various stages of completion.
Regarding the activity levels this past May, we did drop down from six to five rigs.
That's where we are today, and we intend to hold our activity flat at this level for the remainder of the year and into next year.
Our fiscal DUC count currently stands at 23 wells, and we're currently we're actively running three frac crews.
Over on slide 15, as an updated DNC call stream for our benchmark long lateral wells.
These are our laterals greater than 8,000 feet in length.
Through the end of the second quarter, 73% of all the wells turned to sales this year have been long lateral wells.
During the second quarter, our total D&C cost averaged $1,051 a foot.
This represents a 3% increase compared to the first quarter.
And is 2% higher than the full year 2020 total D&C cost.
Our drilling costs in the second quarter increased by 7% compared to the first quarter.
This is primarily attributable to a lower average lateral length versus the first quarter, but still 15% less than our drilling cost in 2020.
Our completion costs remained relatively flat with only a 2% increase from the first quarter.
But we're still running 16% higher than 2020.
And this is due to the large number of the smaller fracs that were pumped in 2020, which led to the lower cost last year, lower completion costs.
For the remainder of the year, we expect our completion costs will remain relatively flat, and we do not foresee any material increase in costs.
So by building on our basin leading drilling performance and keeping our current completion cost in check, we expect to maintain our total D&C cost for our benchmark long lateral wells in this 1,025, 1,050 foot range.
Also, I want to add that we're currently drilling two, 15,000 foot laterals that we spud in June.
This is the first for the company.
We expect to complete these wells during the fourth quarter.
We also have two additional 15,000 foot wells that we will spud later this month that will be completed in the first quarter of next year.
These longer laterals are going to help bolster our efforts to further increase our lateral lengths and to drive down our credit costs; drive down the footage cost further than where we've been.
So that summarizes the operations.
Okay, Dan, that's short and sweet.
It's usually about ten pages, and we've condensed it.
That's a good report and Roland, same here.
If you look at the 2021 outlook, I'd like to direct you to slide 16, where we summarize our outlook for the remainder of this year.
Our operating plan for this year is expected to provide for around 8% to maybe 10% production growth and most importantly, generate in excess as Roland said, $200 million of free cash flow and maybe a lot more than that.
Our primary focus this year is to improve our balance sheet, reduce our leverage and lower our cost of capital, which we've made great strides on that.
Our June refinancing transaction was another significant step to reducing our cost of capital with the $28 million annual savings and interest payments.
Now we will primarily focus on absolute debt reduction, and we'll seek to retire, as Roland said, our 2025 bonds with free cash flow that we generate the rest of this year.
If natural gas prices stay at current levels, we would expect our leverage ratio to improve to less than a 2.5 times at the end of 2021, down from that $3.8 million at the end of 2020.
And based on our current plans and the price outlook, we'd anticipate our leverage ratio further improving it to less than two times at the end of 2022.
We remain focused on maintaining and improving our industry-leading low-cost structure and best-in-class well drilling returns with our industry-leading low-cost structure, our Haynesville drilling program generates some of the highest drilling returns in all of North America.
Our large inventory of Haynesville/Bossier drilling locations provide us with decades of drilling inventory.
We'll also focus on lowering our greenhouse gas emissions and are currently evaluating participating in one of the programs to certify our gas as responsibly sourced and we have very strong liquidity, as Roland mentioned, at $945 million.
On the guidance page, we just update the guidance for the remainder of this year.
Production guidance remains at the 1.33 to 1.425 bcfe per day number that we had previously provided.
As mentioned on the call, our development capex guidance is $525 million to $560 million.
And we anticipate on remaining at the five rigs we're currently running over the remainder of the year.
And at the same time, as mentioned earlier, the leasing capital has increased to $15 million to $20 million as we continue to add acreage.
On the cost side, LOE, GTC, really all the cost items remain unchanged from the prior quarter.
And so there's -- we continue to hit all of our targets on the cost side.
 Assistant:

Chosen response:
q2 adjusted earnings per share $0.22.
q2 loss per share $0.80.


Prompt:
Human: It's a little rainy outside of Frisco, Texas, guest winters in the airs coming our way.
What a great time to be in the natural gas business, especially in the Haynesville.
I want to have a couple of clarified statements before we start the actual third quarter of 2021 results.
With our Bakken properties of a contract for that $154 million, which most of you are aware of, and closing expected in the coming weeks, we did preannounce that we would accelerate completion activity on the $9.4 net Haynesville wells this year to bring those volumes forward into our current strong pricing environment for natural gas.
The increased production from those wells really will appear in the first quarter of 2022.
Now I thought it would be a good time to talk about the direction of the company.
The direction of Comstock is to continue to focus on capital efficiency in the Haynesville and generation of free cash flow, specifically over the next several quarters, we plan to use that free cash flow to pay off our credit facility and to retire the 7.5 bonds in May of 2022, then with our debt reduction goals a bit we want to establish a shareholder dividend.
I am Jay Allison, Chief Executive Officer of Comstock.
With me is Roland Burns, our President and Chief Financial Officer; Dan Harrison, our Chief Operating Officer; and Ron Mills, our Vice President of Finance and Investor Relations.
While we believe the expectations in such statements to be reasonable, there could be no assurance that such expectations will prove to be correct.
This is Slide three, the third quarter 2021 highlights.
We cover the highlights the third quarter on Slide three.
In the third quarter, we generated $84 million of free cash flow after paying preferred dividends, increasing our year-to-date free cash flow generation to $137 million.
Given the strong outlook for natural gas prices, we now expect to significantly exceed our original annual free cash flow generation goal of over $200 million.
For the quarter, we reported adjusted net income of $91 million or $0.34 per diluted share.
Our production increased 25% in the quarter to 1.424 Bcf a day and was 98% natural gas.
Revenues, including realized hedging losses, increased 86% to $394 million.
Our adjusted EBITDAX in the third quarter grew by 109% to $309 million.
Operating cash flow for the quarter was $225 million or $0.92 per diluted share.
And again, we announced the sale of our Bakken properties for $154 million.
We expect to close the divestiture in the next several weeks.
We are using a portion of the proceeds from that sale to accelerate completion of this 9.4 net drilled uncompleted wells to benefit from the stronger winter pricing.
We've now started completion operations on those wells, which Dan will go over within a minute, have been completed by year-end with production January of next year.
And we recently engaged MiQ to initiate the independent certification of our natural gas production under the MiQ methane standard.
If you flip to Slide four, we cover our announcement to sell the Bakken assets on Slide four.
We recently announced that we're selling our non-operated Bakken shale properties to northern oil and gas for $154 million.
The assets sold include interest in $442 or 68.3 net well bores.
June 30, the proved reserves associated with the properties totaled 10.8 million barrels of oil and 44.2 billion cubic feet of natural gas.
We expect to close the transaction next several weeks.
On Slide five, we summarize our financial results for the third quarter of 2021.
We had a very strong quarter, which was driven by that 25% production increase, combined with substantial improved oil and gas prices.
Our production in the third quarter totaled 129 Bcf of natural gas, 346,000 barrels of oil.
That was 25% higher than the third quarter of 2020, and it's 4% higher than what we were producing in the second quarter of this year.
Our oil and gas sales, including the losses that we realized from our hedges increased by 86% to $394 million in the third quarter.
Our oil prices in the quarter averaged $58.58, and our gas price averaged $2.90 per Mcfe, that's after the impact of our hedges.
Our realized hedge natural gas price in the quarter was 49% higher than the third quarter last year.
Our production costs were also -- were up 36% in the quarter, reflecting the higher production level, combined also with higher production taxes resulting from the stronger prices that we realized.
Our G and A, though, was down 10%, and our depreciation and depletion and amortization was up 30% in the quarter.
Adjusted EBITDAX came in at $309 million.
That's 109% higher than the third quarter of 2020.
And our operating cash flow that we generated was $255 million, 174% higher than the third quarter of last year.
We did report a net loss of $293 million in the quarter or $1.26 per share, but that was all due to the very large mark-to-market loss on our hedge contracts of $393 million.
That resulted from the surge in oil and gas futures prices since the end of the second quarter.
Adjusted net income, excluding the unrealized hedging losses and certain other unusual items was actually a profit of $90.6 million or $0.34 per diluted share.
On Slide six, we summarize the results for the first nine months of this year.
Production for the first nine months averaged 372.5 Bcfe, which is 7% higher than the same period in 2020.
Oil and gas sales, including realized hedging losses were $1.1 billion a 47% higher than the same period last year.
Oil prices were 36% higher at $54.24 per barrel, and our realized natural gas price averaged $2.72 per Mcf, both of those, including the effect of our hedges, and that was 39% stronger than 2020.
Adjusted EBITDAX for this period has increased 61% to $823 million, operating cash flow at $658 million has increased 80% from 2020.
For the first nine months of this year, we did report a $615 million loss or $2.66 per share.
Again, this was due to two items, the large mark-to-market loss on the hedge contracts and a charge for early retirement of debt related to our March and June refinancing transactions.
Adjusted net income, excluding the unrealized hedging losses and the charge for early debt retirement and other unusual items, was $209 million profit or $0.80 per diluted share.
On Slide seven, we cover our hedging program.
During the third quarter, we did have 70% of our gas volumes hedged, which did reduce our realized gas price to $2.90 per Mcf from the $3.79 per Mcf that we realized from selling our production.
We also had 40% of our oil volumes hedged, which reduced our oil price to that $58.58 per barrel versus the $66.11 that we received.
Our realized hedging losses in the quarter were $117 million.
For the remainder of the year, we have natural gas hedges covering 967 million cubic feet a day, which is about 70% of our expected production in the fourth quarter.
58% of those hedges are price swaps and then 42% are collars, which also give us exposure to the higher prices.
For next year, we have approximately 50% of our expected production hedged.
But 46% of those 22 hedges are swaps and 54% are more than half are collars, which give us exposure to the higher prices that we're seeing for next year.
I also want to point out that since the second quarter report, we've only added new hedge contracts covering $75 million a day of our gas production, and those were in the form of wide collars.
They had a $3 floor and they had a weighted average ceiling of $5.58.
Now that requirement is going to melt away as our leverage falls below two.
So as we achieve our leverage goals next year, will no longer be required to hedge our volumes.
Slide eight, we summarized the shut-in activity during the third quarter.
We had about $81 million a day or 5.8% of our natural gas production shut in during the third quarter as compared to 3.8% in the second quarter.
The shut-ins this quarter were mainly due to the really high level of completion activity that we had, both for our own activity and offset operators.
And that's necessary to order to protect the older wells when we frac a new well nearby.
On Slide nine, we detail our operating cost for Mcfe.
Our operating cost averaged $0.60 in the third quarter, $0.06 higher than the second quarter rate.
This increase was mostly due to higher production taxes coming from the higher oil and gas sales we had for the quarter.
Our gathering costs were $0.27.
The production at Avalor taxes averaged $0.13 and the field level operating cost averaged $0.20.
Both together and fill over costs were fairly comparable to our second quarter rates.
Slide 10, we detail our corporate overhead cost for Mcfe, and our cash G and A cost per Mcfe remained at a steady $0.05 per Mcfe in the third quarter.
Slide 11 shows the DD and A per Mcfe produced that averaged $0.98 in the quarter, about $0.02 higher than the $0.96 rate we had in the second quarter.
Proceeding to Slide 12, we kind of recap our balance sheet at the end of the third quarter.
We had $525 million drawn on our revolving credit facility at the end of the quarter and we expect to use our free cash flow and proceeds from the Bakken sale to further pay down that balance during the rest of the year.
On October 22, our bank group reaffirmed our $1.4 million borrowing base.
And right now, we have just under $2.5 billion of senior notes outstanding comprised of the $244 million of the 7.5% senior notes due in 2025, $1.25 billion of the 6.75% senior notes due in 2029 and $965 million of our new 5% and 7%, 8% senior notes due in 2030.
We currently plan, as Jay mentioned, to retire the 7.5% bonds next may with the free cash flow that we're generating.
The reduction in our debt and the growth in our EBITDAX so far is driving a substantial improvement to our leverage ratio, which has now fallen to 2.3 times if you look at the third quarter on a stand-alone basis.
We see this improving further over the next two quarters, and we expect this to get below 1.5 times in 2022.
At the end of the quarter, our financial liquidity has grown to over $1 billion.
On Slide 13, we give a recap of the third quarter capital expenditures.
In the third quarter, we spent $162 million on our development activities and $143 million of that was on our Haynesville operated shelf properties.
We drilled 13 or 11.7 net new operated Haynesville wells, and then we turned 27 or 22.4 net wells to sales in the third quarter.
We also spent about $90 million on non-operated activity and other development activity.
In addition to funding our development program, we also spent $5 million on leasing of new exploratory acreage.
We're currently running five operated rigs for our 2021 drilling program, and we plan to remain at that level for the rest of this year.
Based on our current operating plan for this year, we expect to spend between $590 million to $630 million, which will include drilling 52.5 net operated Haynesville wells and then turning 54.4 net operated wells to sales.
The increased spending from our earlier budget is related to the acceleration of the completion activity on an additional 9.4 net drilled but uncompleted wells.
Accelerating this activity allows us to bring these wells on several months early versus our prior schedule where completion activity was not going to begin on any of these wells until January, 2022.
So this is being funded with part of the proceeds from our $154 million divestiture of the Bakken properties.
We are going to remain very focused on generating significant free cash flow for this year and as we look into 2022.
And with the current gas prices, we anticipate significantly exceeding our original target of $200 million of free cash flow generation for this year.
That incremental free cash flow and the proceeds from the Bakken sale will be used to also accelerate our delevering plans.
And now we're excited to be able to be on the verge of accomplishing those, getting our debt down to a level that we think is the right level for the company and having a leverage ratio that's offset the right level.
Over on Slide 14.
This is a map outlined.
We show in the area of our most recent well activity.
We have completed 15 new wells since the time of our last call.
These wells were drilled with lateral lengths that range from 4,578 feet up to a high of 10,530 feet the average lateral length being 7,925 feet.
The wells tested at IP rates that range from $11 million a day to $30 million a day with a $22 million a day average IP rate.
We currently have 13 additional wells that have been drilled that are waiting on completion.
On our activity levels, we're currently running five and three frac crews.
Our activities will remain steady at these levels through the end of the year, while we expect the number of our DUCs to further decrease by year-end.
Over on Slide 15 is the updated D and C cost trend for our benchmarked long lateral wells.
These included all our laterals that were drilled with greater than 8,000 foot lateral lengths.
For the third quarter, our total D and C remained flat at $1,051 a foot.
As compared to the second quarter and 2% higher than our full year 2020 D and C cost.
Our drilling costs in the third quarter increased by 5% to $410 a foot compared to the second quarter, but 10% below our drilling cost in 2020.
The quarter-to-quarter drilling cost increase was mainly attributable to rising pipe prices and a slightly lower drilling efficiency we had due to lower average lateral lengths drilled in the third quarter.
Conversely, we experienced a slight quarter-to-quarter decrease of 3% in our completion costs the decrease resulted from a higher completion efficiency that was able to achieve during the third quarter.
As a result of the rapid increase in commodity prices during the third quarter, we have already experienced some increase in service cost.
Looking ahead to the fourth quarter and early next year, we anticipate a 10% average increase in service cost as the demand increases.
We plan to partially offset these higher service costs through an increase in efficiencies by drilling longer laterals.
In September, we successfully drilled, cased and cemented 215,000 foot laterals on the same pad, which we believe is the first in the basin.
Both laterals were drilled to the Haynesville formation, and both these wells are currently being completed.
We expect to have these wells turn to sales by mid-December.
We are also in the process of drilling two additional 15,000 foot laterals in the Bossier formation.
We expect to be finished drilling these wells before year-end, and the wells will be completed during the first quarter of next year.
On Slide 16, we'll cover our recent agreement with MiQ to initiate the certification of our natural gas production in North Louisiana and East Texas under the MiQ methane standard.
MiQ will oversee an independent third-party audited assessment of methane emissions from our companywide gas production, which is primarily made up of our Haynesville and Bossier shale gas production.
Responsible Energy Solutions will serve as the third-party auditor for the certification process.
The certification will cover two Bcf a day of natural gas production that we produce for our sales and our partners.
This initiative demonstrates our commitment to produce our natural gas under strict environmental standards.
It will also allow us to deliver differentiated, responsibly sourced natural gas to our customers.
This process is expected to commence by the end of this year, and we anticipate we'll achieve certification during the first half of 2022.
Again, to kind of reiterate what Dan said, this certification we hope to cover all the guests that we produce and then our partners, that's a two Bcf by the middle of next year.
So I think that's a big step for us.
We are cautious before we hired MiQ.
We think they'll do a great job at a reasonable cost.
So if you look at 2021, this is on Page 17, kind of the outlook.
And I can tell you, we're just really excited about the quarter about what the fourth quarter looks like, and particularly what 2022 would look like.
2018, '19 were consolidation years.
2020 was a COVID year and '21 and '22, that's the delevering years.
It's a focus on free cash flow.
And I think Dan and his group have done a really, really good job.
We continue to be a low-cost operator.
But I'd like to direct you to Slide 17, where we summarize our outlook for the remainder of the year.
Our original operating plan, which is what we told you, for this year, expected to provide production growth close to 10%.
And most importantly, generate in excess of $200 million of free cash flow.
Well, we're currently on track to significantly exceed the target $200 million in free cash flow, as Roland has stated.
The primary focus this year is to improve our balance sheet, reduce our leverage and lower our cost of capital.
Our March and June refinancing transactions have reduced our cost of capital with the $48 million annual savings in interest payments the free cash flow is being used to reduce our debt.
Our leverage ratio has already improved to 2.3 times in the quarter, down from 3.8 times at the end of 2020.
And then based upon our current plan and the price outlook, we anticipate our leverage ratio further improving to less than 1.5 times in 2022.
And we remain focused on maintaining and improving our industry-leading low-cost structure and best-in-class well drilling returns.
With our industry-leading low-cost structure, our Haynesville drilling program generates some of the highest drilling returns in all of North America.
Our large inventory in the Haynesville/Bossier drilling locations provide us with decades of drilling inventory.
We'll also focus on lowering our greenhouse gas emissions and have demonstrated our environmental stewardship with our recent partnership with MiQ to certify our gas as responsible sourced.
We have very strong liquidity right now, over $1 billion of liquidity.
On Slide '18, we provide our guidance for the fourth quarter, which is just the last three months.
On the production side, we expect production to average between 1.42 and 1.45 Bcfe per day.
That incorporate, that will be plus or minus 99% gas and that incorporates the sale of the Bakken, which is anticipated to close sometime in around mid-November.
Development capital, as mentioned, is $115 million to $135 million, including the impact of the spending related to the acceleration of the 13 or 9.4 net DUC completions in order to benefit from the stronger winter pricing.
We're using a portion of the Bakken sales proceeds to fund that acceleration, and those DUCs are now expected to all be online sometime in late December to the end of January versus the original budget in the February, March time frame.
That budget anticipates remaining at five rigs at our current five rigs over the remainder of this year, we also anticipate spending another $1 million to $2 million on the leasing activities.
LOE cost on a unit basis in the fourth quarter are expected to average $0.19 to $0.23, which is down from our prior annual guidance of $0.21 to $0.25.
Gathering, transportation costs are expected to remain in the $0.23 to $0.27 range.
The production and ad valorem taxes are expected to average $0.12 to $0.14, which is up from the prior guidance of $0.08 to $0.10, and that is all related to the impact of higher oil and gas prices.
DD and A rate of $0.90 to $1 is unchanged as is our cash G and A guidance of $0.05 to $0.07.
 Assistant:

Chosen response:
compname reports q3 loss per share $1.26.
q3 adjusted earnings per share $0.34.
q3 loss per share $1.26.
qtrly production 1,424 mmcfe per day (98% natural gas).
announced a partnership with miq to independently certify its natural gas production in north louisiana and east texas.


Prompt:
Human: Please note, for those of you listening by phone, you may experience a time delay in slide movement.
When referring to operating margins, that is based on operating income and sales, excluding surcharge.
Let's start on slide four and a review of our safety performance.
Through the first half of our fiscal year, our total case incident rate was 0.5.
During this time, we have achieved the lowest incident rate in Carpenter Technology's history and a 60% improvement year-over-year.
This marks another key step forward in our mission to achieve a zero injury workplace.
It is also noteworthy to point out that our PEP segment worked injury-free during the first half of the fiscal year.
We continue to emphasize key initiatives as we look to secure our next safety milestone.
Our safety results to date are especially impressive given the challenges related to COVID-19.
Importantly, every one of our operating facilities has remained open, which is an achievement that I know resonates with our customers and shows a clear resiliency and commitment.
Our second quarter results finished largely in line with our expectations.
Our performance was impacted by ongoing inventory reductions as well as the continued market headwinds.
Despite conditions being challenging, we are actively managing our business and have placed consistent emphasis on three key strategic priorities: first, ensure the safety of our employees.
Second, drive cash flow generation and strengthen our liquidity profile.
We have made further progress against this initiative in the second quarter and delivered $51 million of free cash flow.
Fiscal year-to-date, we have generated almost $114 million in free cash flow.
If you look at the last three quarters, we have generated $214 million of free cash flow.
We ended the second quarter with total liquidity of $665 million, including $271 million of cash and no near-term financial obligations.
Third, focus on the long-term relationships with our customers.
We have successfully deepened our relationships with our key customers across our end-use markets as we partner to address evolving material requirement and the initial signs of recovery across our end-use markets.
A great example of this is in the aerospace and defense end-use market, where we have recently extended multiple long-term agreements with key customers.
There are a couple of critical takeaways from these contract extensions.
Customers fully understand that capacity was limited for the aerospace materials we produce prior to the pandemic and that supply of such aerospace materials will be constrained again when build rates return to normalized levels.
Carpenter Technology is one of only a handful of companies in the world that produce these highly specialized materials and the only one that has invested in capacity, namely the Athens facility.
And the aerospace fundamentals that were present prior to the pandemic remained strong and unchanged going forward.
While we are working to best position our core business to be stronger on the other side of the pandemic, we also continue to take steps to advance our capabilities and leadership in critical emerging technologies.
To that end, our hot strip mill in Reading is now in the commissioning phase.
The mill will be a significant enhancement to our existing soft magnetics leadership position as it expands our capabilities to capitalize on the electrification megatrend that is shaping and growing many of our end-use markets.
I will speak more about our leading position in electrification later in my remarks.
Now let's move to slide six for the end-use market update.
Starting with the aerospace and defense end-use market, where sales were down year-over-year, but up slightly sequentially.
Many of the trends we were seeing last quarter are still prevalent, including changing forward material needs and uncertainty around recovery timing.
While our sequential results were up, we expect our third quarter performance to be choppy as the recovery takes shape.
In the medical end-use market, sales were down 3% sequentially as customers continue to manage inventory levels as concerns around hospital capacity and potential resurgence weighed on the supply chain.
In the transportation end-use market, sales were down year-over-year, but up sequentially due to a rebound in the global light vehicle submarket and the strength of our high-temperature solutions.
Now moving to the energy end-use market.
In terms of the year-over-year comparison, keep in mind that we divested our Amega West business earlier this fiscal year.
Within the oil and gas submarket, conditions in North America remain challenging.
For the power generation submarket, opportunities exist for applications in the gas turbine replacement cycle.
Lastly, for the industrial and consumer end-use market, sales were down year-over-year and sequentially.
However, we continue to experience strong demand for semiconductor and fluid control application.
In addition, consumer market demand was up across all key application areas.
In our industrial end-use market, we expect continued strong demand in the semiconductor industry for our highly engineered ultra high-purity materials.
The strong demand is driven by global growth in semiconductor manufacturing to support 5G smartphones and cloud infrastructure.
In fact, the demand for semiconductor capital equipment is expected to remain robust for the foreseeable future, with the world's largest contract chip maker planning to boost capital spending by almost 50% in 2021.
Since Carpenter Technology is a global leader in providing ultra-clean materials to support critical semiconductor applications, we are constantly evaluating customer request to increase our already strong participation in this space.
As we move into the second half of fiscal year 2021, we expect continued strength in the transportation in these markets.
Our high-value solutions play a significant role in delivering advanced powertrains across both passenger and commercial vehicles.
These are increasingly in demand as global emission standards tighten.
Strong sales have been met with low inventory levels as U.S. vehicle inventory remains below 50 days of supply, down approximately 16% year-over-year.
The heavy-duty truck market has rebounded and is projected to be up 40% in calendar year 2021.
That's positive news as Carpenter Technology supplies high-temperature exhaust valve materials and specialty fuel delivery solutions to the top three engine producers.
In our aerospace and defense end-use market, we continue to build on our already strong leadership position as we look forward to the market recovery.
In the near-term, demand will likely continue to remain low and choppy at times as specific programs and customers are recovering at different rates.
However, we expect a demand reset to higher levels if customers confidently reorient to increasing OEM demand.
Of course, Carpenter Technology will benefit from this recovery as a critical supplier across multiple applications on virtually all aircraft platforms.
Our customers continue to plan for the long-term, and we, likewise, are working with them to map out appropriate support plans.
As I mentioned earlier, we continue to secure beneficial long-term contracts even during this downturn, with substantial price increases.
These key aerospace customers understand robust demand will return and value our support.
We remain very active in our defense submarket by offering advanced solutions.
As a notable example, recently, a key customer accomplished a step change in performance of a target platform with the help of our material solutions.
Our solutions are and will continue to be important for designers working on programs from aerospace electrification to next-generation defense systems.
Now turning to our medical end-use market.
States are beginning to lift restrictions on elective surgeries, spurring a restocking actions that will continue over the coming quarters at both end-user OEM customers as well as distributors supporting the medical device market.
These restocking efforts have more impact on elective surgery applications such as orthopedic and dental as opposed to the more nonelective cardiology segment, which has been more resilient.
The medical market is recovering ahead of aerospace, and our role as a critical supplier to the industry has been strongly reinforced and will provide incremental bottom line impact as demand recovers.
As I mentioned earlier, we continue to invest in critical emerging technology.
In addition to supporting an already strong aerospace position and auxiliary power units and generators, our new hot strip mill will enable the launch of products to provide lead time benefits and capacity for growing aerospace electrification applications, automotive-based engine turbocharger designs and the transition to electric vehicles.
As electric vehicle demand continues to grow and program activity increases for electrifying short-range air travel, we are increasing our investment in motor technology and our soft magnetic solutions.
Specifically, we are investing in advanced part capabilities and state-of-the-art modeling and testing.
These capabilities ensure our customers realize the full material performance benefits in their motor and powertrain designs.
We've also invested in emerging technologies related to additive manufacturing and digital platforms, where adoption could be accelerated due to changes caused by this pandemic.
All are exciting developments to say the least and accelerators of earnings growth moving into the future.
I'll start on slide nine, the income statement summary.
Net sales in the second quarter were $348.8 million.
And sales, excluding surcharge, totaled $299.4 million.
Sales excluding surcharge decreased 3% sequentially on a 11% lower volume.
Compared to the second quarter a year ago, sales decreased 36% on 33% lower volume.
As Tony covered in his review of the end-use markets, the year-over-year decline is attributable to the ongoing demand headwinds in our key end-use markets of aerospace and defense and medical as a result of the global pandemic.
As expected, the demand was similar to our recent Q1 levels.
Given the current demand environment, we continue to actively manage our production schedules and focus on executing against our targeted inventory reduction program.
As we said on prior calls, while the reduction in inventory drives near-term cash flow generation as evidenced by our growing liquidity, it negatively impacts our operating income performance.
SG&A expenses were $42.2 million in the second quarter, down $13 million from the same period a year ago and flat sequentially.
The lower year-over-year SG&A expenses primarily reflect the actions we took to reduce costs, including the elimination of about 20% of our salary positions, managing discretionary spend closely, as well as the impact of remote working conditions that reduce certain administrative costs, such as travel and entertainment.
The current quarter's operating results include a $52.8 million goodwill impairment charge associated with our additive reporting unit that is in our PEP segment.
In addition, our results for the quarter include $3.9 million in COVID-19 related costs.
Included in this amount are direct incremental operating costs, including outside services to execute enhanced cleaning protocols, isolation pay for employees potentially exposed to COVID-19 and additional personal protective equipment and other operating supplies necessary to maintain the operations while keeping the employees safe against possible exposure.
The operating loss was $89 million in the quarter.
When excluding the impact of the special items, namely the goodwill impairment charge and the COVID-19 costs, adjusted operating loss was $32.3 million compared to adjusted operating income of $57.3 million in the prior year period and an adjusted operating loss of $30.9 million in the first quarter of fiscal year 2021.
Again, the current quarter's results reflect the impact of significantly lower volume, combined with the targeted inventory reduction, partially offset by the cost reduction efforts.
Our effective tax rate for the second quarter was 11.2%.
When factoring out the disproportionate impact of the goodwill impairment charge on the tax rate, the income tax rate for the quarter would have been approximately 25%.
For the balance of the year, we currently expect the tax rate to be in the range of 28% to 32%.
Earnings per share for the quarter was a loss of $1.76 per share.
When excluding the impact of the special items, adjusted earnings per share was a loss $0.61 per share.
Before we move on to the segment slides, I would like to highlight a couple of modeling items.
The first is related to interest expense.
We provided fiscal year 2021 guidance for net interest expense of $35 million, which reflected the impact of the bond refinancing we completed in Q1 and the assumptions around capitalized interest for the large projects expected to be placed in service in 2021.
Through six months, we reported interest expense of about $15 million and continue to expect full-year fiscal '21 interest expense to be about $35 million.
The second is depreciation and amortization.
Our guidance for fiscal year 2021 remains at $130 million.
Through six months, we reported depreciation and amortization of $60 million.
Now turning to slide 10 and our SAO segment results.
Net sales for the quarter were $300.4 million or $251.6 million, excluding surcharge.
Compared to the second quarter last year, sales excluding surcharge decreased 34% on 32% lower volume.
Sequentially sales, excluding surcharge, were essentially flat on 11% lower volume.
The sequential results reflect similar demand conditions in our largest end-use market of aerospace and defense as the supply chain continues to deal with near-term reductions in OEM build rates.
This was partially offset by stronger shipments in transportation as North American light vehicle production continues to ramp back up.
The industrial and consumer end-use market saw weaker demand in general industrial applications that was partially offset by higher demand for consumer applications.
SAO reported an operating loss of $11.6 million for the current quarter.
The same quarter a year ago, SAO's operating income was $76.3 million; and in the first quarter of fiscal year 2021, SAO reported an operating loss of $18.6 million.
The year-over-year reduction in operating income primarily reflects the impact of lower volume as well as the negative income statement impacts of reducing inventory, partially offset by the actions taken to reduce operating costs.
During the current quarter, SAO reduced inventory by approximately $58 million and year-to-date has reduced inventory by $131 million.
Sequentially, the lower operating loss is principally the result of lower volume, offset by a favorable product mix and a less pronounced impact of the inventory reduction relative to the first quarter due in part to rising raw material prices.
In addition, the current quarter's results reflect approximately $3.2 million of direct incremental costs associated with our efforts to protect our facilities and employees in light of COVID-19.
This compares with $7.3 million in COVID-19 costs in Q1, which as we disclosed last quarter, included $3.1 million associated with a bad debt write off.
Looking ahead, we expect demand conditions across most end-use markets will stabilize and begin to gradually recover in the second half of our fiscal year 2021.
Based on current expectations, we anticipate SAO will generate an operating loss of approximately $8 million to $11 million in the third quarter of fiscal year 2021.
The anticipated results reflect incremental operating expense reductions as a result of cost savings actions taken to date, combined with a less pronounced impact of inventory reductions, partially offset by higher sequential depreciation and amortization costs as our global ERP system and hot strip mill investments come online.
This estimate includes similar sequential COVID-19 related costs in the upcoming third quarter.
Now turning to slide 11 and our PEP segment results.
Net sales, excluding surcharge, were $54.1 million, which were down 48% from the same quarter a year ago and down 12% sequentially.
The year-over-year decline in sales was driven by market headwinds, largely due to the global pandemic.
Additionally, sales in the energy end-use market declined as a result of our exit of the Amega West oil and gas business in the first quarter of this fiscal year.
The sequential decline in sales reflects near-term demand pressures in aerospace and defense and medical end-use markets due primarily to the impact of a global pandemic and its impact on aircraft OEM build rates and medical elective procedures.
These declines were partially offset by modest growth in sales in our distribution business.
In the current quarter, PEP reported an operating loss of $7.2 million.
This compares to an operating loss of $3.6 million in the first quarter of fiscal year 2021 and operating income of $0.4 million in the same quarter last year.
The sequential operating results reflect the unfavorable impacts of lower sales.
We continue to drive opportunities for incremental cost reductions across the businesses while realizing the ongoing benefits of the cost reduction and portfolio actions already taken.
As we look ahead, we believe that demand conditions will gradually begin to improve in the coming quarters, and we continue to evaluate opportunities to reduce cost and manage working capital closely all while maintaining our ability to meet future anticipated demand.
We currently anticipate PEP will generate an operating loss of $3 million to $5 million in our upcoming third quarter.
Now turning to slide 12 and a review of free cash flow.
In the current quarter, we generated $84 million of cash from operating activities.
This cash generation was driven by improvements in working capital, primarily inventory.
Within the quarter, we decreased inventory by $71 million.
This reduction is substantial on the result of considerable effort to continue to execute against our targeted inventory reduction programs across our facilities.
Over the last three quarters, beginning with our fourth quarter of fiscal year 2020, we've reduced inventory by $273 million.
We remain in constant communication with key customers to ensure that we maintain the appropriate inventory levels and lead times are aligned as demand patterns change.
In the second quarter, we spent $27 million on capital expenditures.
We remain on track to spend about $120 million in capital expenditures for fiscal year 2021 as planned.
As a reminder, our fiscal year 2021 capital spend includes completing the $100 million multiyear hot strip mill project, which will come online later this fiscal year.
Tony will comment on the capabilities of the new hot strip mill and how it fits into our strategy in the coming slides.
With those highlights in mind, we generated $51 million of free cash flow in the quarter.
From a liquidity perspective, we ended the current quarter with total liquidity of $665 million, including $271 million of cash and $394 million of available borrowings under our credit facility.
Our focus on liquidity is essential in the near-term as we work our way through disruptions brought on by COVID-19 in our end-use markets.
It's also important to note that as a result of the actions we had taken to date to reduce cost and protect liquidity, we have been able to maintain a constant dividend to our shareholders.
We believe that demonstrates our conviction in our ability to deal with the temporary impacts of the market disruption and our confidence in the long-term future for our business.
On last quarter's earnings call, I announced the launch of the Carpenter Electrification brand.
Interest has been extremely high, and I want to take some time to give you more insights into our vision.
Carpenter Technology has spent decades perfecting the processing of soft magnet materials with the highest induction, permeability and lowest core losses.
Historically, our materials have supported our leading position as a solutions provider for generator and auxiliary power unit, APU, applications, and this business has grown consistently with the aerospace market.
Our Hiperco alloy motor technology is well-known in the aerospace market, where Hiperco stator cores are used in over two three of the APUs, which generate the power to kick off the main engine in aircraft.
To support our existing business and further capitalize on the growing trend in electrification, we are in the final stages of commissioning our new hot strip mill on Reading campus.
The new strip mill is another critical component of our electrification strategy.
The bulk of the construction is complete, and the team is working diligently on the commissioning process.
In early December, we hit an important milestone when the first hot metal was rolled on the new mill.
Although there is still work to be done to ensure the facility is up and running, it is fair to say we are all excited about the potential for this facility.
I thought I would highlight some of the technical details of the mill.
The mill is designed to roll slabs from five inches thick down to coils with a minimum size of 0.08 inches, with width ranging from eight to 19 inches.
It is designed to run iron, nickel and cobalt materials.
And is also capable of rolling copper, manganese and titanium.
The mill includes automated surface inspection equipment and a digital real-time quality and maintenance system.
The mill will also enable us to produce materials in our existing portfolio with improved throughput, quality and responsiveness.
To serve customers at every step of the way and to realize improved motor responses using these high-performance alloys, we have continued to expand our expertise into the production of stator and rotor stacks.
Understanding that soft magnetic materials are sensitive to processing steps that can reduce their performance, our material experts are further advancing technical and manufacturing knowhow associated with the production of motor stack through a multitude of methods tailored to customers' performance requirements.
These capabilities ensure our customers realize the full material performance benefits in their motor and powertrain designs.
As we build our motor technology capabilities, we are already engaging with a wide variety of customers to utilize our Hiperco stack technology to solve the need of generating orders of magnitude improvements in power compared to conventional systems.
Electrification trend across several of our end-use markets is clearly gaining significant momentum.
Electrification of passenger vehicles is already a growing reality.
The number of electrical vehicles sold is expected by some industry experts to increase from 2.5 million to over 10 times that by the year 2030.
In addition, there is clearly momentum building for the electrification of transport trucks that could enable lower maintenance, better efficiency and lower ownership cost of transporting a payload, not to mention the substantial environmental benefit of zero-emission trucks.
The anticipated growth for electric truck is one that we are watching closely.
As we continue to hear from OEMs, a significant challenge to the expansion of electric trucks is the lack of sufficient energy density in the battery.
We believe our materials and expertise can provide innovative solutions for this challenge.
In addition, with our long-standing position in the aerospace supply chain, we see a concerted effort in commercial aerospace to move toward more efficient electric applications in existing aircraft and future paths to hybrid and full electric aircraft.
Electrification benefits can also be seen in highly efficient and responsive motors for medical equipment.
In consumer electronics, high performance, high induction, high permeability and low loss soft magnetic alloys are important for device performance benefits and product development flexibility.
As you can see, the market opportunity is substantial.
It's projected that the total electrification market, which includes motors, power electronics and legacy applications such as APUs will grow from approximately one billion today to as much as five times that number by the year 2030.
With this type of growth, it is easy to see why Carpenter Electrification is an important component of our strategic plans going forward.
The collaborations we're having with customers across many markets in support of their innovative designs to increase power, range or efficiency can be truly revolutionary in shaping the future.
While the past nine months have presented significant challenges, we have acted decisively and quickly in response to unpredictable market conditions.
First, we implemented enhanced safety protocols and a strategic action plan aimed at safeguarding our employees and facilities as well as continuing to fulfill customer needs.
Second, we moved quickly to align our cost structure and portfolio to new market conditions.
We have reduced our cost, idled facilities and divested businesses.
Third, we have placed an emphasis on driving increased cash flow and strengthening our liquidity position.
In the last nine months, we have generated $214 million of free cash flow.
And our total liquidity at the end of this quarter was $665 million, including $271 million in cash.
Our enhanced liquidity and streamlined cost structure places us on solid ground to drive accelerated growth as markets continue to recover.
Today, we are confident that we will emerge on the other side of COVID-19, a stronger company and one with an established and profitable core business as well as a leadership position in disruptive technologies that will impact the future of our industry and our customers.
Our capabilities in our soft magnetic space will be significantly strengthened following the completion of our hot strip mill in Reading.
And the potential of our additive manufacturing platform, while delayed a bit due to COVID-19, remains highly attractive.
We have taken significant steps and made difficult decisions during these last nine months, but believe we will be a stronger, cleaner and more flexible company moving forward.
As I mentioned, the long-term outlook across our end-use markets remain strong, and we are an established and trusted supply chain partner in each.
At the beginning of this fiscal year, we stated that it was our expectation to generate positive free cash flow and positive adjusted EBITDA in fiscal year 2021 despite volume headwinds and increased costs related to COVID-19.
We are well on our way to over-delivering on that expectation.
From a free cash flow perspective, we have generated $114 million through the first half of the fiscal year, and we remain confident that there is opportunity to generate incremental free cash flow in the upcoming second half of our fiscal year.
 Assistant:

Chosen response:
carpenter technology q2 loss per share $1.76.
q2 adjusted loss per share $0.61 excluding items.
q2 loss per share $1.76.
q2 sales fell 39 percent to $348.8 million.


Prompt:
Human: Please note for those of you listening by phone, you may experience a time delay in slide movement.
When referring to operating margins, that is based on operating income and sales, excluding surcharge.
Let's begin on Slide four and a review of our safety performance.
Our fiscal year-to-date total case incident rate, or TCIR, is 0.6.
We have now demonstrated three consecutive quarters of sub-1.0 TCIR performance as an organization, which is exceptional safety performance.
However, we do not take these accomplishments for granted and continue to enhance the fundamentals of our program in areas such as hand safety, human performance, leadership development, ergonomics, employee engagement activities and at-home safety programs.
I look forward to achieving our next safety performance milestone as we pursue safety excellence on our path to 0.
Our third quarter results were largely in line with our expectations as near-term volume headwinds related to COVID-19 continue to pressure our financial performance.
Both our SAO and PEP segments delivered results that were consistent with the guidance we provided on our second quarter earnings call.
We have maintained a focus on our key strategic priorities during this challenging period.
First, ensure the safety of our employees.
Second, drive cash flow generation and strengthen our liquidity profile.
Over the last four quarters, we have generated $189 million in free cash flow and ended the third quarter with total liquidity of $539 million, including $244 million of cash and no near-term financial obligations.
And third, focus on the long-term relationships with our customers.
During the quarter, we continued to expand our relationships across our customer base and then cover additional areas of value creation.
As evidenced, we completed several contract extensions, primarily in our medical, transportation and aerospace and defense end-use markets.
In the aerospace market, customers fully understand that capacity was limited prior to the pandemic and supply of aerospace materials will be constrained again when build rates return to normalized levels.
As you know, Carpenter Technology is the only company in our space that has invested in capacity, namely the Athens facility.
Qualification efforts have continued through the pandemic as we received a meaningful provisional approval during the quarter.
Lastly, the investment made in our hot strip mill on our Reading campus is currently in its final commissioning stages.
This advanced mill is a significant addition to our soft magnetics solutions and capabilities portfolio and positions us to benefit from the growing trend of electrification.
Now let's move to Slide six and the end-use market update.
Our customers and markets have been heavily impacted by COVID-19, particularly aerospace and defense, our largest market.
We have been successful in mitigating a portion of the near-term impact of the aerospace downturn by capitalizing on growing demand for our solutions in transportation and industrial and consumer end-use markets, namely our semicon business.
Recently, all of our end-use markets have experienced positive inflections and have moved past their pandemic decline trajectories.
All of our end-use markets are in demand recovery, albeit at different rates.
We believe the worst is behind us, and we expect to see improving conditions over the coming quarters.
Let's get into some more detail starting with the aerospace and defense end-use market where sales were down both year over year and sequentially.
In the third quarter, customer inventories continued to decrease, and we saw some initial replenishment activity.
As a reminder, in our recent second quarter, we talked about a variety of onetime customer contract-related items, which represented a positive.
When you remove the impact of those items, aerospace results would be relatively flat sequentially.
While visibility remains limited, overall sentiment points to incremental improvement through the balance of calendar year 2021 and then accelerate activity in calendar year 2022 and beyond.
In addition, future industry capacity and lead time continues to be a focus during conversations with customers as most recall the situation the supply chain was in prior to COVID-19 where lead times were significantly extended.
Activity in the defense submarket remains solid, and we continue to see increased demand on select programs.
In our medical end-use market, sales were up 7% sequentially.
Elective procedure volumes increased compared to the second quarter as patient sentiment and hospital capacity improved.
The recovery of elective surgery volume is expected to continue into the second half of calendar year 2021 as vaccination levels rise to support increased confidence.
Based on current conditions, we expect activity levels in the medical end-use market to show further improvement in the fourth quarter as our customers look to support an increase in elective surgeries.
As many of you recall, the medical end-use market was one of our fastest growing markets prior to the pandemic.
Today, we remain well positioned to continue supporting the medical end-use market given our expanded OEM relationships, leading advanced materials portfolio and ability to develop new materials solutions that address complex and unmet market needs.
In the transportation end-use market, sales were up both sequentially and year-over-year.
On a sequential basis, sales increased across all of our submarkets.
Demand in the light vehicle market remains solid driven by North America and China.
While the heavy-duty truck market has largely recovered and is expected to grow through calendar year 2022.
Overall, we are winning share in both the light vehicle and heavy-duty truck submarkets due to the value of our high-temp, high-resistance turbocharger and valve exhaust solutions.
Now moving to the energy end-use market.
Conditions in the oil and gas submarket remained challenged and activity levels remain low in the U.S., while international markets have shown some improvement.
Keep in mind, that prior year third quarter results included our Amega West business that was divested during the first quarter of this fiscal year.
In our power generation submarket, we continue to work with customers as the current maintenance upgrade cycle continues.
Lastly, for the industrial and consumer end-use market, sales were down year-over-year and sequentially.
The slight sequential decline was a function of order flow between the last two quarters as we continue to experience demand pickup, consistent with the general manufacturing recovery.
I'll start on Slide 8, the income statement summary.
Net sales in the third quarter were $351.9 million and sales, excluding surcharge, totaled $298.1 million.
Sales, excluding surcharge, were effectively flat sequentially on 5% lower volume.
Compared to the third quarter a year ago, sales decreased 40% on 39% lower volume.
As Tony covered in his review of the end-use markets, the year-over-year decline is attributable to the ongoing demand headwinds in our key end-use markets of aerospace and defense and medical as a result of the global pandemic.
As expected, the demand was similar to our recent Q2 levels.
Given the current demand environment, we continue to actively manage our production schedules and focus on executing against our targeted inventory reduction program.
As we have said on prior calls, while the reduction in inventory drives near-term cash flow generation, as evidenced by our liquidity position, it negatively impacts our operating income performance.
SG&A expenses were $47.8 million in the third quarter, down $3 million from the same period a year ago, reflecting the actions we took to reduce costs, including the elimination of about 20% of our global salaried positions late last fiscal year, managing discretionary spend closely as well as the impacts of remote working conditions that reduced certain administrative costs such as travel and entertainment.
Sequentially, SG&A costs were higher by $5.6 million, reflecting incremental costs in the quarter associated with going live with our new ERP implementation as well as the incremental depreciation costs associated with the ERP system.
The current quarter's operating results include $7.6 million of restructuring and asset impairment charges, including inventory writedowns, associated with our ongoing actions to reduce cost and narrow focus in our additive business unit within our PEP segment.
In addition, our results for the third quarter include $2.7 million in COVID-19-related costs, which are down slightly from the $3.9 million of COVID-19 costs incurred in our recent second quarter.
As a reminder, these costs include direct incremental operating costs, including outside services to execute enhanced cleaning protocols, isolation pay for employees potentially exposed to COVID-19 and additional personal protective equipment and other operating supplies necessary to maintain the operations while keeping employees safe against possible exposure.
The operating loss was $40 million in the current quarter when excluding the impact of the special items, namely the restructuring and asset impairment charges and the COVID-19 costs.
Adjusted operating loss was $29.7 million compared to operating income of $58.7 million in the prior year period and adjusted operating loss of $32.3 million in the second quarter of fiscal year 2021.
Again, the current quarter's results were largely in line with the expectations we set at the beginning of the quarter and reflect the impact of significantly lower volume compared to the prior year combined with a targeted inventory reduction, partially offset by the cost reduction efforts.
Although not shown on the slide, in the current quarter, other expense net includes an $8.9 million noncash pension settlement charge related to our largest qualified pension plan.
In addition to recording the charge in the current quarter, we were also required to remeasure the plan's net pension liabilities.
As a result of the remeasurement, we expect pension expense to be lower by about $3 million for the full fiscal year versus what we had anticipated.
For clarity, this reduction in net pension expense does not impact operating income.
Our effective tax rate for the third quarter was 29.2%.
For the balance of the year, we currently expect the tax rate to be in the range of 28% to 30%.
Earnings per share for the quarter was a loss of $0.84 per share.
When excluding the impacts of the special items, adjusted earnings per share was a loss of $0.54 per share.
Now turning to Slide nine and our SAO segment results.
Net sales for the quarter were $299.6 million or $246.5 million, excluding surcharge.
Compared to the third quarter last year, sales, excluding surcharge, decreased 38% on 37% lower volume.
Sequentially, sales, excluding surcharge, were essentially flat on 3% lower volume.
These sequential results reflect similar weakened demand conditions in our largest end-use market of aerospace and defense as the supply chain continues to deal with near-term reductions in OEM build rates.
This was partially offset by stronger shipments in transportation as North American light vehicle production continues to drive strong demand conditions for our materials.
SAO reported an operating loss of $9.9 million for the current quarter.
The same quarter a year ago, SAO's operating income was $76.4 million.
And in the second quarter of fiscal year 2021, SAO reported an operating loss of $11.6 million.
The year-over-year reduction in operating income primarily reflects the impacts of lower volume as well as the negative income statement impacts of reducing inventory, partially offset by the actions taken to reduce operating costs.
During the current quarter, SAO reduced inventory by approximately $15 million and, year-to-date, has reduced inventory by $146 million.
Sequentially, the lower operating loss is principally the result of lower volume, offset by a favorable product mix and a less pronounced impact of the inventory reduction relative to the second quarter due in part to rising raw material prices.
In addition, the current quarter's results reflect approximately $2.1 million of direct incremental costs associated with our efforts to protect our facilities and employees in light of COVID-19.
This compares with $3.2 million in COVID-19 costs in our recent second quarter.
Looking ahead, we expect demand conditions across most end-use markets will stabilize and begin to gradually recover beginning in the fourth quarter of fiscal year 2021.
Based on current expectations, we anticipate SAO will generate an operating loss of approximately $5 million to $7 million in the fourth quarter of fiscal year 2021.
For clarity, I want to highlight a couple of key points in this guidance.
First, this estimate includes similar sequential COVID-19-related costs in the upcoming fourth quarter.
And second, as we continue to reduce inventory, we expect that we will be required to record a noncash LIFO decrement charge in our upcoming fourth quarter.
Given the significant inventory reductions we expect to generate for the full fiscal year, we are liquidating LIFO layers that include inventory costs that are higher than the fiscal year 2021 cost and, as such, a noncash charge will be recorded to the income statement.
The guidance we provided excludes the impact of any noncash LIFO decrement charges.
Now turning to Slide 10 and our PEP segment results.
Net sales, excluding surcharge, were $64.9 million, which were down 39% from the same quarter a year ago and up 20% sequentially.
The year-over-year decline in sales was driven by market headwinds, largely due to the global pandemic.
Additionally, sales in the energy end-use market declined as a result of our exit of the Amega West oil and gas business in the first quarter of this fiscal year.
The sequential increase in sales reflects increasing demand for titanium materials used in the aerospace and defense and medical end-use markets.
In addition, our distribution business drove higher sales due to growing demand related to the strong activity in the automotive supply chain.
Lastly, our additive business saw a modest increase in sales as demand improved.
In the current quarter, PEP reported an operating loss of $3.3 million.
This compares to an operating loss of $7.2 million in the second quarter of fiscal year 2021 and an operating loss of $0.3 million in the same quarter last year.
The sequential operating results reflect the favorable impacts of higher volumes across all the PEP business units.
As we look ahead, we believe that demand conditions will gradually begin to improve in the coming quarters, and we currently anticipate PEP will generate an operating loss of $0 million to $1 million in our upcoming fourth quarter.
Also, as I mentioned for SAO, the PEP guidance includes COVID-19 costs in line with the recent quarter but excludes any noncash LIFO decrement charges.
Now turning to Slide 11 and a review of free cash flow.
In the current quarter, we generated $4 million of cash from operating activities.
As you can see within the cash flow generated from operations, we continue to reduce inventory, although less pronounced than we have executed in the last several quarters.
Over the last four quarters, beginning with our fourth quarter of fiscal year 2020, we have reduced inventory by just under $300 million, including $182 million of reductions to date in fiscal year 2021.
In terms of other working capital, with the implementation of our new ERP system, we experienced some challenges with customer collections that reduced cash from accounts receivable collections.
Those challenges are largely behind us, and we expect to realize the benefits of that catch-up in our upcoming fourth quarter.
In the third quarter, we spent $19 million on capital expenditures.
We expect to spend about $110 million to $120 million on capital expenditures for fiscal year 2021 depending on the timing of certain projects expected to be completed in the balance of this fiscal year.
The actions we have taken to generate cash in the current environment have been essential.
It should not be lost that we believe in the value of returning capital to our shareholders.
And despite the challenging economic conditions, we have continued to pay a quarterly dividend to our shareholders.
The quarterly dividend demonstrates the confidence we have in our ability to deal with the near-term impacts of market conditions and the long-term prospects for our business.
With those details in mind, we reported negative $25 million of free cash flow in the quarter.
As I mentioned, we dealt with some challenges in the quarter related to cash collections of accounts receivable.
As we look at the fourth quarter, we believe we have addressed those challenges, and we'll continue to execute on opportunities for further inventory reductions.
With that in mind, we are targeting at least $50 million of positive free cash flow in our upcoming fourth quarter.
From a liquidity perspective, we ended the current quarter with total liquidity of $539 million, including $244 million of cash and $295 million of available borrowings under our credit facility.
Keep in mind, in the current quarter, we amended and extended our credit facility and reduced the size of our facility from $400 million to $300 million, which is reflected in the sequential change in liquidity.
With that, I'll move on to the next slide, Slide 12, to talk about our capital structure.
Over the years, we maintained a balanced view of capital allocation.
And as the global pandemic emerged a little over a year ago, we quickly shifted our focus toward building liquidity, which was enabled by our strong capital allocation philosophy.
In addition to the actions we took to reduce costs and focus on cash generation earlier this year, we took action to extend our maturity profile and add incremental cash to our balance sheet with our July 2020 notes offering.
This extended our notes due in July 2021 to July 2028.
Last month, in March 2021, we executed another important step in our strategy by completing an amended and extended credit facility.
The previous credit facility was set to expire in March 2022.
The new facility matures in March 2024.
With those actions behind us, we have no near-term maturities and have significant liquidity with opportunities to generate even more.
As we all know, different demand recovery time lines and customer ordering patterns will continue to influence our shorter-term quarter-to-quarter mix.
I want to share a bit more on our enthusiasm related to midterm and longer-term outlooks in the end-use markets we serve.
Let's start with aerospace.
During the downturn, we continue to improve our already strong position.
Most market participants and experts believe that demand will rebound to and through pre-COVID-19 levels which, if you recall, was already exhibiting constrained dynamics.
Longer term, the industry will continue to need improved fuel efficiency and emissions, driving the need for better engine materials where we are strongly positioned.
Defense will continue to experience market resiliency on key platforms that require increases in strength, customers and fatigue performance.
Longer term, we are monitoring funding patterns as governments reassess their budgets after significant COVID-19-related spending.
In medical, as orthopedics and dental follow the cardiology recovery, we continue to secure additional share and identify more upside, largely due to the breadth of the high-value material solutions we offer in support of the industry innovation in this space.
Longer term, we see this continuing as quicker patient recoveries and improved patient outcomes will be the key drivers.
In transportation, with the recovery well under way in North America and China, regulations drive the near-term movement to higher efficiency powertrains, which is a positive for our portfolio of high-temperature materials.
Longer term, as electric vehicle adoption grows, it is natural they will take more and more share away from the large internal combustion engine base.
We have a good view of the life cycle decline of those products and are balancing our focus accordingly.
As I mentioned earlier, our new hot strip mill brings capability and capacity to support significant future electric vehicle volume growth.
Moving to energy, which experienced a significant decline in demand this past year.
Oil prices have increased by 50% in calendar year 2021, and we have seen limited capital expenditures released for some major projects that offer up specific opportunities.
With that said, there will likely continue to be a supply and demand imbalance over the next couple of years.
Longer term, we expect to see continued emphasis to move away from oil to natural gas and other alternative fuel sources.
In industrial submarkets, specifically with semiconductor and fluid control products, the relatively steady demand we experienced through the pandemic is expected to increase driven by manufacturing for 5G, Internet of Things connectivity and more efficient power plants that require better-performing materials.
The consumer submarket is expected to continue its seasonal cyclicality.
However, we're seeing more and more applications that have tighter design envelopes that require the removal of wave interference and that make use of our materials to offer automated sensory feedback responses.
Longer term, with the proliferation of digital and data management, we expect to see more devices with more sensors requiring exponentially more connectivity.
I've spoken in prior quarters about our soft magnetics products and their relevance within increasing electrification trends.
We believe this capability will well position us in the long term to capitalize on the growth in these areas.
In the electrification space, we are participating in an increasing amount of prototype and initial low rate production initiatives that utilize our products to provide power dense propulsion in a manner that relies upon reduced mass or where there is limited space for the motor.
And we see current drone, air taxi and other related applications becoming more and more relevant, especially where our options to extend range or boost performance are being exhausted.
And lastly, in additive manufacturing, while we've seen some projects cancel or delay indifferently, along with some industry consolidation, we believe the competitive space has been narrowed, thus providing a focus on the value of our quality and life cycle management platform where data and knowledge management will be vital to the success of any additive program.
Despite the challenges the pandemic has created, we have continued to strengthen our foundation for long-term profitable growth.
I'm proud that we continue to drive toward a goal of a zero-injury workplace and that all of our facilities have remained open during the pandemic.
The efforts have demonstrated a resiliency and commitment to our fellow employees, our customers and our communities.
We have adopted to new working conditions, aligned our cost structure and our manufacturing footprint to rapidly changing market conditions.
We have taken a series of steps to enhance our capital structure, drive strong liquidity and extend our debt maturities.
We ended the third quarter with $244 million in cash and over $539 million in total liquidity.
Our capital structure activities combined with our targeted cost reduction initiatives place us on solid ground to not just manage through the downturn but emerge on the other side a leaner, more flexible and more productive company.
We have also deepened our relationships with our customers.
Recovery across our end-use markets remains in varying stages.
But we expect overall market conditions to continue to improve as we move through the rest of calendar year 2021 and into 2022.
Some markets will recover faster than others.
And we are laser-focused on capitalizing on the recovery as opportunities arise.
This includes our largest end-use market, aerospace and defense, where the recovery is beginning to show signs of life.
We are working daily with our customers to align our production schedules with their material needs as overall sentiment begins to trend upwards.
Our core business is established and built upon 130 years of metallurgical expertise, manufacturing and processing experience and a commitment to delivering mission-critical solutions to customers in some of the largest industries in the world.
This strong core business will be supported over the long term by the targeted investments we have made in critical, emerging technologies, including electrification and additive manufacturing.
Taken together, we believe our core business and next-generation capabilities position us to deliver sustainable, long-term growth and value creation to our shareholders for years to come.
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Chosen response:
carpenter technology q3 adjusted loss per share $0.54 excluding items.
q3 adjusted loss per share $0.54 excluding items.
q3 loss per share $0.84.
q3 sales fell 40 percent to $351.9 million.