Items Not Allocated to Segments
Interest expense. Our interest expense decreased from $53 million for the three months ended March 31, 2020 to $43 million for the three months ended March 31, 2021 primarily due to the reduction in debt as a result of our debt repurchases of our unsecured senior notes and increased interest income between periods, partially offset by interest that accrued on the newly issued 2026 Convertible Notes, 2026 Notes and 2029 Notes.
Impairment of equity investment. As of March 31, 2020, we determined that events and circumstances indicated that the carrying value of our equity method investment in Antero Midstream Corporation had experienced an other-than-temporary decline and we recorded an impairment of $611 million. The fair value of the equity method investment in Antero Midstream Corporation was based on the quoted market share price of Antero Midstream Corporation as of March 31, 2020.
Gain (loss) on early extinguishment of debt. During the three months ended March 31, 2020, we recognized a gain on early extinguishment of debt of $81 million related to $383 million principal amount of debt that we repurchased at a weighted average discount of 21%. During the three months ended March 31, 2021, we equitized $150 million aggregate principal amount of our 2026 Convertible Notes in privately negotiated transactions in exchange and as a result, we recognized a loss of $41 million which represents the difference between the fair value of the liability component of the 2026 Convertible Notes and the carrying value of such notes. Additionally, during the three months ended March 31, 2021, we redeemed $661 million of our 2022 Notes at par, plus accrued and unpaid interest and recognized a $2 million loss on early extinguishment of debt. As result, the 2022 Notes were fully retired as of February 10, 2021. See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.
Loss on convertible note equitization. During the three months ended March 31, 2021, we recognized a loss of $39 million for the Equitization Transactions, which represents the consideration paid in excess of the original terms of the 2026 Convertible Notes. See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.
Transaction expense. We incurred transaction expense of $2.3 million for the three months ended March 31, 2021, which expenses included legal and transaction fees associated with the drilling partnership. See Note 3—Transactions to the unaudited condensed consolidated financial statements for more information on this transaction.
Income tax benefit. Income tax benefit decreased from $110 million, with an effective tax rate of 24%, for the three months ended March 31, 2020 to $3 million, with an effective tax rate of 21%, for the three months ended March 31, 2021, a decrease of $107 million. The decrease was primarily due to lower loss before income taxes between periods.
Capital Resources and Liquidity
Sources and Uses of Cash
Our primary sources of liquidity have been through net cash provided by operating activities including proceeds from derivatives, as well as borrowings under the Credit Facility, issuances of debt and equity securities, and additional contributions from our asset sales program, including our drilling partnership. Our primary use of cash has been for the exploration, development, and acquisition of oil and natural gas properties. As we develop our reserves, we continually monitor what capital resources, including equity and debt financings, are available to meet our future financial obligations, planned capital expenditure activities, and liquidity requirements. Our future success in growing our proved reserves and production will be highly dependent on net cash provided by operating activities and the capital resources available to us. For information about the impacts of COVID-19 on our capital resources and liquidity, see “—COVID-19 Pandemic.”
Based on strip prices as of March 31, 2021, we believe that net cash provided by operating activities, distributions from unconsolidated affiliate, available borrowings under the Credit Facility, or capital market transactions and the effects of the drilling partnership will be sufficient to meet our cash requirements, including normal operating needs, debt service obligations, capital expenditures, and commitments and contingencies for at least the next 12 months.
2021 Capital Budget and Capital Spending
On February 17, 2021, we announced our net capital budget for 2021 is $635 million, which includes: $590 million for drilling and completion and $45 million for leasehold expenditures. We do not include acquisitions in our capital budget. We periodically review our capital expenditures and adjust our budget and its allocation based on commodity prices, takeaway constraints, operating cash flow and liquidity.